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PETITIONER: A. V. THOMAS & CO. LTD.

       Vs.

RESPONDENT: DEPUTY COMMISSIONER OFAGRICULTURAL INCOME TAX

DATE OF JUDGMENT: 30/11/1962

BENCH: KAPUR, J.L. BENCH: KAPUR, J.L. DAS, S.K. SARKAR, A.K. HIDAYATULLAH, M. DAYAL, RAGHUBAR

CITATION:  1964 AIR  569            1963 SCR  Supl. (2) 608

ACT: Sales  Tax-Goods  stored in Travancore-Sale  by  auction  in Madras by samples-Delivery in Travancore-Consumption neither in  Madras  nor  in  Travancore-Whether  sales  taxable   in Travancore-Constitution of India, Art. 286 (1).

HEADNOTE: The  sales  of teas were by auction which was  conducted  in Fort  Cochin  in Madras State.  The price was paid  in  Fort Cochin  and delivery orders were also given there for  goods which were at Willingdon Island in Travancore Cochin  State. From Willingdon Islands the goods were sent for  consumption to  other  States and to foreign countries.   The  State  of Travancore Cochin sought to tax these transactions for sales tax. Held that the property in the goods passed when the contract was  accepted  on  the fall of the hammer  in  Fort  Cochin. Under Art. 286(1) it was the "passing of the property within the  State"  that  was intended to be fastened  on  for  the purpose  of  determining whether the sale  was  "inside"  or "outside"  the  State.   Subject to  the  operation  of  the "explanation"  that State in which property passed would  be the  only State which would have the power levy the  tax  on the sale.  But the explanation did not apply in the  present case as there was no delivery as a direct result of the sale for consumption in any particular State. Indian  Copper Corporation Ltd. v. State of Bihar, [1961]  2 S.C.R. 276, followed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 628 of 1961. Appeal from the judgment and order dated February 24,  1960, of the Kerala High Court in Tax Revision     Case No. 22  of 1957. G.   B. Pai, J. B. Dadachanji, O. C. Mathur and Ravinder  Narain, for the appellant. 609

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V.   P.  Gopalan Nambiar, Advocate General, State of  Kerala and Sardar Bahadur, for the respondent. A.   V. Viswanatha Sastri, S. N. Andley, Rameshwar Nath andP. L. Vohra, for the interveners. 1962. November30.   The  Judgement  of  the,    Court   was delivered by KAPUR, J.-Thisappeal by certificate of the  High  Court  of Keralaraises the question of the taxability of sales  of tea  under  the  Travancore-Cochin General  Sales  Tax  Act, hereinafter  termed the Act, and the Rules made  thereunder. The  assessment period is 1952-53 and the turnover was of  a sum  of  Rs.3,77,644/- on which a tax of Rs.  5900/11/-  was levied.  The appellant before us is the assessee company and the  respondent is the Deputy Commissioner of’  Agricultural Income-tax and Sales tax. Mr. A. V. Viswanatha Sastri on behalf of Outcherloney Valley Estates  (1938)  Ltd. has applied for  intervention  on  the ground that in case of that company also the State or Kerala has,   on  similar  fact;,  levied  sales  tax  on   certain transaction  that  the High Court of Kerala has  upheld  the taxability of the transactions relying on the judgment which is under appeal in the present case, and that the intervener has  obtained Special leave to appeal against that  judgment and  the  records  are  under  print.   In  view  of   these circumstances  we have allowed that company to intervene  in the present appeal. The assessment was made on March 30, 1955, under r. 33(1) of the  Act  on the ground that the sales of  tea  had  escaped assessment.  The appeal against 610 that order was unsuccessful and thereafter a further  appeal was  taken to the Sales tax Appellate Tribunal which by  its order  dated August 12, 1957, held that the ban  under  Art. 286(1)(a) of the Constitution on sales which are outside the State  applied,  in regard to the sales of ’full  lots’  and therefore  remanded  the  case to  the  Sales  tax  Officer. Against  that order a revision was taken to the  High  Court which  held that the decision of the Appellate  Tribunal  in regard to the applicability of Art. 286(1)(a) was  erroneous and therefore the sales were subject to sales tax under  the Act.   It  is  against  that judgment  and  order  that  the assessee company has come to this court on a certificate  of the High Court. Put  shortly, the nature and procedure of sales of teas  was this; that the teas were stored in the godowns at Willingdon Island which was in the State of Travancore Cochin., samples of  those teas etc., were taken to Fort Cochin which at  the relevant  time  was in the State of Madras.   There  by  the samples  the teas were sold by public auction in lots,  some were  purchased  in their entirety and others in  parts  and after  the  consideration  money was  paid  at  Fort  Cochin delivery  orders. were given to the buyers addressed to  the godown  keepers at Willingdon Island and actual delivery  of tea  was  taken there.  These teas were then sent  out  from Willingdon  Island  in  Travancore  Cochin  for  consumption either  in  other  parts of India or were  exported  out  of India. The  taxability  of the sales of teas in the  manner  above- mentioned will depend upon whether the sales can be held  to have  taken  place  at Willingdon  Island  i.e.  within  the territory of Travancore Cochin State and were liable to  the imposition of sales tax under the Act or they were what  for convenience are called Ire outside sales" and therefore  not subject to sales tax in the State of Travancore-Cochin.  The argument raised on behalf of the assessee company was that

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611 these  sales were effected at Fort Cochin which was  outside the  territory of Travancore Cochin and therefore  were  not liable  to tax because of the ban imposed by Art.  286(1)(a) of  the Constitution.  That Aricle with the  Explanation  at the relevant time was as follows               "Art.  286(1) No law of a State shall  impose,               or  authorise the imposition of, a tax on  the               sale  or purchase of goods where such sale  or               purchase takes place               (a)  outside the State; or               (b)..........................................               Explanation  :-For the purpose  of  sub-clause               (a) a sale or purchase shall be deemed to have               taken  place in the State in which  the  goods               have  actually  been  delivered  as  a  direct               result  of’  such  sale or  purchase  for  the               purpose of consumption in that State, notwith-               standing  the fact that under the general  law               relating to sale of goods the property in  the               goods has, by reason of such sale or purchase,               passed in another State". Under the Sale of Goods Act in an auction sale the title  in goods passes and the sale is complete as soon as the  hammer falls.   The relevant portion of s. 64 of the Sale of  Goods Act dealing with sale by auction reads as follows In the case of a sale by auction......               (1)   where goods are put up for sale in lots,               each lot is prima               612               facie deemed to be the subject of the separate               contract of sale;               (2)   the sale is complete when the auctioneer               announces  its completion by the fall  of  the               hammer  or in the customery manner; and  until               such  announcement  is  made  any  bidder  may               retract his bid." Specific  goods in s. 2 (14) of the Sale of Goods Act  means goodsidentified and agreed upon at the time contract  is made.  Therefore on the fall of the hammer theoffer   is accepted  and  if the goods are specified  goods  the  title passes to the buyer. In the present case as soon as the hammer fell the title  in the  goods  passed to the buyer as the goods  were  specific goods i.e. goods which were auctioned in full lots and  this event  took place at Fort Cochin which was in the  State  of Madras.  But in the case of unascertained goods the title in the  goods does not pass to the buyer unless and  until  the goods  are  ascertained.   It was for  this  reason  that  a distinction  was drawn by the Sales tax  Appellate  Tribunal between  goods which were sold in full lots and those  which were sold in portions.  In regard to the former it was  held that the title passed as soon as the hammer fell but not  so in  regard  to the latter and therefore the  sale  of  "full lots’  was  held to have taken place outside  the  State  of Travancore Cochin and of portions of lots inside that State. The case was consequently remanded to the Sales tax  Officer for determining the amount of the tax. The  High Court in revision held that the words in Art.  286 (1)  (a)  "’outside  the  State" do  not  mean  transfer  of ownership, according to the Sale of Goods  613 Act but it was lex situs which determines the taxability  of the  transaction  and  the  correct  position  is  that  the ownership  in the goods is transferred according to the  law

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of  the  place where the goods are situate.   Therefore  the sale  in  the present case was in the  State  of  Travancore Cochin  and there is nothing in the Explanation to Art.  286 (1) (a) which provides to the contrary. It  has  been found and it has not been  disputed  that  the title  to  the  goods in the present  case  passed  at  Fort Cochin.  The purchase money was paid there and the purchaser obtained  from the auctioneer delivery notes  directing  the godown keepers at Willingdon Island to deliver the goods and only the actual physical delivery of the goods took place at Willingdon  Island.  In these circumstances the question  is whether  the  sale  was "outside" or "inside  sale"  as  the expressions   have  been  compendiously  used   in   various judgments  to indicate sales taking place within a State  or without  it.  The Explanation to Art. 286 (1) (a) which  has been  set out above explains what a sale outside  the  State is.   According to that Explanation a fiction is created  as between  two States, one where the goods are  delivered  for consumption  in that State and the other where the title  in the  goods passes and the former is treated as the situs  of the taxable event to the exclusion of the latter.  Therefore where the Explanation applies the difficulty about the situs is  resolved  but  in  a  case  like  the  present  one  the difficulty  still remains because the explanation  does  not operate  in the sense that the rival States claiming to  tax the  same taxable event are not the States of  delivery  for consumption  in that State and those where the title in  the goods passes.  In somewhat similar circumstances this  court in Indian Copper Corporation Ltd. v. State of Bihar (1) held by  a majority decision that the opening words of  Art:  286 (1)  which speak of a sale or purchase taking place and  the non-obstante clause in (1)  [1961] 2 S.C.R. 276,286, 614 the Explanation which refers to the general law relating  to the  sale  of goods, indicated that it was the  "passing  of property within the State" that was  intended to be fastened on,  for  the purpose of determining, whether  the  sale  in question  was "inside" or "outside" the State and  therefore subject  to the operation of the "’Explanation", that  State in which property passed would be the only State which would have  the power to levy a tax on the sale.  At page  286  it was observed:               "The  conclusion  reached  therefore  is  that               where the property in the goods passed  within               a  State as a direct result of the  sale,  the               sale transaction is not outside the State  for               the  purpose  of Art. 286 (1) (a)  unless  the               Explanation operates". The  majority decision in Indian Copper Corporation Ltd.  v. State  of  Bihar (1) concludes the point in  favour  of  the appellant.   On the facts of this case it was found  by  the Sales Tax Appellate Tribunal that in regard to the sales  of tea  in ’full lots’ the property passed at Fort  Cochin  and this view has not been challenged in this court.  Therefore, on  the majority decision in Indian Copper Corporation  Ltd. v.  State of Bihar (1) the only State which would  have  the power  to  levy a tax on such sales would be  the  State  of Madras  and so far as Travancore Cochin was  concerned,  the sale would be an outside sale. In the present case therefore the sale was an "outside sale" and  cannot  be said to be an "inside sale"  qua  Travancore Cochin  because the title passed at Fort Cochin which is  in the  State of Madras.  Apart. from that the money  was  paid there  and the delivery order was also received  there  even

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though  the actual physical delivery of goods was made at  a Willingdon  Island in the State of Tranvancore Cochin.   The fiction  created by the Explanation to, Art. 286  (1)(a)  is inapplicable (1)[1961] 2 S.C.R. 276,  615 because there was no delivery as a direct result of sale for the purpose of consumption in any particular State. There then remains the question of goods which were exported out  of India from Willingdon Island.  In the case of  those goods  ’also it cannot be said that there was a sale  inside the   ’State   of  Travancore  Cochin   because   the   same considerations  will  apply to those sales as to  the  sales already  discussed i.e. goods the title to which  passed  at Fort  Cochin  were delivered at Willingdon Island  and  were delivered  for  ’consumption in parts of  India  other  than Travancore Cochin. In  our view therefore the High Court was in error  and  the appeal  should  therefore be allowed and  the  judgment  and order of the High Court of Kerala set aside.  The  appellant will have its costs in this court and in the High Court. Appeal allowed. 616