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PETITIONER: B. K. WADEYAR

       Vs.

RESPONDENT: M/S.  DAULATRAM RAMESHWARLAL

DATE OF JUDGMENT: 27/09/1961

BENCH: GUPTA, K.C. DAS BENCH: GUPTA, K.C. DAS DAS, S.K. HIDAYATULLAH, M. SHAH, J.C. AYYANGAR, N. RAJAGOPALA

CITATION:  1961 AIR  311            1961 SCR  (1) 924  CITATOR INFO :  R          1964 SC1752  (15)  RF         1971 SC 870  (23,24)  R          1971 SC2277  (3)  E          1975 SC1564  (29,30,67,68)  RF         1975 SC1652  (14)  RF         1977 SC 247  (14)

ACT:  Sales Tax--Export--Meaning of--Property in exported goods in  F.  O.  B.  contracts--If  Passes  on  shipment  or   before  it--Export licence--obtainable by buyer or seller--"Person",  meaning  of--Bombay Sales Tax Act, 1953 (Bom.  III of  1953)  s.  10(b)--The Import and Export (Control) Act, 1947  (XVIII  of 1947) s. 5(2)--Constitution of India, Art. 286(1)(b).

HEADNOTE:  The respondents firm claimed exemption from Sales Tax  under  Art. 286(i)(b) of the Constitution in respect of sales  925  made by them of cotton and castor oil on the ground that the  sales were on F.O.B. contracts under which they continued to  be  the  owners of the goods till those crossed  the  custom  barrier and entered the export stream.  They also  contested  the purchase tax to which they were assessed under s.  10(b)  of  the  Bombay Sales Tax Act.  The High  Court  upheld  the  contention  of the respondents regarding the Sales  Tax  but  held  that they were liable to pay purchase tax.  On  appeal  by both the parties  Held,  that  the goods remained the seller’s  property  till  those  had been brought and loaded on board the ship and  so  the  sales were exempted from tax under Art. 286(i)  of  the  Constitution.  The  word " a person " in s. 10(b) of the Bombay  Sales  Tax  Act had been correctly interpreted as " a registered  dealer  "  and the purchasing dealers had been rightly  assessed  to  purchase tax.  The normal rule in F. 0. B. contracts was that the  property  was  intended  to pass and did pass on the shipment  of  the  goods.

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The  presumption in F. 0. B. contracts was that it  was  the  duty  of the buyer to obtain the necessary  export  licence,  though  in the circumstances of a particular case that  duty  might fall on the seller.  H.O. Brandt & Co. v. H. N. Morris & Co. Ltd., [1917] 2  K.B.  784 and M. W. Hardy & Co. v. A. V. Pound & Co., Ltd., (1953)  1.Q.B. 499, considered.                "Export " under the Import and Export  Control                Act  having  been defined as " taking  out  of                India  by  land, sea or air "  it  could  not,                under  the  Export Control Order, be  held  to                have  commenced  till the  ship  carrying  the                goods  left the port or in some  cases                passed the territorial waters.  The  State  of  Bombay v. The United  Motors  (India)  Ltd.,  (1953) 4 S.T.C. 133, held inapplicable.

JUDGMENT:  CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 45 and  46  of 1959.  Appeal  by special leave from the judgment and  order  dated  March  25, 1957, of the former Bombay High Court  in  Appeal  No. 16 of 1957.  Q.  K. Daphtary, Solicitor-General of India, H.  J.  Umrigar  and  D. Gupta, for the Apellant (In C. A. No. 45 of 59)  and  Respondent (In C. Appeal No. 46 of 59).  H. N. Sanyal, Additional Solicitor-General of India, S.   N.  Andley  and J. B. Dadachanji, for the respondents (in C.  A.  No. 45 of 59) and Appellants (In C. A. No. 46/59).  926  1960.   September  27.   The  Judgment  of  the  Court   was  delivered by  DAS GUPTA J.-M/s. Daulatram Rameshwarlal, a firm  registered  under the Indian Partnership Act (referred to later in  this  judgment  as "sellers ") are registered dealers under s.  11  of  the Bombay Sales Tax Act.  In their return  of  turnover  for  the period from April 1, 1954 to March 31,  1955,  they  claimed  exemption  from Sales Tax in respect  of  sales  of  cotton  of  the total value of Rs. 68,493-2-6 and  sales  of  castor  oil  of the total value of Rs. 6,47,509-1-6  on  the  ground that these sales were oil FOB contracts, under  which  they continued to be the owners of the goods till the  goods  had crossed the customs barrier and thus entered the  export  stream, and so no tax was realisable on these sales in  view  of the provisions of Art. 286 (1)(b).  The Sales Tax Officer rejected this claim for exemption  and  assessed  them to sales tax on a taxable turnover  including  these sales.  He also assessed them to purchase tax under s.  10(b)  of  the  Bombay Sales Tax Act on  their  purchase  of  castor  oil  which  they  later sold  for  the  sum  of  Rs.  6,47,509-1-6  as mentioned above.  The notice of demand  for  the total sales tax and the purchase tax assessed was served  on the sellers on September 30, 1956.  The sellers thereupon  moved the Bombay High Court under Art. 226 of the  Constitu-  tion  for  the issue of appropriate writs for  quashing  the  order  of  assessment  and  the notice  of  demand  and  for  prohibiting  the  Sales Tax Officer from  taking  any  steps  pursuant to the order or the notice.  The learned Judge  who  heard the petition rejected the sellers’ contention that the  goods remained their property till these crossed the customs  frontier  and  therefore  held that  the  sellers  were  not  entitled   to   the  benefit  of  Art.  286(1)(b)   of   the  Constitution.   As  regards the assessment to  purchase  tax

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also he rejected the sellers’ contention that the assessment  in  question  was illegal.  In this view the  learned  Judge  dismissed the application under Art. 226.  Against this decision the sellers appealed.  The  927  learned  Judges who heard the appeal held, disagreeing  with  the  Trial  Judge,  that the  goods  remained  the  sellers’  property  till the goods had been brought on board the  ship  and so the sales were exempted from tax under Art. 286(1)(b)  of  the  Constitution.  They however agreed with  the  Trial  Judger  that  the sellers were liable to  pay  purchase  tax  under  s.  10(b) of the Bombay Sales Tax  Act.   Accordingly  they  directed  the  Sales Tax Officer not  to  enforce  the  demand for payment of sales tax with regard to the sales  of  cotton  for  Rs. 68,493-2-6 and sale of castor  oil  of  the  total value of Rs. 6,47,509-1-6.  The Sales Tax Officer has, on the strength of special  leave  granted  by this Court, preferred the appeal which has  been  numbered  as  Civil  Appeal  No.  45  of  1959  against  the  appellate  court’s  order directing him not to  realise  the  sales  tax  in respect of sales of cotton  and  castor  oil.  Civil  Appeal  No.  46 of 1959 has  been  preferred  by  the  sellers against the appellate court’s judgment in so far  as  it upheld the assessment of purchase tax under s. 10(b).  The  only  "question for our decision in the appeal  by  the  Sales Tax Officer is whether property in the goods passed on  shipment or at some point of time before shipment.  The  law  is now well-settled that if the property in the goods passes  to the buyer after they have for the purpose of export to  a  foreign  country crossed the customs frontier the  sale  has  taken  place "in course of the export" out of the  territory  of India.  If therefore in the present sales the property in  the  goods passed to the buyers on shipment, that is,  after  they had crossed the customs frontier the sales must be held  to  have  taken  place "in the course  of  export"  and  the  exemption  under  Art. 286(1)(b) will come  into  operation.  The sellers’ case is that these were sales on FOB contracts.  Though the learned Solicitor-General appearing on behalf  of  the  Sales Tax Officer tried to convince us that these  were  not really FOB contract sales, it appears that the  averment  in  Paras. 11 and 13 of the writ petition that  these  sales  were  made  on  FOB basis were not  denied  in  the  counter  affidavit sworn by the Sales Tax Officer.  It is also  928  worth noticing that in the assessment order itself the  Sale  Tax  Officer referred to these sales as sales on FOB  basis.  The  specimen  contract produced also used the words  "  FOB  delivered ". There can be no doubt therefore that these were  sales under FOB contracts.’ The normal rule in FOB contracts  is  that the property is intended to pass and does  pass  on  the shipment of the goods.  In certain circumstances,  e.g.,  if  the seller takes the bill of , lading to his  own  order  and  parts  with it to a third person the  property  in  the  goods, it has been held, does not pass to the buyer even  on  shipment.   We  are  not concerned here  with  the  question  whether  the passing of property in the goods was  postponed  even  after  shipment.  The correctness of  the  proposition  that in the absence of special agreement the property in the  goods does not pass in the case of a FOB contract until  the  goods are actually put on board is not disputed before us.  As  has  however  been  rightly  stressed  by  the   learned  Solicitor  General it is always open to the parties to  come  to a different agreement as to when the Dropert in the goods  shall pass.  The question whether there was such a different  agreement  has to be decided on a consideration of  all  the

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surrounding circumstances.  He relies on three circumstances  to  convince us that the sellers and their buyers agreed  in  these  sales that the property will pass to the  buyer  even  before shipment.  The first circumstance on which he  relies  is  that  the bill of lading was taken in the  name  of  the  buyer.  Along with this fact we have to consider however the  fact  that the bill of lading was retained by  the  sellers,  the  contract  being  that  payment  will  be  made  on  the  presentation of the bill of lading.  It is not disputed that  the  term  in the contract for "payment  at  Bombay  against  presentation of documents " means this.  It was the  sellers  who  received  the  bills  of  lading  and  it  was  on  the  presentation  of  these  bills  of  lading  along  with  the  invoices  that the buyer paid the price.  When the bills  of  lading  though made out as if the goods were shipped by  the  buyer,  were actually obtained and retained by the  sellers,  that fact itself would ordinarily indicate an intention of  929  the  parties that the property in the goods would  not  pass  till after payment.  The  second  circumstance to which our  attention  has  been  drawn is that the export was under the contract to be  under  the  buyer’s  export licence.  This, in our  opinion,  shows  nothing.   The ordinary rule in FOB contracts is that it  is  the  duty  of  the  buyer to  obtain  the  necessary  export  licence.  That was laid down in Brandt’s case (1) and though  in a later case in Hardy v. Pound (2) the Court of Appeal in  England held that the judgment in Brandt’s case (1) does not  cover  every FOB contract and that in the special  facts  of  the  particular case before them it was for the  sellers  to  obtain  the licence and this view was approved by the  House  of  Lords (1956 A. C. 588), it is in our opinion correct  to  state  that the presumption in FOB contracts is that  it  is  the  duty of the buyers to obtain export licence, though  in  the circumstances of a particular case this duty may fall on  the sellers.  The third circumstance on which reliance is placed on behalf  of  the Sales Tax Officer is that the Export Control  Order,  1954,  which was passed in the exercise of powers  conferred  by Import & Export Control Act, 1947, contained a  provision  in  its clause 5(2) in these words:-" It shall be deemed  to  be  a condition of that licence..................  that  the  goods  for the export of which licence is granted  shall  be  the property of the licensee at the time of the export ". It  has  been  strenuously contended by  the  learned  Solicitor  General that it will be reasonable to think that the parties  to  the contract intended to comply with this condition  and  to  agree as between themselves that the goods shall be  the  property of the licensee, that is, the buyer, at the time of  the export.  It is argued that the time of the export should  be  interpreted  as the time when the  customs  frontier  is  crossed and that we must proceed on the basis that the buyer  and the sellers intended that the goods shall be the buyer’s  property  at  the  point  of time  when  they  crossed  this  frontier.  We see however no justification for thinking that  in this clause "the time of the export " means the time  (1) [1917] 2 K.B. 784.  (2) [1955] 1 Q.B. 499.  930  when the goods cross the customs frontier.  Export  has been  defined  in  the Import & Export (Control) Act, 1947,  as  "  taking  out of India by sea, land or air ". In  the  Exports  (Control)  Order, 1954, the word must be taken to  have  the  same meaning as in the Act.  On that definition the time  of  the  export  is  the  time when the  goods  go  out  of  the

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territorial limits of India.  These territorial limits would  include  the territorial waters of India.  Consequently  the  time of the export is when the ship with the goods goes  be-  yond the territorial limits.  At any rate, the export of the  goods cannot be considered to have commenced before the ship  carrying  goods  leaves  the port.   The  intention  of  the  parties that in compliance with the requirements of cl. 5(2)  of  the  Exports  (Control) Order the  goods  shall  be  the  property  of  the licensee at the time of the  export  would  therefore  mean nothing more than that the property  in  the  goods shall pass immediately before the ship goes beyond the  territorial  waters of the country, or at the earliest  when  the ship leaves the port.  Whichever view is taken there  is  nothing  to indicate that the intention to comply  with  the  requirements  of  el. 5(2) of the  Exports  (Control)  Order  carries  with it an intention that the property should  pass  to  the  buyer  at  the time the  goods  cross  the  customs  frontier.   It is true that in the United Motor’8  Case  (1)  and  in other cases it has been held by this Court that  the  course  of export commences to run when the goods cross  the  customs  barrier.  What the court had to consider  in  these  cases  was  not  however when export  commences  within  the  meaning  of the Exports (Control) Order but when the  course  of export commences for the purpose of Art. 286(1)(b) of the  Constitution.   For the reasons which need not  be  detailed  here  it was decided that the course of export commences  at  the  time when the goods cross the customs  barrier.   These  decisions  as  regards  the commencement of  the  course  of  export  are of no assistance in deciding about the point  of  time  when the export proper commences.  As we have  already  pointed  out  when export has been defined in the  Import  &  Export  (1)  (1953) 4 S.T.C. 133.  931  (Control)  Act, 1947, as "taking out of India by land,  sea,  or air ", export in the Export Control Order, cannot be held  to have commenced till at least the ship carrying the  goods  has  left the port, though it may in some contexts  be  more  correct  to say that it does not commence till the ship  has  passed beyond the territorial waters.  We  have therefore come to the conclusion that there  is  no  circumstance  which  would  justify a  conclusion  that  the  parties  came to a special agreement that though  the  sales  were  on FOB contracts property in the goods would  pass  to  the  buyer at some point of time before shipment.  We  think  that  the learned judges who heard the appeal in the  Bombay  High  Court  were right in their conclusion that  the  goods  remained  the  sellers’  property till the  goods  had  been  brought  and loaded on board the ship and so the sales  were  exempted from tax under Art. 286(1)(b) of the Constitution.  In Civil Appeal No. 46 of 1959 the appellants’ contention is  that  on  a correct interpretation of the provisions  of  s.  10(b)  of  the  Bombay Sales Tax Act  no  purchase  tax  was  leviable from them.  Section 10(b) provides for the levy  of  a  purchase  tax  on  the  turnover  of  purchase  of  goods  specified  in column I of Schedule B, at the rates, if  any,  specified  against  such  goods  in column  4  of  the  said  schedule,  "where  a certificate under cl. (b) of s.  8  has  been  furnished in respect of such goods and the  purchasing  dealer  does not show to the satisfaction of  the  Collector  that the goods have been despatched by him or by a person to  whom  he has sold the goods to an address outside the  State  of  Bombay  within a period of six months from the  date  of  purchase  by  the  dealer  furnishing  such  certificate  ".  Section  8(b) provides for the deduction from the  turnover,

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of sale of goods to a dealer who holds an authorisation  and  furnishes  to  the  selling  dealer  a  certificate  in  the  prescribed form declaring inter alia that the goods so  sold  to  him  are  intended for being despatched  by  him  or  by  registered dealers to whom he sells the goods to an  address  outside the State of Bombay.  Admittedly such a  certificate  was furnished by  932  M/s.   Daulatram Rameshwarlal in respect of the  castor  oil  which they sold to others and that in respect of these sales  to  them  their  sellers were  allowed  deductions.   It  is  equally undisputed that the persons to  whom M/s.  Daulatram  Rameshwarlal sold the goods were sent to an address  outside  the  State of Bombay within a period of six months from  the  date  of  purchase by M/s.  Daulatram  Rameshwarlal.   These  persons  are however not registered dealers.  The Sales  Tax  Officer as also the High Court of Bombay has held that the "  person to whom he has sold the goods " in s. 10(b) means " a  registered  dealer  to whom he has sold the goods ".  It  is  contended before us on behalf of the appellant-dealers  that  the word " a person " is wide enough to include a registered  dealer and an unregistered dealer.  It is urged that the use  of  the  word  it  a  person " instead  of  the  words  "  a  registered  dealer  "  is deliberate and  that  it  was  the  intention  of  the  Legislature to levy purchase  tax  on  a  person who has given such certificate under s. 8(b) only  if  the  goods were not ’despatched outside the State of  Bombay  within  the prescribed period by anybody.  It  is  therefore  contended that " a person " in s. 8(b) should be interpreted  to  include  a registered dealer or anybody  else.   We  are  unable  to  agree.   A close examination of  ss.  8  and  10  justifies the conclusion that the Legislature was anxious to  secure  that  the declaration as regards  intention  of  the  goods being despatched outside the State of Bombay should be  carried  out by despatch by " a registered dealer " to  whom  he  sells the goods.  If such despatch outside the State  of  Bombay is by a person to whom the certifying dealer has sold  the goods but who is not a registered dealer the certificate  has  not  been  complied with.  It will be  in  our  opinion  unreasonable  to think that though the Legislature  insisted  that the certificate should declare the goods purchased were  intended  11 for being despatched by him or by a  registered  dealer  to  whom  he sells the goods outside  the  State  of  Bombay ", the Legislature would be content to accept  actual  despatch  outside  the State of Bombay by one who is  not  a  registered dealer as sufficient.  Mr. Sanyal contended  that  the certificate  933  has to declare only an intention and that if ultimately  the  actual  despatch  is  made  by some  person  who  is  not  a  registered  dealer,  it  cannot strictly be  said  that  the  declaration has not been carried out.  It might very well be  that  if at the time a declaration of intention is  made  in  the  certificate the purchasing dealer had the intention  as  stated  and  ultimately he sells to a person who  is  not  a  registered  dealer  for despatch of the  goods  outside  the  State of Bombay, the purchasing dealer may not be liable for  having  made a false declaration ". Even though he  has  not  made a false declaration of his intention, the fact  remains  that  the intention declared has not been carried out.   The  scheme  of  the  Legislature  clearly  is  that  where   the  intention as declared has not been carried out purchase  tax  should  be levied.  To hold otherwise would be to  make  the  declaration of the intention useless.  Our  conclusion  therefore  is that the  courts  below  have

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rightly  interpreted the words " a person " in s.  10(b)  of  the Bombay Sales Tax Act as a " registered dealer " and that  the  purchasing  dealers  have  rightly  been  assessed   to  purchase tax under s. 10(b).  In the result, both the appeals are dismissed with costs.              Appeals dismissed.