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PETITIONER: BEN GORM NILGIRI PLANTATIONS COMPANY, COONOOR AND ORS.

       Vs.

RESPONDENT: SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM AND ORS.

DATE OF JUDGMENT: 10/04/1964

BENCH: SHAH, J.C. BENCH: SHAH, J.C. GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. AYYANGAR, N. RAJAGOPALA SIKRI, S.M.

CITATION:  1964 AIR 1752            1964 SCR  (7) 706  CITATOR INFO :  R          1970 SC1281  (5)  R          1971 SC 477  (10)  D          1971 SC 870  (25,34,47)  R          1973 SC2526  (9)  RF         1974 SC1510  (10)  RF         1975 SC1564  (17,18,24,51,59,61,68,69)  RF         1975 SC1652  (14)  E          1980 SC1468  (12,17)  D          1985 SC1689  (2,4)

ACT: Sales  Tax-Sale  of tea to local agents  of  Foreign  buyers Sales  whether exempt under Art. 286(1)(b) of the  Constitu- tion--Constitution  of India, Art.  286(1)(b)-Central  Sales Tax Act, 1956, s. 5.

HEADNOTE: The appellants were carrying on the business of growing  and manufacturing tea in their estates.  The sellers of tea were the appellants; the purchasers were local agents of  Foreign buyers.   The sales were by public auction at  Fort  Cochin. They  were conducted by brokers of tea.  The sales  were  in conformity  with  the provisions of Tea Act  of  1953.   The Sales-tax  Officer assessed the appellants to pay sales  tax on  transactions of sale of tea chests at the auctions  held at  Fort Cochin in the -years 1956-57 to  1958-59.   Against the  orders  of assessment the  appellants  filed  petitions before the High Court for writs of certiorari and for  writs of  prohibition  re-straining  the  Sales-tax  Officer  from proceeding with the collection of sales tax.  The  petitions were  dismissed by the High Court.  With special  leave  the appellants appealed to this Court. It  was the common case of all the appellants that the  pur- chases by the local agent of foreign buyers were with a view to export the goods to their principals abroad and that  the goods were in fact exported out of India. It was contended on behalf of the appellants that the  sales of tea were "in the course of export out of the territory of India",  and thus exempt from taxation under Art.  286(1)(b)

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,of the Constitution. Held:     (per Gajendragadkar, C. J., Shah and Sikri, JJ.) (i)  A transaction of sale which occasions export, or  which is  effected by a transfer of documents of title  after  the goods  have crossed the customs frontiers, is  exempt  under Art.  286(1)(b)  of the Constitution from sales  tax  levied under any State legislation.  A transaction of sale which is a  preliminary  to  export  of the  commodity  sold  may  be regarded as a sale for export, but is not necessarily to  be regarded  as  one in the course of export, unless  the  sale occasions  export.   Etymological  the  expression  "in  the course of export", contemplates an integral relation or bond between the sale and the export. In  general where a sale is effected by the seller, and  the seller is not connected with the export which actually takes place,  it  is a sale for export.  Where the export  is  the result of sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of  the obligations arising by statute. contract  of  mutual understanding between the parties arising from the nature of the transaction the sale is in the course of export. 707 (ii) A sale in the course of export predicates a  connection between the sale and export, the two activities being so in- tegrated  that  the  connection between the  two  cannot  be voluntarily interrupted, without a breach of the contract or the  compulsion arising from the nature of the  transaction. In  the  present  case there was between the  sale  and  the export no such bond as would justify the inference that  the sale and the export formed parts of a single transaction  or that  the  sale and export were integrally  connected.   The appellants were not concerned with the actual exportation of the  goods,  and  the sales were  intended  to  be  complete without  the export, and as such it cannot be said that  the said sales occasioned export.  The sales were therefore  for export and not in the course of export.  Therefore the sales by the appellant to the agents of foreign buyers do not come with the purview of Art. 286(1)(b) of the Constitution. State  of Travancore-Cochin v. Bombay Company  Ltd..  [1952] S.C.R. 1112, distinguished. State  of  Travancore-Cochin V.Shanmugha  Vilas  Cashew  Nut Factory, [1954] S.C.R. 53, State of Madras v. Gurviah  Naidu and  Company Ltd.  A.I.R. 1956 S.C. 158, State of Mysore  v. Mysore    Shipping and Manufacturing Co. Ltd. 13 S.T.C. 529 and B.K.  Wadear v. M/s.  Daulatram Rameshwarlal [1951] 1 S.C.R. 924, relied on. M. R.     K.  Abdul  Salem  and  Company  v.  Government  of Madras, 13     S.T.C. 629, explained. Per Ayyangar, J. In the present case the sale and the export being related to each other in the sense of one lead-.  in.- to  the  other are therefore within Art.  286(1)(b)  of  the Constitution.  There could be no difference in legal  effect between  a sale to a Foreign buyer present in India to  take delivery  of  the goods for transport to his country  and  a sale to his resident agent for that purpose.  The buyer  was an agent, who was not free to deal with the tea purchased by effecting  a local sale, but was under an obligation to  his Foreign principal to export the goods purchased to a Foreign destination.   The  goods purchased were in  fact  -exported from  this  country.   It was with such  a  buyer  that  the appellants  entered into the transaction of sale.  In  other words it was a part of understanding between the seller  and the  buyer, inferrable from all the circumstances  attendant on these transactions that the buyer was bound to export. State of Travancore-Cochin v. Shanmugha Vilas Cashew  [1954]

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S.C.R.  53,  State of Madras v. Gurviah Naidu and  Co.  Ltd. A.I.R. 1956 S.C. 158, State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd.  A.I.R. 1958 S.C. 1002 and East India Tobacco  Co. v. The State of Andhra Pradesh, [1963]1  S.C.R. 404, referred to. (ii) Even though the Tea Act does not in terms prohibit  in- ternal sale of tea ’Purchased alongwith export quota rights, this could be explained by the circumstance that the  rights to  export  tea is considered a privilege which  secures  an economic  advantage to the exporter and hence there  was  no need for any statutory compulsion to do so. L/P(D) ISCI--23(a)..... 708

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 396-413  of 1963.  Appeals by special leave from the judgment and  order dated  October  26, 1961 of the Kerala High  Court  in  Writ Appeals  Nos.  104-106, 107, 109, 112, 108, 113,  114,  111, 115, 116, 119, 120, 123, 124 and 122 of 1964. M.   C.  Setalvad,  J.  B.  Dadachanji,  0.  C.  Mathur  and Ravinder Narain, for the appellants (in all the appeals). V.   P. Gopalan Nambiar, Advocate-General, Kerala and V.   A. Seyid Muhammed, for the respondent (in all the appeals). April 10, 1964.  The judgment Of GAJENDRAGADKAR, C.J.,  SHAH AND  SIKRI  JJ.  was delivered by  SHAH  J.  The  dissenting Opinion  Of  WANCHOO  and  AYYANGAR  JJ.  was  delivered  by AYYANGAR J. SHAH,  J.-The  Sales-tax Officer, Special  Circle  Ernakulam assessed the appellants under the Travancore-Cochin  General Sales  Tax  Act  XI  of  1125  M.E.,  to  pay  sales-tax  on transactions  of sale of tea chests at the auctions held  at Fort Cochin in the years 1956-57 to 1958-59, rejecting their contention  that the sales were exempted from tax by  virtue of Art. 286(1)(b) of the Constitution.  The appellants  then petitioned the High Court of Kerala for writs of  certiorari quashing   the  orders  of  assessment  and  for  writs   of prohibition restraining the Sales-tax Officer from  proceed- ing with the collection of tax in pursuance of the orders of assessment.  Vaidialingam J., rejected the petitions and his order  was  confirmed in appeal by a Division Bench  of  the High  Court of Kerala.  With special leave,  the  appellants have appealed to this Court. The  transactions of sale sought to be taxed by the  Revenue authorities  are  in tea, which is a  controlled  commodity. The  Parliament enacted the Tea Act (19 of 1953) to  provide for the control by the Union of the tea industry,  including the  control of cultivation of tea in, and of export of  tea from,  India and for that purpose to establish a  Tea  Board and to levy customs duty on tea exported from India.  By  s. 3(f) "export" is defined as taking out of India by land, sea or  air to any place outside India other than a  country  Or territory notified in that behalf by the Central  Government by notification in the Official Gazette.  "Export allotment" is defined by s. 3(g) as the total quantity of tea which may be  exported during any one financial year.   Section  17(1) places an embargo upon exportation of tea unless covered  by a  licence issued by or on behalf of the Board.  Section  18 provides  that  no consignment of tea shall  be  shipped  or water-borne  to be shipped for export or shall  be  exported until  the  owner has delivered to the  Customs-Collector  a valid export licence or special export licence or a 709

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valid  permit  issued by or on behalf of the  Board  or  the Central  Government  as  the  case  may  be,  coverning  the quantity  to be shipped.  Section 19 authorises the  Central Government  to  declare export allotments of  tea  for  each financial  year,  and by s. 20 it is provided that  any  tea estate  shall, subject to conditions as may  be  prescribed, have the right to receive under the Act an export quota  for each financial year.  Section 21 provides that the owner  of a tea estate to which an export quota has been allotted  for any  financial  year shall have the right to obtain  at  any time  ,export licences during that year to cover the  export of  tea  upto the amount of the unexhausted balance  of  the quota.   The  export quota right is, by cl. (2)  of  s.  21, transferable,   subject  to  such  conditions  as   may   be prescribed  and  the  transferee of  such  right  may  again transfer  the whole or any part of his right  provided  that nothing  in  the sub-section shall operate to  restrict  the issue of licences for the export of tea expressed to be sold with  export rights.  The other provisions are not  material in deciding this group of appeals. Trade  in  tea in the State of Kerala-internal  as  well  as export-is  carried on through certain defined  channels.   A manufacturer  of  tea applies for and obtains from  the  Tea Board  allotment  of export quota rights on payment  of  the necessary  licence fee.  The manufactured tea in  chests  is then  sent to M/s.  T. Stanes & Company Ltd.  who  warehouse the  chests  at Willingdon Island.  Chests of tea  are  then sold by public auction through brokers at Fort Cochin.  With the  chests  of  tea  for  which  export  quota  rights  are obtained,  export quota rights are sold by  the  auctioneer. At  the auction sale, bids for tea chests with export  quota rights  are given by the agents or intermediaries in  Cochin of  foreign  buyers.   Tea  chests  are  delivered  at   the warehouses  by  M/s.   T.  Stanes  &  Company  Ltd.  to  the purchasers   whose  bids  are  accepted.   The   agents   or intermediaries  of the foreign buyers then  obtain  licences from  the Central Government for export of tea chests  under the  export quota rights vested in them under the  purchases made at the auction sales. Tea  cannot  therefore be exported otherwise  than  under  a licence:  such a licence may be issued to a manufacturer  or to  the purchaser of the quota granted by the  Central  Gov- ernment  to  the manufacturer when tea is sold  with  export rights.   When  auctions of tea with the export  rights  are held  at Fort Cochin, it is in this group of appeals  common ground,  sellers on whose behalf the auctioneer acts as  the agent  know that bids are offered by the buyers of  tea  for the purpose of export.  It is also known that the bidder  is an agent or an intermediary of a foreign buyer. 710 Is  the sale by auction to the agent of intermediary of  the foreign buyer, in the course of export within the meaning of Art.  286(1)  of the Constitution’?  If the sale is  in  the course  of export out of the territory of India.  any  State law  which imposes or authorises the imposition of a tax  on such  sale is, because of Art. 286(1)(b),  invalid.   Before the  Constitution  was amended by  the  Constitution  (Sixth Amendment)  Act, 1956, there was no legislative guidance  as to  what were transactions of sale in the course  of  export out  of  the territory of India.  But  by  the  Constitution (Sixth  Amendment) Act, cl. (2) of Art. 286 was  substituted for  the  original clauses, and thereby the  Parliament  was authorised  to formulate principles for determining  when  a sale  or  purchase of goods takes place in any of  the  ways mentioned  in cl (1).  The Parliament has under the  Central

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Sales  Tax Act (74 of 1956) enacted by s. 5 that "a sale  or purchase  of  goods. shall be deemed to take  place  in  the course  of the export of the goods out of the  territory  of India  only  if the sale or purchase either  occasions  such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India." This was legislative recognition of what was said by  this Court in the State of Travancore-Cochin and  others v. The Bombay Company Ltd(1) and State of  Travancore-Cochin and  others  v.  Shanmugha  Vilas  Cashew  Nut  Factory  and others(2) about the port of  the goods out of the  territory of  India"  in Art. 286(1) (b).A transaction of  sale  which occasions  export,  or which is effected by  a  transfer  of documents of title after the goods have crossed the  customs frontiers,  is therefore exempt from sales-tax levied  under any State legislation. The  appellants  set out in their respective  petitions  the manner  in which sales tax of tea chests were  conducted  at Fort  Cochin  and in certain petitions affidavits  in  reply even  were  not  filed  by the  State  of  Kerala.   In  the remaining petitions in which affidavits in reply were  filed it  was contended that the export of goods was made  by  the purchasers  who  had taken delivery of the  goods  from  the manufacturers  in Travancore-Cochin and in pursuance of  the export  licences  obtained  by  the  purchasers  goods  were exported,  but such subsequent export by the purchasers  did not  affect the character of the sales by the  manufacturers to  the purchasers.  It is true that there is no finding  by the Sales-tax authorities that the respective purchasers  at the auction were agents of foreign buyers, but the  Advocate appearing. on behalf of the State argued the case before the High Court on the footing that the bids were offered at  the auctions by (1) [1952] S.C.R. 1112. (2 )  [1954] S.C.R. 53. 711 the  agents  or intermediaries or foreign  buyers,  and  the Court  proceeded  to dispose of the case before it  on  that footing. Vaidialingam  J.,  held  that  transactions  of  sale   were complete  when  bids for purchase of tea together  with  the export  quota rights were accepted, and the sellers  had  no concern  with  the actual export which was effected  by  the auction  purchasers to their foreign principals.   It  could not,  therefore, in the view of the learned Judge,  be  held that  the sales in question had as an integral part  thereof occasioned  export, that is, the sales preceded  the  export and  were  not in the course of export.  The High  Court  in appeal held that the ban imposd by Art. 286(1)(b) predicated a  casual connection between the sale and the export-a  con- nection which is intimate and real.  The sale, it was  said, must  inextricably be bound up with the export and  form  an ’integral  part thereof, so that without export the sale  is not  ,effectuated;  but as the sale imposed or  involved  no obligation  to  export,  there was  no  movement  under  the contract  of sale and exemption claimed was not  admissible. Correctness of this view is challenged in this appeal. To constitute a sale in the course of export of goods out of the  territory of India, common intention of the parties  to the  transaction  to  export the goods  followed  by  actual export of the goods, to a foreign destination is  necessary. But  intention  to  export and actual  exportation  are  not sufficient to Constitute a sale in the course of export, for a sale by export "involves a series of integrated activities commencing  from the agreement of sale with a foreign  buyer

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and  ending  with  the delivery of the  goods  to  a  common carrier  or  transport out of the country by  land  or  sea. Such  .a sale cannot be dissociated from the export  without which  it cannot be effectuated, and the sale and  resultant export  form  parts  of  a  single  transaction":  State  of Travancore Cochin and others v. The Bombay Company  Ltd.(1). A  sale  in  the course of export  predicates  a  connection between  the  sale and export, the two activities  being  so integrated  that  the connection between the two  cannot  be voluntarily interrupted, without a breach of the contract or the  compulsion arising from the nature of the  transaction. In this sense to ,constitute a sale in the course of  export it  may be said that there must be an intention on the  part of  both the buyer and the seller to export, there  must  be obligation  to export, and there must be an  actual  export. The  obligation  may arise by reason  of  statute,  contract between  the  parties,  or  from  mutual  understanding   or agreement  between  them,  or even from the  nature  of  the transaction  which links the sale to export.  A  transaction of  sale which is a preliminary to export of  the  commodity sold may be regarded as a sale for (1)  [1952] S.C.R. 1112. 712 export, but is not necessarily to be regarded as one in the- course of export, unless the sale occasions export.  And  to occasion  export there must exist such a bond  between  the- contract of sale and the actual exportation, that each  link is inextricably connected with the one immediately preceding it.   Without such a bond, a transaction of sale  cannot  be called  a sale in the course of export of goods out  of  the territory of India.  There are a variety of transactions  in which the sale of a commodity is followed by export thereof. At  one  end are transactions in which there is  a  sale  of goods in India and the purchaser immediate or remote exports the  goods  out  of  India  for  foreign  consumption.   For instance, the foreign purchaser either by himself or through his agent purchases goods within the territory of India  and exports  the goods and even if the seller has the  knowledge that  the  good,-,  are intended by  the  purchasers  to  be exported, such a transaction is not in the course of export, for the seller does not export the goods, and it is not  his concern as to how the purchaser deals with the goods.   Such a transaction without more cannot be regarded as one in  the course  of export because etymologically, "in the course  of export",  contemplates an integral relation or bond  between the sale and the export.  At the other end is a  transaction under  a contract of sale with a foreign buyer  under  which the goods may under the contract be delivered by the  seller to a common carrier for transporting them to the  purchaser. Such  a sale would indisputably be one for  export,  whether the contract and delivery to the common carrier are effected directly or through agents.  But in between lie a variety of transactions  in which the question whether the sale is  one for  export or is one in the course of export i.e., it is  a transaction which has occasioned the export, may have to  be determined  on  a correct appraisal of all  the  facts.   No single  test  can be laid as decisive for  determining  that question.   Each case must depend upon its facts.  But  that is  not  to say that the  distinction  between  transactions which may be called sales for export and sales in the course of  export  is  not  real.  In general  where  the  sale  is effected  by  the seller, and he is not connected  with  the export which actually takes place, it is a sale for  export. Where  the  export is the result of sale, the  export  being inextricably linked up with the sale so that the bond cannot

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be dissociated without a breach of the obligation arising by statute,  contract  or  mutual  understanding  between   the parties arising from the nature of the transaction, the sale is in the course of export. It may be conceded that when chests of tea out of the export quota  are sold together with the export rights,  the  goods are earmarked for export, and knowledge that the goods  were purchased by the bidders for exporting them to. 713 the foreign principals of the bidders must clearly be attri- butable   to   them.   Does  the   co-existence   of   these circumstances,  impress upon the transactions of  sale  with the  character of a transaction in the course of export  out of  the territory of India’?  We are unable to hold that  it does.   That  the tea chests are sold together  with  export rights  imputes knowledge to the seller that the  goods  are purchased  with  the intention of exporting.  But  there  is nothing in the transaction from which springs a bond between the sale and the intended export linking them up as part  of the  same transaction.  Knowledge that the  goods  purchased are  intended  to  be exported does not make  the  sale  and export  parts of the same transaction, nor does the sale  of the  quota with the sale of the goods lead to  that  result. There  is  no  statutory obligation upon  the  purchaser  to export  the chests of tea purchased by him with  the  export rights.   The export quota merely enables the  purchaser  to obtain  export  licence, which -he may or  may  not  obtain. There  is  nothing  in law or in the  contract  between  the parties,  or  even in the nature of  the  transaction  which prohibits  diversion of the goods for internal  consumption. The  sellers have no concern with the actual export  of  the goods, once the goods are sold.  They -have no control  over the goods.  There is therefore no direct connection  between the sale and export of the goods which would make them parts of  an  integrated  transaction of sale -in  the  course  of export. Decided  cases on which reliance was placed at the Bar  have mainly  been of cases in which the benefit of the  exemption of Art. 286(1)(b) was claimed in respect of sales  preceding the  export  sale.  Such a sale preceding the  export  could -not, it was held, without doing violence to the language of Art.  286(1)(b), be given the benefit of the exemption  from -tax  imposed  by State legislation merely  because  of  its historical  connection with the export sale.  In a  majority of  the cases to be presently referred there were  at  least two salessale under which goods were procured followed by  a sale  under which the goods so procured were  exported,  and the  claim of the Revenue to tax the first  transaction  was upheld.   It may be regarded as therefore settled  law  that where there are two sales leading to export-the first  under which  goods are procured for sale and the property  in  the goods  passes within the territory of India, and the  second by  the  buyer to a foreign party  resulting  in  export-the first cannot be regarded as a sale in the course of  export, for  a  sale in the course of export must  be  directly  and integrally  connected  with the export.  It cannot  also  be predicted  that every sale which results in export is to  be regarded as sale in the course of ex. port.  We may  briefly refer  to  the  cases which have  come  before  this  Court. Justification for citation of the cases is 714 not  to evolve a pinciple from the actual decisions, but  to highlight the grounds on which the decisions were  rendercd. The  first case which came before this Court in  which  Art. 286(1)(b) fell to be construed was the State of  Travancore-

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Cochin  and  others  v.  The  Bombay  Company  Ltd.(1).  The assessee  who had exported coir products to foreign  purcha- sers  claimed  exemption from sales-tax  relying  upon  Art. 286(1)(b).   The Revenue authorities held that  property  in the goods having passed within the State, the  transactions, were  liable  to tax.  The High Court  disagreed  with  that view,  holding that a sale in the course of export  was  not merely  a  sale  when  the goods  had  crossed  the  customs frontiers, but included a transaction which precede  export. This Court agreed with the High Court.  In appeal  Patanjali Sastri  C.J.,  speaking for the Court  observed  that  sales which  occasioned  export  were  within  the  scope  of  the exemption  under  Art. 286(1)(b).  But that was  a  case  in which on the facts found there could be no dispute that  the sale by the assessee occasioned export, for in pursuance  of the contract the assessee had exported the goods sold. The next case which came before this Court was the State  of Travancore-Cochin  and others v. Shanmugha Vilas Cashew  Nut Factory  and  others(2).   It was held by  this  Court  that purchases in the State made by the exporters for the purpose of  export  are  not within the exemption  granted  by  Art. 286(1)(b)  of  the  Constitution.   Patanjali  Sastri  C.J., speaking for the majority of the Court observed:               "The  word  ’course’  etymologically   denotes                             movement  from  one point to another,  and  the               expression ’in the course of’ not only implies               a period of time during which the movement  is               in  progress  but postulates  also  aconnected               relation.  *     *    *    *  A  sale  in  the               course  of  export out of the  country  should               similarly  be  understood in  the  context  of               clause  (1)(b) as meaning a sale taking  place               not only during the activities directed to the               end  of  exportation of the goods out  of  the               country but also as part of or connected  with               such activities." He further observed that the phrase "integrated  activities’ cannot  be  dissociated  from the export  without  which  it cannot be effectuated, and the sale and the resultant export form  parts  of a single transaction.  It is in  that  sense that the two activities-the sale and the export-were said to be  integrated.   But a purchase for the purpose  of  export like production or manufacture for export, being only an act (1) [1952] S.C.R. 1112. (2)  [1954] S.C.R. 53. 715 preparatory  to export could not be regarded as an act  done "in  the  course  of  the export of the  goods  out  of  the territory of India". In   the  State  of  Madras  v.Gurviah  Naidu  and   Company Ltd.(1),  S. R. Das, Actg.  C.J., observed that an  assessee who  goes about purchasing goods after securing orders  from foreign  purchasers is not exempt from liability to pay  tax by  virtue of Art. 286(1)(b) of the Constitution in  respect of the purchases made by him because, those purchases do not themselves  occasion  the export.   Goods  were  undoubtedly bought  for the purpose of export, but the purchase did  not occasion the export within the meaning of Art. 286(1)(b)  of the Constitution. In  State  of   Mysore and another v.  Mysore  Shipping  and Manufacturing Co. Ltd. and others(2), it was held that where goods  were sold to a licenced exporter by the assessee  and the licenced exporter sold the goods to a foreign  purchaser it could not be said that the first was in the course of ex-

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port.   The  licenced  exporter  was not  an  agent  of  the assessee  and the two sales could not have  both  occasioned the export: it was only the second sale which did that,  and the  assessee  not being a party to it  either  directly  or through  the exporter or through his agents, the first  sale with  which  alone  the  assessee  was  associated  did  not occasion the export.  If it did not, then it hardly  matters whether the goods were exported through the  instrumentality of  the exporter or not, because all sales that precede  the one  that occasioned the export were taxable.  In this  case the Court expressed the opinion that for the sale to be  one which  occasions  the export it must  directly  concern  the assessee as an exporter. In East India Tobacco Company v. The State of Andhra Pradesh and  another  (3) this Court held that only the  sale  under which the export is made that is protected by Art. 286(1)(b) of  the Constitution and a purchase made locally by  a  firm doing  business  of exporting tobacco,  which  preceded  the export  sale  did not fall within its purview though  it  is made for the purpose of or with a view to export. One more judgment of this Court may be noticed:   B.   K. Wadeyar  v. M/s.  Daulatram Rameshwarlal(4).  The  assessees in  that  case sold goods to an Indian  purchaser,  who  had agreed  to sell them to a foreign buyer.  The sales  by  the assessees "were on F.O.B. contracts under which they (1)  A.I.R. (1956) S.C. 158. (2) A.I.R. (1958) S.C. 1002. (3)  [1963] 1 S.C.R. 404. (4) [1961] 1 S.C.R. 924. 716 continued to be the owners" till the goods crossed the  cus- toms barrier, and entered the export stream.  It was held by this Court that since the goods remained the property of the assessees  till  they reached the export stream,  the  sales were  exempt  from  tax  imposed  by  a  State  under   Art. 286(1)(a).   This  was  undoubtedly  a  case  of  two  sales resulting in export, and the first sale was held immune from State taxation: but that was so because the property in  the goods had passed to the Indian purchaser when the goods were in  the  export  stream.   The  first  sale  itself  was  so inextricably connected with the export that it was  regarded as a sale in the course of export. Mr.  Setalvad  on  behalf of the  appellants  placed  strong reliance  upon the judgment of the Madras High Court  in  of Madras(1).  That was a case in which a dealer in the  Stater of   Madras  in hides and skins after purchasing  raw  hides tanned them and sent them to Kovai Tanned Leather Co. Madras who  acted  as the dealer’s agent for  sale.   Kovai  Tanned Leather Company sold the goods to Dharamsee Parpia who acted as  an  agent  of Srivan Brothers  (Eastern)  Ltd.,  London. There  was another transaction between Kovai Tanned  Leather Co.  and  Gordon  Woodroffe and Company Ltd.  who  acted  as agents  for  a  foreign principal.   The  Salestax  Tribunal refused  to accept the transaction to Dharamsi Parpia as  an export sale on the ground that Kovai Tanned Leather  Company delivered  the  goods to the  exporter  Dharamsi  Parpia-and thereafter  the exporter obtained the bills of  lading,  and that  the  sale became complete in the Madras  State  before shipment,  and  it  was on that account not a  sale  in  the course of export.  The High Court disagreed with that  view. Jagadisan J., speaking for the Court observed:               Where there is privity of contract between the               foreign  buyer  and the seller in  the  taxing               territory and the concluded sale between  them               occasions  the export even if the property  in

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             the goods sold passes within the territory the               transaction is nevertheless one in respect  of               which  Article 286 imposes a ban on the  State               to levy tax." We are not concerned to decide whether there was evidence in that  case  on  which  the High  Court  could  come  to  the conclusion  that  the sale occasioned the export.   But  Mr. Setalvad relied upon the observation in support of the  pro- position  that  in all cases where there is a  contract  for purchase  of goods in the taxing territory, between a  local merchant  and a foreign buyer acting through his agent,  and the (7)13 S.T.C. 629.  717 goods  are after purchasing the same exported by the  agent, the  transaction must be deemed to be one in the  course  of export.  We are unable to accept that contention.  We do not read  the judgment as laying down any such proposition,  and none such is legitimately deducible.  The second transaction in  favour of Gordon Woodroffe & Co. was found to be one  in which  property  in  the goods  passed  beyond  the  customs frontier.   Such a transaction would indisputably be a  sale in the course of export. In  our  view the transactions of sale in the  present  case did  not occasion the export of the goods, even  though  the appellants  knew  that the buyers in offering the  bids  for chests of tea and the export quotas were acting on behalf of foreign  principals, and that the buyers intended to  export the  goods.   There was between the sale and the  export  no such  bond as would justify the inference that the sale  and the export formed parts of a single transaction or that  the sale  and export were integrally connected.  The  appellants were not concerned with the actual exportation of the goods, and  the sales were intended to be complete without the  ex- port,  and  as such it cannot be said that  the  said  sales occasioned export.  The sales were therefore for export, and not in the course of export. The  appeals  therefore fail and are dismissed  with  costs. One hearing fee. AYYANGAR, J.-We regret our inability to concur in the  order that  these appeals should be dismissed.  We are clearly  of the opinion that the appeals should be allowed. This batch of 18 appeals which have been heard together  are directed  against  a common judgment of the  High  Court  of Kerala and are before this Court by virtue of special  leave granted  to  the  appellants.   The  appellants  filed  writ petitions  in  the High Court which were  dismissed  by  the learned  Single Judge whose judgment was affirmed on  appeal by a Bench of the High Court.  It is from this judgment that these appeals have been brought. The appellants are 18 tea estates which tire carrying on the business of growing and manufacturing tea in their  estates. Their claim is that the teas grown by them have been sold by them  "in  the  course of the export of  goods  out  of  the territory  of  India" within Art. 286(1)(b) of  the  Consti- tution and they, therefore, claim that the State of  Travan- core-Cochin in which these sales took place was not entitled to impose sales tax upon these sales. The  question  for  consideration  is  whether  these  sales effected by the appellants are, as they claim, sales "in the course of export".  It is common ground that the tea sold 718 under the transactions involved in these appeals was actual- ly exported out of the territory of India.  Doubtless,  this circumstance  would  not  per  se  render  the  sales  which preceded the export "sales in the course of export" but  the

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argument  submitted  to  us is that  these  exports  are  so directly  and immediately linked up with the sales  effected by  the appellants and so integrated with them that the  two form  part  of the same transaction as to render  the  sales "sales in the course of export". It  was presented in this form, relying on the  decision  of this Court in State of Travancore-Cochin v. Shanmugha  Vilas Nut Factory(1) where the learned Chief Justice observed:               "The  word  ’course’  etymologically   denotes               movement  from  one point to another  and  the               expression ’in the course of’ not only implies               a period of time during which the movement  is               in  progress but postulates also  a  connected               relation............  A sale in the course  of               export out of the country should be understood               in the context of Art. 286(1)(b) as meaning  a               sale   taking  place  ,not  only  during   the               activities directed to the end of  exportation               of  the goods out of the country, but also  as               part   of   or   connected    with............               emphasised  the integral relation between  the               two   where  the  contract  of   sale   itself               occasioned  the  export  as  the  ground   for               holding that such a sale was one taking  place               in the course of export." It is this integrality that is involved in the concept which is expressed by the words that "the sale that occasions  the export" is "a sale in the course of export". The details of the sales on which tax is sought to be levied by the respondent, together with the facts relating thereto, as  well as the several contentions urged before us and  the decisions  on which reliance is placed on either  side  have all been narrated in the judgment just now pronounced and we do  not think it necessary to restate them.  Similarly,  the provisions  of  the  Tea  Act, 1953  and  the  rules  framed thereunder so far they are relevant for the decision of  the question  involved in these appeals have also been  set  out and  so we are not repeating them either.  We shall  confine ourselves  to the very restricted area of  our  disagreement with our learned brethren which has occasioned this separate judgment. (1) [1954] S.C.R.53 719 As  preliminary to the discussion of the question  involved, we shall put aside certain types of transactions as  regards which there is no dispute that they clearly fall on one side of the line of the other.  On the one side of the line would be  the  case where a seller in pursuance of a  contract  of sale  with  a foreign buyer puts the goods sold on  board  a ship bound for a foreign destination.  Such a sale would  be an "export sale" which would undoubtedly be within the  con- stitutional protection of Art. 286(1)(b).  In regard to this type,  however, we would make this observation.  In  such  a case we consider that it would be immaterial whether or  not with  reference to the provisions of the Sale of Goods  Act, read  in conjunction with the terms and stipulations of  any particular contract, the property in the goods passes to the buyer  on the Indian side of the customs frontier or  beyond it.   In  either event the sale would  have  occasioned  the export,  for  the sale and the export  form  one  continuous series  of  transactions, the one leading to  the  other-not merely in point of time but integrated by reason of a common intention which is given effect to.  In such a case it would be  seen  that there is but one sale-to  the  foreign  buyer "which  occasions the export", and which is  implemented  in

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accordance  with  the  terms of the contract  by  an  actual export which is the sine qua non of "a sale in the course of export". A case on the other side of the line would be one where  the sale  is  effected to a resident purchaser who  effects  the export  by sale of the goods purchased to a  foreign  buyer. Here the first sale to the buyer who enters into the  export sale  would not be a "sale in the course of export"  for  it would not be the particular sale which occasions the export, notwithstanding that the purchase might have been made  with a view to effect the export sale, or to implement a contract of  sale  already entered into with a foreign  buyer.   That such  a sale is not one "in the course of export"  has  been repeatedly     held by this Court (See State of  Travancore- Cochin v. Shanmugha  Vilas Cashew Nut Factory(1),  State  of Madras    v. Gurviah Naidu and Co. Ltd.(2), State of  Mysore v.   Mysore Spinning and Manufacturing Co. Ltd.(3) and  East India Tobacco Co. v. The State of Andhra Pradesh(4). This  second  type  of  case involves  two  sales-one  to  a resident purchaser who purchases it with a view to effect an export and the second, the export sale or sale in the course of  export  by  the  purchaser  to  a  foreign  buyer.   The existence  of the two sales and the consequent  dissociation between the (1)  [1954] S.C.R. 53. (2)  A.I.R. 1956 S.C. 158 = 6 S.T.C. 717. (3)A.I.R. 1958 S.C. 1002. (4)  [1963] 1 S.C.R. 404. 720 first sale and the export causes a hiatus between that  sale and  the  export  and destroys the integrality  of  the  two events  or  transactions  viz., the  sale  and  the  factual export. The sales involved in the present appeals are not of the 2nd type  for  here there is a single sale direct to  a  foreign buyer, the contract being concluded with and the goods  sold delivered to his agent.  It is hardly necessary to add  that for purposes relevant to the decision of the question before us  there could be no difference in legal effect  between  a sale to a foreign buyer present in India to take delivery of the  goods  for transport to his country and a sale  to  his resident  agent  for that purpose.  Pausing here  we  should mention  that there is no dispute (1) that the  persons  who bid at the auction at Fort Cochin and purchased the teas  of the assessees were agents of foreign buyers or (2) regarding their  having made these purchases under the  directions  of their  foreign principals in order to despatch the goods  to the  latter-a  contractual obligation that  they  admittedly fulfilled. Under the sales here involved, though to foreign buyers  and intended  for export, the goods were not under the terms  of the contract of sale placed by the seller on board the  ship in  the  course of its outward voyage and that is  the  only reason why they do not conform strictly to the first type of an export sale which we have described earlier. But  the question is, do not these sales also "occasion  the export"  and in that sense sales "in the course  of  export" The  test which has been laid down by this Court for  deter- mining the proximity of the connection between the sale  and the export so as to bring the sale within the constitutional exemption  in Art. 286(1)(b) is the integrality of  the  two events-the sale and the export.  The question to be answered is  therefore whether the sales now under  consideration  do not form part and parcel of a single integrated  transaction with  the export or are they distinct, distant and  mediate,

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the sale and the export being related to each other only  in sense of one leading to the other or the one succeeding  the other merely in point of time.  If the former, the sales are within Art. 286(1)(b), but if the connection between the two is as described later, they are outside the exemption. What  then  are the facts of the present case.   Before  re- stating  them for their being examined in the light  of  the criteria  we  have  just  specified,  it  is  necessary   to emphasise  certain  matters.  When the assessees  sought  an opportunity  to adduce evidence as to the facts  which  they offered   to   prove  to  establish  their  claim   to   the constitutional   protection,   the   assessing   authorities accepted their statements as correct and did not desire them to adduce evidence and so 721 no   detailed  evidence  was  led.   If  therefore   on   an examination of the legal position it is now found that there is any lacunae in the statement of facts or in the  evidence whose  existence  would have brought the  sales  within  the exemption,  it  appears to us that  the  appellant-assessees should  in  fairness be afforded an  opportunity  to  adduce evidence  to establish their case.  We say  so  particularly because it could by no, means be said that the law was clear as to the facts necessary to be proved to claim exemption in the case of sales of the type now before us. To proceed with the facts, the assessees had applied for and obtained  export quotas with a view to effect exports  of  a quantity  of tea grown and processed by them.  The sales  at Fort  Cochin were effected along with the export  rights  ,- ranted to the Appellant estates. the contract being that the purchaser at the auction would obtain a transfer of the  ex- port  quota right of that estate whose tea he  purchased  to the  extent  needed to effect export of the  tea  purchased. The  purchases  were thus made only on the  basis  that  the export  rights  of the seller would be  transferred  to  the buyer  and  on the basis of these transfers  the  purchasers obtained  export licences from Government for exporting  the tea  and effected the exports.  The purchases were  made  by agents  of  foreign  principals  and  it  was  part  of  the contractual duty Of these agents vis-a-vis the principals to consign the goods purchased to them without avoidable delay. There  was  proof by the certificates  produced  that  these agents  had fulfilled their obligations to their  principals and had shipped the goods bought as early as practicable  to foreign destinations. The  principal  contention urged  by the  learned  Advocate- General of Kerala to persuade us to hold that the sales  did not  "occasion the export" was based on  two  circumstances: (1)  that  it  was  not part of  the  contract  between  the assessees and their buyers that the goods shall only be  ex- ported and not sold in the local market.  In other words, it was  urged  that in the absence of such a specific  term  of contract  it  would  have been open to the  buyers  to  have diverted the goods from being exported and to have sold them locally.   This was so far as the  contractual  relationship between the assessee-sellers and the buyers from them  under the sale was concerned, (2) dealing next with the effect  of the  provisions  of the Tea Act, 1953 and the  rules  framed thereunder  on  the  sales effected by  the  assessees,  the submission  was that s. 21 and other provisions of  the  Tea Act,  1953 merely enabled an export to be effected  and  did not require the goods in regard to which they were issued to be  exported. In other words, it was stressed that  the  Tea Act did not impose any obligation on the quota holder or his transferee

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722 to  export the goods covered by the quota and  that   conse- quently the buyer-even after taking a transfer of the export quota rights alongwith his purchase was not compelled by law to  export and was not precluded from failing to export  and selling  the goods locally.  On this reasoning the  argument was  that here was a purchase under which the purchaser  was free  to export or not to export and the mere fact  that  he chose  to export would not render the sale to him one  which occasioned the export or one "in the course of export". We  consider that these arguments do not  sufficiently  take into  account the actualities of the situation, but  proceed on investing on formal requirements a significance which  is not warranted. When  learned  counsel says that there was no  term  in  the contract  between  the seller and the buyer that  the  goods purchased were not to be sold locally but have to be export- ed, he is right only in the sense that it is not any express term  of the contract.  But could it be said that  that  was not  the implicit common understanding on which  the  entire transaction was concluded.  The buyer was not interested  in the  purchase  except on terms of the  export  quota  rights being  transferred to him and that was why the  transfer  of the  export right was effected or contracted to be  effected as  part  and parcel of the sale of the goods.   Again,  the buyer  was an agent, who as we have stated earlier  was  not free  to  deal with the tea purchased by effecting  a  local sale,  but was under an obligation to his foreign  principal to export the goods purchased to a foreign destination.   It was  with  such a buyer that the assessee entered  into  the transaction  of sale.  On these facts we are satisfied  that it was part of the understanding between the seller and  the buyer, inferable from all the circumstances attendant on the transaction  that  the buyer was bound to  export.   Pausing here,  we would add that, we understand that  importance  is attached  in this context to the need of a term in the  sate contract  laying an obligation on the part of the  buyer  to export  only for the purpose of demonstrating  the  intimate connection between the sale and the export for  establishing that it was the sale that occasioned the export.  If we  are right,  then what is of significance is the real and  common intention of the two parties to the transaction-whether they contemplated  the  goods purchased being  sold  locally,  or whether they intended the goods sold being only exported and not whether there is such a term in the contract between the parties. Coming  next  to the contention that the Tea  Act  does  not compel  export  of goods covered by the quotas  granted,  we might mention that no evidence was led as to the prices prevailing  in the local market as compared to that  in  the foreign  countries  where  the principals  of  the  resident buyers  rested, which would have disclosed whether  a  local sale  of  the  tea bought ostensibly for  export  was  in  a commercial sense within the bounds of possibility, though if one  went by the rationale underlying the provisions of  the Tea  Act and in particular ss. 17, 21 and 22, one  gets  the impression that export quota rights were considered to  have a  considerable  value  in the market which  would  be  some indication  -that a buyer with an export quota  would  never sell in the local market.  Thus it might be that even though the statute does not in terms prohibit internal sale of  tea purchased  alongwith  export  quota rights,  this  could  be explained  by the circumstance that the right to export  tea is considered a privilege which secures economic  advantages to  the  exporter  and  hence there  was  no  need  for  any

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statutory   compulsion  to  do  so.   We  are  making   this observation  because Parliament and the  Central  Government are  keen  on  promoting exports and in  the  case  of  some commodities  like  sugar where the external price  is  lower than the local price, the regulations framed in that  behalf require  exports  to  be  effected  under  compulsion.    We consider   therefore  that  the  absence  of  a   compulsive provision  in the Tea Act requiring export of  the  quantity allotted  to  the  estates, is not very  material  and  that Parliament might well have left it optional with the  estate owners  to export seeing that economic factors provided  the requisite compulsion. If  there was a contract or understanding between the  buyer and  seller  by  which the latter was to  export  the  goods bought, it is conceded the sale of the assessee did occasion the export and in our view on the facts established, we con- sider this condition satisfied. We  would  therefore  allow the appeals and  set  aside  the assessment in so far as they included the sales involved  in these appeals.                            ORDER In accordance with the opinion of the majority, the  appeals are dismissed with costs.  One hearing fee. Appeal dismissed. 724