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PETITIONER: BINANI BROS. (P).  LTD.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT11/12/1973

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN RAY, A.N. (CJ) KHANNA, HANS RAJ ALAGIRISWAMI, A. BHAGWATI, P.N.

CITATION:  1974 AIR 1510            1974 SCR  (2) 619  1974 SCC  (1) 459  CITATOR INFO :  RF         1975 SC1564  (17,24,25,54)  RF         1975 SC1652  (12,21)  F          1977 SC 247  (5)  D          1985 SC1689  (6)

ACT: Constitution  of      India,  Art. 286-The  meaning  of  the expression,     sale or purchase of goods in the  course  of the imports’ into India

HEADNOTE: In  W. P. No. 92 of 1969, the Petitioner Company prayed  for issue of appropriate direction or order for the  enforcement of its fundamental rights guaranteed under Art. 31(1) of the Constitution.  The facts are as follows: The  petitioner company was a dealer in  non-ferrous  metals and was a registered supplier to the Directorate General  of Supplies  and Disposals.  The company was also a  registered dealer in the State of West Bengal.  The petitioner used  to procure  non-ferrous metals from various countries and  also from  within the country for fulfilling its  contracts  with D.G.S. & D. The import of non-ferrous metals was under  open General   licence  till  June,  30,  1957.   Thereafter,   a licensing  system was introduced by the Government of  India and  the petitioner was asked to get their quotas  fixed  on the  basis  of their past imports.  On April  2,  1958,  the Government of  India promulgated  the  Non-ferrous  Metals Control  Order, 1958 by virtue of which free sale of  copper was banned.  Any import of copper by the licence holders was to be distributed under the directions of the Controller  of Non-ferrous metals. Under  the Non-ferrous Metals Control Order, 1958, and  also under   the  Import  Trade  Regulations,   the   established importers were not free to sell the metals imported by  them against  their  quota  licences  even  to  D.G.S.&  D.   The petitioner,  in order to effect supplies to D.G.S. & D.  had to obtain additional import licence. The  petitioner obtained quota licences for import  of  non- ferrous  metals for the licensing periods upto  April  1964,

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March  1965;  but the imports were to  be  distributed  only under the directions of the Controller. On Sept. 14, 1965, the Govt. of India promulgated the Scarce Industrial  Materials Control Order 1965, under the  Defence of  India  Rules.  Stocks of  non-ferrous  metals  including incoming  imports were thus frozen.  The Non-ferrous  Metals Control  Order  1958  and the  Scarce  Industrial  Materials Control  Order 1965 were both repealed.  The  Government  of India  in placing orders with the petitioner used  to  grant import licences in terms of the contract. The petitioner had been importing and supplying  non-ferrous metals  to respondents 1,2 and 3 during the last  19  years. Respondent  No.  2  had agreed to pay  and  was  paying  the Central  Sales Tax and/or West Bengal Sales  Tax,  whichever was applicable-to the petitioners in terms of the contract. In  1966, the Supreme Court held in K. G. khosla and Co.  v. Deputy  Commissioner of Commercial tax [1966] 3  S.C.R.  352 that  the sale by Khosla & Co. to DGS & D in India of  axle- box  bodies  manufactured  in Belgium  by  their  principal, occasioned the movement of goods in the course of import and sales  tax  was not exigible on the transaction in  view  of Sec. 5(2) of the Central Sales Tax Act 1956, and Art. 286 of the Constitution. Thereafter, respondent No. 2 issued an order to  respondent- No.  4  that Sales Tax should not be allowed in  respect  of supply of stores which had been specifically 620 imported against contracts placed by D.G.S. & D.  Respondent No.  4, acting in terms of the order, deducted  Rs.  60,780/ being  the Sales Tax already paid from the pending bills  of the petitioner and also threatened to recover more than  Rs. 2  lakhs being the amount paid by respondent No. 2 as  Sales Tax in respect of contracts which had already been executed. The   petitioner,  thereafter,  approached  the  Sales   Tax Authorities  in W. Bengal and filed revised returns  in  the pending assessments and claimed refund of taxes paid on  the sales, treating the sales as having been made in the  course of import on the basis of the judgment in Khosla’s case. The  West  Bengal Sales Tax Authorities took the  view  that there  were two sales one, to the petitioner by the  foreign seller  and the other, by the petitioner to D.G.S. & D.  and that  there was no privity of contract between D.G.S.  &  D. and  the  foreign  sellers, that the  petitioner  under  the import  licences granted to it, was entitled to  import  the goods  from  any  person  or country  and  that  the  import licences   issued   as  against  the  contracts   with   the Directorate  General  of Supplies &  Disposals  imposed  ,no obligation  on  the petitioner to supply the  goods  to  the D.G.S.  &  D after they had been imported,  they  therefore, held  that tax was exigible on the sales by. the  petitioner to   the  D.G.S.  &  D.  The  questions  which   arose   for consideration  were: (i) whether on the basis of the  order, respondent  No.4 was entitled to deduct Rs. 60,780 from  the amount  due to the petitioner and (ii) Whether the claim  of the  respondent to recover a further sum of more than Rs.  2 lakhs from the petitioner was justified. The  petitioner contended that the sales which  the  Company made  to  D.G.S. & D. were not the  sales  which  occasioned movement of any goods in the course of import as those sales were  separate and distinct from the contracts  of  purchase made  by  the Company with the foreign sellers  which  alone occasioned  the movement of goods in the course  of  import, tax was exigible upon the sales by the petitioner to D.G.S & D.  and  therefore,  the decision in Khosla’s  Case  has  no application to the facts here.

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Allowing the writ petitions, HELD  : (i) Art. 286(1) (b) provided that no law of a  State shall  impose a tax on the sale or purchase of  goods  where such  sale  or  purchase takes place in the  course  of  the import  or export of the goods in India.  A sale  by  export involves  a series of integrated activities commencing  from the  agreement of sale with a foreign buyer and ending  with the delivery of the goods to a common carrier for  transport out  of  the  country by land or sea and that  such  a  sale cannot  be  dissociated  from the export  without  which  it cannot be effectuated, and the sale or resultant export from parts  of  a  single transaction  of  these  two  integrated activities  which  together  constituted  an  export   sale, whichever occurs first can well be regarded as taking  place in the course of the other. [623H] State  of Travancore Cochin and Ors. v. The Bombay Co.  Ltd. [1952] S.C.R. 11 12, referred to (ii) The  words,  ’Integrated activities’ were used  in  the earlier case to denote that such a sale’ (i.e. a sale  which occasions the export)’ 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’, and in that  case  the  sale  and  the  export  were  said  to   be integrated. [624B] per Patanjali Sastri C.J. in State of Travancore Cochin  and Ors.  v. Shamugha Vilas Cashew Nut Factory and  Ors.  [1954] S.C.R. 53 referred to . (iii)     There was no definition of the expression ’in  the course  of  import’  before  the  Sixth  Amendment  of   the Constitution.  Later Parliament gave legislative meaning  to the expression in s. 5(2, of the Central Sales Tax Act  1956 which  provides  that  a sale or purchase of  goods  in  the course  of  the import into India, shall be deemed  to  take place  if the sale or purchase either occasions such  import or  is effected by a transfer of documents of  title  before the  goods  have  crossed the customs  frontiers  of  India. [624C] 621 (iv) In  the present case, the petitioner as principal  made the  sale to the D.G.S. & D. ’For effecting the  sales,  the petitioner had to purchase goods from foreign sellers and it was   these  purchases  from  the  foreign   sellers   which occasioned  the movement of goods in the course of  imports. In other words, the movement of goods was occasioned by  the contracts  for  the purchase, which the  petitioner  entered into with the foreign sellers.  No movement of goods in  the course of import took place in pursuance to the contracts of sales  made  by  the petitioner with the  D.G.S.  &  D.  The petitioner’s sales to D.G.S. & D. were distinct and separate from  his  purchases  from foreign sellers.   There  was  no privity of contract between the D.G.S. & D. and the  foreign sellers.  The foreign sellers did not enter into a  contract by themselves or through the agency of the petitioner to the D.G.S.&  D.  and  the  movement  of  goods  through  foreign countries was not occasioned on account of the sales by  the petitioner to D.G.S. & D. Even if the contracts between  the petitioner  and  the  D.G.S. & D. envisaged  the  import  of goods,  and their supply to the D.G.S. & D. from out of  the goods  imported, it did not follow that the movement of  the goods  in  the  course  of  import  was  occasioned  by  the contracts of sale by the petitioner with the D.G.S. & D. The present  case, therefore, cannot be distinguished  from  the decision  in  the Coffee Board’s case though that  case  was concerned  with  the  question when a  sale  occasioned  the movement of goods in the course of export.  The order issued

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by respondent No. 2, was, therefore, quashed., [627E-628E]

JUDGMENT: ORIGINAL JURISDICTION: Writ Petitions Nos. 39 & 92 of 1969. Under  Article  32  of the Constitution  of  India  for  the enforcement of Fundamental rights. V.M.   Tarkunde,  G.R.  Chopra  and  C.M.  Kohli   for   the petitioners. Gobind Das and S. K. Nayar, for the respondents (in  W.P.No. 39/69) and respondents Nos. 1-4 (in W.P. No. 92/69). P.K. Chatterjee and G.S. Chatterjee, for respondents Nos. 5- 6 (in W. P No. 92/69). Judgment of the Court was delivered by MATHEW, J. These are petitions filed under article 32 of the Constitution  praying for issue of appropriate direction  or order  for the enforcement of the fundamental right  of  the petitioners under article 31(1) of the Constitution. The  question raised in the petitions is that we propose  to deal  with Writ Petition No. 39 of 1969 decision there  will govern and dispose of Writ No. 92 of 1969. The  petitioner is a company incorporated under  the  Indian Companies  Act,  1913.   It has  its  registered  office  in Calcutta and a branch office at Binani House, Khundi  Katra, Mirzapur, U.P. The petitioner is an importer and a dealer in non-ferrous metals like zinc, lead, copper, tin, etc. and is on  the  approved  list  of  registered  suppliers  to   the Directorate  General of Supplies and Disposals,  hereinafter referred to as DGS&D.  It is also a registered dealer in the State of West Bengal under the Bengal Finance Act, 1941  and the  Central  Sales Tax Act, 1956.  The petitioner  used  to procure  nonferrous metals from various countries  and  also from  within the country for fulfilling its  contracts  with the  Government of India through _the DGS&D.  The import  of non-ferrous metals was under Open General Licence till  June 30, 1957.  Thereafter, a licensing systems was introduced by the   Government  of  India  and  the  established   traders including M 602 Sup CI/74 622 the  petitioner were asked to get their quotas fixed on  the basis  of  their  past  imports.   On  April  2,  1958,  the Government  of  India  promulgated  the  Non-Ferrous  Metals Control  Order,  1958 under the Essential  Commodities  Act, 1951 by virtue of which free sale of copper was banned.  Any import  of copper by the established licence holders was  to be  distributed  under the directions of the  Controller  of Nonferrous  Metals.   Under the Non-Ferrous  Metals  Control Order,  1958. and also under the Import  Trade  Regulations, the  established importers were not free to sell the  metals imported  by them against their quota licences even  to  the DGS&D.   The petitioner, in order to effect supplies to  the DGS&D  had to obtain additional import licence.   Under  the Import  Trade  Control  Policy,  the  established  importers including the petitioner obtained quota licences for  import of  non-ferrous metals for the licensing period upto  April, 1964-March, 1965, but the imports mentioned here were to  be distributed  only under the directions of the Controller  of Non-Ferrous  Metals or the Import Trade  Control  Authority. On  September 14, 1965, the Government of India  promulgated the  Scarce Industrial Materials Control Order, 1965,  under the  Defence of India Rules.  Stocks of  non-ferrous  metals including  incoming  imports  were thus  frozen.   The  Non- Ferrous  Metals  Control  Order, 1958,  was  repealed.   The

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Scarce  Industrial  Materials Control Order, 1965  was  also repealed  on  June  6, 1966.  The Government  of  India,  in placing  orders  with the petitioner used  to  grant  import licences in terms of the contract.  The petitioner had  been importing and supplying non-ferrous metals to respondents 1, 2  and  3 during the last 19 years.  Respondent  No.  2  had agreed  to pay and was paying the Central Sales  Tax  and/or West  Bengal  Sales  Tax whichever  was  applicable  to  the petitioner  in terms of the contract.  In 1966,  this  Court held  in  K.G.  Khosla and Co.  v.  Deputy  Commissioner  of Commercial  Taxes(1) hereinafter. referred to as the  Khosla Case,  that  the sale by Khosla & Co. to DGS&D in  India  of axle-box  bodies manufactured in Belgium by their  principal occasioned  the  movement of goods in course of  import  and sales tax was not exigible on the transaction in view of  s. 5(2)  of the Central Sales Tax Act, 1956.  On the  basis  of this  judgment, respondent No. 2 issued an order.  (Annexure P-1)  to all the authorities concerned including  respondent No.  4,  namely, the Pay and Accounts Officer,  Ministry  of Works,  Housing and Supply directing that sales  tax  should not be allowed in respect of supply of stores which has been specifically  imported against licences issued by the  Chief Controller  of  Imports and Exports on the basis  of  Import Recommendation  Certificates  issued by the DGS&D  or  other authorities like the State Trading Corporation for  supplies against contracts placed by the DGS&D.  The Pay and Accounts Officer,  acting  on Annexure P-1 deducted  the  amounts  of sales  tax  paid  by  the  respondents  under  all  the  old contracts from the current bills which were submitted by the petit ioner  to him.  Respondent No. 4 actually  deducted  a sum  of  Rs.  60,780/- from the  bills  which  were  pending payment and also threatened to recover Rs. 2,35,130-01 being the amount paid by respondent No. 2 as sales tax in  respect of (1)  [1966] 3 S.C.R. 352. 623 contracts which had, already been executed.  The assessments on  the petitioner upto the year ending October,  27,  1962, were completed prior to the date of judgment in Khosla  Case and the issue of the order at Annexure P-1.  The petitioner, when  it came to know of Annexure P-1 Order, approached  the Sales  Tax  authorities  in West Bengal  and  filed  revised returns  in  the pending assessments and claimed  refund  of taxes  paid on the sales, treating the sales as having  been made in the course of import on the basis of the judgment in Khosla Case.  The West Bengal Sales Tax authorities took the view that there were two sales involved in the  transactions in  question, namely, sale to the petitioner by the  foreign sellers and sale by the petitioner to the DGS&D, that  there was no privity of contract between the DGS&D and the foreign sellers,  that  the petitioner, under  the  import  licences granted  to  it, was entitled to import the goods  from  any person  or  country and that the import licences  issued  as against  the contracts with the DGS&D imposed no  obligation on  the  petitioner to supply the goods to the  DGS&D  after they had been imported.  They, therefore, held that tax  was exigible on the sales by the petitioner to the DGS&D. The questions which arise for consideration are, whether, on the  basis  of  Annexure P-1 Order,  respondent  No.  4  was entitled  to deduct Rs. 60 780/- from the amount due to  the petitioner in respect of pending bills and whether the claim of  the  respondents  to  recover  a  further  sum  of   Rs. 2,35,130.01 from the petitioner is justified. It  was  contended  on behalf of  the  petitioner  that  the transactions  in  question,  namely,  the  sales  which  the

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petitioner made to DGS&D were not the sales which occasioned the  movement  of the goods in the course of import  and  as those sales were separate and distinct from the contracts of purchase  made by the petitioners with the  foreign  sellers which  alone occasioned the movement of goods in the  course of import, tax was exigible upon the transactions of sale by the  petitioner  to DGS&D and, therefore,  the  decision  in Khosla Case has no application to facts here. Article 286(1)(b) provides:               "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-               (b)   in  the  course of import of  the  goods               into,  or  export  of the goods  out  of,  the               territory of India". In  State  of Travancore Cochin & Others v. The  Bombay  Co. Ltd.  (1) Patanjali Sastri, C.J. said that a sale by  export involves  a series of integrated activities commencing  from the  agreement of sale with a foreign buyer and ending  with the delivery of the goods to a common carrier for  transport out  of  the  country by land or sea and that  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.  Of these two integrated activities which together (1)  [1952] S.C.R. 1112. 624 constitute  an expert sale, whichever first occurs can  well be regarded as taking place in the course of the other. In  State of Travancore Cochin & Others v.  Shanmugha  Vilas Cashew  Nut Factory and Others (1), it was observed  by  the same  learned  Chief  Justice that  the  phrase  ’integrated activities’ was used in the previous decision to denote that ’such   a   sale’   (i.e.  a  sale   which   occasions   the export)"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" and that it is in that sense that the two activities the sale and the  export- were said to be integrated. There was no definition of the expression ’in the course  of import’ before the Sixth Amendment of the Constitution.   By that Amendment, Parliament was given power to formulate  the principles for construing the expression.  And, in s.5(2) of the  Central  Sales Tax Act, 1956, Parliament  has  given  a legislative meaning to the expression               "5(2)  A  sale or purchase of goods  shall  be               deemed  to  take place in the  course  of  the               import  of  the goods into  the  territory  of               India  only  if the  sale  or-purchase  either               occasions  such  import or is  effected  by  a               transfer  of documents of title to  the  goods               before  the  goods have  crossed  the  customs               frontiers of India." In  Ben  Gorm  Nilgiri  Plantations  Company  V.  Sales  Tax Officer(2),  the question was whether the sales of  the  tea chests at auctions held at Fort Cochin were exempt from levy of sales tax by virtue of article 286(1)(b).  The nature  of the  transaction was as follows: A manufacture obtains  from the  Tea Board allotment of export quota,  the  manufacturer then  puts  the  tea  in chests which  are  sold  in  public auctions;  bids  are  made by agents  or  intermediaries  of foreign  buyers;  agents  and  intermediaries  then   obtain licences from the Central Government for export.  This Court found nothing in the transaction from which a bond could  be

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said  to  spring between the sale and the.  intended  export linking them as parts of the same transaction.  The  sellers had no concern with the export, the sale imposed or involved no  obligation to export and there was possibility that  the goods might be diverted for internal consumption.  The Court considered  the  sales as sales for export and  not  in  the course  of  export.   The Court  observed  that-to  occasion export there must exist such a bond between the contract  of sale  and  the  actual exportation, that  each  link  is  in extricably  connected with the one immediately preceding  it and  that 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.  The Court further said that 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 and where the export is the result of  the sale, the export being inextricably linked up with the  sale so  that the bond cannot be dissociated without a breach  of the obligation arising (1) [1954] S.C.R, 53,63. (2) [1964] 7 S.C.R. 706. 625 by  statute,  contract or mutual understanding  between  the parties arising from the nature of the transaction, the sale is in the course of export. In  the  Khosla Case, the assessee entered into  a  contract with  the  DGS&D,  New Delhi, for  the  supply  of  axle-box bodies.   The  goods  were to  be  manufactured  in  Belgium according  to specifications and ’the DGISD, London  or  his representative had to inspect the goods at the works of  the manufacturers and issue an inspection certificate.   Another inspection  was  provided for at Madras.  The  assessee  was entitled  to  be  paid 90 per  cent.  after  inspection  and delivery  of the stores to the consignee and the balance  of 10  per  cent.  was  payable  on  final  acceptance  by  the consignee.   In the case of deliveries on f.o.r.  basis  the assessee  was  entitled to 90 per cent. payment  after  ins- pection  on  proof of despatch and balance of 10  per  cent. after receipt of stores by the consignee in good  condition. The  assessee was entirely responsible for the execution  of the  contract and for the safe arrival of the goods  at  the destination.  The contract provided that notwithstanding any approval or acceptance given by an Inspector, the  consignee was  entitled to reject the goods, if it was found that  the goods  were not in conformity with the terms and  conditions of   the  contract  in  all  respects.   The   manufacturers consigned  the goods to the assessee by ship under bills  of lading  and the goods were cleared at the Madras Harbour  by the  Assessee’s Clearing Agents and despatched for  delivery to the Southern Railway in Madras and Mysore.  The  question was  whether  the sales by the assessee  to  the  Government departments  were  in the course of import and  export  from taxation  under s.5(2) of the Central Sales Tax  Act,  1956. Sikri,  J. (as he then was), delivering the judgment of  the Court  said after referring to s.5(2) of the  Central  Sales Tax  Act that the movement of goods to India was  occasioned by the contract of sale between the appellant (Khosla & Co.) and  the DGS&D, that if the movement of goods is the  result of  a covenant or incidental to the contract of sale, it  is quite  immaterial that the actual sale took place after  the import was over. In  Coffee  Board  v.  Joint  Commercial  Tax  Officer  (1), hereinafter  referred  to as Coffee Board Case,  the  Coffee Board claimed that as certain sales of coffee to  registered exporters  in March and April, 1963 were sales made ’in  the

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course  of export’,it could not be taxed under  the  Madras General Sales Tax Act, 1959.  The rules framed by the Coffee Board   provided  that  only  dealers  who  had   registered themselves  as exporters of coffee with the Coffee Board  or their  agents  and who held permits from  the  Chief  Coffee Marketing  Officer  in  that behalf would  be  permitted  to participate in the auction , and after the bidding comes  to an  end,  the  payment  of  price  would  take  place  in  a particular way.  Condition No.26 he added "export guarantee" provided  that it was an essential condition of the  auction that  the  coffee  sold thereat shall  be  exported  to  the destination  stipulated  in the Catalog of lots, or  to  any other foreign country outside.  India as may be approved  by the Chief Coffee Marketing Officer, within three (1)  [1970] 3 S.C.R. 147. 626 months from the date of Notice of Tender issued by the Agent and that it shall not under any circumstances be diverted to another  destination, sold, or be disposed of, or  otherwise released  in India.  Condition 30 stated that if  the  buyer failed or neglected to export the coffee as aforesaid within the  prescribed time or within the period of  extension,  if any  granted  to him, he shall be liable to  pay  a  penalty calculated  a Rs. 50 per 50 kilos which shall be  deductible from  out of the amount payable to him as per condition  31. And  Condition 31 provided that no default by the  buyer  to export  the coffee aforesaid Within the prescribed  time  or such extension thereof as may be granted, it shall be lawful for  the Chief Coffee Marketing Officer, without  reference. to  the  buyer,  to seize the un-exported  coffee  and  take possession  of the same and deal with it as if it were  part and  parcel  of Board’s coffee held by them  in  their  Pool stock.   The case of the petitioners before this  Court  was that the purchases at the export auctions were really  sales by the Coffee Board in the course of export of coffee out of the territory of India since the sales themselves occasioned the  export  of Coffee and that the coffee so sold  was  not intended for use in India or for sale in the Indian markets. The  case of the Sales Tax Authorities, oil the other  hand, was that these sales were not inextricably bound up with the export  of  coffee  and that the  sales  must  therefore  be treated as sales taking place within the State of Tamil Nadu liable to sales tax under the Madras General Sales Tax  Act. This  Court  held  that the Board was not  entitled  to  the exemption claimed.  The Court said that the phrase ’sale  in the  course of export’ comprises three  essentials,  namely, that  there  must  be a sale, that goods  must  actually  be exported and that the sale must be a part and parcel of  the export.  The Court further said that the sale must  occasion the  export and that the word ’occasion’ is used as  a  verb and means ’to cause’ or ’to be the immediate cause of’.  The Court was of the view that the sale which is to be  regarded as exempt from tax is a sale which causes the export to take place  or  is the immediate cause of the  export,  that  the introduction  of an intermediary between the seller and  the importing  buyer  breaks the link, for, then there  are  two sales,  one  to  the  intermediary  and  the  other  to  the importer,  and that the first sale is not in the  course  of export, for the export begins from the intermediary and ends with the importer.  According to the Court the test was that there  must be a single sale which itself causes the  export and  that  there  is no room for two or more  sales  in  the course of export, The Court, therefore, held that though the sales  by the Coffee Board were sales for export, they  were not  sales  in  the course of export, that  there  were  two

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independent  sales  involved in the  export  programme:  the first  sale by the Coffee Board to the export promoter,  and the  second sale by the export promoter to a  foreign  buyer which  occasioned the movement of goods and that the  latter sale alone could earn the exemption from sales tax as  being a sale the in the course of export. Khosla  Case,  it  might be recalled  that  Khosla  and  Co. entered  into. the contract of sale with the DGS&D  for  the Supply  of  axle bodies manufactured by  its  Principal.  in Belgium and the goods were to be 627 inspected by the buyer in Belgium but under the contract  of sale  the goods were liable to be rejected after  a  further inspection  by the buyer in India.  It was in  pursuance  to this contract that the goods were imported into the  country and supplied to the buyer at Perambur and Mysore.  From  the statement  of facts of the case as given in the judgment  of the High Court it is not clear that there was a sale by  the manufacturers  in  Belgium to Khosla & Co., their  agent  in India.  it  would seem that the only sale was  the  sale  by Khosla & Co. as agent of the manufacturer in Belgium In  the concluding  portion  of the judgment of this  Court  it  was observed as follows :                ". . . It seems to us that it is quite  clear               from  the contract that it was  incidental  to               the contract that the axle-box bodies    would               be  manufactured in Belgium,  inspected  there               and  imported  into India for  the  consignee.               Movement of goods from Belgium to India was in               pursuance  of the conditions of  the  contract               between the assessee and the Director  General               of  Supplies.   There was  no  possibility  of               these goods being diverted by the assessee for               any other purpose.  Consequently we hold  that               the  sales took place in the course of  import               of  goods within s.5(2) of the Act,  and  are,               therefore, exempt from taxation." As  already  stated, there was to be an  inspection  of  the goods  in  Belgium by the representative of  the  DGS&D  but there  was  no  completed  sale in  Belgium  as,  under  the contract, the DGS&D reserved a further  right of  inspection of the goods on their arrival in India. Be  that as it may, in the case under consideration  we  are concerned with the sales made by the petitioner as principal to  the  DGS&D.  No doubt, for effecting  these  sales,  the petitioner had to purchase goods from foreign sellers and it was   these  purchases  from  the  foreign   sellers   which occasioned the movement of goods in the course of import. In other  words,  the movement of goods was occasioned  by  the contracts  for  purchase which the petitioner  entered  into with the foreign sellers. No movement of goods in the course of  import took place in pursuance to the contracts of  sale made  by  the petitioner with the DGS&D.   The  petitioner’s sales to DGS&D were distinct and separate from his purchases from  foreign sellers. To put it differently, the sales   by the petitioner to the DGS&D did not occasion the import.  It was  purchases  made  by the  petitioner  from  the  foreign sellers  which  occasioned  the import  of  the  goods.  The purchases of the goods and import of the goods in  pursuance to  the contracts of purchases were, no  doubt, for sale  to the  DGS&D.  But  it  would not follow  that  the  sales  or contracts  of sales to DGS&D occasioned the movement of  the goods  Into this country. There was no privity  of  contract between  DGS&D and the foreign sellers. The foreign  sellers did not enter into any contract by themselves or through the

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agency  of the petitioner to the DGS&D and the  movement  of goods  from  the  foreign countries was  not  occasioned  on account of the sales by the petitioner to DGS&D. It  was contended on behalf of the Central  Government  that the  contracts of sale between the petitioner and the  DGS&D envisaged 628 the import of goods for fulfilling the contracts and it  was for that reason that there was first the recommendation  for issue of import licences by DGS&D and then the actual  issue of import licences and, as the contracts of sale  visualised the  import  of goods for fulfilling them, the  movement  of goods  in  the  course  of  import  was  occasioned  by  the contracts of sale to the DGS&D, and, therefore, the sales to the  DGS&D were the sales which occasioned the  movement  of goods in the course of import. There  was no obligation under the contracts on the part  of the DGS&D to procure import licences for the petitioner.  On the  other hand, the recommendation for import licence  made by  DGS&D  did not carry with it any  imperative  obligation upon  the Chief Controller of Imports and Exports  to  issue the  import  licence.   Though  under  the  contract   DGS&D undertook  to provide all facilities for the import  of  the goods  for  fulfilling  the contracts  including  an  Import Recommendation Certificate, there was no absolute obligation on  the DGS&D to procure these facilities.  And, it was  the obligation  of the petitioner to obtain the import  licence. Therefore,even  if  the contracts envisaged  the  import  of goods  and their supply to the DGS&D from out of  the  goods imported,  it did not follow that the movement of the  goods in  the course of import was occasioned by the contracts  of sale by the petitioner with DGS&D. We see no reason in principle to distinguish this case  from the decision in the Coffee Board Case though that case  was concerned  with  the  question when  a  sale  occasions  the movement of goods in the course of export. In  the  result, we quash Annexure P-1 order so far  as  the petitioners are concerned and allow the writ petitions with costs. S.C. Petitions allowed. 629