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PETITIONER: BURMAH  SHELL  OIL STORAGE AND DISTRIBUTING CO.,  OF  INDIA,

       Vs.

RESPONDENT: THE COMMERCIAL TAX OFFICER AND OTHERS (AND CONECTED APPEAL)

DATE OF JUDGMENT: 27/09/1961

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. HIDAYATULLAH, M. MUDHOLKAR, J.R.

CITATION:  1962 AIR 1320            1962 SCR  Supl. (1) 242  CITATOR INFO :  RF         1965 SC1740  (8)  RF         1973 SC1461  (218)  RF         1976 SC2243  (89)

ACT:  Sales  Tax--Sale  of motor spirit for aviation  purposes  to  aircraft  at Airport--Exemption from taxation--Sale  outside  customs barrier--Whether sale within State--Aviation  spirit  loaded   on   board  aircraft  taken  out   of   country--If  exported--"  Export", meaning of--Bengal Motor Spirit  Sales  Taxation   Act,   1941  (Ben.  5  of  1941),   S.   22,   as  amended--Constitution  of India, Art.  286(1)(a)(b),  Expla-  nation.  903

HEADNOTE:  The  appellant companies which were carrying on business  in  Calcutta  in  petroleum and  petroleum  products  maintained  supply depots at Dum Dum Airport from which motor spirit for  B  the  purposes  of  aviation was  sold  and  delivered  to  aircraft   which  either  proceeded  to  foreign   countries  directly  from  that Airport or did  so  ultimately,  though  landing  en  route  at some place or places  in  the  Indian  territory.  Dum Dum Airport was a customs aerodrome and  all  aircraft  coming  into it or leaving it had to  comply  with  ordinary customs formalities.  The sales tax authorities  of  West Bengal sought to levy tax on the sales of motor  spirit  as aforesaid under the provisions of the Bengal Motor Spirit  Sales  Taxation  Act,  1941,  as  amended.   The   appellant  companies claimed that the sales were exempted from taxation  under  both  the clauses (a) and (b) of Art. 286(i)  of  the  Constitution  of India on the grounds (i) that the sales  in  question  had taken place outside the State of West  Bengal,  as  they  did  not  .come within  the  Explanation  to  Art.  286(1)(a),  (2) that aviation spirit was  delivered  outside  the customs barrier and therefore the sales were outside the  State, and (3) that the sales had taken place in the  course  of export, as aviation spirit was taken out of the territory  of India.

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Held:     (i)  that  by sale in Art. 286(i)(a)  is  meant  a  completed transaction by which property in the goods passes.  Before property in the goods passes the contract of sale  is  only  executory  and the buyer has only a chose  in  action.  The  taxable  event is not to be found at an  earlier  stage  because  the  critical  taxable  event  is  the  passing  of  property.  The  Explanation to cl. (1) of Art. 286 was added to  avoid,  among   other   things,  multiple  taxation  of   the   same  transaction.   It indicates the State where the tax  can  be  levied  and also the State where it cannot.  It achieves  it  by excluding from consideration the place where the property  in the goods passed according to the law relating to sale of  goods.   The non obstante clause establishes this.   By  the  fiction created by the Explanation a sale is deemed to  have  taken place in the State where the goods are delivered as  a  direct  result  of the sale for purposes of  consumption  in  that State.  Where  there  are more States than one involved,  any  State  claiming  to tax a sale by reason of something  anterior  to  the passing of property would not be able to claim that  the  sale  took  place  there unless it was  also  the  State  of  delivery.  The Explanation is meant to explain the Article and must  be  interpreted  according to its tenor and the  Explanation  is  not to be explained with the aid of the Article because that  would   reverse  their  roles.   The  Explanation   is   not  applicable unless there are more States than one involved.  The  State  of  Bombay v. The United  Motors  (India)  Ltd.,  [1953] S.C.R. 1969, State of Travancore Cochin v.  Shanmugha  Vilas  Cashewnut Factory, [1954] S.C.R. 53,  Ramnayain  Sons  Ltd. v. Asst.  904  Commissioner  of  Sales  Tax, [1955] 2 S.C.R.  483  and  The  Bengal Immunity Company Ltd. v. The State of Bihar, [1955] 2  S.C.P. 603, considered.  (2)  that to exclude the power of taxation of the  State  of  West Bengal under Art. 286(i)(a), read with the Explanation,  the appellant companies must be able to point out some other  State  where the goods could be said to have been  delivered  as  a result of the sale for the purpose of  consumption  in  that  other State, and that where, as in the  present  case,  aviation spirit was delivered to the aircraft, there was  no  such  rival State, and therefore, the ban contained in  Art.  286(i)(a) and the Explanation, did not apply.  (3) that in the phrase " in the course of export out of  the  territory  of India " in Art. 286(i)(b) the word " export  "  does  not merely mean ’taking out of the  country’.   Export  here  means  that  the goods are being  sent  to  a  foreign  destination  at which the goods can be said to be  imported.  In the Article the notions of import and export go in pairs.  State  of Travancore-Cockin v. The Bombay Co.  Ltd.,  [1952]  S.C.R.  1112  and State of  Travancore-Cochin  v.  Shanmugha  Vilas Cashew Nut Factory, [1954] S.C.R. 53, relied on.  (4)  that aviation spirit loaded on board the  aircraft  for  consumption,  though  taken  out of  the  country,  was  not  exported since it had no destination where it could be  said  to be imported. The sales in question could not,  therefore,  be said to have occasioned the export, nor were they in  the  course  of  export.   Accordingly, Art.  286(i)(b)  was  not  applicable.  (5) that the sales must be treated as made within the State  of West   Bengal.   The  customs  barrier  did  not  set   a  terminal limit to   the  territory  of West Bengal  for  the  purposes  of  sales tax, and the sales,  though  beyond  the

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customs  barrier,  were still within the  territory  of  the  taxing State.

JUDGMENT:  CIVIL  APPELLATE,  JURISDICTION: Civil Appeals Nos.  751  of  1957 and 10 of 1958.  Appeal  from the judgment and order dated December 7,  1956,  of  the  Calcutta High Court in Matters Nos. 29  and  58  of  1956.  M.  C. Setalvad, Attorney-General of India, C. K.  Daphtary,  Solicitor-General of India, Sukumar Mitra, Sankar Ghosh  and  B. N. Ghosh, for the appellants in C. A. No 751 of 57.  M. C. Setalvad, Attorney General of India, Sankar Ghosh  and  D. N. Mukherjee, for the appellants in C. A. No. 10 of 1958.  S. M. Bose, Advocate-Generalfor the State of West  905  Bengal, B. Sen and P. K. Bose, for the respondents (in  both  the appeals).  1960.   September  27.   The  Judgment  of  the  Court   was  delivered by  HIDAYATULLAH  J.-These  two appeals on a  certificate  under  Art. 132(1) of the Constitution have been filed respectively  by  the Burmah Shell Oil Storage land Distributing  Co.,  of  India,  Ltd., and the Standard Vacuum Oil Company  (in  this  judgment  referred to as the appellant-Companies) against  a  common judgment of the High Court of Calcutta dated December  7,  1956.  The High Court was moved for writs  of  mandamus,  prohibition and certiorari under Art. 226, but the  petition  was  dismissed by D. N. Sinha, J. The matter arises  out  of  assessment to sales tax on sale of motor spirit for aviation  purposes   (shortly,  aviation  spirit)  supplied   by   the  appellant-Companies to aircraft bound for countries  abroad,  under  the Bengal Motor Spirit Sales Taxation Act, 1941,  as  amended  by  s.  2(a)(i) of the Bengal  Motor  Spirit  Sales  Taxation  (Second Amendment) Act, 1954.  The Commercial  Tax  Officer, the Commissioner of Commercial Taxes and the  State  of  West  Bengal  have been joined as  respondents  in  this  Court, as they had previously been joined in the High Court.  The  appellant-Companies  deal in  Petroleum  and  Petroleum  products, and carry on business at Calcutta.  They  maintain  supply depots at Dum Dum Airport from which aviation  spirit  is  sold  and delivered to aircraft  proceeding  abroad  and  belonging to several Companies.  It appears that such  sales  were  treated by the sales tax authorities in the  State  of  Bombay as not falling within the taxing Acts in force in the  Bombay State by reason of the provisions of Art. 286 of  the  Constitution.   The  sales tax authorities in  West  Bengal,  however,  took  a different view of the  matter,  and  after  sundry procedure resulting in assessment of tax, presented a  demand  notice  for the tax assessed which  was  paid  under  protest by the appellant Companies.  The appellant Companies  filed  petitions under Art. 226 of the Constitution  in  the  High  906  Court of Calcutta questioning the legality of the imposition  but  without  success.  They have now  filed  these  appeals  after obtaining a certificate, as already stated.  The contentions in this Court, as they were also before  the  High  Court, ’are that such sales are made in the course  of  export  of  such  aviation spirit out of  the  territory  of  India,  that  they  take place outside  the  State  of  West  Bengal,  that inasmuch as aviation spirit is  delivered  for  consumption  outside  West  Bengal, the  sales  cannot  fall

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within the Explanation to sub-cl. (a) of the first clause of  Art.  286,  and  that  unless they can  be  said  to  become  "Explanation Sales", the power to tax does not exist.  It is  argued  in support of the last contention that there is  not  even an averment in the reply of the respondents before  the  High Court that aviation spirit is delivered for consumption  within West Bengal.  The  case in the High Court was restricted to  consideration  of  supplies  to aircraft which either  proceed  to  foreign  countries   directly  from  Dum  Dum  Airport,  or   do   so  ultimately, though landing en route at some place or  places  in  the  Indian  territory.  The  case  has  been  similarly  confined  in  this Court also, and we are  not  required  to  express  any  opinion  about sales  of  aviation  spirit  to  aircraft  flying  from one place in West Bengal  to  another  place  also  within  that State, or even to  some  place  in  another State in the territory of India.  The  facts  are fortunately not’ in dispute.   Both  parties  admitted the procedure for the supply of aviation spirit  to  aircraft.   Briefly described, it is as follows: Before  the  arrival  of  such  an  aircraft,  a  representative  of  the  appellant-Companies  applies to the Airport Customs  Officer  to  depute  an Officer to supervise the  refuelling  of  the  aircraft.   After  the aircraft lands, the  captain  or  the  Ground  Engineer  gives instruction about  the  quantity  of  aviation  spirit required, and on permission being given  by  the Customs authorities, the stated quantity is delivered in  the presence of the Customs Officer deputed.  Details of the  delivery are entered in a delivery receipt, which  907  is  signed by the representative of the appellant  Companies  and  the  Customs Officer deputed.  Duty  drawback  shipping  bills  are also drawn up to show the’ quantity  of  aviation  spirit  and  are  countersigned  by  them  and  also  by   a  representative of the aircraft.  Later, claims for refund of  customs duty are made, and refund is granted.  In the petition filed in the High Court, it was averred that  such  aviation  spirit is required  for  consumption  during  flight  and/or outside the territory of India, and  is  thus  delivered  for purposes of consumption outside  West  Bengal  and in some cases outside the territorial limits of India as  well.  It was also stated that it was sold in the course  of  export  outside  the  territory of India,  and  drawback  of  customs duty was obtained.  In the reply of the respondents,  it was stated that the refund of customs duty was an irrele-  vant  fact  for the purpose of assessment.  It  was  further  stated  in  the affidavit of the Commercial Tax  Officer  as  follows :  "  I further state that a foreign bound aircraft on  leaving  Dum  Dum Airport consumes a portion of the  aviation  spirit  taken  in by it at the Airport within the territory of  West  Bengal  before  it moves out of the said  territory  or  the  territory of India.  I do not admit that the entire quantity  is   used  outside  the  territorial  limits  of  India   as  alleged......  I deny that the sale of such aviation  spirit  takes place outside the State of West Bengal and state  that  the sale takes place within the State of West Bengal and the  purchaser  pays its price within the State of  West  Bengal.  The sale of such aviation spirit is completed by delivery at  the Dum Dum Airport in West Bengal."  We have mentioned this fact, because it was argued that  the  respondents had not averred clearly that aviation spirit was  sold  for  consumption within West Bengal  even  though  the  appellant Companies had denied it.  The respondents  pointed  out  that  at  least some of the  aviation  spirit  must  be

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consumed  in the State, and that this was so stated  in  the  affidavit  filed in reply to the petition and quoted by  us.  This is  908  hardly  a case for a fight on pleadings, especially  as  the  entire  procedure of the supply of aviation spirit  and  the  use to which it is put are beyond controversy.  The question  that  we  have  to consider is one  of  principle,  and  the  answer-depends  upon broad facts and not on  technicalities.  Either  the whole of the sale is within the taxing power  of  the State or it is not, and the fact that aviation spirit is  consumed  in taking off or in flying over the  territory  of  West  Bengal before it leaves that territory would  make  no  difference either way to the principles applicable.   Though  parties  entered into a debate on this part of the case,  we  do not propose to consider it, because, in our opinion,  the  question  must  be  considered  in  substance  and  not   in  abstractions.   The  liability  to sales  tax,  if  any,  is  attracted  when  aviation spirit is sold, and  immunity  can  only  be  claimed, if, as stated in Art. 286(1)(a)  and  the  Explanation, the sale can be said to take place outside  the  State  or  can be regarded under Art.  286(1)(b)  as  having  taken place " in the course of...... export of the goods out  of, the territory of India".  Before we take up these two questions, we desire to refer to  some provisions of certain Acts, which bear upon the matter.  The Indian Aircraft Act, 1934, is an Act for the control  of  the  manufacture, possession, use, operation,  sale,  import  and  export  of aircraft.  Section 16 of this  Act  provides  that  the  Central Government may, by  notification  in  the  Official Gazette, declare that any or all of the  provisions  of  the Sea Customs Act shall, with such  modifications  and  adaptations  as may be specified in the notification,  apply  to  the import and export of goods by air Sections 2(3)  and  (4)  define  "  import"  and "  export’  respectively  as  "  bringing  into  India  "  and " taking out  of  India  ".  A  notification issued under the Indian Aircraft Act, the rules  framed  thereunder  and  the Indian  Aircraft  Rules,  1920,  appointed the Civil Aerodrome, Dum Dum, a Customs Aerodrome,  and  to  that Customs Aerodrome, the provisions of  the  Sea  Customs  Act mutatis mutandis were made applicable by r.  63  (Part IX) of the Indian Aircraft Rules, 1920.  As  909  a  result, Dum Dum Airport became a Customs  Aerodrome,  and  any  aircraft  coming into India from foreign  countries  or  leaving  for  any such country has to comply  with  ordinary  Customs  formalities.   Section 42 of the Sea  Customs  Act,  which allows drawback on re-export and is applicable mutatis  mutandis, provides:       "  When any goods, capable of being easily  identified,  which  have been imported by sea into any customs-port  from  any foreign port, and upon which duties of customs have been  paid  on  importation,  are re-exported  by  sea  from  such  customs-port to any foreign port, or as provisions or stores  for use on board a ship proceeding to a foreign port  seven-  eighths......  of  such duties shall,  except  as  otherwise  hereinafter  provided, be repaid as drawback:  ".  (Provisos  omitted).  Under  s.  51, no drawback is allowed unless  the  claim  to  receive such drawback is made and established at the time of  re-export, and under s. 52, the person claiming drawback has  to make and subscribe to a declaration.  The procedure which  is  described in an earlier portion of this  judgment  bears  upon these matters.  Coming  now to the taxing Acts with which we are  concerned,

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it  may  be pointed out that the Bengal Motor  Spirit  Sales  Taxation Act, 1941, originally did not contemplate levy of a  tax  on  the  sale of aviation  spirit.   Motor  spirit  was  defined to mean,  "  any  liquid or admixture of liquids which  is  ordinarily  used  directly or indirectly as fuel for any form  of  motor  vehicle or stationary internal combustion engine, and  which  has a flashing point below 76 degrees Fahrenheit ".  Sub-section  (4)  of s. 3, which is  the  charging  section,  provided  that  no tax shall be levied on the  sale  of  any  motor  spirit  for  the purpose of aviation.   The  Act  was  amended by the Second Amendment Act, 1954, and sub-s. (4) of  s.  3 was omitted, and the proviso to the first  sub-section  was  re-enacted,  adding one more clause  to  the  following  effect  910  the tax on all retail sales of motor spirit for the  purpose  of aviation, which are effected on or after the date of  the  commencement  of  the  Bengal Motor  Spirit  Sales  Taxation  (Second  Amendment) Act, 1954, shall be charged at the  rate  of three annas per gallon ".  By  the Bengal Motor Spirit Sales Taxation (Amendment)  Act,  1955,   the  original  Act  was  further  amended.  To   the  definition  of"  motor  spirit’ quoted  by  us  earlier,  an  Explanation  was  retrospectively  added,  which  reads   as  follows:                "  Explanation-For the avoidance of doubt,  it                is  hereby  declared  that in  this  Act,  the                expression  ’  vehicle’  means  any  means  of                carriage,  conveyance or transport,  by  land,                air or water ".  The  original  Act  was again amended by  the  Bengal  Motor  Spirit  Sales  Taxation (Amendment) Act, 1957.   This  time,  among  other amendments involving rates of tax, the words  "  and which has a flashing point below 76 degrees Fahrenheit "  were  omitted  from the definition of ’motor spirit  ’.  The  result  of all these amendments was to make retail sales  of  aviation  spirit liable to sales tax, and ’retail sale’  was  defined,  at  all material times, as a sale "  by  a  retail  dealer for the purpose of consumption by the purchaser ".  After  the coming into force of the Constitution, s. 22,  in  terms  of  Art.  286,  was added  to  the  original  Act  by  paragraph 3 of, and the Eleventh Schedule to, the Adaptation  of Laws Order, 1950.  It read:  "  22(1).  Nothing in this Act shall be construed to  impose  or authorise the imposition of a tax on the sale or purchase  of motor spirit:-  (a) where the sale or purchase takes place outside the State  of West Bengal;  (b) where the sale or purchase takes place in the course  of  the  import  of such motor spirit into, or  export  of  such  motor spirit out of the territory of India; or  (c)  (omitted).  (2)  The  Explanation  to clause (1) of article 286  of  the  Constitution  shall apply for the interpretation  of  clause  (a) of sub-section (1)  911  Clauses (a) and (b) of the first sub-section do no more than  re-enact  the  prohibition  contained in  Art.  286  of  the  Constitution  with modifications to Suit motor  spirit,  and  the  Explanation  to  sub-cl. (a) of cl.  (1)  of  the  said  Article  in  the Constitution has been  applied  without  an  attempt  to modify or adopt it.  The Explanation to  sub-cl.  (a)  of the first clause of Art. 286, the meaning  of  which  was much in dispute in this case, may conveniently be quoted

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here.  It reads:-  " Explanation-For the purposes of sub-clause (a), a sale  or  purchase shall be deemed to have taken place in the State in  which  the  goods have actually been delivered as  a  direct  result  of  such  sale  or  purchase  for  the  purpose   of  consumption  in  that State, notwithstanding the  fact  that  under  the  general  laws  relating to  sale  of  goods  the  property in the goods has by reason of such sale or purchase  passed in another State ".  The  High Court of Calcutta in its judgment dealt  with  the  points  urged, and rejected them.  The reasons of  the  High  Court briefly were as follows: The learned Judge declined to  draw  any inference from the fact that customs  duties  were  refunded  as drawbacks on aviation spirit delivered  to  the  aircraft.   He  held  that he was  not  required  to  decide  whether  the appellant Companies were entitled to claim  and  receive  drawbacks of customs duty.  He then gave a  finding  that the sale was physically within the State, because  both  the  buyer  and  the purchaser were, at the  time  of  sale,  within  the  State of West Bengal even  though  delivery  of  aviation  spirit  was beyond the customs barrier.   He  then  considered the legal position in the light of Art. 286  from  three  points  of view.  He first held that it  was  not  an  inter-State  transaction, because both the parties  were  in  the  State  of  West Bengal, and  aviation  spirit  was  not  delivered outside the State.  Thus, he held that el. (2)  of  Art. 286 did not apply.  In this connection, he relied  upon  the decision of this Court in the Bengal Immunity Co.,  Ltd.  v. State of Bihar and others (1).  He next considered  (1)  [1955] 2 S.C.R. 603.  912  the matter under the first sub-clause, and held that  unless  the  fiction  created by the Explanation applied,  the  sale  must  be treated as within the State under the law  relating  to sale of goods.  In his opinion, the sale being  completed  within the State of West Bengal both as regards contract and  delivery, the fiction could not be held applicable,  because  no " outside " State was involved, even though the aircraft-  might have to consume some aviation spirit while flying over  the  "  outside  "  State.  He,  therefore,  held  that  the  Explanation  and Art. 286(1)(a) which it seeks  to  explain,  were  both  not applicable.  He then considered  the  matter  from  the point of view of Art. 286(1)(b).  He explained  on  the  authority  of the decision of this Court  in  State  Of  Travancore-Cochin  and others v. Shanmugha  Vilas  Cashewnut  Factory  and others (2) that the expression " in the  course  of  export out of the territory of India" referred to  sales  which, by themselves, occasioned the export of goods out  of  the  territory of India and not to sales for the purpose  of  export, even though the goods ultimately passed the  customs  barrier.  He pointed out that there was no foreign purchaser  to  whom  the  aviation spirit could be said  to  have  been  exported, and that aviation spirit, in fact, was consumed en  route  and  never taken to any foreign territory.   He  also  pointed  out that no bills of lading or  shipping  documents  were drawn up, and therefore there was neither an export nor  a  sale  in  the course of export out of  the  territory  of  India.  The  appellant Companies claim that these sales come  within  the exemption granted the sub-cls. (a) and (b) of the  first  clause  of Art. 286.  To claim the exemption granted by  the  first  sub-clause, they rely upon certain decisions of  this  Court, and contend that unless the sale can be said to  fall  within the Explanation, it must be treated as a sale outside  the  State of West Bengal, and is thus exempt.  With  regard

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to  the  second sub-clause, they contend that there  was  an  export  out of the territory of India inasmuch  as  aviation  spirit  was taken abroad and any sale by which it  is  taken  abroad is also exempt These  (2) [1954] S.C.R. 53.  913  arguments,  as has been shown above, were urged  before  the  High Court, but were not accepted.  These  two  arguments need to be considered  separately,  as  they have little in common.  Article 286 places restrictions  upon  the power of the States to tax sales and  purchase  of  goods,  and cuts down the amplitude of Entry No. 54  in  the  Second List of the Seventh Schedule.  Other restrictions are  also  to  be found in Part XIII of the  Constitution.   With  those  we are not concerned in these appeals.  We  are  also  not concerned with the subsequent amendment of Art. 286, nor  with the ban imposed by the second clause of the Article  on  taxes  on  sales  in the course  of  inter-State  trade  and  commerce.   We are concerned with the first clause only,  as  it stood before the amendment.  That clause is divided  into  two   sub-clauses.   The  first  sub-clause  prohibits   the  imposition of tax on the sale or purchase of goods where the  sale  or  purchase  takes  place  outside  the  State.    AD  Explanation  is  added to this sub- clause, which  has  been  quoted  by us earlier.  This Explanation has led to  a  long  controversy in this Court during which somewhat  conflicting  views have been expressed about its meaning.  This  conflict  has further been accentuated when the interplay between  the  two  clauses has been considered.  The view now accepted  is  that the bans imposed by the two clauses are independent and  separate  and each must separately be got over.  In view  of  this, we are not required to travel beyond the first  clause  in this case.  We  have heard widely divergent arguments in these  appeals.  The  learned Attorney-General who appeared on behalf of  the  appellant  Companies  read to us copious extracts  from  the  earlier  decisions of this Court, and contended that  unless  the sales could be said to fall within the Explanation so as  to  become  ’Explanation sales’, they must  be  regarded  as  having taken place outside the State of West Bengal and  for  that reason, not taxable.  According to him, they could only  become ’Explanation sales’ if aviation spirit was  delivered  for  the  purpose of consumption within the  State  of  West  Bengal.  The learned Advocate-General of West Bengal, on the  other band,  914  contended  that the Explanation did not apply to  the  facts  here,  and  that the observations in the  rulings  were  not  relevant.  The first sub-clause in its opening portion says that 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  outside the State.  It is thus  plainly  meant  that  a State is not to tax sales which take  place  outside  that  State.  But, where does a sale take place  ?  Numerous  elements go to make a sale, and they may take place in  more  than  one  State.   Under the law relating to  the  sale  of  goods,  property passes on the happening of certain  events.  When they happen, the sale is complete.  Now, a contract for  the sale of goods may be entirely within one State when  all  parties are within the State, the offer and acceptance  also  take place there, and the goods are also within that  State,  and  there,  the property in the goods passes  and  delivery  also  takes  place.   But  it  may  also  happen  that   the  constituent elements may be spread over two or more  States,

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some  of  the elements described above  falling  within  one  State  and  some  others falling within one  or  more  other  States.   Prior to the Constitution, multiple taxation of  a  single  transaction  of sale was  possible,  and  Provincial  legislation  then existing clearly demonstrates that  States  having  Some  connection with the sale because one  or  more  elements  took  place within those States, treated  this  as  sufficient  nexus between the taxing power and  the  States,  authorising them to tax sales even where property passed  in  another State.  The Constituent Assembly desired to  achieve  certain  objects in the matter of taxation, particularly  in  relation  to sales tax.  Article 286 achieves,  among  other  objects, the avoidance of this multiple taxation.  The  first sub-clause of the Article is clear in its  terms,  when it says that a State cannot tax sales which take  place  outside  the State.  The converse is also true, that  is  to  say, that a State can tax a sale of goods which takes  place  within  the  State.   By  sale here  is  meant  a  completed  transaction  by which property in the goods passes.   Before  the property in the  915  goods  passes, the contract of sale is only  executory,  and  the buyer has only a chose in action." Property in the goods  passes  either  by the fulfilment of the conditions  of  the  contract,  if any, or by the operation of  the  law relating  to the sale of goods.  Starting from the basic fact that what is to be taxed  under  the Constitution is a sale completed by the transference  of  property  in  the goods, we have to see at  what  stage  and  where this happens.  The taxable event thus cannot be  found  at  any earlier stage when the sale is not completed by  the  passing  of  property.  The critical taxable  event  is  the  passing  of property in the goods as a result of a  contract  for their sale.  The parties to the contract can agree  when  that  event is to take place, but where it happens may be  a  matter  of  some doubt and even of  difficulty.   Where  the  parties  have  not agreed as to the time of the  passing  of  property,  the law relating to the sale of  goods  furnishes  the answer.  There too, there may be the same difficulty  as  to  the  place  of the passing of property.   The  place  of  physical  delivery of the goods does not help to solve  this  difficulty,  because  delivery may, precede  or  follow  the  passing  of  property in the goods.  Delivery of  goods  is,  thus, not always an element which determines the  completion  of a sale, because the sale may be completed both before and  after  delivery.   The Constitution,  however,  thinks  in.’  terms of a completed sale by the passing of property and not  in terms of an executory contract for the sale of goods.  The essence of the matter being thus the passing of property  in  goods,, there was always a likelihood of more  than  one  State  claiming the right to tax the same transaction.   One  State  might claim that goods in which property passed  were  in that State, and hence property in the goods passed there.  Another  State might claim that the conditions precedent  to  the  passing  of property were fulfilled in that  State  and  hence  the  sale was completed by the  passing  of  property  there.   Yet another State might claim that property  passed  in that State according as one or more events connected with  the passing of property took place within that State.  916  It was to avoid this welter of confusion as far as  possible  that the Explanation was added, and it also avoided multiple  taxation.    The  Explanation  serves  two   purposes.    It  indicates  the State where the tax can be levied,  and  also  indicates the State or States where it cannot.  It  achieves

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these two purposes excluding all considerations as to  where  property the goods can be said to have passed under the  law  relating  to the sale of goods.  The purpose is achieved  by  the Explanation and particularly by the non obstante  clause  in  the  Explanation.  Any State claiming to tax a  sale  of  goods on the ground that it was completed by the passing  of  property in the goods in that State could not do so, if  the  goods as a direct result of the sale were delivered for  the  purpose  of consumption in another State.   The  Explanation  creates a fiction that the sale must be deemed to have taken  place  in  the latter State and not in the State  where  the  sale  was  completed by reason of passing of  property.   It  thus discards the test of passing of property and adopts the  test  of delivery ’as a direct result of such sale  for  the  purpose of consumption in that State’.  Where more than  one  State  is  involved, any State claiming to tax the  sale  by  reason  of  something anterior to the  passing  of  property  would  not be able to claim that the sale took  place  there  unless  it was also the State of delivery, because the  sale  is  complete only on the passing Of property, and  till  the  sale is complete, liability to tax does not arise.  Once the  sale  is complete, the delivery State gets the right to  tax  the sale by the fiction introduced.  Now,  the Explanation must be’ interpreted according to  its  own  tenor,  and it is meant to explain el.  (1)(a)  of  the  Article  and not vice versa.  It is an error to explain  the  Explanation  with  the  aid of  the  Article,  because  this  reverses their roles.  The Explanation discards the test  of  passing  of property, and adopts the test of delivery  as  a  direct result of the sale for purposes of consumption.  This  delivery  may be in the State where the passing of  property  also took place, but then, there is no difficulty.  The sale  is then entirely within the State.  The sale is outside  917  the  State only when the passing of property takes place  in  the  State, but that is not the State where the  goods  have  been  actually delivered as a direct result of the sale  for  purposes  of  consumption in that State.   The  Constitution  has, thus, for certain cases shifted and confined the  situs  of the taxable event to the State of the delivery of  goods;  but it must be remembered that this delivery,may precede  as  well  as follow the passing of property.  It is,  therefore,  plain  that no single element of the contract of sale is  by  itself  a decisive factor in determining which State  is  to  tax the sale where there are more States than one  involved,  except  the test of actual delivery of the goods in a  State  as  a direct result of the sale for purposes of  consumption  in  that  State, and it is that State and  that  State  only  which  has  the right to tax the sale and none  other.   The  Explanation is not applicable, unless there are more  States  than  one involved.  It is only a key to find out  which  of  the States is competent to tax and which are not, and is  by  no  means  a  definition of an ’outside  sale’.   It  is  an  Explanation,  which  determines  which State  out  of  those  connected with the transaction of sale can tax it.  The interpretation which we have placed upon the first  sub-  clause  of  Art. 286(1) is substantially the  same,  as  was  placed  in the earlier rulings of this Court.  In The  State  of Bombay and another v. The United Motors (India) Ltd.  and  others  (1),  it  was  pointed  out  that  the   Explanation  formulated an easily applicable test to find out an ’outside  sale’  and  this,  it was said, was done "  by  defining  an  inside sale ". It was observed further:  " Are the goods actually delivered in the taxing State, as a  direct  result  of a sale or purchase, for  the  purpose  of

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consumption  therein ? Then, such sale or purchase shall  be  deemed  to  have taken place in that State and  outside  all  other States ".  Certain reasons were given why this test was adopted, and it  is  these  reasons and their effect on  the  second  clause,  which led to a re-examination of the subclause in The Bengal  Immunity Company Limited v.  (1) (1953) S.C.R. 1069.      117  918  The  State  of Bihar and others (1).  The majority  in  that  case  touched upon the various grounds which  were  advanced  before  this  Court,  but declined  to  express  "any  final  opinion  upon the matter ". The case went on to decide  that  the  bans  imposed  by  the two clauses  of  Art.  286  were  independent, and needed to be separately enforced.  But,  on  the  meaning  of  the Explanation,  no  different  view  was  expressed.   Again,  in M/8.  Ramnarain Sons Ltd.  v.  Asst.  Commissioner of Sales Tax and others(2), it was observed  as  follows:  "So  far as article 286(1)(a) is concerned, the  Explanation  determines by the legal fiction created therein the situs of  the  sale  in the case of transactions  coming  within  that  category  and  when a transaction is thus determined  to  be  inside   a  particular  State  it  necessarily   becomes   a  transaction  outside  all other States.  The  only  relevant  enquiry for the purposes of article 286(1)(a), therefore, is  whether  a transaction is outside the State and once  it  is  determined by the application of the Explanation that it  is  outside the State it follows as a matter of course that  the  State  with reference to which the transaction can  thus  be  predicated  to be outside it can never tax  the  transaction  (Italics supplied).  Now,  in  so far as this case is concerned,  the  words  the  Explanation determines by the legal fiction created  therein  the  situs  of the sale in the case of  transactions  coming  within  that category " in the extract last  quoted,  become  important.  The first question to consider is whether  these  cases  can  be  governed by the  Explanation  at  all.   The  learned  Attorney-General  contends that the  power  to  tax  these  transactions  can  only be found if  the  sales  were  ’Explanation  sales’,  in  the sense  that  the  goods  were  delivered as a direct result of the sale for consumption  in  West Bengal.  In our opinion, the explanation can apply only  if more than one State is involved in the same  transaction.  When there is no other State in which the goods can be  said  to be delivered for consumption, apart from the State  where  the  property  in the goods passed, the Explanation  is  not  needed as a key.  The  (1) [1955]  2 S.C.R. 603.  (2) [1955]  2 S.C R. 483 492.  919  power to tax in those circumstances which is exercisable  by  virtue  of  transfer of title to the property, can  only  be  taken away if there be some other State in’ which the  goods  as   a  direct  result  of  the  sale  were  delivered   for  consumption.   But  if  there is no such  other  State,  the  question does not arise.  In  the present cases, there is no such rival State.   Where  the  purchaser  buys  goods  in  West  Bengal  for  his  own  consumption, the test of an ’inside sale’ is satisfied  when  the  property in the goods passes in the same State and  all  the elements of the contract of sale also take place  inside  it.   Where the property in the goods passes to a buyer  who  is   also  the  ’ultimate  ,consumer,  the  terms   of   the

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Explanation are themselves satisfied.  To exclude, thus, the  powers  of  taxation  of  the  State  of  West  Bengal,  the  appellant  Companies  must be able to point out  some  other  State where the goods can be said to have been delivered  as  a  direct result of the sale for the purpose of  consumption  in  that other State.  Unless they can do so-and  they  have  not  so done before us-they cannot invoke  the  Explanation,  and the cases, to borrow the language of the last quotation,  cannot  be  said  to  be "within that  category  ".  In  our  opinion,  the  learned Advocate-General of West  Bengal  was  right in his argument (which was accepted by the High Court)  that the ban contained in Art. 286(1)(a) and the Explanation  does not apply.  The  appellant  Companies next rely upon  Art.  286  (1)(b),  which provides that:-                " 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                in the course of the......... export  of goods                out of, the territory of India ".  The  contention  is  that  the sales  in  question  must  be  regarded as having taken place in circumstances which exempt  sales  under the sub-clause.  This the  appellant  Companies  argue  from  the  following facts that  aviation  spirit  is  delivered outside the customs barrier, that aviation  spirit  is taken out of the territories of India, and that the sales  occasion this  920  export.  They rely upon the definition of ’export’ in  other  Acts to show that the word means no more than ’taking out of  the country’.  This  clause of the Article has been construed  on  previous  occasions by this Court, and what is meant by the expression  " in the course of " has been well. established.  Indeed, in  State  of  Mysore v. Mysore Spinning and  Manufacturing  Co.  Ltd. (1), this Court observed that the point could no longer  be  said  to  be  at  large.   Fortunately,  there  is  less  disagreement on this point than on the interpretation of the  Explanation,  and it is sufficient to refer to  the  leading  decisions  of this Court.  The earliest case on the  subject  is  State of Travancore-Cochin and others v. The Bombay  Co.  Ltd.  (2), where four possible meanings of the expression  "  in the course of " were considered.  It is not necessary  to  refer to all of them here, and it is sufficient to point out  that  of the view that the clause is not restricted  to  the  point  of  time at which goods are exported from  India  and  that  the series of transactions which necesssarily  precede  export of goods also come within the purview of the  clause,  it  was said that it was too wide.  It was observed by  this  Court that:  "A  sale  by  export thus 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.   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  constitute  an export sale, whichever first occurs can well be  regarded  as taking place in the course of the other."  The  meaning of these observations was further explained  in  State  of  Travancore-Cochin and others v.  Shanmugha  Vilas  Cashew Nut Factory and Others (3).  It was observed (p.  62)  that  the  words "export out of " in this  context  did  not

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refer  to  the article or commodity exported, and  that  the  reference to "the  (1) A.I.R. 1958 S. C. 1002.     (2) [1952] S.C.R. 1112.  (3) [1954] S.C.R. 53.  921  goods " and to the "territory of India " made it clear  that  the words " export out of " meant the exportation out of the  country.  It was then added that,  "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."  This  inter-connection of the sale sought to be  taxed  with  the  course  of export was emphasised again in  clear  terms  thus :  "   The  phrase  ’integrated activities’  was  used  in  the  previous  decision to denote that ’such sale’ (i.e., a  sale  which occasions the export) I 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 export-were said to be integrated.  A  purchase  for the purpose of export like production or manufacture for  export, is only an act preparatory to export and cannot,  in  our  opinion, be regarded as an act done I in the course  of  the  export of the goods out of the territory of India’  any  more than the other two activities can be so regarded."  From the views here expressed, it follows that every sale or  purchase  preceding  the  export is not  necessarily  to  be  regarded  as  within  the  course of  export.   It  must  be  inextricably  bound  up  with  the export,  and  a  sale  or  purchase unconnected with the ultimate export as an integral  part  thereof is not within the exemption.  It may  thus  be  taken as settled that sales or purchases for the purpose  of  export  are  not protected, unless the  sales  or  purchases  themselves  occasion the export and are an integral part  of  it. The views expressed in these two cases were accepted and  applied  in  State of Madras v. Gurviah Naidu and  Co.  Ltd.  (1),  Kailash Nath v. State of U.P. (2), State of Mysore  v.  Mysore   Spinning  and  Manufacturing  Co.  Ltd.   (3)   and  Gordhandas Lalji v. B. Banerjee  (1) A.I.R. 1956 S.C. 158.       (2) A.I.R. 1057 S.C. 790.  (3) A.I.R. 1958 S.C. 1002.  922  and  others  (1).   These cases do not  advance  the  matter  further,  and  it is, therefore, not necessary to  refer  to  them in detail.  In  the earlier cases, it was not necessary to  explain  the  meaning  of  the word ’export’, because there was  always  a  foreign  buyer to whom the goods were ultimately  sent.   In  none of the cases the facts found here were present.   Here,  the  buyer does not export the goods to a  foreign  country,  but purchases them for his own use on  the  journey  of  the  aircraft to foreign countries.This difference is vital,  and  makes the position of    the    appellant   Companies,    if  anything, weaker.  It is for this reason that the  appellant  Companies  depend  on a wide meaning of the  word  ’export’,  which  they  illustrate from other Acts where  the  word  is  tantamount  to  "taking  out of the  country’.   We  are  of  opinion  that  this  meaning cannot be  given  to  the  word  ’export’  in the clause.  The word ’export’ may  conceivably  be used in more senses than one.  In one sense, ’export’ may  mean  sending or taking out of the country, but  in  another  sense,  it  may  mean  sending goods  from  one  country  to  another.    Often,,   the  latter  involves   a   commercial

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transaction  but not necessarily.  The country to which  the  goods  are thus sent is said to import them, and  the  words  ’export’  and import’ in this sense are  complementary.   An  illustration  will express this difference  vividly.   Goods  cannot  be  said to be exported if they are ordered  by  the  health  authorities to be destroyed by dumping them  in  the  sea,  and for that purpose are taken out of the  territories  of India and beyond the territorial waters and dumped in the  open  sea.  Conversely, goods put on board a  steamer  bound  for  a foreign country but jettisoned can still be  said  to  have  been  exported’, even though they do not  reach  their  destination.   In the one case, there is no export,  and  in  the  other, there is, though in either case the goods go  to  the  bottom of the sea.  The first would not be  within  the  exemption even if a sale was involved, while any sale in the  course  of  the second taking out would be.   In  both,  the  goods were taken out of the country.  The difference lies in  (1) A.I.R. 1958 S.C. 1006.  923  the  fact that whereas the goods, in the first example,  had  no  foreign destination, the goods, in the  second  example,  had.  It means, therefore, that while all exports involve  a  taking  out  of  the country, all goods  taken  out  of  the  country cannot be said to be exported.  The test is that the  goods must have a foreign destination where they can be said  to  be imported.  It matters not that there is  no  valuable  consideration from the receiver at the destination end.   If  the  goods are ex. ported and there is sale or  purchase  in  the course of that export and the sale or purchase occasions  the export to a foreign destination, the exemption is  earn.  ed. Purchases made by philanthropists of goods in the course  of export to foreign countries to alleviate distress  there,  may still be exempted, even though the sending of the  goods  was  a not a commercial venture but a charitable  one.   The  crucial  fact  is  the sending of the  goods  to  a  foreign  destination  where they would be received as  imports.   The  two notions of export and import, thus, go in pairs.  Applying  these  several tests to the cases on hand,  it  is  quite plain that aviation spirit loaded on board an aircraft  for  consumption,  though taken out of the country,  is  not  exported since it has no destination where it can be said to  be  imported, and so long as it does not satisfy this  test,  it cannot be said that the sale was in the course of export.  Further,  as  has already been pointed out,  the  sales  can  hardly  be said to ’occasion’ the export.  The seller  sells  aviation spirit for the use of the aircraft, and the sale is  not  integrally  connected with the taking out  of  aviation  spirit.  The sale is not even for the purpose of export,  as  explained  above.   It does not come within  the  course  of  export, which requires an even deeper relation.  The  sales,  thus, do not come within Art. 286 (1)(b).  These  sales must, therefore, be treated as made within  the  State of West Bengal.  The customs barrier is a barrier  for  customs purposes, and duty drawback may be admissible if the  goods  once  imported  are taken out of  the  country.   The  customs  duty drawbacks have nothing to do with the sale  of  aviation  924  spirit,  which  takes place in West Bengal.   The  cus  toms  barrier  does not set a terminal limit to the  territory  of  West  Bengal  for sales tax purposes.  The sale  beyond  the  customs  barrier is still a sale, in fact, in the  State  of  West  Bengal.   Both the buyer and the seller  are  in  that  State.  The goods are also there.  All the elements of  sale  including delivery, payment of price, take place within  the

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State.  The sale is thus completely within the territory  of  the  taxing State.  No outside State is involved  where  the  goods can be said to have been delivered for consumption  as  a  direct  result  of the sale that  takes  place.   Article  286(1)(a)  and the Explanation are wholly inapplicable,  and  the  sale cannot, even by a fiction, be said to  be  outside  the  State  of West Bengal.  No doubt,  aviation  spirit  is  taken out of the State and also the territory of India,  but  it  cannot  be said to have been exported or  delivered  for  consumption  in some other State.  The so-called  export  is  not occasioned by the sale, and the sale, on the authorities  cited,  is  not in the course of export’, so as  to  attract  Art. 286(1)(b).  The  decision  of the High Court was correct.   The  appeals  fail, and are dismissed with costs.  One hearing fee.                             Appeal dismissed.