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PETITIONER: K. G. KHOSLA & CO.

       Vs.

RESPONDENT: DEPUTY COMMISSIONER OF COMMERCIAL TAXIES

DATE OF JUDGMENT: 18/01/1966

BENCH: SIKRI, S.M. BENCH: SIKRI, S.M. GAJENDRAGADKAR, P.B. (CJ) SHAH, J.C. RAMASWAMI, V. SATYANARAYANARAJU, P.

CITATION:  1966 AIR 1216            1966 SCR  (3) 352  CITATOR INFO :  R          1971 SC 477  (11)  RF         1971 SC 870  (24,45)  R          1973 SC2491  (6,7,8)  RF         1974 SC1510  (5,3,11,13)  RF         1975 SC1564  (23,24,52,61,66)  R          1979 SC1160  (15)  F          1985 SC1689  (2,6)  RF         1992 SC1952  (8)

ACT: Central Sales Tar Act, 1956 (64 of 1956), s. 5(2)-Scales  in the course of import Meaning of.

HEADNOTE: The  appellant  entered into a contract with  the  Director- General of Civil Supplies, New Delhi for the supply of  axle bodies manufactured by its principals in Belgium.  The goods were inspected on behalf of the buyers in Belgium but  under the  contract  they were liable to rejection  after  further inspection  in  India.   In pursuance of  the  contract  the appellant  supplied axle-bodies to the Southern  Railway  at Perambur  and  Mysore.   The Joint  Commercial  Tax  Officer Madras  rejected  the contention of the appellant  that  the sales  were in the course of import.  He held that the  said sales  were  intra-State sales because the  seller  was  the consignee of the goods and the buyer had reserved the  right to  reject the goods even after their arrival in India.   He made an assessment under the Madras General Sales Tax Act in respect  of the supplies at Perambur and another  assessment under  the Central Sales Tax Act in respect of the  supplies at   Mysore.   The  appellant  filed  appeals  against   the assessments   but  the  Appellant   Assistant   Commissioner rejected  them.   The Tribunal held that part of  the  goods were  sold in the course of import.  Against the  Tribunal’s orders  both  parties filed two revisions each in  the  High Court.  The  High Court allowed the petitions filed  by  the State  and  rejected those filed by the assessee.   It  held that  "before  a  sale can be said to  have  occasioned  the impart  it is necessary that the sale should  have  preceded

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the  import" and as the sale had not taken place at  Belgium there was no question of sale occasioning the impart of  the goods.   The  appellant then came to this Court  by  special leave.   On  behalf  of  the  respondents  two   preliminary objections were raised : (1) The appellant had not  complied with  O.Xlll  r. 2 of the Supreme Court Rules,  1950  before coming  to this Court; (2) The appellant had filed only  two appeals  in  this  Court while  the  High  Court’s  judgment covered four revision petitions. HELD  :  (i)  The appellant had not  filed  a  petition  for certificate  before  the Madras High Court  as  required  by O.XIII  r. 2 because of the view of that High Court that  no such  petition  lay  in  Revenue  matters.   Therefore  non- compliance with O.XIII r. 2 could be condoned. (ii)Two  revisions  were  filed in the High  Court  by  the appellant and two by the State in respect of two  assessment orders and they were disposed of by a common judgment.   The subject  matter of the four revisions were two  assessments, one  under  the Madras General Sales Tax Act and  the  other under  the Central Sales Tax Act.  The appellant  was  quite right in filing two appeals before this Court. [356 B-D] (iii)Section 5(2) of the Central Sales Tax Act does not lay  down any condition that before a sale could be said  to have occasioned import it is                             353 necessary  that  the sale should have preceded  the  import. The High Court wrongly held so. [358 D-E] Tata  Iron & Steel Co. Ltd. v. S. R. Sarkar, [1961] 1 S.  C. R. 379, relied on. The Cement Marketing Co. of India v. State of Mysore, [1963] 3 S.C.R. 777 State Trading Corporation of India v. State  of Mysore, [1963] 3 S.C.R. 792 and Singareni Collieries Co.  v. Commissioner of Commercial Taxes, Hyderabad, [1966] 2 S.C.R. 190, referred to. (iv)In  the  present  case  it was  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 those  goods  being diverted by the assessee for  any  other purpose.  Consequently the sales took place in the course of import of goods within s. 5(2) of the Act and were therefore exempt from taxation. [358 F]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143 and  144 of 1965. Appeal  by  special leave from the judgment and  order  date August  16, 1963 of the Madras High Court in Tax Cases  Nos. 100, 219, 220 and 225 of 1962. Veda Vyasa and K. K. Jain, for the appellant. A.Ranganadham  Chetty and A. V. Rangam, for the  respon-- dent. The Judgment of the Court was delivered by Sikri,  J. These two appeals by special leave  are  directed against  the judgment of the Madras High Court in Tax  Cases Nos.  100,  219,  220  and 225  of  1962,  and  involve  the interpretation  of s. 5(2) of the Central Sales Tax Act  (64 of  1956)-hereinafter referred to as the Act.  The  relevant facts  are  these.   The  appellant  K.  G.  Khosla  &  Co., hereinafter  referred  to  as the assessee  entered  into  a

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contract with the Director-General of Supplies and Disposal, New Delhi, for the supply of axle-box bodies.  According  to the  contract the goods were to be manufactured in  Belgium, and  the D.G.I.S.D., London, or his representative,  was  to inspect the goods at the works of the manufacturers.  He was to  issue an inspection certificate.  Another inspection  by the  Deputy Director of Inspections, Ministry of W.H. &  S., Madras,  was provided for in the contract.  It was his  duty to issue inspection notes on Form No. WSB.65 on receipt of a copy  of  the  Inspection Certificate  from  the  D.G.I.S.D. London  and after verification and visual  inspection.   The goods were to be manufactured according to specifications by M/s La Brugeoies.  ET.  Nivelles, Belgium.  The 354 assessee  was entitled to be paid 90% after inspection-  and delivery  of the stores to the consignee and the balance  of IO  % was payable on final acceptance by the consignee.   In the  case  of deliveries on F.O.R. basis, the  assessee  was entitled  to  90%  payment  after  inspection  on  proof  of despatch  and  balance 10% after receipt of  stores  by  the consignees in good condition.  The date of delivery was  "in 8 months ex-your principal’s works from the date of  receipt of order and the approved working drawings, i.e. delivery in India  by 31-7-1957, or earlier." The assessee was  entirely responsible for the execution of the contract.  Clause 17(1) of the Contract provides:               "The  Contractor is entirely  responsible  for               the execution of the contract in all  respects               in accordance with the terms and conditions as               specified in the A/T and the schedule  annexed               thereto.  Any approval which the Inspector may               have given in respect of the stores, materials               or   other   particulars  and  the   work   or               workmanship involved in the contract  (whether               with  or  without  test  carried  out  by  the               contractor’s  Inspector)  shall not  bind  the               purchaser .and notwithstanding any approval or               acceptance given by the Inspector, it shall be               lawful  for  the consignee of  the  stores  on               behalf  of the Purchaser to reject the  stores               ,,on  arrival  at the destination,  if  it  is               found   that  the  stores  supplied   by   the               contractor  are  not in  conformity  with  the               terms  and conditions of the Contract  in  all               respects," Further,  the assessee was responsible for the safe  arrival of  the  goods at the destination.  By  an  endorsement  the D.G.I.S.D.,  London, was requested to  issue  pre-inspection delay  reports  regularly to all  concerned,  including  the Railway Liaison Officer, C/o D.G.S. & D. Shahjahan Road, New Delhi.   He  was  also requested to endorse  copies  of  the Inspection  Certificates  to  the  Director  of  Inspection, Ministry  of W.H. & S. Bombay.  It is further found  by  the Sales  Tax  Appellate Tribunal that  "the  Belgian  manufac- turers,  after  manufacture,  consigned  the  goods  to  the appellants  by  ship  under bills of  lading  in  which  the consignee  was  the appellants themselves.  The  goods  were consigned to Madras Harbour, cleared by the appellant’s  own clearing  agents and despatched for delivery to  the  buyers thereafter." In  pursuance of this contract, the assessee supplied  axle- box  bodies of the value of Rs. 1,74,029.50 to the  Southern Railway   at  Perambur  Works  and  of  the  value  of   Rs. 1,32,987.75   to  Southern  Railway,  Mysore.    The   Joint Commercial  Tax  Officer  held that the  former  sales  were

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liable to tax under the Madras General Sales Tax Act and the latter  under  the Central Sales Tax Act.  He  rejected  the contention  of  the  assessee that the  sales  were  in  the ,,,course of import.  He held that "there was no privity  of contract 355 between  the  foreign  seller and  the  Government  for  the goods.,  The  goods were shipped only as the  goods  of  the seller  and intended for them.  They were cleared  as  their own  and  delivered  after clearance.   The  transaction  is therefore one of intrastate sales and not one in the  course of  import.  The sale is completed only when the  goods  are delivered in this state and so it is not occasioning the im- port.   It is also seen from the contract of sale  that  the terms  of delivery are F.O.R. Madras.  Again Cl. (1) of  the contract says that any approval where the Inspector may have given  in respect of stores materials or  other  particulars and  the work or workmanship involved in the contract  shall not  bind the purchaser and notwithstanding any approval  or acceptance given by the Inspector it shall be lawful for the consignee of the stores on behalf of the purchaser to reject the  stores on arrival at the destination.  It will be  seen from  the  words  underlined by me that  the  purchaser  has reserved  the  right  to reject the  goods  even  though  an inspection  of the goods might have been made.  So there  is no  force in the argument of the dealer that the goods  were appropriated to the contract of sale." The  assessee filed two appeals but the Appellate  Assistant Commissioner,   agreeing  with  the  Joint  Commercial   Tax Officer,  rejected the appeals.  The Appellate  Tribunal  on appeal held that the property in the goods had not passed on to  the  buyers even while the goods were with  the  Belgian manufacturers  and that the sale by the appellants  had  not occasioned the imports.  The Tribunal, however, accepted the contention  of the assessee that sales to the extent of  Rs. 22,983.75 and Rs. 10,987.50 had taken place in the course of import  as the goods had been appropriated to  the  contract while the goods were on the high seas. The assessee then filed two revisions before the High  Court and  the  Deputy Commissioner of Commercial  Taxes,  Madras, filed  two revisions challenging the deductions of  the  two sums  of  Rs. 22,983.75 and Rs. 10,987.50.  The  High  Court allowed  the petitions filed by the State and dismissed  the petitions filed by the assessee.  It rejected the contention of  the  assessee  that the property in the  goods  must  be deemed  to  have  passed at the stage when  the  goods  were approved  by  the  representative  in  the  factory  of  the manufacturers  at Balgium.  The High Court further  rejected the contention of the assessee that the sale by the assessee to  the Government Department had occasioned the  import  on the  ground  that  "before  a  sale  can  be  said  to  have occasioned the import, it is. necessary that the sale should have  preceded  the import", and as the sale had  not  taken place  at  Belgium  there  was  no  question  of  the   sale occasioning the import of the goods. Before  we  deal  with the merits of the  appeals,  we  must dispose   of  two  preliminary  objections  raised  by   Mr. Ranganadham Chetty, 356 on behalf of the respondents.  Basing himself on  Management of  Hindusthan Commercial Bank Ltd. v. Bhagwan Dass  (1)  he urged  that ,the assessee should have filed  an  application for  leave to appeal before the High Court  before  applying for  special leave.  We see no force in this objection.   It is  common  ground  that the Madras High Court  had  at  the

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relevant   time   consistently  taken  the  view   that   no application for leave to appeal to Supreme Court Jay  before the  High  Court  in matters involving  revenue.   In  these circumstances  we  dispense with the  requirement  of  Order XIII,  r.  2 of the Supreme Court Rules,  and  overrule  the objection.   The second preliminary objection raised by  him was that the assessee should have filed four appeals and not two  appeals  because  there were  four  revision  petitions before  the High Court.  We see no force in  this  objection also.   Two revisions were filed by the assessee and two  by the State in respect of two assessment orders and they  were disposed  of by one common judgment.  The subject matter  of the  four  revisions  were two assessments,  one  under  the Madras General Sales Tax Act and the other under the Central Sales Tax Act.  In our opinion, the assessee was quite right in filing two appeals before this Court. The  learned counsel for the assessee Mr. Ved Vyasa,  raised two  points  before us : First that the sales  were  in  the course  of import within the meaning of s. 5(2) of the  Act; and  secondly  that  the property in  the  goods  passed  in Belgium  and consequently the sales were outside  the  State within the meaning of art. 286(1) (a) ,of the  Constitution. As  we are of the opinion that the assessee must succeed  on the first point it will not be necessary to deal with  ,,the second point. Section 5(2) of the Central Sales Tax Act provides               "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."               Section 3 of the Act, which deals with  inter-               state  trade and commerce may also be set  out               as  it  employs the same terminology  and  has               been interpreted by this Court.  S. 3 reads :               "A  sale or purchase of goods shall be  deemed               to  take  place in the course  of  inter-State               trade or commerce if the sale or purchase--               (a)occasions  the movement of goods  from  one               State to another; or (1) [1965] 2 S.C.R. 265.                             357               (b)is  effected by a transfer of  documents               of  title to the goods during  their  movement               from one State to another."               It  is  not  necessary  to  set  out  the  two               Explanations to s. 3. It  seems to us that the expression "occasions the  movement of  goods"  occurring in s. 3(a) and s. 5(2) must  have  the same meaning.  In Tata Iron and Steel Co. Ltd.  Bombay v. S. R.   Sarkar,(1)   Shah,  J.  speaking  for   the   majority, interpreted s. 3 as follows:               "In our view, therefore, within clause (b)  of               section 3 are included sales in which property               in the goods passes during the movement of the               goods from one State to another by transfer of               documents  of  title thereto:  clause  (a)  of               section  3  covers  sales,  other  than  those               included in clause (b), in which the  movement               of  goods  from one State to  another  is  the               result  of  a  covenant  or  incident  of  the               contract  of sale, and property in  the  goods

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             passes in either State." These observations of Shah, J., were cited with approval  by this Court in The Cement Marketing Co. of India v. The State of  Mysore(2).  This case, it is true, was not dealing  with the Central Sales Tax Act, but the Court was dealing with  a similar question arising under art. 286 of the Constitution, before its amendment.  But the same Bench, in dealing with a case arising under the Act (The State Trading Corporation of India  v.  The  State of Mysore(3)  again  approved  of  the observations  in Tata Iron and Steel Co.  case(1).   Sarkar, J., observed thus:               "The question then is, did the sales  occasion               the movement of cement from another State into               Mysore  within the meaning of the  definition?               In  Tata  Iron and Steel Co., Ltd.  v.  S.  R.               Sarkar(1)  it was held that a  sale  occasions               the  movement  of  goods  from  one  State  to               another  within  section 3(a) of  the  Central               Sales  Tax  Act,  when the  movement  "is  the               result  of  a  covenant  or  incident  of  the               contract  of sale." That the cement  concerned               in the disputed sales was actually moved  from               another State into Mysore is not denied.   The               respondents only contend that the movement was               not the result of a covenant in or an incident               of the contract of sale." This  Court then, on the facts of the case, found  that  the movement  of cement from another State into Mysore  was  the result of a covenant in the contract of sale or incident  of such  contract.  This Court did not go into the question  as to whether the property had (1)  [1961] 1 S.C.R. 379: 11 S.T.C. 655. (2) [1963] 3 S.C.R. 777:14 S.T.C. 175. (3) [1963]3 S.C.R. 792: 14 S.T.C. 188. 358 passed before the movement of the goods or not, and this was because according to the decision in Tata Iron and Steel Co. v.  S. R. Sarkar(1) it did not matter whether  the  property passed in one State or the other.  Tata Iron & Steel  Co.(1) case   was  again  followed  by  this  Court  in   Singareni Collieries   Co.  v.  Commissioner  of   Commercial   Taxes, Hyderabad(2). The  learned counsel for the respondent, Mr. A.  Ranganadham Chetty,  invited us to hold that the observations  of  Shah, J., in Tata Iron and Steel Co. (1) case were obiter, and  to consider  the question afresh.  We are unable to reopen  the question at this stage.  Shah, J., was interpreting s. 3  of the  Act, and although the Court was  principally  concerned with  the  interpretation of s. 3(b), it  was  necessary  to consider the interpretation of s. 3(a) in order to arrive at the  correct  interpretation  of  s.  3(b).   Further  these observations  were approved in The Cement Marketing  Co.  of India v.  The   State  of  Mysore(3),  The   State   Trading Corporation of India, v. The   State   of   Mysore(4)    and Singareni Collieries Co. v. Commissioner of Commercial  Tax, Hyderabad(2).  In the State Trading Corporation(4) case,  in so far as the assessment for the assessment year 1957-58 was concerned,  this Court applied the principles laid  down  in Tata  Iron and Steel Co.(1) case.  Accordingly we hold  that the High Court was wrong in holding that before a sale could be  said to have occasioned import it is necessary that  the sale should have preceded the import. The  next  question that arises is whether the  movement  of axle-box bodies from Belgium into Madras was the result of a covenant  in  the contract of sale or an  incident  of  such

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contract.   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.  A 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.  A In  the result the appeals are allowed, the judgment of  the High Court reversed and the assessment orders quashed.   The appellant  will have his costs here and in the  High  Court. One set of hearing fee. Appeals allowed. (1)  [1961] 1 S.C.R. 379: 11 S.T.C. 655.       (2) [1966]  2 S.C.R. 190. (3)  [1963] 3 S.C.R. 777: 14 S.T.C. 175. (4) [1963] 3 S.C.R. 792: 14 S.T.C. 188. 359