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PETITIONER: STATE OF TRAVANCORE-COCHIN AND OTHERS

       Vs.

RESPONDENT: SHANMUGHA VILAS CASHEW NUT FACTORYAND OTHERS.

DATE OF JUDGMENT: 08/05/1953

BENCH: SASTRI, M. PATANJALI (CJ) BENCH: SASTRI, M. PATANJALI (CJ) MUKHERJEA, B.K. DAS, SUDHI RANJAN BOSE, VIVIAN HASAN, GHULAM

CITATION:  1953 AIR  333            1954 SCR   53  CITATOR INFO :  APR        1955 SC 661  (16,26,31,34,63,123,154,169,21  RF         1955 SC 765  (32)  F          1956 SC 158  (9)  E&D        1957 SC 790  (12)  RF         1958 SC 453  (26)  F          1958 SC1002  (9,11)  F          1958 SC1006  (11)  F          1960 SC 595  (9,10)  R          1961 SC  41  (19)  D          1961 SC  65  (17)  R          1961 SC 213  (10)  RF         1961 SC 315  (11,26)  R          1961 SC1344  (5)  R          1962 SC1006  (77)  R          1962 SC1733  (11,12)  R          1963 SC 980  (10)  R          1964 SC1729  (20,35)  R          1964 SC1752  (5,11,23,26)  R          1971 SC 477  (5)  RF         1971 SC 870  (21)  R          1972 SC  23  (6)  RF         1974 SC1510  (8)  E          1975 SC1564  (10,14,15,16,24,50,59)  R          1979 SC1721  (7)  R          1980 SC1468  (15)  F          1992 SC1952  (10)

ACT:  Constitution  of India, 1950, art. 286 (1) (a), (1) (b)  and  (2)Tax  on  sale or purchase of goods-Sales  "  outside  the  State " -Sales "in the course of " import or export-Sales  "  in the course of inter-State trade or commerce " -Nature and  incidents  of--State’s power to tax-Scope of  constitutional  limitations.

HEADNOTE: Held, by (PATANJALI SASTRI C.J., MUKHERJEA, VIVIAN BOSE  and GHULAM  HASAN JJ.)-(i) Sales and purchases which  themselves occasion the export or import of the goods, as the case  may

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be, out of, or into, the territory of India come within art. 286  (1)  (b)  and  are exempt  from  State  taxation.  (ii) Purchases  in the State by the exporter for the  purpose  of export  as well as sales in the State by the importer  after the  goods have crossed the customs barrier are  not  within the  exemption. (iii) Sales in the State by the exporter  or importer  by transfer of shipping documents while the  goods are  beyond  the customs barrier are within  the  exemption, assuming  that the State power of taxation extends  to  such transactions. The word " course " etymologically denotes movement from one point to another and the expression " in the course of "  in art.  286 (1) (b) not only implies a period of  time  during which  the  movement is in progress but  postulates  also  a connected  relation.  Consequently, a sale in the course  of export out of the country 54 should  be understood in the context of art. 286 (1) (b)  as meaning  a sale taking place not only during the  activities directed  to the end of exportation of the goods out of  the country,  -but  also  as  part of  or  connected  with  such activities.   But  a purchase of goods for  the  purpose  of export is only an act preparatory to their export and not an act done in the course of the export of the goods, The  respondents purchased raw cashew nuts within the  State of Travancore-Cochin, from the neighbouring states and  also imported such nuts from Africa, for the purpose of  refining them  and  exporting them to America.  Imports  from  Africa were  made  in the following ways: (a) purchases  were  made through  intermediaries doing business as commission  agents at  Bombay who acted as agents for the respondents  charging commission; (b) the commission agents at Bombay indented the goods  on  their  own account and they  sold  the  goods  as principals  to  the respondents.  In either case  the  goods were shipped direct from Africa to a port in the Travancore- Cochin  State.  It was found as a fact that the  process  of the factory was such that the goods were not the same  goods commercially after refinement: Held, (i) as regards purchases made in the local markets  of the  State  they were not exempted under art. 286  (1)  (b); (ii)  as regards purchases made in the neighbouring  States, if the purchases were effected and delivery was taken by the respondents’  servants outside the Travancore-Cochin  State, they would be exempt under art. 286, cl. (i) (a), and if the purchases were effected by employing firms doing  commission business outside the State and deliveries were made  through normal  commercial channels the transactions would be of  an inter-State character and would fall under cl. (2) but  they would be taxable under the Sales Tax Continuance Order  (No. 7 of 1950) issued by the President under cl. (2) as such tax was  being levied before the Constitution. (iii) As  regards imports from Africa, where the Bombay merchants merely acted as  agents,  the  transactions  would  be  purchases   which occasioned the import and would be exempt under art. 286 (1) (b),  but where the Bombay merchants did not act  as  agents for  the  respondents, purchases from them would be  on  the same footing as local purchases and would not be exempt. Per  S.R. DAS J.-The Explanation to art. 286 (1) (a) is  not an exception or a proviso but only explains cl. (1) (a).  It does  not  confer taxing power on any State but  only  takes away  the power of taxation of a State in respect  of  sales and  purchases in which delivery does not take place  within the  State  by enacting that such sales shall be  deemed  to have  taken  place outside that State within  cl.  (1)  (a). Consequently,  if a sale or purchase takes place  outside  a

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State,  either  under the general law or by  virtue  of  the fiction created by the Explanation, then that State  cannot, under  (1)  (a), tax such sale or purchase.  If  a  sale  or purchase  takes  place  within a  State,  either  under  the general law or by reason of the Explanation, then, if such a sale or purchase takes place                             55 "  in  the course of " inter-State trade  and  commerce,  no State,  not even the State where the sale or purchase  takes place  as aforesaid can tax it by reason of (2), unless  and until  Parliament  by  law provides otherwise.   A  sale  or purchase  " in the course of " import or export  within  the meaning  of (1) (b) includes (i) a, sale or  purchase  which itself  occasions  the import or export as already  held  by this court, (ii) a sale or purchase which takes place  while the  goods  are on the high seas on their import  or  export journey. and (iii) the last purchase by the exporter with  a view  to  export  and the first sale by the  importer  to  a dealer  after the arrival of the imported goods.  If a  sale or  purchase  takes place within a State, either  under  the general  low  or by reason of the Explanation, then,  if  it takes  place in the course of import or export as  explained above,  no State, not even the State within which such  sale or purchase takes place can tax it by reason of (1) (b). As  regards local purchases, as those purchases  took  place with. in the State they were not entitled to the  protection of  art.  286  (1) (a), since on the findings  of  the  High Court, the goods purchased were so altered that they  cannot be  deemed to be the same as the goods which were  exported, and  the purchases cannot be said to have been made "in  the course"  of  export so as to be entitled  to  immunity  from taxation under art. 286 (1) (b).  As regards purchases  from the neighbouring States, if the goods were taken delivery of by  the  agents of the respondents outside the  State,  such purchases must, under the Explanation, be regarded as having taken  place  outside  the State and  accordingly  would  be exempt  from taxation under art. 286 (1) (a).   If  however, the goods were directly delivered to the respondents in  the Travancore-Cochin State the Explanation to art. 286 (1)  (a) will  apply in view of the finding of the High  Court  which implies  that the goods are also consumed in the State,  and the  neighbouring States will not be entitled to  tax  these sales or purchases, but the purchases are " in the course of "  inter-State trade and as such will be protected  by  (2); but as the majority of the Court have taken a different view and  as such view must prevail, such purchases will  become, as  a result of the Explanation to (1) (a),  an  intra-state purchase and will lose the protection of (2).  Even if  such purchases fall within (2), they would be liable to be  taxed under the President’s Order of 1950.  They are not protected by (1)    (b) as the goods exported are different goods. As  regards  purchases  from Africa  (1)  where  the  Bombay merchants act as agents of the respondents and pay the price and  take delivery of the shipping documents in  Bombay  the purchases  fall within (1) (a) and also (1) (b) and are  not liable  to tax as they take place outside the  State  within (1)  (a) and also "in the course of import" within (1)  (b); (ii)  where the African sellers ship the goods on their  own initiation  or on that of their agents and while  the  goods are on the high seas they are 56 purchased  by the, respondents’ Bombay agents, the  sale  or purchase  would be exempt under (1) (a) and under  (1)  (b); (iii)  where the respondents place separate orders with  the same  commission  agent at Bombay and the  latter  places  a

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consolidated  order  with  the African  seller  on  his  own responsibility  and  the Bombay agent after paying  for  the entire  lot, prepares a separate invoice for each  of  their constituents and the latter receive the delivery orders from a  Travancore bank against payment and take delivery from  a Travancore warehouse the sale takes place in the Travancore- Cochin State and the goods cannot claim exemption under  (1) (a), (1) (b) or (2) of art. 286.

JUDGMENT: CIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 26, 27 and 30 to 36 of 1952. These were appeals under article 132 (1) of the Constitution from the Judgment and Order dated 10th January, 1952, of the Travancore, Cochin High Court in Original Petitions Nos.  5, 19,  34,  35, 71, 83, 88, 89 and 90 of  1951,  quashing  the assessments  severally   made  on the  respondents  in  each appeal  under the Travancore-Cochin General  Sales-Tax  Act, 1124  M.  E.  The respondents who were  assessed  under  the Travancore  General Sales Tax Act which came into  force  in March, 1949, claimed exemption from sales tax in respect  of the  purchases made by them after the Constitution  of  1950 came into force till the end of the accounting year 1950  on the  ground that under article 286 (1) (b) the State had  no power  to  levy  tax  on  such  purchases.   The  sales  tax authorities  having  rejected  the  claim  the   respondents applied  to  the High Court under article 226 and  the  High Court quashed the assessments so far as they related to  the said  period.   The  State preferred  the  present  appeals. These appeals were heard in part with certain other  appeals in September and October, 1952, but as it was found that the material facts had not been clearly ascertained by the  High Court the cases were remitted to the High Court for  further enquiry  and findings.  The connected appeals were  disposed of  on  the  16th  of October, 1952,  and  the  judgment  is reported as the State of Travancore-Cochin v. The Bombay Co. Ltd. ([1952] S.C.R. 1112).  The hearing of these appeals was continued after the High Court had returned the record  With its findings.                              57 T.   N.  Subrahmanya Iyer, Advocate-General  of  Travancore- Cochin  State  (T.  R. Balakrishna Iyer, with him)  for  the appellants. M.   K.  Nambiyar (N.  Palpu, with him) for the  respondents in Civil Appeals Nos. 26, 27 and 30 to 36. M.   C. Setalvad, Attorney-General for India and C.    K. Daphtary, Solicitor-General for India (Porus A.   Mehta, with them) for the Union of India. V.   K.  T.  Chari,  Advocate-General  of  Madras  (V.    V. Raghavan, with him) for the State of Madras. V.   Rajaram Iyer, Advocate-General of Hyderabad (B.  N. Sastri, with him) for the State of Hyderabad. S.   M. Sikri, Advocate-General of Punjab (M.   L.Sethi,with him) for the State of Punjab. A.   R.  Somanatha  Iyer,  Advocate-General  of  Mysore  (R. Ganapathy Iyer, with him) for the State of Mysore. K.   B.  Asthana for the State of Uttar Pradesh. (States  of Bombay and Orissa were not represented.) 1953.   May  8.  The  judgment  of  the  Chief  Justice  and Mukherjea, Vivian Bose and Ghulam Hasan JJ. was delivered by the  Chief  Justice.   S. R. Das  J.  delivered  a  separate judgment. PATANJALI  SASTRI C. J.-These are appeals from an  order  of

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the High Court of Travancore-Cochin quashing the assessments severally  made on the respondents in each appeal under  the Travancore-Cochin General Sales Tax Act, 1124 M. E. (Act No. XVIII of 1124 M.    E.)  (hereinafter  referred  to  as  the Act). The  Act provided by section 3 for the levy of a tax on  the total turnover of every dealer for each year.  " Turnover  " is the aggregate amount for which goods are either bought or sold by a " dealer" [section 2(d)], who is a person carrying on  the business of buying and selling goods [section 2  (d) ]. " Sale", with all its grammatical variations and  cognate expressions,  is  defined as meaning,  among  other  things, every transfer 8 58 of  the  property in goods by one person to another  in  the course of trade or business for cash or for deferred payment or other valuable consideration [section 2(h)]. The sale  or purchase  is to be deemed to have taken place in the  State, wherever  the  contract might have been made, if  the  goods were actually in the State when the contract was made or, if the  goods are actually produced in the State, at  any  time after the contract in respect thereof was made.  By  section 3  (4) the turnover is to be determined in  accordance  with such  rules  as may be prescribed, and rule 4 of  the  rules framed under the Act prescribes that, in the case of certain goods including " cashew and its kernel", the gross turnover of a dealer is the amount for which the goods were bought by him,  and in all other cases the amount for which the  goods were sold by him. The respondents are dealers in cashew-nuts in the State, and their  business consists in importing raw  cashew-nuts  from abroad and the neighbouring districts in the State of Madras in  addition  to purchases made in the  local  market,  and, after  converting  them by means of certain  processes  into edible  kernels, exporting the kernels to  other  countries, mainly  America.   The oil pressed from the  shells  removed from  the  cashewnuts was also exported.   The  Constitution having  come into force on January 26, 1950, the  respondent in  each appeal claimed exemption under article 286 (1)  (b) in respect of the purchases made from that date till May 29, 1950,   the  end  of  the  account  year.   The  sales   tax authorities  having  rejected  the  claim,  the  respondents applied to the High Court under article 226, and that  court upheld  the claim and quashed the assessments in so  far  as they  related to the said period.  The State  has  preferred the appeals. The  appeals  were heard in part along  with  certain  other appeals  from the same order, and as it was found  that  the material  facts  relating to the course of business  of  the respondents  in  the present appeals had  not  been  clearly ascertained,  these appeals were remitted to the High  Court for further enquiry and                              59 findings in regard to those matters.  The connected appeals, however,  in  which  the  materials  on  record  were  found sufficient for their disposal were finally decided, and  the decision  is reported in The State of  Travancore-Cochin  v. The  Bombay  Co. Ltd. (1) (hereinafter referred  to  as  the previous decision). Before considering how far the cashew-nut purchases made  by the  respondents are, on the findings returned by  the  High Court,  entitled to the protection of article 286(1)(b),  it is   necessary  first  to  ascertain  the  scope   of   such protection.   That  clause, so far as it is  material  here,

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reads thus: 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- (a) *           *            *            *          *   * (b)in the course of the import of the goods into, or  export of the goods out of, the territory of India. In  the  previous  decision  this  Court  referred  to  four different  views  then  adumbrated  in  the  course  of  the argument as to the meaning and scope of the said  sub-clause as follows: (1)  The  exemption  is  limited  to  sales  by  export  and purchases  by  import,  that  is to  say,  those  sales  and purchases  which occasion the export or import, as the  case may  be,  and  extends  to  no  other  transactions  however directly or immediately connected, in intention or  purpose, with  such sales or purchases, and wheresoever the  property in the goods may pass to the buyer. (2)  In  addition  to the sales and purchases  of  the  kind described  above, the exemption covers the last purchase  by the  exporter and the first sale by the importer if any,  so directly  and proximately connected with the export sale  or import purchase as to form part of the same transaction. (3)  The  exemption  covers only those sales  and  purchases under   which  the  property  in  the  goods  concerned   is transferred from the seller to the buyer during (1)  [1952] S.C.R. 1112. 60 the  transit,  that is, after the goods begin  to  move  and before they reach their foreign destination. (4)  The view which found favour with the learned Judges  of the High Court, namely, "the clause is not restricted to the point  of time at which goods are imported into or  exported from  India;  the series of transactions  which  necessarily precede  export  or  import of goods will  come  within  the purview of this clause." This Court, however, found it unnecessary for the purpose of the cases then before it to go any further than to hold that "  whatever else may or may not fall within article 286  (1) (b),  sales  and  purchases which  themselves  occasion  the export or import of the goods, as the case may be, out of or into  the territory of India come within the exemption"  and that the third view set out above, which was put forward  on behalf  of the State of Bombay and which seeks to limit  the operation  of the clause exclusively to sales and  purchases effected during the transit of the goods, was too narrow and could not be accepted. It  may be mentioned at once, to clear the ground,  that  if the  Bombay view was considered to be too narrow,  the  view expressed  by the Court below cannot but be regarded as  too wide.   This, indeed, was recognised by learned counsel  who appeared in the cases, none of whom made any serious attempt to  support  it.  Nor was any question  raised  or  argument advanced as to the scope and effect of clause (2) of article 286,   for,  although  the  respondents  in  two  of   these appeals(1) purchased cashew-nuts in the adjoining  districts of the State of Madras during the period in question, it was not  disputed  that such purchases unless they  were  exempt under  article 286(1)(a), would fall within the  explanation to clause (1) (a) as interpreted in the majority  decision’, of  this court in the recent case of The State of Bombay  v. United  Motors  (India)  Ltd. (2), or under  the  Sales  Tax Continuance Order, 1950 (C. O. No. 7 of 1950), issued by the President  on  January 26, 1950, in exercise of  the  powers conferred  by the proviso to clause (2) of article 286,  and

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would, in either case, be taxable. (1) Civil Appeals Nos. 33 and 36 of 1952,  (2) [1953] S.C.R. 1069. 61 With  reference  to  the  aforesaid  decision,  it  may   be mentioned  in passing that in order to remedy what was  felt to  be the unsatisfactory position in regard to the levy  of tax  by  the  States  in  America  on  sales  in  interstate commerce, the North Carolina Department of Revenue  proposed that Congress should pass legislation authorising the States to  tax certain sales in interstate commerce.  The  proposed bill ran thus: " That all taxes levied by any State upon sales of  property or  measured  by  sales of property may be  levied  upon  or measured by sales of property in inter-state commerce by the state   into  which  the  property  is  moved  for  use   or consumption  therein,  in the same manner and  to  the  same extent that said taxes are levied upon or measured by  sales of property not in inter-state commerce.  Provided: that  no State shall discriminate against sales of property in inter- state commerce; nor shall any state discriminate against the sale of the products of any other state.  Provided, further: that no state shall tax the sale in inter-state commerce  of property  transported  for  the purpose  of  resale  by  the consignee  as  a merchant or as a  manufacturer.   Provided, further: that no county, city, or town, or other subdivision of  any  State shall levy a tax upon or measure any  tax  by sales of property in interstate commerce"(1). It  is  interesting to note that the bill  sought  to  bring about   substantially  the  same  result  as  the   combined operation of article 286 clause (1) (a) explanation,  clause (2) and article 304 as they were interpreted by the majority in  that decision would produce.  It is possible that  these provisions of our Constitution were inspired by the proposed bill. The only question debated before us was whether in  addition to  the export-sale and import-purchase, which were held  in the  previous decision to be covered by the exemption  under clause  (1)  (b), the following two categories  of  sale  or purchase   would  also  fall  within  the,  scope  of   that exemption:   (2)  See Selected Essays on Constitutional Law,  Vol.   I, Book V, P. 367 published by the Association of American  Law Schools, 1938. 62 (1)  The last purchase of goods made by the exporter for the purpose  of  exporting  them  to  implement  orders  already received  from  a foreign buyer or expected to  be  received subsequently  in the course of business, and the first  sale by the importer to fulfil orders pursuant to which the goods were  imported or orders expected to be received  after  the import. (2)  Sales  or purchases of goods effected within the  State by transfer of shipping documents while the goods are in the course of transit. As  regards the first mentioned category, we are of  opinion that  the  transactions  are not within  the  protection  of clause (1) (b) What is exempted under the clause is the sale or  purchase  of  goods taking place in the  course  of  the import  of the goods into or export of the goods out of  the territory  of India.  It is obvious that the  words  "import into"  and "export out of" in this context do not  refer  to the   article  or  commodity  imported  or  exported.    The reference  to  "the goods" and to "the territory  of  India" make  it  clear that the words "export out of"  and  "import

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into"   mean  the  exportation  out  of  the   country   and importation   into  the  country  respectively.   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.   For instance, it has been held that the words "debts due to  the bankrupt in the course of his trade" in section 15(5) of the English Bankruptcy Act, 1869, do not extend to all debts due to the bankrupt during the period of his trading but include only  debts connected with the trade [see In re,  Pryce,  ex parte  Rensburg(1).] A sale in the course of export  out  of the country should similarly be understood in the context of clause  (1)(b)  as  meaning a sale taking  place  not  -only during the activities directed to the end of exportation  of the  goods  out  of  the country but -also  as  part  of  or connected with such activities.  The time (1)  4 Ch.  D. 685 and Williams on Bankruptcy, 16th Edn., p. 307.                              63 factor  alone is not determinative.  The  previous  decision proceeded on this view and emphasised the integral  relation between the two where the contract of sale itself occasioned the  export as the ground for holding that such a  sale  was one  taking place in the course of export.  It is,  however, contended that on this principle of connected or  integrated activities  a  purchase for the purpose of  export  must  be regarded  as covered by the exemption under clause (1)  (b). We are unable to agree. 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." It  is in  that  sense  that the two activities-the  sale  and  the 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 "in the course  of  the export of the goods out of the territory of India",  anymore than the other two activities can be so regarded.  As point- ed  out by a recent writer "From the legal point of view  it is  essential to distinguish the contract of sale which  has as  its  object the exportation of goods from  this  country from other contracts of sale relating to the same goods, but not being the direct and immediate cause for the shipment of the  goods......  When  a merchant  shipper  in  the  United Kingdom  buys  for  the  purpose  of  export  goods  from  a manufacturer  in the same country the contract of sale is  a home transaction; but when he resells these goods to a buyer abroad  that  contract of sale has to be  classified  as  an export transaction"(1).  This passage shows that, in view of the distinct character and quality of the two  transactions, it  is not correct to speak of a purchase for export  as  an activity so integrated with the exportation that the  former could  be regarded as done "in the course of "  the  latter. The same reasoning applies to the first (1)  Schmittoff-Export Trade, 2nd Edn., P. 3. 64 sale  after  import which is a  distinct  local  transaction effected after the importation of the goods into the country has been completed, and having no integral relation with it. Any  attempt  therefore  to  invoke  the  authority  of  the previous  decision in support of the suggested extension  of the  protection of clause (1)(b) ’to the last  purchase  for

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the purpose of export and the first sale after import on the ground of integrated activities must fail. Nor is it correct to say that it is necessary to extend  the exemption  to these transactions to avoid  double  taxation. It  is true that in the previous decision it  was  indicated that  the object underlying the exemption was the  avoidance of  double  taxation on the foreign trade  of  this  country which  is of great importance to the nation’s economy.   But the  double taxation sought to be avoided consisted  in  the imposition of export duty by the Central Government and  the imposition of sales tax by the State Government on the  same transaction  in  its different aspects as an  export  and  a sale.   Such  double  taxation is  already  avoided  by  our holding  that  the export-sale and the  import-purchase  are exempt  under clause (b) from the levy of sales tax  by  the State.   The  foreign  trade of this  country  thus  already enjoys immunity from double tax burden and suffers only  one tax,  namely, the export or import duty as the case may  be. The  claim  now made for extension of  the  exemption  under clause (1)(b) in the name of avoiding double taxation cannot be supported. Not the least among the reasons for rejecting the view  that the  last purchase for the purpose of export and  the  first sale  after  import are also within clause (1)  (b)  is  the practical  difficulty in giving effect to the  exemption  in regard  to these transactions, having regard to the  general pattern of sale-tax legislation in this country of which our constitution-makers  must have been well aware.  The tax  is usually  levied on the annual turnover of the seller who  is allowed under certain conditions to pass it on to the  buyer by  adding  it to the price charged for the  goods  at  each individual sale.  Supposing A is the seller from whom                              65 B  the export merchant purchases the goods for  export.   If the sale is to be exempt, how is A to be satisfied that  the goods would actually be exported subsequently?  And even  if they were, it must be difficult for A to prove to the  Sales Tax  Officer  that they were so exported by B if  proof  was required.  On the other hand, B might be keeping the  goods, waiting for orders to come, or might change his mind and not export  the  goods at all but sell them  locally.   In  that case,  what would be the position of A vis a vis  the  Sales Tax Officer demanding the tax ? Could A escape liability, if he failed to collect the tax from B at the time of the  sale ?  Or is A to collect the tax, ignoring B’s  declaration  of his intention to export and leaving him to apply for  refund by producing- evidence of actual export, whenever that takes place?    Even  if  a  sales  tax  enactment  provides   for adjustment on those lines, would not such legislation, in so far  as  it compels B to suffer the tax  until  he  actually exports  the  goods,  contravene  clause  (1)(b)  which   ex hypothesi exempts the transaction from sales tax?  And  what would  be the position if the goods were burnt or  otherwise lost  in  the meanwhile, and the export  never  took  place? Athough,  as pointed out in the previous decision,  American cases are not of much assistance in interpreting article 286 because of the different wording of the import-export clause of  the Federal Constitution, it is interesting to see  that such  uncertainties led the American courts to lay down  the rule that - "It  is the entrance of the articles into the export  stream that  marks the start of the process of  exportation.   Then there  is  certainty  that the goods are  headed  for  their foreign  destination  and will not be diverted  to  domestic use.   Nothing less will suffice.": Empresa Siderurgica,  S.

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A. v. Merced(1). Similar  difficulties and uncertainties are  encountered  in bringing  within the exemption the first sale after  import. How is the exemption to be applied to the  (1) 337 U.S. 154. 9 66 goods imported from abroad after they are mingled with other goods and lose their distinctive character as imports?  Here again, the American courts, with their practical approach to such  problems,  have evolved the doctrine of  "original  or unopened  package" that is to say, the rule that  the  first sale  of imported goods will ’be exempt from State  taxation provided only such sale is made in the original packages  in which  the goods have arrived.  Any sale of such goods  made after  the package is opened does not enjoy such  exemption. Are  we  to  import  the same  doctrine  here  to  make  the exemption  workable  ? Even in America, as  pointed  out  in Balsara’s  case(1), difficulties arose from time to time  in applying the doctrine as "sometimes very intricate questions arose before the courts such as whether the doctrine applied to  the  larger  cases  only  or  to  the  smaller  packages contained  therein  or whether it applied to  smaller  paper packages of cigarettes taken from loose files of packages at the  factory and transported in baskets." Hence  this  court has  unanimously decided that "the doctrine has no place  in this  country"  following  the lead of Gwyer C.  J.  in  the earlier case of Boddu- Paidanna(2). It  was said that clause (1) (b) should be construed in  the light  of  the  constitutional purpose  and  the  commercial background  and reference was made to the manner in which  a large  proportion  of the export trade of  the  country  was carried  on by merchant houses who purchased goods from  the producers and manufacturers to resell them to buyers  abroad by  means of contracts concluded with them.  Similarly  with regard  to  import  trade,  large  import  houses   imported machinery  and  consumer goods wholesale and  sold  them  to retail  dealers or, in some cases, to the customers  direct. This  practice, it was argued, must have been well known  to the  makers  of our Constitution, and it was  reasonable  to assume  that  they realised the importance  of  the  foreign trade  to the well-being of the country and would  not  have desired to cripple the same by allowing the States to (1) [1951] S.C.R. 682, 699. (2) [1942] F.C.R. 90. 67 tax  such  purchases  and sales by  the  export  and  import merchants  in  this country.   Such  general  considerations based  largely on speculation are not of much assistance  in construing the scope and effect of a specific constitutional provision  seeking to restrict the power of State  taxation. It  is true, as pointed out in the previous  decision,  that the  export-import  trade  is  important  to  our   national economy,  but  it is no less true that the  State  power  of taxation  is essential for carrying on  its  administration, and it must be as much the constitutional purpose to protect the  one as not unduly to curtail the other.   The  question really is, how far did the constitution-makers want to go in protecting  the  foreign trade by restricting the  power  of taxing  sales or purchases of goods which they conferred  on the  States under entry 54 of List II.  The  problem  before them  was one of balancing and reconciling the rival  claims of  foreign trade in the interests of our  national  economy and of the State’s power of taxation in the interests of the expanding  social welfare needs of the people  committed  to

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its  charge, and we have their solution as expressed in  the terms  of clause (1) (b).  It is for the court to  interpret the  true meaning and scope of those terms without  assuming that  the  one constitutional purpose was regarded  as  more important  than the other.  This court has already  held  in the  previous  decision  that clause (1)  (b)  protects  the export-import trade of this country from double taxation  by prohibiting  the  imposition of sales tax by  the  State  on export-sales and import-purchases, and we find no warrant in the language employed to extend the protection to cover  the last purchase before export or the first sale after import. As  regards  sales  or purchases effected in  the  State  by transfer of shipping (c.i.f.) documents while the goods  are still  in transit, we have already observed that  the  words "in  the  course  of"  imply a  movement  or  progress  and, therefore,  a  beginning  and an end  of  such  movement  or progress.   As  clause  (1)  (b)  is  concerned  only   with exempting  certain sales or purchases from taxation  by  the States in this country, it is 68 sufficient  to determine where the course of  export  begins and where the course of import ends.  In this connection, it is  useful  to  remember that the power to  make  laws  with respect to duties of customs including export duties  (entry 83  of  List I) and also with respect to import  and  export across  customs  frontiers and the  ’definition  of  customs frontiers (entry 41 of List 1) is vested exclusively in  the Central Legislature, and detailed provisions have been  made in the Indian Sea Customs Act, 1878, for the levy of customs duties  by  the officers of the Central Government  who  are stationed along customs frontiers as defined by the  Central Government  where,  after appraising the goods  exported  or imported,  the duties chargeable, if any, are  computed  and levied,  and it is not until this process is completed  that the  goods can be shipped for transportation or  cleared  by the  consignee or his representatives as the, case  may  be. It would seem, therefore, logical to hold that the course of the  export out of, or of the import into, the territory  of India  does not commence or terminate until the goods  cross the  customs barrier.  It is, however, to be noted that  the question  of imposing sales tax on transfer of goods in  the course  of  export would not often arise  in  practice  for, where  the goods are transported pursuant to a  contract  of sale already concluded with a foreign buyer and the shipping documents  have been forwarded to him, any further  sale  of such goods by the Indian seller is impossible, and where the export trade is conducted through representatives or  branch offices,  the  sale  by the latter  of  the  exported  goods usually  takes place abroad and would not then be  subjected to  tax by the State in India.  It is in relation to  import of goods from abroad that the question of exemption  assumes practical  importance.   It  is well  known  that  sales  or purchases by transfer of shipping documents while the  goods are in transit are a characteristic feature of foreign trade and  as they take place in the course of import  as  defined above,  and  are -regarded commercially as incident  to  the import transaction, they fall within the terms of clause (1) (b) and would be entitled, in our view, to the protection of that                              69 clause,  if the State is constitutionally competent  to  tax such sales, as to which we express no opinion. Our conclusions may be summed up as follows (1)  Sales by export and purchases by import fall within the exemption  under article 286 (1) (b).  This was held in  the

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previous decision. (2)  Purchases in the State by the exporter for the  purpose of  export  as well as sales in the State  by  the  importer after  the  goods have crossed the customs barrier  are  not within the exemption. (3)Sales  in  the  State  by the  exporter  or  importer  by transfer  of shipping documents while the goods  are  beyond the customs barrier are within the exemption, assuming  that the State power of taxation extends to such transactions. It  remains  to  consider  in the  light  of  the  foregoing discussion  how  far the cashew-nut purchases  made  by  the respondents are within the exemption under article 286.   It will  be  recalled  that these  purchases  fell  into  three groups: I.   Purchases made in the local market, II.  Purchases from the neighbouring districts of the  State of Madras, and III. Imports from Africa. As regards Group 1, the High Court finds that the  purchases of raw nuts whether African or Indian are all made with  the object  of exporting their kernels" though there  were  some negligible  sales in the local market of what are  called  " factory  rejects".   The High Court further finds  that  the bulk of the kernels were in fact exported by the respondents themselves,  a small quantity being sold by the  respondents to other exporters who also subsequently exported the  same. Thus,  on  the  whole, respondents could  be  said  to  have purchased  the  raw nuts for the purpose  of  exporting  the kernels and to have actually exported them.  But, it will be seen, the purchases are not covered by the exemption on  the construction  we have placed on clause (1) (b), even if  the difference  between  the, raw materials  purchased  and  the manufactured 70 goods (kernels) exported is to be ignored.  It may, however, be mentioned here that the High Court has found that the raw cashew-nuts  and  the kernels manufactured out  of  them  by various processes, partly mechanical and partly manual,  are not commercially the same commodity.  This finding, which is not  seriously  disputed before us, would be  an  additional ground  for rejecting the claim to exemption in  respect  of these  purchases, as the language of clause (1) (b)  clearly requires  as  a condition of the exemption that  the  export must  be of the goods whose sale or purchase took  place  in the course of export. As  regards  Group 11, the High Court has  found  that  such purchases were made only by the respondents in Civil Appeals Nos. 33 and 36 of 1952.  The High Court’s finding as to  how these purchases and the deliveries under them were  effected is by no means clear.  The respondent’s contention was  that the  purchases  were effected and the  deliveries  taken  by their  own  paid servants outside the State  of  Travancore- Cochin, and it was thus a case of a person buying goods  and taking delivery thereof outside the State and bringing  them across the border after the transaction was completed in all respects  outside  the  State.   On  the  other  hand,   the contention  on  behalf  of the State  was  that  though  the purchases  were made outside the State in  the  neighbouring districts  of Madras, deliveries were effected  through  the ordinary commercial channels by employing commission  agents who  made the purchases and arranged for the  deliveries  at the respondents’ depots at Trichur or Quilon.  All that  can be said here is that, if the transactions took place in  the manner alleged by the respondents in these two appeals, they would  be exempt under clause (1) (a).  This indeed was  not

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disputed  by the Advocate-General of the,  appellant  State. On  the other hand, if, as claimed by the  Advocate-General, the purchases were effected by the employment of firms doing business  as  commission agents outside the State,  and  the deliveries were made through normal commercial channels, the transactions  would partake of an inter-State character  and fall under clause (2).  In that case, it would be un- 71 necessary  to inquire further whether they would be  covered by  the  explanation  to clause (1)(a),  as  they  would  be clearly taxable under the President’s Order (C. O . No. 7 of 1950)  to which reference has been made already, as  it  was admitted that sales tax was validly levied on such purchases before  the  commencement  of  the  Constitution.   As   the taxability  of such purchase,, on either view of  the  facts was  not disputed, no arguments were addressed to us on  the scope of clause (2) and the explanation to clause (1)(a), as has, been stated. Group  III may be sub-divided into two categories  according to  the  findings  of the high  Court:  (a)  purchases  made through  intermediaries called in these  proceedings  as"the Bombay party" doing business as commission agents at Bombay, who acted as agents for the respondents charging commission. The  dealings  are thus described by the  High  Court:  "The goods  are  purchased  when they are in the  high  seas  and shipped  from the African port to Cochin or  Quilon.   Goods are never landed at Bombay.  The Bombay party only  arranges for  purchases on behalf of the assessees, gets delivery  of the  shipping documents on payment at Bombay through a  bank which  advances  money against the  shipping  documents  and collects  the same from the assessees at  destination",  and (b) the Bombay party indented the goods on their own account and  sold  the goods as principals to  the  respondents  and other customers; but the goods were shipped direct to Cochin or  Quilon on c. i. f. terms.  The shipping  documents  were made  out in the name of the Bombay party as consignees  and were  delivered to them against payment through  bankers  at Bombay.   The Bombay party cleared the goods  through  their own  representatives at the port of destination  and  issued separate  delivery  orders  to  the  respondents  and  other customers for the respective quantities ordered. It  will  be seen that in respect of the  purchases  falling under  (a), the Bombay party acted merely as the  agents  of the  respondents,  privity  being  established  between  the latter and the African sellers.  The purchases are 72 thus  purchases which occasioned the import,  and  therefore come within the exemption.  As regards (b), the Bombay party are the purchasers, and they sell the goods as principals to the  respondents  at  the port  of  destination  by  issuing separate delivery orders against payment.  No privity  being established between the respondents and the African sellers, the   respondents’  purchases  can  only  be  described   as purchases  from  the Bombay party of the  goods  within  the State;  in other words, they were local purchases and  stand on  the  same  footing as purchases falling  under  Group  I above, and for the same reasons they do not come within  the exemption. It  would appear that the cashew-nuts sold and  exported  to the  American  buyers were packed in tins placed  in  wooden boxes.  The sales tax authorities have included the value of these  packing  materials in addition to the  value  of  the kernels  in  computing the turnover of the  respondents  for purposes  of assessment.  It was urged that  such  inclusion was  inadmissible  inasmuch as these articles could  not  be

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regarded  as  separate  articles of,  sale  apart  from  the kernels which are packed therein, and that even if they were to  be so regarded, their sale to the American buyers was  a sale which occasioned the export just as much as the sale of the kernels.  The latter contention must prevail in view  of the  previous  decision, and no sales tax can be  levied  in respect of these articles. In  the result, the decison of the High Court  quashing  the assessments  in question is affirmed but the cases  will  go back  to the Sales Tax Officer concerned in  the  respective appeals for making fresh assessments according to law and in the  light of this judgment.  Each party will bear  its  own costs throughout. DAS  J.-This and eight other appeals have been filed by  the State of Travancore-Cochin against the judgment and order of the  High Court of that State dated the 10th January,  1952, quashing the orders of assessment of sales tax made  against the  respondents respectively by the Sales Tax  Officer  and upheld  on  appeal  by the  Assistant  Commissioner.   These appeal*                              73 were  heard together immediately after the hearing  of  C.A. No.  204 of 1952 [The State of Bombay v. The  United  Motors (India)  Ltd. & Others(1)] bad been concluded  and  judgment had  been  reserved  by  another  Constitution  Bench.   The question of construction of article 286 of the  Constitution which is involved in the present appeals was also raised  in the  Bombay  appeal.   That  Constitution  Bench  has  since delivered  judgments in that appeal.  The majority  of  that Bench  have put upon clause (1)(a), the Explanation  thereto and clause (2) of that article a meaning which, in spite  of my  pro  found respect for their opinions, I  am  unable  to accept  as  correct.  It is again my misfortune  that  I  am unable  to agree to the interpretation my  learned  brethren are now seeking to place upon clause (1)(b) of that article. As the questions involved in these appeals are of very great importance  and as the draft of this judgment  was  prepared before the judgments in the Bombay appeal had been delivered I consider it right to keep my views on record for  whatever they  may be worth.  It is, however, needless for me to  say that the majority decision in that Bombay appeal, so long as it stands, is binding on me. The  respondents in each of these appeals carry on  business in what is now the United State of Travancore-Cochin.   They buy  raw cashew-nuts locally and in neighbouring States  and also import them from Africa and after putting them  through a  certain  process they obtain cashew-nut  oil  and  edible cashew-nut  kernels.   They  export the  edible  kernels  to foreign countries in large quantities. In  compliance with the requirements of the  relevant  Sales Tax  Act then in force the repondents filed returns  in  the prescribed  forms  of  their respective  turnovers  for  the period  between  the 17th August, 1949, and  the  29th  May, 1950.  Each of the respondents claimed exemption from  sales tax  on  their respective purchases made  between  the  26th January,  1950, when the Constitution came into  force,  and the 29th May, (1)  [1953] S.C.R. 1069 10 74 1950.   The  claim, however, was rejected by the  Sales  Tax Officer.   On appeal the Assistant Commissioner  upheld  the assessment  orders.   The  respondents appeal  to  the  High Court.   By its judgment dated the 10th January,  1952,  the High  Court  accepted the appeals,  quashed  the  assessment

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orders in so far as they included tax on the purchases  made after the date of the Constitution and directed a refund  of the  tax  overpaid.   The State has now come  up  on  appeal before us. As  the questions involved in these appeals are  of  general importance  and  the other States as well as  the  Union  of India are interested in the decision, notices were  directed to  be issued by this court to the Advocates-General of  all interested  States  and to the Attorney-General  for  India. Many  of these States as also the Union of India  intervened and  participated  in the general discussion  on  the  legal points  involved  in  these appeals.   After  several  days’ hearing  before  us in September and October, 1952,  it  was found that the parties were seriously at variance on several material facts and it was felt that the appeals could not be satisfactorily disposed of without proper findings on  those facts.   Accordingly on the 8th October, 1952,  the  appeals were   remitted  to  the  High  Court  with  directions   to investigate into the disputed facts under certain heads  set forth  in  the annexure to the order of  remand.   The  High Court  has now returned the records with their findings  and the -appeals are before us again for final disposal. The  assessments in question were made under the  Travancore General  Sales Tax Act, 1124 (Act XVIII of 1124).  That  Act came  into force on the 7th March, 1949, and was, after  the commencement of the Constitution, continued in force subject to  the other provisions of the Constitution and it  was  in operation  during  the  period  of  assessment.   After  the integration  of Travancore and Cochin that Act was  replaced by  the United State of Travancore and Cochin General  Sales Tax Act, 1125 (Act XI of 1125) but we are not concerned with the latter Act, for it came into force 75 on the 30th May, 1950, that is to say, immediately after the expiry  of  the period relevant for the  purposes  of  these appeals. The  relevant  provisions  of Act XVIII of  1124  have  been summarised  in the judgment just read by my Lord  the  Chief Justice and need not be set forth again.  Suffice it to  say that  the rules framed under I the Act’ prescribed  that  in the  case of cashew and its kernels the gross turnover of  a dealer  would  be  the amount for  which  those  goods  were purchased  by him and, therefore, sales tax was  payable  on the purchase and not on the sale of cashew and its kernels. The  respondents do not contend that it was not  within  the power  of H.H. the Maharaja of Travancore to enact that  law at  the time he did so but they maintain that, as after  the commencement of the Constitution Travancore-Cochin became  a Part  B  State  and as such amenable to  and  bound  by  the Constitution,  that  law, in view of article 286,  could  no longer  impose  or authorise the imposition of  any  tax  on their   purchases  of  raw  cashewnuts.   This   contention, therefore,  raises important questions as to the  extent  of the  power of the States under the Constitution to impose  a tax on the sale or purchase of goods.  In order, however, to correctly appreciate the meaning and import of the  relevant provisions of the Constitution it will be helpful to bear in mind what the position was prior to the commencement of  the Constitution. Under  the  Government  of  India  Act,  1935,  the  Federal Legislature alone could make laws, under entry 19 in List I, with  respect to import and export across customs  frontiers as defined by the Federal Government and, under entry 44  of the  same List, with respect to duties of  custom  including export   duties.    On  the  other   hand   the   Provincial

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Legislatures  alone could make laws, under entry 26 in  List II, with respect to trade and commerce within the  Province, under  entry  29,  with respect to  production,  supply  and distribution of goods, under entry 48, with respect to taxes -on  the sale of goods and under entry 49, with respect  to’ cesses on the entry of goods into a 76 local  area for consumption, use or sale  therein.   Section 297   of  that  Act,  however,  prohibited  the   Provincial Legislature    or   Governments   from   imposing    certain restrictions on internal trade and ended by saying that  any law  passed in contravention of that section would,  to  the extent of the contravention, be invalid.  It should be noted that  clause  (a)  of sub-section (1) of  that  section  was directly   and  expressly  related  to  and  constituted   a restriction  on the legislative power of the Province  under entries 27 and 29 and not entry 48 in List II.  That section obviously  was  inserted  in that Act  for  the  purpose  of achieving,  as far as possible, free trade within  India  by preventing  the  Provinces from checking  or  hampering  the distribution  of goods or from setting up  barriers  against internal trade in India regarded as one economic unit. Pursuant to the legislative power thus conferred on them the Provincial  Legislatures  enacted Sales Tax Acts  for  their respective  Provinces.  In enacting the Sales Tax Acts,  the Provincial  Legislatures,  however,  did  not  confine   the operation  of their legislation to sales or purchases  which took place exclusively within their respective  territories. Although  in most of those Acts "sale" was first defined  as meaning  a transfer of the property in the goods, so  as  to make  the  passing of the property within the  Province  the principal basis for the imposition of the tax, yet by  means of  Explanations  to  that definition,  they  gave  extended meanings  to  that word and thereby enlarged  the  scope  of their operation.  Thus some of those Acts purported to tax a sale  or  purchase irrespective of the place where  it  took place,  if  only the goods were within the Province  at  the time the contract for sale or purchase was made or the goods were produced or manufactured within the Province after  the contract had been made.  In short, if any one or more of the ingredients of sale, e.g. the contract, delivery, payment of price, or the passing of property etc., took place within  a particular   Province   or  the  goods  were   produced   or manufactured  or  otherwise found there that  Province  felt free  to  impose  a  tax on that  transaction  of  -sale  or purchase 77 although  all  the  other  ingredients  thereof  took  place outside that Province. The  Indian States were not governed by the distribution  of legislative powers contained in the Government of India Act, 1935,  and were, therefore, generally free to make  whatever laws they thought fit to make.  They, however, enacted Sales Tax Acts on the model of the Sales Tax Acts of  neighbouring Provinces  in British India.  Thus the Travancore Act  XVIII of 1124 was substantially a reproduction of the Madras Sales Tax Act. The result of the imposition of tax on the sale or  purchase of  goods on the basis of a very slight connection or  nexus between  the  sale or purchase and the taxing  Provinces  or States was that in some cases one single transaction of sale or purchase became liable to be taxed in different Provinces or States.  This imposition of multiple taxes was  certainly calculated to hamper and discourage free trade within India, which section 297 of the Government of India Act, 1935,  was

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designed  to  achieve.  This was  the  position  immediately before  the Constitution of India came into operation.   Our Constitution makers were well aware of this evil.    Articles 245 and 246 distribute legislative power between Parliament and the State Legislatures as per three Lists set forth  in  the Seventh Schedule to the  Constitution.   Thus Parliament  alone is empowered to make laws, under entry  41 in  the Union List, with respect to trade and commerce  with foreign  countries, under entry 42, with respect  to  inter- State trade and commerce and under entry 83, with respect to duties  of  customs,  including  export  duty.   The   State Legislatures,  on  the other hand, are alone  authorised  to make laws, under entry 26 in the State List with respect  to trade  and  commerce within the State, under entry  27  with respect  to  production, supply and distribution  of  goods, under  entry 52 with respect to taxes on the entry of  goods into  a local area for consumption, use or sale therein  and under entry 54 with respect to taxes on sale or purchase  of goods other than newspapers. 78 It may be mentioned in passing that in List I in the Seventh Schedule to the Government of India Act, 1935, there was  no separate or specific entry corresponding to entry 42 in  the Union  List  in the Seventh Schedule  to  the  Constitution. This shows  that our Constitution has deliberately  assigned interState  trade and commerce, like foreign trade,  to  the exclusive   care  of  Parliament  and,  therefore,  out   of the  .reach  of the law-making powers of  the  State  Legis- latures.  Having thus distributed legislative powers between Parliament and the State Legislatures, article 265, which is in  Part  XII  of  the  Constitution  and  headed  "Finance, Property, Contracts and Suits" provides that no tax shall be levied  or  collected except by authority of  law.   Article 286, which is also in Part XII, imposes some restrictions on the legislative competency of the State Legislatures.   That article runs as follows: " 286.  Restrictions as to imposition of tax on the sale  or purchase  of goods. (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- (a)  outside the State; or (b)  in the course of the import of the goods into or export of the goods out of, the territory of India. 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 law relating to sale of goods the property in  the goods has by reason of such sale or purchase  passed in another State. (2)  Except  in  so far as Parliament may by  law  otherwise provide,  no law of a State shall impose, or  authorise  the imposition  of, a tax on the sale or purchase of  any  goods where  such  sale or purchase takes place in the  course  of inter-State trade or commerce:                              79 Provided that the President may by order direct that any tax on  the sale or purchase of goods which was  being  lawfully levied by the government of any State immediately before the commencement  of  this Constitution  shall,  notwithstanding that  the  imposition  of  such  tax  is  contrary  to   the provisions, of this clause, continue to be levied until  the thirty-first day of March, 1951. (3)No  law made by the Legislature of a State  imposing,  or

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authorising the imposition of a tax on the sale or  purchase of any such goods as have been declared by Parliament by law to  be  essential for the life of the community  shall  have effect unless it has been reserved for the consideration  of the President and has received his assent." In  these  appeals  we  are  not  concerned  with  sales  or purchases  of essential commodities and, therefore,  nothing further  need  be said about clause (3).  Leaving  out  that clause,  the rest of the article, broadly speaking,  enjoins that  no State law shall impose or authorise the  imposition of tax on sale or purchase of goods made- (a)  outside the State, (b)  in  the course of the import of the goods in to or  the export of the goods out of India, (c)  in the course of inter-State trade and commerce. I  may  here  mention that in the  exercise  of  the  powers conferred on him by the proviso to clause (2) of article 286 the President did, by the Sales Tax Continuance Order, 1950, direct  that  any tax on the sale or purchase of  any  goods which  was  being lawfully levied by the Government  of  any State   immediately   before   the   commencement   of   the Constitution should, until the 31st March, 1951, continue to be levied notwithstanding that such imposition was  contrary to the provisions of clause (2) of article 286. Quite apart from the marginal note to article 286, a cursory perusal of that article will show that its avowed purpose is to put a restriction on the power of the 80 State Legislatures to make a law imposing tax on the sale or purchase of goods under entry 54 in the State List.  It  may be  recalled that the Provincial Legislatures purporting  to act under entry 48 in List II of the Seventh Schedule to the Government  of  India  Act, 1935,  enacted  Sales  Tax  Acts imposing tax on sales or purchases of goods on the basis  of one  or  more  of  the  ingredients  of  sale  having   some connection with the Province and that this practice resulted in the imposition of multiple taxes on a single  transaction of  sale  or  purchase  thereby raising  the  price  of  the commodity   concerned  to  the  serious  detriment  to   the consumer.   That evil had to be curbed and that is what  has been done by clause (1)(a) of article 286.  It imposes a ban 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.   This provision   clearly   indicates  that  in  making   it   our Constitution proceeds on the footing that a sale or purchase has  a location or situs.  The explanation to clause  (1)(a) then goes on to say that for the purpose 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 law relating to sale of goods the property in the goods has, by reason of such sale or purchase, passed in  another  State.  The non obstante clause in  the  Expla- nation  also  clearly  implies  that  the  framers  of   the Constitution adopted the view that a sale or purchase has  a situs  and  further that it ordinarily takes  place  at  the place   where  the  property  in  the  goods  passes.    The Explanation,  however,  provides  that,  in  spite  of  such general  law,  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.   In  effect, therefore,  the Constitution, by this Explanation to  clause

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(1)(a), acknowledges that under the general law the sale  or purchase of the kind therein 81 mentioned  may not really take place in the delivery  State, but  nevertheless  requires it to be treated as if  it  did. That  is  to say, the Explanation creates a  legal  fiction. Reference may be made to Income-tax Commissioner, Bombay  v. Bombay Trust Corporation(1) where Viscount Dunedin  explains the meaning of a legal fiction. When a legal fiction is thus created, for what purpose,  one is  led  to ask at once, is it so created?  In  In  re  Coal Economising Gas Company(2) the question arose as to  whether under  section 38 of the Companies Act, 1867, a  shareholder could  get his name removed from the register on the  ground that  the  prospectus  was fraudulent in  that  it  did  not disclose  certain, facts, or whether his remedy was  against the promoter only.  James L.J. said at pages 188-9: " The Act says that an omission shall be deemed  fraudulent. It provides that something which under the general law would not  be  fraudulent shall be deemed fraudulent  and  we  are dealing  with  a case of that kind.  Where  the  Legislature provides that something is to be deemed other than it is, we must  be  careful  to see within what bounds  and  for  what purpose  it  is to be so deemed.  Now the Act does  not  say that  the prospectus shall be deemed fraudulent  simpliciter but  that it shall be deemed fraudulent on the part  of  the person wilfully making the omission as against a shareholder having no notice of the matter omitted ; and I am of opinion that  the  true intent and meaning of that provision  is  to give  a personal remedy against the wrongdoer in  favour  of the shareholder." So  it was held that the fiction did not operate as  against the company and there could, therefore, be no  rectification of the register.  Again, in Ex parte Walton(3), referring to section  23 of the English Bankruptcy Act, 1869, James  L.J. said: "When  a  statute enacts that something shall be  deemed  to have been done, which in fact and in truth (1) [1929] L.R.57 I.A. 49 at P. 55.  (3) [1881].  L.R. 17 Ch 756. (2)  [1875] L.R. 1 Ch.  D. 182. 82 was  not done, the court is entitled and bound to  ascertain for  what  purposes and between what persons  the  statutory fiction is to be resorted to." The above observations were- quoted with approval by   Lord Cairns and Lord Blackburn in Arthur Hill v.  The  East   and West  India Dock Company(1).  Lord Blackburn went on to  add at page 458: "I   think  the  words  here  ’shall  be  deemed   to   have surrendered................  mean, shall be  surrendered  so far  as is necessary to effectuate the purposes of  the  Act and no further;................." In  the  case  now before us, we  have  fortunately  not  to speculate  as to the purpose for which the  Explanation  has introduced  the  fiction.   It  will  be  noticed  that  the Explanation  does  not  say simpliciter  that  the  sale  or purchase  is  to  be deemed to take place  in  the  delivery State.  By its opening words it expressly says that the sale or  purchase is to be deemed to take place in  the  delivery State  for  the purposes of clause (1)(a).   Therefore,  the only effect of this assignment of a fictional location to  a particular kind of sale or purchase in a particular State is to  attract  the ban of clause (1)(a) and to take  away  the taxing power of all other States in relation to such a  sale

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or  purchase  even  though the other  ingredients  which  go towards the making up of a sale or purchase are to be  found within  these  States or even if under the general  law  the property  in the goods passes in any of those  States.   The purpose  of  the  Explanation  ends  there  and  cannot   be stretched or extended beyond that purpose. It  is said by some of the Advocates-General that a sale  or purchase  which falls within the Explanation is  subject  to the  taxing power of the State in which the property in  the goods passes under the general law as well as to the  taxing power  of the State in which, by virtue of the  Explanation, the  property in the goods is to be deemed to pass.  On  the other hand some of the other Advocates-General contend  that by virtue of the Explanation the latter State alone  becomes entitled  to  tax  such  a sale  or  purchase.   Both  these contentions (1)  [1884] L.R. 9 App.  Cas- 448, 83 appear  to me to be founded on a misapprehension as  to  the real purpose of clause (1) (a) and the Explanation  thereto. As I have already said, the only object of clause (1)(a)  is to prevent the imposition of multiple taxes on a single sale or  purchase  and, therefore, it provides that no law  of  a State  shall  impose a tax on sale or purchase  which  takes place  outside  the State.  Thus by one  stroke  the  taxing power  of all States outside whose territories the  sale  or purchase  is,  by  the fiction, deemed,  to  take  place  is eliminated.   To say that the effect of clause (1) (a)  read in  the light of the Explanation is to permit  both  States, namely,  the  State  where the  property  passes  under  the general  law as well as the State in which, by force of  the Explanation,  the sale or purchase is deemed to take  place, to tax such sale or purchase is to stultify the very purpose of  that  clause,  for, then it will  fail  to  prevent  the imposition of multiple taxes which it is obviously  designed to  prevent.   It is quite clear also that  clause(1)(a)  in terms  only takes away the taxing power of all  States  with respect  to  a  sale or purchase which,  by  reason  of  the fiction  introduced by the Explanation, is to be  deemed  to take  place  outside  their  respective  territories.    The purpose  of the Explanation is only to explain the scope  of clause  (1)(a).  By fictionally locating a sale or  purchase in  a  particular State it, in effect, says  that  it  takes place outside all other States so as to give it the  benefit of  the  exemption  of clause (1)(a).   The  Explanation  is neither  an exception nor a proviso.  It is not its  purpose nor  does it purport, substantively and proprio  vigore,  to confer  any  power on any State, not even  on  the  delivery State,  to impose any tax.  The fiction of  the  Explanation cannot be extended to any purpose other than the purpose  of clause  (1)(a),  that  is, to any  purpose  other  than  the purpose  of  taking  away the taxing  power  of  all  States outside  whose territories the sale or purchase is,  by  the fiction,  deemed to take place.  There its purpose ends  and it cannot be used for the purpose of giving any taxing power on the delivery State, for that is quite outside its  avowed purpose.  Whether the 84 delivery  State  can tax the sale or purchase  of  the  kind mentioned in the Explanation will depend on other provisions of  the  Constitution.   Neither  clause  (1)  (a)  nor  the Explanation has any bearing on that questionl. It  is  urged that even if by virtue of  clause  (1)(a)  all States  in relation to which a sale or purchase is,  by  the Explanation, to be deemed to take place outside their limits

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are precluded from taxing such sale or purchase and assuming that the Explanation does not, by implication or  otherwise, permit even the delivery State to tax such sale or purchase, nevertheless the delivery State has the power under entry 54 in   the  State  List  read  with  article  100(3)  of   the Constitution  to make a law imposing a tax on such  sale  or purchase.  This certainly would be the position if there was nothing  else  in the Constitution.  It should be  borne  in mind that the State Legislatures may make laws with  respect to  taxes  on sale or purchase of goods (entry 54).   If  in purported  exercise  of powers under those entries  a  State Legislature  makes a law imposing taxes on sale or  purchase which  partakes of the character of a sale or purchase  made in  the course of interState trade or commerce it may  quite easily encroach upon the Union Legislative field under entry 42  in the Union List and such encroachment may  conceivably give  rise  to  questions as to the validity  of  the  State legislation.   It  is in order to protect the free  flow  of inter-State trade, which is placed in the care of Parliament alone,  against  any interference by State taxation  and  to prevent a recourse to the argument of pith and substance  in justification  of such encroachment by a State on the  Union field  that  the  Constitution,  by  article  286  (2),  has expressly  placed a restriction on the legislative power  of the  State  in  relation  to  tax  on  inter-State  sale  or purchase.   Clause (2) of article 286 provides that,  except in so far as Parliament may by law otherwise provide, no law of  a  State shall impose a tax on the sale or  purchase  of goods when such a sale or purchase takes place in the course of inter-State trade or commerce.  Clause (2), 85 therefore, places yet another ban on the taxing power of the State under entry 54 read with article 100 (3), in  addition to  the ban imposed by clause (1) (a).  A sale  or  purchase contemplated   by   the  Explanation  to  clause   (1)   (a) undoubtedly  partakes  of the nature of a sale  or  purchase made  in the course of inter-State trade and, therefore,  no State, whether it is the State in which the property in  the goods  passes under the general law or the State  where  the goods  are  delivered as mentioned in the  Explanation,  can impose  a  tax on such sale or purchase,  unless  and  until Parliament  lifts  this ban.  This appears to me to  be  the purpose and design of clause (2). It  is said that if the sale or purchase referred to in  the Explanation is to be bit by clause (2) then clause (1) (a) was wholly redundant, for there was no point in exempting it from the ban imposed by clause (1)(a)and hittin   it      by clause  (2).  As already stated the purposeof clause  (1)(a) is to place a sale or purchase taking place outside a  State beyond the taxing power of that State.  The Explanation only explains,  by an illustration as it were, the scope of  that ban.  Clause (1) (a) only contemplates one aspect of a  sale or  purchase,  namely,  its  territorial  location,  and  by imposing  a ban on the taxing power of a State with  respect to a sale or purchase, which takes place outside its limits, it  purports  to  remedy the  particular  evil  of  multiple taxation founded on the nexus theory to which reference  has been  made.  That is the limited purpose of clause  (1)  (a) and  that  purpose is fulfilled by placing a  ban  on  those States in relation to which a sale or purchase is, by reason of  the  Explanation,  deemed to take  place  outside  their territories.   Whether the delivery State where the sale  or purchase  is  deemed to take place can tax such  a  sale  or purchase  is not, as I have said, the concern of clause  (1) (a) or the Explanation.  It is only when the question of the

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competency  of  a State Legislature under entry  54  of  the State  List  to  make  a law imposing a tax  on  a  sale  or purchase  which  by  the fiction is deemed  to.  take  place within its territory is raised that clause (2) comes 86 into play. - That clause looks at a sale or purchase in  its inter-State  character  and  imposes  another  ban  in   the interest  of the freedom of internal trade.   The  immediate purpose   of  the  two  bans  are,  therefore,   essentially different  and I see Do reason to hold that although  clause (1)(a)   read  with  the  Explanation  does  not   expressly authorise  the State, in which the sale or purchase  is,  by the  Explanation,  to be deemed to take place, to  tax  such sale  or purchase, it must nevertheless, by implication,  be regarded  not only as having authorised that State to do  so but  as  having  also exempted it from the  ban  imposed  by clause  (2).   To  adopt this course is  to  resort  to  the fiction created by the Explanation for quite a different and collateral  purpose  which  is entirely  beyond  its  avowed purpose.  This, as I have explained, is, on principle and on authority, not permissible for the court to do. The  same  argument  is advanced in  a  different  and  more attractive   language.   It  is  urged  that  once   it   is determined,  with the aid of the fiction introduced  by  the Explanation  that  a particular sale or purchase  has  taken place  within  the  delivery  State, it  must  follow  as  a corollary   that  the  transaction  loses  its   inter-State character  and falls outside the purview of clause (2),  not because  the definition in the Explanation is used  for  the purpose  of  clause (2) but because such  sale  or  purchase becomes, in the eye of the law, a purely local  transaction. I  am unable to accept this argument which appears to me  to overlook  the declared purposes of clause (1)(a) and of  the Explanation.   In  all  interState  sale  or  purchase   the property passes and the sale or purchase takes place in  one or  the other State according to the rules laid down in  the Sale of Goods Act and the inter-State character of the  sale or  purchase is not affected or altered by the fact  of  the property passing in one State rather than in another.   What is  an  inter-State sale or purchase continues to  be  such, irrespective of the State where the property passes.  While, therefore, to locate a sale or purchase, by a legal fiction, in a particular State, is to make it appear to be an outside sale or purchase in relation to                              87 all other States, so as to attract the ban of clause  (1)(a) on  those  States, such location cannot possibly  alter  the intrinsic  inter-State  nature or character of the  sale  or purchase.   A  sale  or  purchase  which  falls  within  the Explanation does not become, in the eye of the law, a purely local  sale for all purposes or for all times.  It is to  be deemed  to  take place in the delivery State  only  for  the purpose  of  clause (1)(a), i.e., for taking  ing  away  the taxing power of all other States.  I can see no warrant, for the  argument that the fiction embodied in  the  Explanation for  this definitely expressed purpose, can be  legitimately used  for  the entirely foreign purpose  of  destroying  the inter-State  character of the transaction and converting  it into an intra-State sale or purchase for all purposes.  Such metamorphosis  appears  to me to be  completely  beyond  the purpose  and purview of clause (1) (a) and  the  Explanation thereto. To accede to this argument will mean that the Sales Tax Officer of the delivery State will have jurisdiction  to call  upon dealers outside that State to submit  returns  of their  turnover  in respect of goods delivered  by  them  to

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dealers  in  that State under transactions of sale  made  by them with dealers within that State.  Thus a dealer in, say, Pepsu  who delivers goods to a dealer in,  say,  Travancore- Cochin  will become subject to the jurisdiction of the  last mentioned  State  and  will have to file  returns  of  their turnover  and support the same by producing their  books  of account  there.   I cannot imagine  that  our  Constitution- makers  intended to produce this anomalous result.   On  the contrary, it appears to me that they enacted clauses (1) (a) and (2) for the very purpose of preventing this anomaly.   I repeat  that  it  is not permissible,  on  principle  or  on authority,  to extend the fiction of the Explanation  beyond its  immediate  and avowed purpose which  I  have  explained above.  In my judgment, until Parliament otherwise provides, all  sales  or purchases which take place in the  course  of inter-State trade or commerce are, by clause (2) of  article 286,  made  immune from taxation by the law  of  any  State, irrespective  of the place where the sales or purchases  may take place, either under the general law or by virtue 88 of  the fiction introduced by the Explanation to clause  (1) (a).   If  a particular inter-State sale or  purchase  takes place  outside a State, either under the general law  or  by virtue  of  the fiction created by the  Explanation,  it  is exempted  from taxation by the law of that State both  under clause (1) (a) and clause (2).  If such inter-State sale  or purchase takes place within a particular State, either under the general law or by reason of the Explanation, it is still exempt  from  taxation even by the law of that  State  under clause  (2),  just as a sale or purchase which  takes  place within a State, either under the general law or by reason of the  Explanation, cannot be taxed by the law of that  State, if such sale or purchase takes place in the course of import or export within the meaning of clause (1) (b). I  It  is  next contended that the ban  imposed  by  article 286(2)  is itself subject to the provisions of article  304. That  article is one of the seven articles (articles 301  to 307)   grouped  under  the  heading  "Trade,  commerce   and intercourse within the territory of India " in Chapter XIII. Article  301  proclaims that, subject to the  provisions  of Part  XIII, trade, commerce and intercourse  throughout  the territory  of  India shall be free.   Article  302  empowers Parliament to impose by law such restrictions on the freedom of  trade,  commerce and intercourse between one  State  and another  as  may be required in  public  interest.   Indeed, entry  42  in  the  Union  List  gives  exclusive  power  to Parliament  to make laws with respect to  inter-State  trade and  commerce and clause (2) of article 286 also  recognises this  power  of  Parliament.   Article  303  prohibits  both Parliament and State Legislatures from showing preference to one  State  over  another,  or  discriminating  between  the States.  Then comes article 304 which runs as follows:-  "304.  Notwithstanding anything in article 301  or  article 303,  the  legislature of a State may by  law (a)  impose on goods imported from other States any  tax  to which  similar goods manufactured or produced in that  State are subject, so, however as not                              89 to  discriminate  between  goods so imported  and  goods  so manufactured or produced, and (b)impose  such  reasonable restrictions on the  freedom  of trade, commerce or intercourse with or within that State  as may be required in the public interest: Provided that no Bill or amendment for the purpose of clause (b)  shall  be introduced or moved in the Legislature  of  a

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State Without the previous sanction of the President." The  argument  is  that the ban imposed  by  clause  (2)  of article  286  should, like article 301, be  subordinated  to article  304. 1 am unable to accept the correctness of  this argument.   Article  301 is expressly made  subject  to  the other provisions of Chapter XIII which includes article  304 but no part of article 286 is so subjected.  Article 304 (a) gives power to the State Legislatures to put a tax on  goods imported  from  other States whereas article  286  restricts their   taxing  power  on  sale  or  purchase,   i.e.,   the transaction itself as distinct from the goods.  Article  304 appears to me to be closely related to entry 52 in the State List  and restricts the State’s powers under that entry  but article  286 controls the State’s powers under entry  54  in the  State  List.  In the circumstances article  304  cannot properly be read into article 286.  Article 304, of  course, can have no bearing whatever upon clause (1) (b) of  article 286. An  argument  is advanced suggesting that if  all  sales  or purchases that take place in the course of interState  trade and  commerce are put beyond the taxing power of the  States then that fact will very seriously and prejudicially  affect the  economy  of  the  States  and  may  prevent  them  from discharging  the responsibilities, which all welfare  States are expected to do.  Apart from the benefit that a free flow of  trade  is likely to bring to the  public  generally  the apprehended  danger appears to me, to be more  assumed  than real.   The proviso to clause (2) empowers the President  to direct the continuation, up to the 31st March, 1951, of  the sales tax which was being levied before the commencement  of the Constitution and in fact the President, on 90 the  same day as the Constitution came into force,  actually made  an  order in exercise of this power as  herein  before stated.  There was, therefore, no immediate danger to  State revenue and the status quo was maintained.  Further,  clause (2)  itself empowers Parliament to lift the ban  imposed  by it,  should  Parliament, in the interest of  State  economy, think  fit  to  do so.  The  Constitution  has  thus  itself provided  ample  safeguards and this court need  not  assume unto itself the functions of Parliament and indirectly under the  guise  of interpretation seek to secure the  safety  of State  finance which Parliament itself has  adequate  direct power to do. Finally, it is said that the effect of holding that the  ban imposed  by  clause (2) extends to all  sales  or  purchases which  take  place  in the course of  inter-State  trade  or commerce will be to place at a disadvantage the consumers of similar  goods  manufactured or produced  locally,  for  the actual  consumer will have to pay no tax if he buys  similar goods  manufactured in another State direct from  the  manu- facturers  or sellers in that other State.  I do  not  think this  objection has much force.  Very few  actual  consumers take   the  trouble  of  importing  goods  for   their   own consumption direct from the manufacturers or sellers outside their  State.   Further,  the  cost  of  carriage,  handling charges  and  the risk of loss and damage  in  transit  will effectively  deter  actual consumers  from  procuring  goods direct from outside, for in all probability the cost of such enterprise will exceed the sales tax which the consumer will save by not buying the local goods.  Besides, if India is to be  regarded as one economic unit there can be no  objection to  a  consumer in one State getting goods  cheaply  from  a neighbouring State. I  now  pass on to another important object of  article  286

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which  is  to encourage our foreign trade.  Power  is  given exclusively  to Parliament to make laws under entry 41  with respect  to  trade and commerce with foreign  countries  and under  entry 83 with respect to duties of  custom  including export duties.  If in addition to the import or export duty, which Parliament 91 alone  can impose, the State Legislatures were left free  to make a law under entry 54 in the State List levying  another tax on a sale or purchase which takes place in the course of the import of the goods into or the export of the goods  out of  the  territory  of  India  such  double  taxation   will necessarily   increase  the  price  of  the   goods.    Such imposition  may  easily result in our not  getting  imported goods  which may be of everyday requirement at a  reasonable price  or our not being able to compete in the world  market with  our exported goods.  This will discourage  and  hamper our  foreign trade and eventually affect the Union  revenue. It  is  to avoid that calamity that article 286(1)  (b)  was introduced in the Constitution. Article 286 (1) (b) has to be construed in the light of  its aforesaid constitutional purpose and against its  commercial background.  Import and export trade is principally  carried on  by big mercantile houses.  They purchase  goods  locally either  against  orders secured from overseas buyers  or  in anticipation of such orders and send the goods out of  India by  land or sea to be delivered eventually to  the  overseas buyers.   They purchase goods in foreign  countries  against orders secured from local Indian buyers who may be wholesale or  retail  dealers or in anticipation of  such  orders  and bring  them  into India by land or sea to  be  delivered  to their  constituents.   In some cases  the  manufacturers  or producers in India may themselves export their goods  direct to  overseas  buyers and the retail dealers or  even  actual consumers in India may occasionally import goods direct from overseas  sellers.  Export and import transactions  of  this clause  are,  however, comparatively  speaking,  smaller  in volume  than the great bulk of foreign trade put through  by the  big  export  and  import  houses.   The  constitutional purpose is to foster this foreign trade and to preserve  the Union revenue.  For achieving that purpose, the Constitution has  by clause (1) (b) of article 286 imposed a ban  on  the State  Legislatures preventing them from impinging upon  the Union  field of foreign trade and imposing tax on  sales  or purchases  made in the course of import or export under  the guise or pretence of making laws 92 with  respect  to taxes on sale or purchase of  goods  under entry 54 in the State List. The  question  arises:  what is the scope of  the  ban  thus imposed  on  the  States ? The answer  will  depend  on  the meaning  that may be ascribed to the phrase "in  the  course of"  occurring in clause (1) (b).  It should be  noted  that the same phrase is also used in clause (2) of that  article. In  The  State of Travancore-Cochin v.  The  Bombay  Company Ltd.(1), this court has held that " Whatever else may or may not fall within article 286(1)(b) sales and purchases  which themselves occasion the exports or imports of the goods,  as the case may be, out of or into the territory of India  come within the exemption........ In other words, this court  has held  that sales or purchases which themselves occasion  the imports or exports are sales or purchases which take place " in the course of" import or export.  This was sufficient  to dispose of that case and it was not then necessary to decide what else might fall within that phrase.  This court is  now

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called upon to decide that point. Article  286(1)(b) exempts from taxation by a State law  all sales  or purchases which take place "in the course  of  the import  of the goods into or the export of the goods out  of the  territory  of India." The word "course" conveys  to  my mind the idea of a gradual and continuous flow, an  advance, a journey, a passage or progress from one place to  another. Etymologically  it  means  and  implies  motion,  a  forward movement.   The  phrase II in the course of  "  clearly  has reference  to a period of time during which the movement  is in  progress.   Therefore’ the words "in the course  of  the import of the goods into and the export of the goods out  of the  territory of India" obviously cover the period of  time during  which  the  goods  are on  their  import  or  export journey.   This view, which has been said to be  founded  on mechanical test, is accepted by the Advocate-General of  the appellant State and, indeed, by all Advocates-General  other than-those  of  Uttar Pradesh and  Mysore.   The  Advocates- General of the two last mentioned States seek to limit the (1)  [1952] S.C.R. 1112.                              93 exemption  only  to such sales or  purchases  as  themselves occasion  the export or import.  That narrow view,  however, fails  to take note of the etymological meaning of the  word "course"  and  the very large number of sales  or  purchases that take place while the goods are on the high seas by  the endorsement  and/or  delivery against payment from  hand  to -hand  of  the relative shipping  documents  covering  goods worth crores of rupees.  In the case of exports from  India, such  sales or purchases in India will not be many  for  the shipping  documents will ordinarily be sent to  the  foreign country and the sales or purchases, if any, during  transit, by delivery of the shipping documents will take place there. In  some cases, however, where the goods are shipped to  the exporter  himself  or his agent without any  previous  sale, such  sale by delivery of shipping documents may take  place in  India.   But  take the case of an  Indian  importer  who places an order or indent with an overseas merchant for  the supply of a large quantity of goods.  The goods are  shipped and  the  shipping  documents  are  sent  by  air  mail  and presented  to the Indian importer by the  overseas  merchant through his bank.  The Indian importer receives the shipping documents  against payment.  The goods are, however, on  the high seas on their import journey and it will take some time before the steamer will arrive.  The market may fluctuate in the meantime.  Is the importer to wait patiently with folded hands trusting to luck that the market may be in his  favour when the goods actually arrive?  Is he not to be allowed  to make  a gain in case there is a rise in the market  rate  or cut  his loss if there is a downward tendency in the  market price  ? Is he to keep his money locked up all this  time  ? The  exigencies  of foreign trade require that  he  must  be permitted  to  sell  the goods by  delivering  the  shipping documents  and realise his money and to again invest  it  in fresh  imports.  This is how foreign trade is done.   It  is stated  in Halsbury’s Law of England (Hailsham  Edn.),  Vol. 29, p. 210: "280.   The  commercial  reason for  the  evolution  of  the ’c.i.f.’ contract lies in the length of the time taken 94 in the carriage of goods by sea.  It is to the advantage  of neither seller nor buyer that the goods, the subject  matter of the contract should remain en dehors commerce while  they are  in course of shipment.  It is to the seller’s  interest to  receive  the money equivalent to the goods  as  soon  as

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possible  after the date of the contract of sale, and  until he  has  received actual payment of the  price  he  normally desires to be able, if he wishes, to obtain credit upon  the security of the transaction.  The buyer, on the other  hand, normally  desires  to be able to deal with  the  goods,  for resale  or  finance,  as soon as possible.   To  meet  these business  necessities on the part of both buyer  and  seller the ’c.i.f.’ contract was evolved." Such  sales or purchases, by delivery of shipping  documents while the goods are on the high seas on their import journey were  and are well recognised species of  transactions  done every  day  on a large scale in big  commercial  towns  like Bombay  and  Calcutta  and  are  indeed  the  necessary  and concomitant incidents of foreign trade.  To hold that  these sales  or  purchases do not take place "in  the  course  of" import  or export but are to be regarded as purely  ordinary local  or home transactions distinct from foreign trade,  is to   ignore  the  realities  of  the  situation.    Such   a construction  will permit the imposition of tax by  a  State over  and  above the customs duty or export duty  levied  by Parliament.   Such double taxation on the same lot of  goods will  increase  the price of the goods and, in the  case  of export,  may  prevent the exporters from  competing  in  the world market and, in the case of import, will put a  greater burden  on the consumers.  This will eventually  hamper  and prejudicially affect our foreign trade and will bring  about precisely  that  calamity  which it  is  the  intention  and purpose  of our Constitution to prevent.  It is,  therefore, clear, to my mind, that the ban imposed by article 286(1)(b) protects  all  sales or purchases of goods that  take  place during  the  period the goods are on the  high  seas.   This construction  appears  to  me  to  be  imperative  not  only etymologically  but also commercially and  constitutionally. Indeed,  this view is implicit in our judgments in the  case of The State Of                              95 Travancore-Cochin v. The Bombay Company Ltd.(1) referred  to above, in which we said at page 1120:- "We are not much impressed with the contention that no  sale or  purchase  can be said to take place in  the  course  of’ export  or  import  unless  the property  in  the  goods  is transferred to the buyer during the actual movements, as for instance  where  the  shipping documents  are  endorsed  and delivered within the State by the seller to a local agent of the foreign buyer after the goods have been actually shipped or  where  such  documents  are cleared  on  payment  or  an acceptance  by  the Indian buyer before the arrival  of  the goods  within the State.  This view which lays undue  stress on  the  etymology  of the word ’course’  and  formulates  a mechanical test for the application of clause (b) places, in our  opinion, too narrow a construction upon that clause  in so far as it seeks to limit its operation only to sales  and purchases  effected  during the transit of  the  goods,  and would,  if  accepted,  rob  the exemption  of  much  of  its usefulness." The question immediately arises as to how the period of time covering the "course" of import or export is to be measured. When  does  it  begin and when does  it  end?   The  learned Advocate-General  of Travancore Cochin contends-and in  this he  is  supported by all the  Advocates-General  other  than those  of  Uttar  Pradesh and  Mysore-that  this  period  is confined  within two terminii, namely, when the  journey  of the  goods begins and when it ends.  They maintain that  the process  of import or export ordinarily begins and  ends  at water’s  edge, although the period of journey of  the  goods

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from  the  port  to  the  place  of  the  importer  or   his representative  in  case of import or to the port  from  the place  of  the  exporter or his representative  in  case  of export  may be added to the period of the actual  voyage  on the  high seas.  This contention cannot be accepted in  view of our decision in the case of The State of TravancoreCochin v.  The Bombay Co. Ltd.(1) referred to above.  According  to that decision the phrase "in the course of " is not  limited within these two terminii, i.e., from the point of time  the goods are handed over to the carrier (1)  [1952] S.C.R, 1112, 96 upto  the  time  they  are delivered  by  the  carrier.   By adopting  the  principle of integrated  activities  we  have included  the agreement for sale to, or purchase  from,  the foreign merchant as taking place within the period  connoted by  that phrase.  The agreement for sale or purchase,  which occasions  the  export  or import as the  case  may  be,  is obviously,  in  point of time, anterior to  the  actual  and physical handing over of the goods to the carrier for taking the  goods out of the country or for bringing them into  the country  as the case may be, but, nevertheless, such a  sale or purchase has been held to have taken place "in the course of" export or import and as such exempt from taxation by the States.   The question is how far backward we can trace  the commencement  of the "course" of export and how far  forward we can fix the termination of the "course" of import.  In  my  judgment  the  purchase made  by  the  exporter  to implement  his agreement for sale with the foreign buyer  is to  be  regarded as having taken place "in  the  course  of" export.  I take this view, not because I read the words  "in the course of" as synonymous with the words "for the purpose of" but because I regard the purchase by the exporter as  an activity so closely integrated with the act of export as  to constitute  a  part  of  the  export  process  itself   and, therefore,  as  having taken place " in the  course  of  the export.  The learned Attorney-General accepts this  position but  the  Advocates-General  of  the  States  demur.    They maintain that in this view of the matter one cannot stop  at the  last  purchase by the exporter but has to  include  the purchase  by  the person who sells to the exporter  and  all previous sales or purchases until one reaches the  producer. I  find no substance or cogency in this line  of  reasoning. In  the last purchase by the exporter we have at  least  one party  who is directly concerned with or interested  in  the actual  export.   The exporter is the connecting  link,  the commercial vinculum, as it were,. between the last  purchase and  the  export.   But in the earlier  sales  or  purchases neither  the  sellers  nor  the  purchasers  are  personally concerned with or interested in the actual                              97 export of the goods at all.  Therefore the earlier sales  or purchases  may  be  too remote and may not  be  regarded  as integral parts of the process of export in the same sense as the  last purchase by the exporter can be so regarded.   The line of demarcation is easily perceptible. Let  me explain my meaning step by step.  As I have  already stated, in some cases the exporters receive orders from  the foreign buyers and then export the goods.  It has been  held by us that these orders themselves occasion the export  and, therefore, they take place " in the course of " export.  But these  orders can occasion the export only if the  exporters have the goods to export.  The exporters are not necessarily the producers or manufacturers and in great many cases  they have  to procure the goods to implement the foreign  orders.

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The  overseas orders in such cases  immediately  necessitate the  purchase  of  the goods  and  eventually  occasion  the export.  The three activities are so intimately and  closely connected,  like  cause and effect, with the  actual  export that  they  may well be regarded as integral  parts  of  the process  of  export itself.  As according  to  our  previous decision the contract for sale with the foreign buyer starts the export stream and occasions the export, the purchases by the  exporter  to implement such contract  necessarily  take place, chronologically speaking, after the export stream has started  and, therefore, must be an activity  undertaken  in the course of the export.  Logically there can be no getting away  from this conclusion.  Therefore, these  purchases  to implement the sale which occasions the export must be immune from sales tax. Is  there any compelling reason to confine this immunity  to sales or purchases to implement a foreign order or sale ? It cannot  be overlooked that in a great majority of cases  the export  merchants, who, as I have said, are  not,  generally speaking,  the actual producers or manufacturers  of  goods, start purchasing goods in advance, after taking into account the  estimated quantity of the year’s total production,  the prevailing  local  prices, the likely  demand  from  foreign countries 13 98 and  the  prices  ruling or likely to rule  in  the  foreign markets.   Such  anticipatory  purchases  form  by  far  the largest  part of the activities of the export merchants  and are  regarded by businessmen as necessary incidents  of  the export trade.  Is there any logical reason why purchases  by the  exporters  in  anticipation of  future  foreign  orders should  not also be taken as starting the " course " of  the flowing stream of the export trade ?  The goods, it is true, are   stored  in  godowns  for  a  while   awaiting   actual exportation  but that is like a stream falling into  a  lake and  getting out by an outlet at the other end so  that  the undercurrent  of  the  flow, even if  imperceptible  on  the surface, is nevertheless continuous.  One cannot overlook or ignore these well known preliminary but essential activities of  the export merchants which necessarily precede and  lead up to and, indeed, occasion or eventually make possible  the ultimate physical movement of the goods.  To hold that these purchases  are independent local purchases totally  distinct from the export trade will be to unduly narrow down the wide meaning of the flexible phrase in the course of". I  find support for the views I have expressed above by  the recent decision of the High Court of Australia in The  Queen v. Wilkinson: Ex parte Brazell, Garlick and Coy (1) to which reference  may  now be made.  Section 11(3) of a  New  South Wales statute called the Marketing of Primary Products  Act, 1927-1940,  provides, inter alia., that every producer  who, except  in  the  course of trade  or  commerce  between  the States,  sells or disposes of or delivers any commodity,  in respect  of  which a Board has been  appointed,  to  persons other than the Board, and every person other than the  Board who, except as aforesaid, buys, accepts or receives any such commodity  from  a producer shall be guilty of  an  offence. Brazeil,  a  producer  of potatoes in  New  South  Wales  at Dorrigo  in  New  South  Wales agreed to  sell  48  bags  of potatoes of Garlick Coy & Co., who were buying agents for J. E. Long & Co., general produce merchants, whose head  office was at Jennings on the New South Wales side of (1)  (1952) 85 C.L.R. 467.                              99

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the  border of that State and Queensland and who carried  on business of purchasing and selling potatoes in both  States. It  was  a  term of the sale that  the  potatoes  should  be delivered  from Brazell’s lorry on trucks at Dorrigo in  New South  Wales.  The potatoes were loaded at  Dorrigo  railway station  into a truck and consigned by Garlick Coy & Co.  to J.  E. Long & Co. at Wallangarra on the Queensland  side  of the  border  adjoining Jennings.  The  potatoes  arrived  at Wallangarra and were sold by J. E. Long & Co. to a purchaser in  Queensland.   Brazell was charged with  the  offence  of disposing  of  and  Garlick and Coy,  the  two  partners  of Garlick Coy & Co. were charged with the offence of receiving the  potatoes in contravention of section 11(3) of the  Act. The question was whether the sale by Brazell to Garlick  Coy &  Co.  in New South Wales was in the course  of  trade  and commerce  between the States.  It was found that it  was  no part of the contract of sale between Brazell and Garlick Coy & Co. that the potatoes would go to any ascertained buyer in New South Wales or in any other State other than Garlick Coy & Co. who were, as Brazell believed, acting as agents for J. E. Long & Co., that Brazell was only concerned with the sale of  his potatoes and that when he received his money he  had no  further  interest  in the potatoes, that  there  was  no evidence  that  at the time Garlick Coy & Co.  received  the potatoes  from Brazell there was any contract  in  existence for  sale of them to any person in Queensland or  any  other State  or that J. E. Long & Co. had any definite orders  for the supply of them to any ascertained inter-State buyers  or that  the  potatoes purchased by Garlick Coy & Co.  were  to fill  any  such  orders.  There  was  no  binding  agreement between  Brazell and Garlick Coy & Co. or J. E. Long  &  Co. that the potatoes would be sold to buyers in Queensland, The Magistrate  answered  the  question  in  the  negative   and convicted Brazell, Garlick and Coy, who thereupon moved  for a  writ  of prohibition to restrain the informants  and  the Magistrate from further proceeding on those convictions.  In a  joint judgment Dixon, McTierman, Fullager and Kitto,  JJ. said :- 100 "In our opinion on the foregoing facts the disposal and  the receiving  made the subject of the informations were in  the course of trade and commerce between the States, within  the meaning  of  the  exception in  section  11(3).   Under  the agreement  for  the sale and purchase of  the  potatoes  the agents  buying  were required to consign the potatoes  to  a railway station in Queensland, and they did so consign them. For  the  purpose  of  the exception  the  delivery  of  the potatoes from the lorry into the railway truck can bear only the  aspect of an essential and integral, even  if  initial, step in the transportation of the potatoes to Queensland." In a separate but concurring judgment Williams J. said :- "  It was submitted to the Magistrate that  the  transaction must be looked at as a whole and not split up into  separate contracts  of  sale and purchase.  The  Magistrate  rejected this submission.  In doing so he fell into error.  He should have regarded the transaction as a whole.  On this basis the facts proved that the acts done by the appellants were  done in the course of trade and commerce between the States." After stating the facts shortly Webb J. said:- "The  potatoes  went  to Queensland and  were  sold  by  the principal  in  that  State.  It may be  that  there  was  no binding  stipulation  that  the potatoes would  be  sold  in another  State, and that they could have been resold in  New South Wales without breach of agreement.  But a legal  nexus with  inter-State trade, by a contract with the  grower,  is

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not required to secure the immunity given by section 92.  " Reference  was  made  in this case to the  earlier  case  of Clements  and  Marshall Pty Ltd. v.  -Field  Peas  Marketing Board (1) where there were two sets of contracts, the  first being contracts of sale by the producers to the dealers  and the  second contracts of resale by the dealers to buyers  in other  States.   After  pointing out that it  was  only  the second set of contracts which in themselves were inter-State transactions Dixon J. said at page 429: (1)  (1947) 76 C.L.R- 401,                             101 "We   should   consider  the  commercial   significance   of transactions  and  whether they form an integral part  of  a continuous  flow or course of trade, which, apart  from  the theoretical  legal possibilities, must commercially  involve transfer from one State to another." The  reasonings adopted by the learned Judges in  the  above cases apply with full force not only to clause (2) but  also to  clause (1)(b) of article 286 and we should construe  the words "in the course of" in the same way as it has been done in  the  case of Queen v. Wilkinson(1).  So  construed,  the purchases  made  by the exporter even without  any  previous order  for export form "an essential and integral,  even  if initial,  step" in the exportation of the goods.  They  form "an   integral   part  of  a  continuous  flow"   which   is commercially  involved  in the export  process.   No  "legal nexus"  between  these  purchases and  the  actual  physical export  is required to secure immunity from State  taxation. In my judgment the last purchases by the  exporters--whether in  fulfilment  of  foreign orders  already  secured  or  in anticipation  of future orders-must, in a commercial  sense, be  "in  the course of " the export.  The only way  to  give business efficacy to article 286 (1)(b) is to construe it in this  commercial sense.  Tax such purchases and you tax  the export  itself  and by that process eventually  cripple  our export  trade  and  bring about  an  adverse  trade  balance against us in the long run.  It must always be borne in mind that with our exports we pay for our imports. The  same  considerations  apply to the first  sale  by  the importers   of   the  imported  goods.   I  leave   out   of consideration the comparatively few cases of retail  dealers themselves importing goods direct from overseas sellers  and the  still fewer cases of actual consumers  importing  goods for  their own consumption.  In by far the largest  majority of cases it is the import merchants who bring goods into the country  from  abroad.  Their business is to  bring  in  the goods  and thereby augment the general mass of goods in  the country.   In  some cases the importers secure  orders  from local  dealers  and pursuant to such  orders  the  importers import the goods (1)  (1952) 85 C.L.R. 467. 102 from foreign lands.  In most cases, however, the  importers, in intelligent anticipation of local demands for such goods, place  orders or indents with foreign sellers who,  pursuant to such orders, send out the goods.  Each of these orders or indents  placed  with the foreign sellers by  the  intending importers  occasions the import and these purchases  by  the importers  are  certainly "in the course of" import  of  the goods  into  India  within  the  meaning  of  our   previous decision,  and as such exempt from sales tax.  We have  also seen  that the sale or purchase of goods during  the  period they are on the high seas is also "in the course of"  import and as such immune from taxation by State law.  The question then arises as to where the course of import ends.  Does  it

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end at the water’s edge ? If the sale by the importers while the goods are on the high seas be ,,in the course of" import and not liable to sales tax, there can be no logical  reason why  the first sale by the importers to dealers  should  not also be exempted.  If such sale is to be regarded as  purely a  local sale and as such liable to taxation by the  States, then,  in  effect, the tax will be a burden  on  the  import itself.  The importers have to pay the customs duty  imposed by  Parliament  and if again the  States  impose  additional taxes  on the same goods such multiple taxation  will  raise the  price  of  the goods to the  detriment  of  the  actual consumers and will eventually have an adverse effect on  our import trade which it is the purpose of the Constitution  to prevent.  After all the business of the importers who  bring the  goods  into  our  country is only  to  make  the  goods available  to the internal trade, for they are  not  usually retail  dealers  who  sell to the  consumers  direct.   That business  is  completed  only  by  the  first  sale  by  the importers  to the dealers, wholesale or retail.  It is  only after  that first sale of the goods by the importers to  the dealers  that the goods become parts of the general mass  of property  in the State concerned and thereafter  subject  to the  taxing  power  of that State.  The first  sale  by  the importers  to  dealers, therefore, appears to me  to  be  so inextricably wound up with the import itself that it may  be commercially  regarded  as  the culmination  of  the  import activities and,                             103 therefore,  the  end of the course of import.  I  arrive  at this  conclusion  not by applying the American  doctrine  of unopened original package, which has now been abandoned even by  the  Supreme  Court of America  and  has  recently  been rejected  by  us  in  the  Prohibition  Case(1)  but  on   a construction of the phrase "in the course of"’ in the  light of  its  etymology,  the purpose  of  the  Constitution  and against the background of the known notions and practices of businessmen  engaged  in  foreign trade. ,  If,  however,  a particular importer himself happens to be a retail dealer of the  goods and sells the goods to the  actual  consumers-and such cases are comparatively few-then such retail sales may, like local retail sales of similar goods, be liable to sales tax by the State.  Whether an importer is or is not a retail dealer is a question of fact which is capable of proof  and, therefore, need not be regarded as creating any  insuperable difficulty in the matter of the assessment of the sales tax. For  reasons stated above, I find no difficulty  in  holding that   just  like  the  last  purchases  by  the   exporters themselves  for the purpose of sending the goods out of  the country the first sales by the importers to dealers of goods brought  by  them  into the country  also  come  within  the somewhat  elastic expression " in the course of " export  or import.   As stated above, it is possible to draw  the  line there. Reference  is  made to Clive M. Schmitthoff’s  Export  Trade (2nd Edition, page 3) where the learned lecturer says:- "When a merchant shipper in the United Kingdom buys, for the purpose  of  export, goods from a manufacturer in  the  same country the contract of sale is a home transaction, but when he  resells these goods to a buyer abroad that  contract  of sale has to be classified as an export transaction." The  argument  formulated  on this authority  is  that  this passage  clearly establishes that the last purchase  by  the exporters  and  the first sales by the  importers  are  home transactions  and cannot be classified as export  or  import transactions at all, This distinction between

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(1)  [1951] S.C.R. 682, 104 a  home  transaction and an export transaction made  by  the learned  lecturer  for  the purposes of his  book  takes  us nowhere.   Nor do the American decisions  which  distinguish between  intra-State trade and inter-State trade  throw  any light  on the problem of construction of article 286  (1)(b) which is couched in language quite different from that  used in  the American Constitution.  In America the  question  is clear  cut, namely, is it an inter-State transaction  or  an intra-State transaction. Our problem, on the other hand,  is to find out whether a given sale or purchase has taken place "in the course of" import or export.  Simply to say that the particular  sale or purchase is a home transaction does  not solve  our  problem,  for to say so is not to  say  that  it cannot have taken place "in the course of" import or export. Indeed,  article 286 (1)(b) postulates a  home  transaction, that  is, a transaction which takes place within  the  State and then places it beyond the taxing power of that State  on the  ground  that the transaction, has taken place  "in  the course  of " import or export.  If the transaction is not  a home transaction, i.e., if it takes place outside the State, clause  (1) (b) need not be invoked at all, for then  clause (1)(a)  will  prevent that State from  taxing  that  outside transaction.  It is only when a particular transaction is  a home  transaction in the sense that it take,,; place  within the State that the further question arises, namely,  whether that  home  transaction has taken place "in the  course  of" import  or export within the meaning of clause (1)(b).   The circumstance  that a sale or purchase is a home  transaction does not, therefore, conclude the matter and we have yet  to solve  that further question by the proper  construction  of clause  (1)(b) according to its natural meaning and  in  the light   of  the  Constitutional  purpose  and  against   the commercial back-ground as explained above. A  second argument founded on that passage is that if  those home  transactions  are  removed from the  sphere  of  State taxation  then  the States will be deprived of  one  of  the principal and fruitful sources of revenue and the economy of the States will be crippled and may 105 even collapse.  It is pointed out that there is no provision in  clause  (1)(b), such as there is in  clause  (2),  under which  Parliament may lift the ban and, therefore, to  place these  home  transactions  beyond the taxing  power  of  the States will irretrievably deprive them of a very large  part of  revenue which they have been realising from these  sales or purchases made by the big importers or exporters many  of whom  are foreigners.  There is no reason, it is urged,  why they  should  not  be made to pay sales  tax  like  ordinary sellers  or  buyers in the States.  As already  stated,  the imposition of double taxation may eventually hamper our  own foreign  trade.   The object of our  Constitution,  apparent from the distribution of legislative powers and from article 286, is to place our inter-State trade and our foreign trade beyond the taxing power of the State.  In the case of inter- State trade power is expressly given to Parliament by clause (2)  of  that  article to lift the ban but in  the  case  of foreign  trade no such power is given to Parliament by  that article  to relax or lift the ban imposed by clause (1)  (b) on  the legislative power of the State Legislatures.  It  is for  Parliament alone to make laws with respect  to  foreign trade.  If the import or export of particular commodities is not beneficial to our country then Parliament, which is in a much  better position than this court to know and  judge  of

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such matters, will, I am sure, make laws restricting or even prohibiting  such  imports or exports.  If  our  imports  or exports  may bear the additional burden of taxation  without any  detriment  to the consumers and our foreign  trade  and without any risk to the Union revenue, Parliament, I have no doubt  again, will increase the customs or export  duty  and augment  the  revenue  of  the Union.   If  on  its  correct interpretation  clause (1)(b) of article 286 causes loss  to the  States’ revenue by depriving them of the taxes on  such sales or purchases then such loss will clearly and solely be attributable  to  the  intention  of  the  Constitution   as expressed  in  that clause.  If that clause results  in  any danger  to  the economy of the States, I have no  manner  of doubt that Parliament 14 106 Will make good the loss to the States on the  recommendation of the Finance Commission under some appropriate article out of  articles  268  to  281  grouped  under  the  heading   " Distribution of Revenues between the Union and the States  " in  the  very chapter in which occurs article 286  which  is engaging  our  attention.   In any  event,  the  court  must construe  the  Constitution  as  it  finds  it  and  if  the construction   of   the   plain  language   leads   to   any inconvenience  to the States it will be for authority  other than this court to rectify and remove the same. It is said that it will be very difficult for the Sales  Tax Officer to ascertain how much of the goods purchased by  the exporters  had  actually been exported or how  much  of  the goods   imported   by  the  importers  had   actually   been distributed  amongst  the  dealers  as  opposed  to   actual consumers.   It is pointed out that ordinarily sales tax  is levied on sales and the sellers are permitted to pass on the tax to the purchasers at the time of such sales.  How, it is asked,  is  the seller to know whether  his  purchaser  will actually  honour his representation that he wants the  goods for the purpose of export?  If the seller has no  confidence in  the integrity of his purchaser he will not sell  to  him without  sales  tax.  The purchaser who is  really  exporter will  not then perhaps buy from such a seller or if  in  the case  of  urgency he buys on payment of the  sales  tax  may claim the refund, if there be any provision in that  behalf, on  proof that he actually exported the goods.  It  is  said that  exporters  may change their minds and sell  the  goods locally  after obtaining the exemption or the importers  may sell  the goods themselves in retail to the consumers  after having  got  the exemption.  There is no substance  in  this line of theoretical reasoning, for these are matters capable of  being proved.  If the exporters or their sellers  cannot prove to the satisfaction of the officer that the  exporters purchased  so much goods for export and did actually  export the  same or the importers or their purchasers cannot  prove that the importers imported so much goods and distributed so much amongst the dealers as 107 opposed to actual consumers, they will not get the’  benefit of the exemption and that is all.  If the Sales Tax  Officer finds  no difficulty in ascertaining whether the  goods  are delivered  in  a State only for the purpose  of  consumption within  that  State or whether they were delivered  for  the purpose  of resale out of that State so as to ascertain  the applicability  of  the Explanation to clause  (1)  (a),  why cannot  the same officer find out what goods were  purchased by  the exporters for the purpose of export or what part  of the imported goods were sold by the importers to the dealers

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? If the Income-tax Officer can without difficulty ascertain the income, profits and gains of a business and work out the provisions  of, section 10 of the Indian Income-tax Act  and also  can ascertain under section 42 of that Act the  income deemed  to  accrue or arise within  the  taxable  territory, there cannot be any insuperable difficulty in the way of the Sales  Tax Officer determining the turnover of a  particular dealer  and  working out the exemptions he  is  entitled  to under   article  286(1)  (b).   In  any  case  the   assumed difficulty  of the Sales Tax Officer cannot alter or  affect the correct construction of the constitutional provisions in question. To summarise : The State Legislatures, under entry 54 of the State  List, have power to make laws with respect to tax  on the  sale  or  purchase of goods.   On  this  general  power article 286 places four restrictions, namely, that no law of a  State shall impose or authorise the imposition of tax  on the  sale  or purchase of goods when such sale  or  purchase takes  place  (1) outside the State, (2) in  the  course  of import or export, (3) in the course of inter-State trade and commerce  and (4) in respect of essential commodities.   The Explanation  to  clause  (1) (a) only explains  what  is  an outside  sale or purchase, for by saying that  a  particular sale  or  purchase  is  to be deemed  to  take  place  in  a particular  State it only indicates that it is to be  deemed to take place outside all other States so as to attract  the ban of clause (1) (a) and thereby take away the taxing power of those other States with respect to such sale or purchase. The Explanation does not operate as an 108 exception  or  a proviso but only explains  sub-clause  (a). The,  fiction  created by the Explanation is  only  for  the purposes  of sub-clause (a), so that sales or  purchases  of the  kind which fall within the Explanation get the  benefit of  the  ban  imposed by  sub-clause  (a).   Therefore,  the purpose of the Explanation read with sub-clause (a) is  only to  take  away  the power of taxation  of  those  States  in relation to those sales or purchases which are to be  deemed to  be outside sales or purchases.  Its purpose is not  and, indeed,  it does not purport, to confer any taxing power  on any  State,  and  it  cannot be resorted  to  for  any  such extraneous  or collateral purpose.  It does not  convert  an inter-State  sale or purchase into an intra-State  sale  for any  purpose  other than the limited purpose  of  sub-clause (a).   If  a sale or purchase takes place outside  a  State, either  under  the general law or by virtue of  the  fiction created  by the Explanation, then that State  cannot,  under clause  (1)  (a), tax such sale or purchase.  If a  sale  or purchase  takes  place  within a  State,  either  under  the general law or by reason of the Explanation, then, if such a sale  or  purchase takes place " in the course of  "  inter- State trade and commerce, no State, not even the State where the sale or purchase takes place as aforesaid can tax it  by reason  of  clause (2), unless and until Parliament  by  law provides  otherwise.  A sale or purchase "in the course  of" import  or  export  within the meaning  of  clause  (1)  (b) includes  (i) a sale or purchase which itself occasions  the import or export as already held by this court, (ii) a  sale or  purchase  which takes place while the goods are  on  the high seas on their import or export journey and (iii) the .- last purchase by the exporter with a view to export and  the first sale by the importer to a dealer after the arrival  of the  imported  goods.   If a sale or  purchase  takes  place within a State, either under the general law or by reason of the  Explanation, then, if it takes place in the  course  of

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import or export as explained above, no State, not even  the State within which such sale or purchase takes place can tax it by reason of clause (1) (b).  This, in short, is the true meaning  and import of article 286 as I read and  understand it,                             109 I  have already stated, however, that the majority  decision of this court in C. A. No. 204 of 1952 [The State of  Bombay v. The United Motors (India) Ltd.(1)] has taken a  different view  of the meaning of clause (1) (a), the Explanation  and clause  (2)  of article 286.  In disposing  of  the  present appeals,  in  so  far  as such  disposal  depends  on  those provisions,  I  am  bound to follow  the  majority  decision rather than my own view of them. Bearing  in mind the principles laid down by this  court  in The  State  of  Travancore- Cochin  v.  The  Bombay  Company Ltd.(2) and in C. A. No. 204 of 1952 [The State of Bombay v. The  United  Motors (India) Ltd. and others (1)]  and  those explained above, I now proceed to consider the rival  claims on their respective merits.  There is really no  substantial controversy  as to the nature of the business carried on  by the  respondents.  All of them are exporters  of  cashew-nut kernels on a fairly big scale.  They procure raw cashew-nuts from  three  sources, namely, (i) from within the  State  of Travancore-Cochin,  (ii) from neighbouring States and  (iii) from  Africa.  Then they put the raw cashew-nuts  through  a certain  process and obtain oil and edible  kernels.   These edible kernels they export to foreign countries.  It will be recalled  that  the Travancore Sales Tax Act  imposes  taxes only on the purchase of "cashew and its kernels" but not  on the  sale  thereof.  The respondents  claim  exemption  from sales  tax  for the period between the 26th  January,  1950, when  the  Constitution came into force and  the  29th  May, 1950, which is the close of the assessment year.  In support of  their claim for exemption they rely oil article  286  of the Constitution.  It is necessary, therefore, to take  each of the three categories of purchases and see if they or  any part  of them come within any of the exemptions provided  by that article. As  regards local purchases of raw cashew-nuts there  is  no controversy that those purchases take place within the State and  are,  therefore,  not entitled  to  the  protection  of article 286 (1) (a).  These purchases do not take place " in the course of " inter-State trade or (1) [1953] S.C.R. 1069. (2) [1952] S.C.R. 1112. 110 commerce  and, therefore, are not within clause (2) of  that article.  The only question is whether these local purchases can be said to take place " in the course of " export within the  meaning  of article 286 (1) (b).  There is  no  dispute that the respondents do not sell the raw cashew-nuts or  any portion  of  it within or without the State  of  Travancore. They do not sell the edible kernels, which they obtain as  a result  of  the manufacturing process or any  part  of  them within Travancore-Cochin or any other State in India  except what have been described as factory rejections of negligible quantity  which are not fit for export.  All edible  kernels are  exported  to foreign countries.   Therefore,  the  res- pondents  claim  that  all  their  purchases,  whether  made locally or in neighbouring States or from abroad, are, "  in the course of " export within the meaning of clause (1)  (b) in the sense explained above.  The appellant State, however, maintains  that  commercially  " the goods  "  exported  are entirely different from " the goods " purchased by reason of

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the  process  of manufacture they are put through  and  are, therefore, not entitled to the benefit of the ban imposed by clause (1) (b). The High Court has, on remand, enquired into the process  of manufacture  through  which the raw  cashewnuts  are  passed before the edible kernels are obtained.  The High Court,  in its  judgment  on remand, goes minutely into  the  different processes   of  baking  or  roasting,  shelling,   pressing, pealing, and so forth.  Although most of the process is done by hand, part of it is also done mechanically by drums.  Oil is  extracted  out  of  the outer  shells  as  a  result  of roasting.   After roasting the outer shells are  broken  and the nuts are obtained.  The poison is eliminated by  pealing off  the  inner skin.  By this process  of  manufacture  the respondents  really consume the raw cashew and  produce  new commodities.    The  resultant  products,  oil  and   edible kernels,  are well recognised commercial commodities.   They are  separate articles of commerce quite distinct  from  the raw   cashewnuts.   Indeed,  it  is  significant  that   the respondents  place orders for "cashew-nuts " but orders  are placed 111 with them for " cashew-nut kernels ". In the  circumstances, "  the  goods  "  exported are not the  same  as  the  goods purchased.   The goods purchased locally are  not  exported. What are exported are new commodities brought into being  as a  result of manufacture.  There is a transformation of  the goods.   The raw cashews are consumed by the respondents  in the sense that a jute’ mill consumes raw jute, or a  textile mill  consumes cotton and yarn.  The raw cashews  not  being actually exported the purchase of raw cashews cannot be said to  have been made " in the course of " export so as  to  be entitled to immunity under clause (1) (b). As  regards  the  purchases  of  raw  cashew-nuts  from  the neighbouring  States,  the position, as found  by  the  High Court  on  remand, is that the bulk of such  purchases  were made by the respondents or their agents from sellers in  the neighbouring   States  and  the  goods  so  purchased   were delivered by the sellers to the respondents or their  agents in the States where the purchases took place.  The  contract of purchase was fully implemented when as a direct result of the  purchase  delivery was given outside  Travancore.   The respondents  or their agents thereafter brought, the  goods, which  by then had become their own goods, into  Travancore, by  rail or otherwise.  The delivery of the goods under  the contract  for  purchase having already taken  place  outside Travancore,  the  subsequent  despatch  of  those  goods  to Travancore  cannot  possibly be said to have  been  delivery within that State as a direct result of the purchase  within the  meaning  of  the  Explanation.   Indeed,  the   learned Advocate-General  of  Travancore-Cochin  concedes  that   as purchases  of this type did not fall within the  Explanation they  must  be  regarded  as  having  taken  place   outside TravancoreCochin and must, accordingly, be exempt from taxa- tion by Travancore-Cochin under article 286 (1) (a).  If  it could  be shown that although such sales or  purchases  took place  entirely  in those other States yet  they  were  made between two parties residing or carrying on business in  two States and for the purpose of consumption or of sale in  the purchasers’  State then these sales or purchases might  have been said to have 112 been made "in the course of " inter-State trade and commerce and  as such exempt from taxation by both the  States  under article 286 (2).  The transactions of sale or purchase  with

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which we are concerned having taken place within the  period covered  by the President’s order made under the proviso  to that  clause, no protection under clause (2) can be  claimed for   these  transactions.   Further,  if  the   cashew-nuts purchased  in  neighbouring States were for the  purpose  of exporting  them  out of the territories of  India  and  were actually so exported, then these purchases would be " in the course of " export and as such exempt from tax under article 286 (1) (b).  As a matter of fact, however, the  cashew-nuts purchased  in  the  neighbouring States  were  not  actually exported  but were put through a process of manufacture  and the goods that were exported were not the same as those that were purchased as explained above and, therefore, clause (1) (b) gives no protection to these purchases.  On the facts of these  cases, these purchases, however, took  place  outside Travancore-Cochin  and as such are, therefore,  immune  from taxation  by  Travancore-Cochin only under  clause  (1)  (a) which  is not affected by the President’s order  made  under the proviso to clause (2). The learned Advocate-General of Travancore-Cochin says  that there  is another type of purchase from neighbouring  States where the seller in the neighbouring State directly delivers the  goods  under the contract for sale or purchase  to  the respondents   in  Travancore.   Learned  counsel   for   the respondents  maintains  that there is actually  no  case  of purchase of this type.  It is not necessary at this stage to go into this controversy, for, the matter having been  fully argued, it is just as well to lay down the correct principle applicable  to such purchases, if any.  If there is no  such purchase  where  the  seller  from  the  neighbouring  State delivers  the goods as a direct result of such  purchase  to the  respondents  in  Travancore, no  question  will  arise. Assuming that there are cases of such purchases, then it  is clear  that  the  first  condition  of  the  Explanation  is satisfied, namely, the goods are delivered within the  State as a direct result of such purchase.  The next question is 113 --was  such delivery for the purpose of consumption  in  the State   ?  The  raw  cashew-nuts,  after  they   reach   the respondents,  are put through a process and new articles  of commerce,  namely,  cashew-nut  oil  and  edible  cashew-nut kernels, are obtained.  It follows, therefore, that the  raw cashew-nut  is  consumed by the respondents in the  sense  I have  mentioned.   Consequently, such  purchases  will  fall squarely  within the Explanation and will be deemed to  take place  in  Travancore  so  that  under  clause  (1)(a)   the neighbouring  States will not be entitled to impose any  tax on  these sales or purchases.  According to my view, and  on the  reasonings  adopted  in  the  Australian  case,   these purchases  are "in the course of" inter-State trade  and  as such  will be protected by clause (2) but according  to  the majority view in the Bombay appeal, which must prevail, such purchases  will become, as a result of the  Explanation,  an intra-State  purchase in Travancore and consequently out  of the  protection  of  clause (2) and liable  to  taxation  by Travancore  law.   Even  if  according  to  my  view   these purchases  fall within clause (2) they will nevertheless  be liable  to  be taxed under the Travancore Act, in  spite  of that clause, by virtue of the order made by the President in exercise  of the powers conferred on him by the  proviso  to that  clause.  These purchases will not get  any  protection under  clause (1) (b) because the goods purchased  were  not the  goods  that were exported.  These  purchases,  if  any, will, therefore, be liable to be taxed under the  Travancore Act.

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The  third  source from which the respondents  purchase  raw cashew-nuts is Africa.  The respondents place orders for the purchase of raw cashew-nuts with commission agents in Bombay and  the  Bombay agents pass on the orders  to  the  African sellers  or  their agents in Bombay.   The  African  sellers theft  send  the  goods by steamer and  send  the  bills  of lading,  invoice  etc. to their bank in  Bombay.   The  bank presents   the  documents  to  the  Bombay  agents  of   the respondents and the Bombay agents pay the price 15 114 and take delivery of the shipping documents in Bombay.   The Bombay  agents  then prepare their own invoice  showing  the amounts paid by them on account of the respondents and their own  commission  and send their invoice  together  with  the shipping documents to their Travancore bank.  The Travancore bank presents all these documents to the respondents who pay the  Bombay agents’ invoice amount and take delivery of  the shipping  documents.  All these generally happen  while  the goods  are  on the high seas.  On arrival of  the  goods  at Travancore   port,  the  respondents  clear  the  goods   on presenting the bill of lading etc.  This is the main type of purchase  of African raw cashew-nuts.  The  appellant  State concedes  that  these are not liable to tax.  In  the  first place  the purchases were outside the State and,  therefore, clause  (1)(a) applies.  In the next place  these  purchases took  place  I ’in the course of " import and  as  such  are exempt  from taxation under article 286(1)(b),  because  (i) they  themselves  occasioned the import as already  held  by this court and (ii) the property in the goods passed and the purchases  took place when the goods were on the high  seas. These purchases, however, cannot be said to have taken place "in the course of" export, for reasons already explained. There  is  another type of purchase of African  raw  cashew- nuts.   There  the African sellers ship raw  cashew-nuts  on their  own  initiative or at the instance  of  their  Bombay agents  and while the goods are on the high seas,  they  are sold by endorsement and delivery of the bills of lading etc. at  Bombay to the Bombay agents of the respondents and  then the  same procedure is followed as in the first case.   Here the purchase by the respondents did not occasion the import, but,  nevertheless,  the sale or purchase  was  outside  the State  and further the goods being on the high seas  at  the time when the property passed such sale or purchase must  be regarded as having taken place "in the course of" import  of the goods according to the mechanical test explained  above. The learned Advocate-General of the appellant State does not dispute  that such purchases are also to go free from  sales tax, 115 The  next type of purchase of African raw cashewnuts  is  as follows:  The  different respondents place  separate  orders with  the  same  Bombay commission  agents  and  the  Bombay commission  agents  place  one consolidated  order  for  the entire quantity of the goods with the African sellers.   The African sellers thereupon ship the entire lot of goods under one  bill  of lading and they send the bill  of  lading  and invoice  etc.  to  their Bombay bank  and  the  Bombay  bank presents  the same to the Bombay agents.  The Bombay  agents pay  for the entire lot of goods and obtain delivery of  the shipping  documents and then they prepare separate  invoices for  each  of their constituents, namely,  the  respondents, including their own commission and split up the  consignment in the sense that the draw separate delivery orders covering the respective quantity of goods ordered by each  respondent

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and send such invoice and delivery orders to the  Travancore bank,  who presents the same to the respondents who  receive the  delivery  orders against payment.  The goods  are  then cleared  on  the original bill of lading on arrival  of  the steamer  at Travancore and thereafter the  respondents  take delivery  of the goods from the warehouse of sellers or  the Bombay  agents against their respective delivery orders.   A purchase  of this type cannot properly be said  to  occasion the  import of the goods.  What really occasions the  import of the goods is the order placed by the Bombay agents.   The Bombay  agents  not having passed the orders placed  by  the respondents  separately  to  the  African  sellers  and  the African sellers not having shipped the respective quantities of  goods under separate bills of lading none of the  orders can  be  said to have occasioned the import, for in  such  a case there is no privity between the African sellers and the individual  respondents and the import is referable only  to the  order placed by the Bombay agents which in the  eye  of the  law  is not the order of any of the respondents  but  a consolidated order placed by the Bombay agents on their  own responsibility  and  account with the object  of  eventually distributing the goods amongst the different respondents  in fulfilment  of their respective orders.  In the  next  place the delivery of the bill of 116 lading covering the entire goods to the Bombay agents cannot be  said  to be a delivery to the respondents of  the  goods separately ordered by each of the respondents.  The sale  in such a case takes place in Travancore on the handing over of the  delivery orders to the respective respondents  and  the delivery  of  the  goods thereunder from  the  warehouse  in Travancore.  These goods, therefore, cannot claim  exemption from tax under the provisions of article 286 (1) (a) or  286 (1) (b) or 286 (2). The  last type of transaction in African raw  cashewnuts  is where the purchase takes place after the cashew-nuts  arrive in Travancore port and are thereafter sold and delivered ex- godown to the respondents.  This is clearly a case of intra- State  sale and clauses (1) (a) and (2) of the  article  can have  no  application to it.  The respondents  cannot  claim exemption under clause (1)(b) for reasons stated above. As the respondents do not claim any exemption from  taxation with  respect to pre-Constitution purchases, the  same  need not be discussed separately. For  reasons  stated above, the decision of the  High  Court must  be  upheld  only to the extent  that  the  assessments should be quashed.  The matter must, however, go back to the Sales Tax Officer who must make a reassessment in the  light of  the  principles  laid down in  the  two  previous  cases referred  to regarding clause (1) (a), the  Explanation  and clause  (2)  and in the light of  the  principles  discussed above regarding clause (1)(b). Agent  for  the  appellants  in  all  the  appeals:  G.   H. Rajadhyaksha. Agent for the respondents in Appeals Nos. 26 and 33:   Rajinder Narain. Agent  for the respondents in Appeals Nos. 27, 30 to 32  and 34 to 36: S. Subramanian. Agent  for  the  Union of India and the  States  of  Madras, Hyderabad, Punjab and Mysore: G. H. Rajadhyaksha. Agent for the State of U. P.:     C. P.Lal, 117