THE STATE OF KERALA AND OTHERS versus THE COCHIN COAL COMPANY LTD.

2 S.C.R. SUPREME COURT REPORTS

THE ST ATE OF KERALA AND OTHERS ·v.

THE COCHIN COAL COMPANY LTD.

(S. K. DAs, M. HIDAYA'l'ULLAH, K. C. DA.s GuPTA J.C. SHAH and N. RA.JA.GOPALA AYYANGA.R, JJ.)

Sales Tax-Explanation Sales-Sale and delivery of coal to Steamship-Whether in the course of export-Constitution of India, Art. 286-United States of Travancore and Cochin General Sales Tax Act, n25, s. 6-Notiftcation dated February 5, I954·

The respondent stocked 'bunker coal ' at Candle Island in the State of Madras. They sold the coal to steamers calling at the port of Cochin in the State of Travancore-Cochin and delivered it there. The respondent was assessed to sales tax on such sales for the year 1951-52 and 1952-53. The respondent contended that no sales tax could be levied on these sales since they were either sales' in the course of export' or in 'the course of inter-State trade' exempt from sales tax under sub-cl. (1) (b) or cl. (2) of Art. 286 of the Constitution and in the alternative that they were exempt from tax under notification dated February 5, 1954, issued by the appellant State under which sales falling within the Explanation to Art. 286(1)(a) made during the period 4-1-1951 to 31-3-1953 were exempted from liability to pay tax.

Held that the sales were exempt from . tax under the Government Notification. The coal was delivered to the actual consumer, i.e., the steamships in Travancore-Cochin and they were at liberty to consume it :wherever they desired, either within the State or outside the choice depending on its con-venience and necessity. The delivery wa·s for consumption within the State and the sales fell within the txplanation to Art. 286(1)(a).

Though the sales were in the course of inter-State trade which were covered by the ban on taxation imposed by Art. 286(2) the levy was validated by the Sales Tax Validation Act, 1956.

M. P. V. Sundararamier & Co. v. The State of Andhra Pra-desh, [1958] S.C.R. 1422, relied on.

The sales were not made ' in the course of export ' and were not covered by the ban imposed by Art. 286(1)(b). For Art. 286(1)(b) to apply it was not sufficient that the goods merely moved out of the territory of India, but it was further necessary that the goods should be intended to be transported to destina-tion beyond India. The concept of 'export' in Art. 286 postulat-ed the existence of two termini between which the goods were in tended to be transported.

Octobn 3r

Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. The Commercial Tax Officer, C.A. 75I of I957 & C.A. IO of 1958 (Unreported} followed.

The State of

J( er ala Others

CIVIL APPELLATE JURISDICTION: Civil Appeal

No. 287 of 1958.

The Cochin Coal Co1npany Ltd.

Appeal from the Judgment and Order dated tho 10th September, 1956, of the formerTravancore-Cochin in Original Petition No. 191 of 1955.

Sardar Bahadur, for the Appellants.

K. P. Abraham, P. George and M.R. Krishna Pillai, for the Respondent.

1960. October 31. The Judgment of the Court was delivered by

AYYANflAR J.-This is an appeal from the judgment of the High Court of Travancore.Cochin on certifi-cate of fitness granted by it under Art. 133(1) of the Constitution and raises for consideration the liability of the respondent-The Cochin Coal Company Ltd.-to sales-tax under the United State of Travancore and Cochin General Sales Tax Act, 1125 (1950).

Ayyaugar J.

The following are briefly the facts which it is neces-sary to state in order to appreciate the points in con-troversy in the appeal. The Cochin Coal Company Ltd. which will be referred to as the respondent-Company are, as their name indicates, dealers in coal. The commodity, the sales of which have given rise to the dispute in this appeal is what is known as 'Bunker coal'. The company have their offices at place called Fort Cochin which was formerly within the State of Madras. They import and keep stocks of " bunker coal " stacked at place called Candle Island which at the date relevant to these proceedings was also within the State of Madras. Part of the activities of the respondent-company consist in the supply of" bunker coal " from their depots in Candle Island to steamers arriving in or calling at, the port of Cochin (in the State of Travancore-Cochin) for the outward voyage of the steamers from the said port. The usual procedure by which "bunker coal" was . thus supplied by the respondent-company was briefly

this : Before the arrival of the steamers, the steamer agents would enter into contracts with the respondent-company for trimming coal into the bunker of the steamer. As soon as steamer arrived in Cochin port, the steamer-agents would inform the respondent-company and these agents after securing the neces-sary papers from the customs and the port authoriti-es for the loading of the colj.l into the steamer, would take these papers to the respondent-company's office in Fort Cochin for enabling the latter to perform their part of the con.tract .. The respondent-company would thereupon send the goods ordered to the steamer through their transport contractor. Delivery orders would be issued to the transport contractor on the strength of which goods would be released from their stock in Candle Island. Coal would then be taken to the steamer berthed in the port in Travancore-Cochin State waters. The Chief Engineer ·of the steamer would inspect the coal and when the same was to his satisfaction as regards quality, the coal would be per-mitted to be trimmed into the bunkers of the ships. The price of the coal would thereafter be paid to the respondent-company on bills drawn on the steamer-agent. The a.hove being the nature of the transac-tions conducted by the respondent-company, sales-tax was claimed on the sales of bunker coal by the Tra-vancore-Cochin State. The assessment years with which this appeal is concerned are 1951-52. and 1952-53, and the assessment therefor was completed on February 2, 1954, by the sales-tax officer, I Circle, Mattancherry. The respondent-company's contention that no sales-tax could be levied on the value of the "bunker coal" supplied, since the sale was either "in the course of export '', or "in the course of inter-State trade" and therefore exempted from taxation by the State under sub-cl. (l)(b) or (2) of Art. 286 was reject-ed by the assessing officer for the reason that the sales in question fell withiil the Explanation to Art. 286 (l)(a) and were therefore "inside" the State of Tra-vancore-Cochin, since the delivery in pursuance of the sale took place within the State and the goods were delivered for the purpose of consumption within

Th• State of J{erala & Others

The Cochin Coal Company Lid.

Ayya11gar } .

The Stale of J(erala Other!'. v. The Cochin Coal Co1npany Ltd. Ayyangar ]·

the State and that notwithstanding that there was an inter-State element involved in the sale, by the goods being moved from Candle Island, the same did not affect the power of the delivery State to levy the tax. The point urged by the company, that the same sales had been assessed to tax in Madras State as sales actu-ally taking place there, was also rejected as irrelevant. The respondent-company tihereafter filed an appeal to the Appellate Assistant Commissioner who allowed the appeal of the company holding that the sales were "in tho course of export" within Art .. 286(l)(b), and that even if they were not such but were "inside" sales falling within the Explanation to Art. 286(l)(a) of the Constitution, still notification by the State Government dated February 5, 1954, exempting such sales fn>m tax, operated for the benefit of the asses-see. Thereafter the Deputy Commissioner of sales-tax who was the Revisional authority took up the matter 8UO motu, called upon the assessee to show cause why the appellate order should not be set aside and the entire turnover assessed to. sales-tax as the sales had taken place inside the State only. After hearing the assessee-company the order of the appellate Assistant Commissioner was set aside and that of the Sales Tax Officer restored. The respondent-company then mov-ed the High Court of Travancore-Cochin under Arts. 226 and 227 of the Constitution to set aside the order in revision and the learned Judges of the High Court ordered accordingly. They, however, granted certi-ficate under Art. 133(1) of the Constitution to enable the State Government to file an appeal to this Court and that is how the matter is now befere us. Though the respondent-company appear to have presented before the High Court several lines of argu-ment in support of their contention that they were entitled to exemption from sales-tax in respect of "bunker coal" trimmed by them into steamers in the waters of Travancore-Cochin, the learned Judges rested their decision in favour of the respondent-com-pany on pra<?tically single ground. Their reasoning was briefly as follows: Following the Bengal Immu-nity case ('), the learned Judges held that, the bans (ii [1955] 2 S.C.R. 6o3-

imposed by els. l(a.) and 2 of Art. 286 were indepen-dent and tha.t the sale of . the coal by the respondent-The State of company which was in the course of inter-State trade Kera/a & Others was covered by the ban contained in Art. 286(2) of \'. the Constitution notwithstanding that the sale might The Cochin Coal satisfy the terms of the Explanation to sub-cl. l(a). c[0111]Pany Ltd. The learned Government Pleader, however, had sub-Ayyangar ]. mitted that if the exemption was derived from Art. 286(2), the same would not assist -the assessee, since the validity of the tax was saved by the Sales!tax Law Validation Act, 1956. The learned Judges how-ever held that the validation Act could not avail the State becaur:ie on their construction of s. 26 of the Travancore-Cochin Genera.I Sales Tax Act, 1125 (cor-responding to s. 22 of .the Madras Sales Tax Act, 1939) no tax had been levied or was leviable on sales in the course of inter-State trade or commerce and that the Validation Act having validated only taxes already levied could not enable the State to levy tax which had not been imposed by the State's Sales-tax Act.There is no doubt that the transaction of sale in the present case was in the course of inter-State trade and would be covered by the ban on taxation imposed by Art. 286(2). But the view of the learned Judges of the High Court regarding the construction of s. 26 of the Travancore-Cochin General Sales Tax Act must now be held to be incorrect in view of the decision of this Court in M. P. V. Sundararamier &1 Go. v. The State of Andhra Pradesh (1). If therefore the assessee-company could rely only on Art. 286(2) for claiming relief, it must be held to be not available to them since the Sales Tax Validation Act, 1956, would have validated the levy.

Before us, however, learned Counsel ior the respon-dent-company urged two grounds to sustain the dec-ree of the High Court in its favour. The first was that as the coal trimmed into the steam-ships were meant to be carried outside the territory of India, the sale was " in the course of export " within Art. 286 (l)(b) of the Constitution and was therefore exempt from the levy of sales-tax by the State. This conten-tion however has to be rejected in view of the decision (1) [1958] S.C.R. 1422.

i96o of this Court in Burmah Shell Oil Storage & Distribut-Kera;a Th 5 :;'.'~:hers 1 ing Officer(') Go., iu which of India, Ltd. it was held v. that The Commercial in the context Tax and v. setting in which the expression " export out of the The Cochin Coal territory of India " occurs in Part XIII of the Consti-Company Ltd. tution, it was not sufficient that goods were merely moved out of the territory of India but that it was Ayyanga' f. further necessary that the goods should be intended to be transported to destination beyond India, so that they were in the course of " import " into some other locality outside India and accordingly that avi-ation spirit sold to an airc)'aft for enabling it to fly out of the country was not "exported " out of the country. The reason was that there was no destina-tion at which it could be said that the spirit was im-ported and that mere movement of the goods out of the country following sale would not render the sale one " in the course of export " within Art. 286 (l)(b) of the Constitution. In other words, the concept of export in Art. 286 postulates just as the word im-port, the existence of two termini as those between which the goods are intended to move or between which they are intended to be transported, and not mere movement of goods out of the country without any intention of their being landed in specie in some fore-ign port.

The other point urged by learned Counsel was that, in any event, the sale fell within the Explanation to Art. 286(l)(a) inasmuch as the delivery of the coal was effected in the State of Travancore-Cochin for the purpose of consumption in that State. There is no doubt that the goods having originally been located in Candle Island in Madras State were moved out of that State by reason of the contract of sale into the terri-tory of Travancore-Cochin. It had therefore an inter-State element which rendered the Explanation appli-cable. The delivery was admittedly effected in the State of Travancore-Cochin as direct result of that sale and was trimmed into the steam-ships in the Cochin waters. If the purpose of the delivery was

(r) C.A. 7 _·,1 of 1957 & c.A. IO of 1958 (Unreported).

not export as we have held earlier; it nrnst follow that i96o in the circumstances of this case it was for the pur-The State uf pose of consumption in the s tate since the 1 ivery Kerala & Others was to the ultimate consumer who was to use the v. goods for his own purposes and not for the purpose of The Cochin Coal re-export or with view to other transactions of Company Ltd. commercial character in the goods. It would be noticed that the ultimate buyer-the steam-ship com-Ayyangar f. pany could, if it desired, consume the goods in the sense of exhaust the goods by consumption within the State or it could take it outside the State and con-sume it there, but that was matter of its choice, dependent on its will and pleasure. This would not therefore detract from the delivery to it being for consumption within the State. Goods might be con. sumed either by destruction or by way of use depend-ing on the nature of the goods. Thus edible articles are generally consumed in literal sense · w bile other articles like clothing or furniture etc. are consumerl by being used, though they are not destroyed by such use. If edible articles are sold and delivered to an ultimate consumer within State, it is delivered for the purpose of consumption within the State, notwith-standing, that the buyer may not choose to consume the whole of his purchase within the State but takes part of it outside the State and consumes it there. If, for instance, vehicle is sold to the actual user and the sale is not in the course of export o~· with view to further commercial transactions in it by the pur-chaser by way of resale etc., the delivery to the user is for the purpose of his consumption within the State. The fact that such purchaser might in the exercise of the enjoyment of his property-by way of use or " consumption "-drive the vehicle to other States does not detract from the original delivery to him fall-ing within the Explanation to Art. 286(1)(a). In the present case, the coal having been delivered into the ship for being consumed by it, it was open to the master of the vessel to use the coal while the ship was in the waters of Travancore-Cochin, or if he so chose take it outside those limits. The position might be

The State uf ivery Kerala & Others

The Slate of Kerala & Others v. The Cochin Coal Company T.td, Ayyangar ].

different if the buyer were obliged by contract or by law not to use or consume the goods sold within the State of delivery, i.e., where he has no choice to con-sume it there. )n the case on hand, part of the coal delivered could and would certainly have been used by the ship during the period of her stay in the har-bour for loading and if such stay were prolonged owing to unforeseen causes even the entire coal might have been exhausted and of course it would have to be used till the ship left the limits of the port and the limits of State territory. The crucial fact therefore was that the coal was delivered to the actual con-sumer who was at liberty to consume it wherever he desired-the choice depending on his convenience and necessity.

In the circumstances, therefore, learned Counsel for

the respondent was right in his submission that the sale of the "bunker coal" by the assessee-company fell within the Explanation to Art. 286(l)(a). If there were nothing more and the liability of the assessee had to be judged with reference to the charge imposed by the Sales-tax Act of the State, read in the light of the Constitution, the tax liability of the respondent-company would not have been open to doubt or dis-pute. Hut the submission of learned Counsel was that the State Government had power to exempt sales of any pa~ticular designated type from tax liabilit.y under s. 6 of the Sales-Tax Act, and that the Govern-ment had by notification dated February 5, 1954, and published in the official Gazette, exempted sales such as by the respondent-company in the present case from the levy of sales-tax during the assessment years now in question. The exemption under this notification was no doubt not referred to by the learn-ed Judges of the High Court but had been one of the grounds on which the sales-tax appellate authority had set aside the tax imposition by the Sales-tax Officer and the point had been specifically urged in the petition filed in the High Court under Art. 226, and the respondent cannot, therefore, be denied the benefit of the notification if it applied. Section 6 of the Travancore-Uochin Sales-tax Act enacts:

2 S.C.R. SUPREME COURT REPORTS

"The Government may, by notification in the Gazette, make an exemption .................. in respect of any tax payable under this Act :-

The State of Kera/a C:~· Others v.

(i) on the sale of any specified class of goods at all points or at any specified point or points in the series of sales by successive dealers ; or

The Cochin Coal Company Ltd.

(ii) of any specified class of persons in regard

Ayyangar } .

to the whole or any pa.rt of their turnover".

It is not necessary to set out the rest of the section. In the Tra.va.ncore-Cochin Gazette dated February 16, 1954, the following notification dated February 5, 1954, appeared:

" According to the interpretation given by the

Supreme Court to Art. 286(1) of the Constitution in their judgment in the State of Bombay v. United Motors India. Ltd. certain categories of inter-State transactions come within the taxing powers of the State Government. While the judgment enables the Government of Travancore-Cochin to levy sales-tax on certain categories of non-resident dealers selling goods for delivery and consumption in Travancore-Cochin State from the 1st April 1951, the Govern~ ment have, after due consideration, decided to levy sales-tax on such transactions only from the 1st April 1953-the date immediately following that on which the Supreme Court delivered its judgment and to forego the levy prior to that date".

Then followed provisions detailing the interim arrangements for submission of returns, of declara-tions to be filed and the manner in which the tax should be assessed and paid. Though the learned counsel for the appellant-State urged that the notifi-cation could not have the statutory effect of granting exemption, we a.re clearly of the opinion that this was and must be deemed to be one issued in exercise of the power conferred on the State Government by s. 6(1) whose relevant terms we have already extract-ed. Besides, this is rather curious submission to make in view of what had transpired earlier. The appellate Assistant Commissioner who set aside the assessment of the respondent.company stated in his order" Even if it is considered that the sale is for

The State of Kerala & Others v. The Cochin Coal Company Ltd. Ayyangar J.

consumption in this State, the company need not pay tax on the turnover since Government have exempted from payment of tax on the sales which took place before April 1, 1953 ". When this appellate order was set aside by the Deputy Commissioner acting suo motu in revision, there is no reference made to the notifica-tion in the order and it was not stated that it had no statutory effect. In its petition to the High Court under Art. 226, the respondent-company claimed the benefit of the exemption granted by the notification dated February 5, 1954, and published in the Gazette of February 16, 1954, relating to the assessment for the period April 1, 1951 to April 1, 1953 and it added that the assessment in question came within the exemption contained in the Gazette notification. In answer to this counter-affidavit was filed by the sales-tax officer who said : " The notification referred to in the petitioner's affidavit has no application to the case as the sales in question did not come within their orbit". In other words, the objection was not that the notification was not statutory exercise of the power under s. 6(1) and effective to grant an exemption to the cases covered by it, but that the transactions of the respondent-company were not covered by the notification. The extract we have quoted from the notification shows that it is specially designed to afford relief to cases of non-resident dea-lers engaged in inter-State transactions which were held to be intra-State transactions by reason of the application of the Explanation to Art. 286(l)(a) to such sales by the decision of this Court in the United Motors case. As the respondent company's transac-tions in question clearly fall within the notification by reason of their nature as well as the assessment years concerned, the respondent-company would be entitled to the benefit of the tax exemption conferred by the notification.

The result is that the appeal fails and is dismissed with costs.

Appeal dismissed.