B. K. WADEYAR versus M/S. DAULATRAM RAMESHWARLAL

1!>60 spirit, which takes place in West Bengal. The cus-Bumwh Sh•ll 0 ,1 tom~ barrier ?oes not set terminal limit to the StNoge 0 ,,J territory of\\ oat Bengal for sales tax purposes. The Dis1>1&ut1ng Co,. sale beyond the customs barrier is still sale, in fact, of Indio Ltd. in the State of West Bengal. Both the buyer and v. the seller are in that State. The goods are also thllre. Co11u11ercia/ Tax Offictr All t cments o sa me u mg 1 I · 1 d' 1 ivery, payment of price, take place within the State. The sale is th us HodoyatullaJ, J. completely within the territory of tho taxing State. No outside Sta.ti; is involved where the goods can.be said to have been delivered for consumption as direct result of the sale that takes place. Article 28ti(l)(a) and the Explanation a.re wholly inapplicable, and the sale cannot, oven by fiction, be said to be outside the State of West Bengal. Xo doubt, aviation spirit is taken out of the· State and also the territory of India, but it cannot be said to have been exportOO or delivered for consumption in some other State. The so-called export is not occasioned by the sale, and the sale, on the authorities cited, is not in the course of •export', so as to attract Art. 286(l)(b).

The decision of the High Court was correct. The appeals fail, and are dismissed with costs. One hear-ing fee.

Appeals dismissed.

B. · K. W ADEY AR

Sep1ember 27. M/S. DAULATRAM RAMESHWARLAL

(S. K. DAS, M. HIDAYA'l'ULLAH, K. c. DAS GUP'l'A,.

J.C. SHAH and N. RAJAGOPALA AYYANOAR, JJ.)

Sales Tax-Export-Meani11g of--Properly i11 exported goods in F. O. B. contracts-If passes on shipment or before it-Export licence-If obtai11able by b1<yer or seller-" Person", meaning of -Bombay Sales Tax Act, 1953 (Rom. Il I of 1953), s. lo(b)-'Fhe ImpOf't and Export (Control) Act, 1947 (XV I II of 1947), s. 5(2)-Conslitution of India, Art. 286(1)(b).

The respondents firm claimed _exempti?n from Sales Tax under Art. 286(1)(b) of the Constitut1on m respect of sales

made by them of cotton and castor oil on the ground that the · sales were on F.O.B. contracts under which they continued to be the owners of the goods till those crossed the custom barrier and entered the export stream. They also contested the pur-chase tax to which they were assessed under s. 10(b) of the Born< bay Sales Tax Act. The High Court upheld the contention of the respondents regarding the Sales Tax but held that they were liable to pay purchase tax. On appeal by both the parties

B. /{. TVadcyar

1\-ffs. Daulatram Ran1cshwarlal

Held, that the i(OOd• remained the seller's property till those had been brought and 'loaded on board the ship and so the soles were exempted from tax under Art. 286(1) of the Con-stitution.

The word "a person" in s. ro(b) of the Bombay Sales Tax Act had been correctly interpreted as "a registered dealer" and the purchasing dealers had been rightly assessed to pur-chase tax. -

The normal rule in F. 0. B. contracts was that the property . was intended to pass and did pass on the shipment of the goods.

The presumption in F. 0. B. contracts was that it was the duty of the buyer to obtain the necessary export licence, though in the circumstances of particular case that duty might fall on the seller.

H. 0. Brandt & Co. v. H. N. Morris & Co. Ltd., [1917] 2 K.B. 784 and ill. W. Hardy & Co. v. A. V. Pound & Co., Ltd., (1953) l Q.B. 499, considered.

"Export" under the Import and Export Control Act having been defined as "taking out of India by land, sea or air" it could not, under the Export Control Order, be held to have commenced till the ship carrying the goods left the port or in some cases passed the territorial waters.

The State of Bombay v. The United Motors (India) Ltd., (1953) 4 S.T.C. 133, held inapplicable. .

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 45 and 46 of 1959.

Appeal by special leave from the jndgment and order dated March 25, 1957, of the former Bombay High Court in Appeal No. 16 of 1957.

C, K. Daphtary, Solicitor.General of India, H.J. Umrigar and D. Gupta, for the Appellant (In C. A. No. 45 of 59) and Respondent (In C. A. No. 46 of59).

11. N. Sanyal, Additional Solicitor-General of India, S. N. A:idley and J. B. Dadachanji, for t.he respon. dents ([n C. A. No. 45 of 59) and Appellants (In C. A. -No. 46/59). u8

r960 1960. September 27. The Judgment of the Court was deyvered by

B. K. lVadeyar v.

DAS GUPTA J.-M/s. Daulatram Rameshwarlal, firm registered under the Indian Partnership Act (referred to later in this judgment as "sellers") are registered dealers under s. 11 of the Bombay Sales Tax Act. In their return of turnover for the period from April 1, 1954 to March 31, 1955, they claimed exemption from Sales Tax in respect of sales of cotton of the total value of Rs. 68,493-2-6 and sales of castor oil of the total value of Rs. 6,4 7 ,509-1-6 on the ground that these sales were on FOB contracts, under which they continued to be the owners of the goods till the goods had crossed the customs barrier [l,nd thus entered the export stream, and so no tax was realisable on these sales in view of the provisions of Art. 286 (l)(b).

M /s. Daulatram Raineshwarlal Das Gupta J.

The Sales Tax Officer rejected this claim for exemp-tion and assessed them to sales tax on taxable turnover including these sales. He also assessed them to purchase tax under s. IO(b) of the Bombay Sales Tax Act on their purchase of castor oil which they later sold for the sum of Rs. 6,4 7 ,509-1-6 as mention-ed above. The notice of demand for the total sales tax and the purchase tax assessed was served on the sellers on September 30, 1956. The sellers thereupon moved the Bombay High Court under Art. 226 of the Constitu-tion for the issue of appropriate writs for quashing the order of assessment and the notice of demand and for prohibiting the Sales Tax Officer from taking any steps pursuant to the order or the notice. The learned Judge who heard the petition rejected the sellers' con-tention that the goods remained their property till these crossed the customs frontier and therefore held that the sellers were not entitled to the benefit of Art. 286(l)(b) of the Constitution. As regards the assess-ment to purchase tax also he rejected the sellers' con-tention that the assessment in question was illegal. In this view the learned Judge dismissed the application under Art. 226.

Against this decision the sellers appealed. The

1 S.C.R. SUPREME COUl'tT REPogTs

learned Judges who heard the :tppmd held, disagreeing with the Trial Judge, that the good8 remained the sellers' property tiU the goods had been brought on board the ship and so the sales were exempted from tax under Art. 286(l)(b) of the Constitution. They however agreed with the Trial Judge that the sellers were liable 'to pay purchase tax under s. lO(b) of the Bombay Sales Tax Act. Accordingly they directed the Sales Tax Officer not to enforce the demand for payment of sales tax with regard to the sales of cotton for Rs. 68,493-2-6. and sale of castor oil of the total value of Rs. 6,47,509-1-6.

IJ. f.:. !l'adeyar v.

,11 /s. D(lt1lalra111 Ra1nc·s1iwarlal

Das GHpla ].

The Sales Tax Officer has, on the strength of special leave granted by this Court, preferred the appeal which has been nnmbe.red as Civil Appeal No. 45 of 1959 o,gainst the appellate court's order directing him not to realise the sales tax in respect of sales of cotton and castor oil. Civil Appeal No. 46 of 1959 has been preferred by the sellers against the appellate court's judgment in so far as it upheld the as.sessment of purchase tax under s. lO(b). The only question for our decision in the a.ppeal by the Sales Tax Officer is whether property in the goods passed on shipment or· at some point of time before shipmAnt. The law is now well-s~ttled that if the property in the goods passes to the huyer after they have for the purpose of export to foreign country crossed the customs frontier the sale has taken place "in course of the export" out of the territory of India. If therefore· in the present sales the property in the goods passed to the buyers on shipment, that is, after they had crossed the customs frontier the sales must be held to have taken place "in the course of export" and the exemption under Art. '286(l)(b) will come into operation. The sellers' case is that these were sales on .FOB contracts. Though the learned Solicitor-General appearing on bei1alf of the Sales Tax Officer tried to convince us that these were not really FOB contract sales, it appears that the avermeut in Paras. 11 and 13 of the writ petition that these sales were made on FOB basis were not denied in the counter affidavit sworn by the Sales Tax Officer. It is also

v. J\fjs. J)a11lat1·a111 Ua111e.\hu.-e1rlal Das Gffjila ].

worlh 11olicini:r that. iu tho a"~c~sn1<~nt 1mler it~elf the i:;al·~ Tax Officn ref1,rred to t ht'se saleH as sales on FOB basis. Tlw spccim<:n contract produced also used the words" FOfl delivered''. There can be no doubt therefore that the~e wne sales 1111drr FOB contracts. The normal rule in FOB contracts is that. the property is intended to pass and does pass on the shipment of the goods. In certain circumstances, e.g., if the seller takes the hill of lading t.o his own order and parts with it to third person the property in the good.~, it has been held, does not pass to the buyer even on shipment. We are not concerned here with the ques-tion w hethcr the passing of property in the goods was postponed even afkr ship01ent. The correctness of the proposition that in the n.bsence of special agree. ment the property in the goods doPs not pass in the case of FOB contract until the go<•ds are act nally put on hoard is not disputed before us.

As bas howeYer been rightly stressed by tht> learn-

ed Solicitor General it is always open to the parties t-0 come to different agreement as to when thll prop<'rty in the goocls shall pass. The quest.ion whether there was such different agreement has to be decided on consideration of all the surruundiug circumstances. He relics on t.hree circumstances to convince us that tho Hellcrn and their buyers agreed in thPse sales that the property will pass to the buyer even before ship-ruent.. The first circumstanco on which he relies is that the bill of lading was taken in the name of tlrn buyer. Along wit.h this fact we have to consider however the fact that t.ht> bill of lading was retained by the sellers, the contract being that payment will be made on the presentation of the hill of lading .. It is not disputed that the term in the contract for "pay-ment at Bombay against presentation of documents" means this. It was the sellers who received the bills of la.ding and it was on the presentation of these bills of lading along with the invoices that the buyer paicl the price. When the hills of lading though made out as if. the goods were shipped by tho buyer, were actually obtained and retained bv the sellers, that fa.ct itself would ordinarily indicate >J.n intention of

the parties that the propert.y in the goods would not pass till after payment.

The second circumstance to which our attention has been drawn is that the export was under the con-tract to be under the buyer's export licence. This, in our opinion, shows nothing. The ordinary rule in FOB contracts is that it is the duty of the buyer to obtain the necessary export licence. That was laid down in Brandt's case ([1]) and though in later case in Hardy v. Pound(') the Court of Appeal in England. held that the judgment in Brandt's case (1) does not cover every FOB contract and that in the special facts of the par-ticular case before them it was for the sellers to obtain the licence and this view was approved by the House of Lords (1956 A. C. 588), it is in our opinion correct to state that the presumption in FOB contracts is that it is the duty of the buyers to obtain export licence, though in the circumstances of particular case this duty may fall on the sellers.

The third circumstance on which reliance is placed on behi,tlf of the Sales Tax Officer is that the Export Control Order, 1954, which was passed in the exercise of powers conferred by Import & Export Control Act, 1947, conta.ined provision in its clause 5(2) in these words:-" It shall be deemed to be condition of that licence .... .' ........... :.that the goods for the export of which licence is granted shall be the property of the licensee at the time of the export". It has been stre-nuously contended by the learned Solicitor· General that it will be rea.sona.ble to think t,hat the parties to the co:itract intended to comply with this condition and to agree as between themselves that the goods shall be the property of the licensee, that is, the buy-er, at the time of the export. It is argued that the time of the export should be interpreted as the time when the customs frontier is crossed and that we must proceed on the basis that the buyer and the sellers intended that the goods shall be the buyer's property at the point of time when they crossed this frontier. We see however no justification ·for. thinking that it! this clause " the time of the export " means the time (1) [1917] 2 KB. 784. (2) [1955] 1 Q.B. 499.

B. l\-. Wacteyar v,

M /s. Daulatram Ra1neshwarlal

Das Gupta l,·

v. M/s. Da11latra111 Ranieshu..arlal Das Gllpta j.

when the goods cross the customs frontier. Export has been defined in the Import & Export (Control) Act, 1947, as" taking our of lmlia by sea, land or air". Iu the Exports (Control) Order, 1954, the word must bo taken to have the snme meaning as in the Act. On that definition the time of the export is the time when the goods go out of the territorial limits of India. These territorial limits would include the ter-ritorial watcrR of India. Consequently the time of the export is when tho ship with the goods goes be-yond the territorial limits. At any rate, thP t>xport of the goods cannot ho considered to have commenced before the ship carrying goods leaves the port. The intention of the parties that in compliance with the requirements of cl. 5(2) of the Exports (Control) Order the goods shall be the property of the licensee at the time of the export would therefore meirn nothing more than that the property in the goods shall pass imme-diately before tho •hip goes beyond the territorial waters of the country, or at the earliest when the ship lea,·es the port. Whichever view is taken there is nothing to indicate that the intent ion to comply with the requirements of cl. 5(2) of the Exports (Control) Order carries with it an intention that the proµerty should p~ss to the buyer at the time the goods cross the customs frontier. It is true that in the United Motor's Case(') and in other cas('s it. has been held by this Court that the course of export commerwcs to run when the goods cross the customs barrier. What the court had to consider in these cases was not how. ever whC'n export commences within the meaning of the Exports (Control) Order but when thC' cour"e of export commences for the purpose of Art. 286(l)(b) of the Constitution. For the reaHons which need not be detailed here it was decided that the course of export commences at the time when the goodH cross the cus-toms barrier. These decisions as regards the com-mencement of the course of export arc of no assistance in deciding about the point of time when the export proper commences. As we havo already pointed out when ex port has been deli ncd in the Im port & Ex port (1) (1953) 4 S.T.C. 133.

(Control) Act, 1947, as "taking out of India by land, sea, or air'', export in the Export Control Order, cannot be held to have commenced till at least the ship carrying the goods has lef_t the port, though 1 it may in some contexts be more correct to say that it does not commence till the ship has passed beyond the territorial waters. ·

B. K. Wadeya1 v. M/s. Daulatram Rlimeshwarlal

Das Gupta ].

. We have therefore come to the conclusion that there is no circumstance '\\1hich would justify a, conclusion that the parties came to special agreement that though the sales were on FOB contracts property in the goods would pass to the buyer at some point of time before shipment. We think that the learned judges who heard the appeal in· the Bombay High Court were right in their conclusion that the goods remained the sellers' property till the goods had been brought and loaded on board the ship and so the sales, were exempted from ta:x: under Art. 286(l)(b) of the Constitution.In Civil Appeal No. 46 of 1959 the appellant(s' con-tention is that on correct 'interpretation of the, pro-vision,s of s. lO(b) of the Bombay . Sales_ Tax Act no purchase tax was leviable from them. Section lO(b) provides for the levy of purchase tax on the turn-over of purchase of- goods specified in column l of Schedule B, at the rates, if any, specified against such goods in column 4 of the said schedule, "where cer-tificate under cl. (b) of s. 8 has been furnished in res-pect of such goods and the purchasing dealer does not show to the satisfaction of the Collector that the goods have been despatched by him or by person to whom he has sold the goods to an address outside the State of Bombay within period of six months from the date of purchase by the dea_ler furnishing such certifi- -cate ". Section 8(b) provides for the deduction from the turnover, of sale of goods to dealer who holds an .authorisation and furnishes to the selling dealer cer-tificate in the prescribed form declaring inter alia that the goods so sold to him are -intended for being des-patched by him or by registered dealers to whom he sells the goods to an address outside the State\ of Bom-bay. Admittedly such certificate was furmshed by

B. K, IFadt;ar v. /\.f ,',.:.. /Ja1flatra;:1 Runu~/,;('o-/al

!J32 SCPRK\JE COCRT REPOllTS

111,'s. Daulat.ram R11mcshwarlal i11 respr,ct. of the castor· oil which they sold to others a11d that iu respect of these sales lo them their sell<'rs wen' allowed clt·duc-tions. It is equally trndisput.c·d that. the persons to whom M;s. Daulatrnm R1unrsh1rarlal sold the t'."ods were sont to an addrfsS out,;ide the State of Btanbav within period of six mont bs from the date of pur:_ chase by :II/s. Daulatram Ham<·sh ll'arlal. Th<'so 1x·1so1;s an1 however 11ot registered d,.alers. The Sides Tax Officer as also the High Court of Born bar has held that the" persou tu l\'.i10m he h1ts sold the -goods" in s. IO(bj means" regisl<•red d<»iil'r to whom he has Hold the goods". It is r,011tc·w.Jed before us on bt·half of tbe appellant-d1•alers that the word " person" is wide enough to include wgistered dealer a11d au un-registered dealer. lt is urged tlmt the use of the word "a person" i11stead of the words "a registered dea-ler" is delibemt.e and that it was .the intention of the Lf'gislature to levy purchase t.:n on person who has given such certificate u11der s. 8(b) ouly if the goods were not despatched outsid" the i:itate of Bombay within the prescribed period by i.11ybody. Lt is there-fore contended that" person" in s. 8(b) should be interpreted to include registered dealer or anybody eh;e. We are 1111abh• to agree. clm;e exltmination of ss. 8 and IO justifies the condusiou tb<>t the Lcgis-Iat.ure was anxiou~ to s<•curn that. the declaration as regard~ inteution of the goods Leiug despatched out-side tho State of Hom bay should be carried out by clt.•H-patch by "a registered dealer" tu whom he sells tbo goods. If such despatch outside the State of Bombay is by pen;on to whom the ccrtifyi11g dealer has sold the goods but who is not registered dealer the cer-liticaw has not been complied with. lt will be in ou1· opinion uureasouable to thiuk tbat. though the Legis-lature insisted that the certificate shonld deelarn t.ho goods purchased were intended .. fur ueiug despatclwc.I by him or by registered dealer to whom he sell." t.he goods outsic.le the State ,,f I.lorn bay ", the LegiHlat urn would be content to accept actual despatch outsidP the St1Lte of Bombay by one who is not registered dealer as suilicient. Mr. Sanyal contended that the certificate

1 S.C.R. SUPREME COURT REPORTS

'9[[60 ]]

has to declare only an intention and th&t if ultim&te-'9[[60 ]]ly the actual despatch is made by some person who is B. K. Wadeyar not registered dealer, it cannot strictly be said that v. the declaration has not been carried out. It,. might M/s. Daulatra'ln very well be that if at the time decl11.ration of inten-inten-Rameshwarl~l tion is made in the certificate the purchasing dealer had the intention as stated and ultimately he sells to Das Gupta f. person who is not registered dealer for despatch of the goods ou1'side the State of Bombay, the purchas-ing dealer may not be liable for having made "false declaration". Even though he has not made false declaration of his intention, the fact remains that the intention declared has not been carried out. The scheme of the Legislature clearly is that where the intention as declared has not been carried out pur-chase tax should be levied. To hold otherwise would be to make the declaration of the intention useless.

said that v. It,. might M/s. Daulatra'ln of inten-inten-Rameshwarl~l Das Gupta f.

Our conclusion therefore is that the courts below have rightly interpreted the words "a person" in s. lO(b) of the Bombay Sales Tax Act as a" registered dealer" and that the purchasing dealers have rightly been as8essed to purchase tax under s. lO(b).

In the result, both the appeals are dismissed with costs.

Appeals dismissed.

AMBA LAL

THE UNION OF INDIA AND OTHERS.

(B. P. SINHA, c. J., J. L. KAPUR,

October 3.

P. B. GAJENDRAGADKAR, K. SuBBA RAo and

K. N. WANCHOO, JJ.)

Evidence-Customs authorities recovering articles suspected to have been smuggled-Accused pleading articles brought from Pakistan at time of partition-Burden of proof-Imports Exports Control

Act, I947 (IO of z947), s. 3-Sea Customs Act, z878 (8 of z878), ss. z9, z67(8) and z78-A-Land Customs Act, z924 (Ig of z924), ss. 5 and 7-Indian Evidence Act, z872 (r of r872), s. ro6.