Appeal No 287 of 1958
Appeal from the Judgment and Order dated the 10th September 1956 of the former Travancore Cochin in Original Petition No 191 of 1955
Sardar Bahadur for the Appellants
K P Abraham P George and MR Krishna Pillai for the Respondent 1960
October 31
The Judgment of the Court was delivered by AYYANGAR J
This is an appeal from the judgment of the High Court of Travancore Cochin on a certificate of fitness granted by it under article 1331 of the Constitution and raises for consideration the liability of the respondent The Cochin Coal Company Ltdto sales tax under the United State of Travancore and Cochin General Sales Tax Act 1125 1950
The following are briefly the facts which it is necessary to state in order to appreciate the points in controversy 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 a place called Fort Cochin which was formerly within the State of Madras
They import and keep stocks of  bunker coal  stacked at a 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 221 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 a steamer arrived in Cochin port the steamer agents would inform the respondent company and these agents after securing the necessary papers from the customs and the port authorities for the loading of the coal 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 contract
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 above being the nature of the transactions conducted by the respondent company sales tax was claimed on the sales of bunker coal by the Travancore Cochin State
The assessment years with which this appeal is concerned are 1951 52 and 1952 53 and the assessment therefore was completed on February 2 1954 by the sales tax officer 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
1b or 2 of article 286 was rejected by the assessing officer for the reason that the sales in question fell within the Explanation to article 286 1a and were therefore  inside  the State of Travancore 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 222 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 actually taking place there was also rejected as irrelevant The respondent company thereafter filed an appeal to the Appellate Assistant Commissioner who allowed the appeal of the company holding that the sales were  in the course of export  within article 2861b and that even if they were not such but were inside sales falling within the Explanation to article 2861a of the Constitution still a notification by the State Government dated February 5 1954 exempting such sales from tax operated for the benefit of the assessee
Thereafter the Deputy Commissioner of sales tax who was the Revisional authority took up the matter suo 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 moved the High Court of Travancore Cochin under articles 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 a certificate under article 1331 of the Constitution to enable the State Government to file an appeal to this Court and that is how the matter is now before us
Though the respondent company appear to have presented before the High Court several lines of argument 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 company on practically a single ground
Their reasoning was briefly as follows Following the Bengal Immunity case 1 the learned Judges held that the bans 1 223 imposed by cls
1a and 2 of article 286 were independent and that the sale of the coal by the respondent company which was in the course of inter State trade was covered by the ban contained in article 2862 of the Constitution notwithstanding that the sale might satisfy the terms of the Explanation to sub cl 1a
The learned Government Pleader however had submitted that if the exemption was derived from article 2862 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 because on their construction of section 26 of the Travancore Cochin General Sales Tax Act 1125 corresponding to section 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 a 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 article 2862
But the view of the learned Judges of the High Court regarding the construction of section 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  Co vs The State of Andhra Pradesh 1
If therefore the assessee company could rely only on article 2862 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 for the respondent company urged two grounds to sustain the decree 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 article 286 1b of the Constitution and was therefore exempt from the levy of sales tax by the State
This contention however has to be rejected in view of the decision 1  224 of this Court in Burmah Shell Oil Storage  Distributing Co of India Ltd vs The Commercial Tax Officer 1 in which it was held that in the context and setting in which the expression  export out of the territory of India  occurs in Part XIII of the Constitution it was not sufficient that goods were merely moved out of the territory  of India but that it was further necessary that the goods should be intended to be transported to a destination beyond India so that they were in the course of  import  into some other locality outside India and accordingly that aviation spirit sold to an aircraft for enabling it to fly out of the country was not  exported  out of the country
The reason was that there was no destination at which it could be said that the spirit was imported and that a mere movement of the goods out of the country following a sale would not render the sale one  in the course of export  within article 286 1b of the Constitution
In other words the concept of export in article 286 postulates just as the word import 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 a 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 article 2861a 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 territory of Travancore Cochin
It had therefore an interState element which rendered the Explanation applicable
The delivery was admittedly effected in the State of Travanoore Cochin as a direct result of that sale and was trimmed into the steam ships in the Cochin waters
If the purpose of the delivery was 1 CA 751 of 1957  CA 10 of 1958 Unreported
225 not export as we have held earlier it must follow that in the circumstances of this case it was for the purpose of consumption in the State since the delivery was to the ultimate consumer who was to use the goods for his own purposes and not for the purpose of re export or with a view to other transactions of a commercial character in the goods
It would be noticed that the ultimate buyer the steam ship company 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 consume it there but that was a 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 consumed either by destruction or by way of use depending on the nature of the goods
Thus edible articles are generally consumed in a literal sense while other articles like clothing or furniture etc
are consumed by being used though they are not destroyed by such use
If edible articles are sold and delivered to an ultimate consumer within a State it is delivered for the purpose of consumption within the State notwithstanding 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 a vehicle is sold to the actual user and the sale is not in the course of export or with a view to further commercial transactions in it by the purchaser by way of resale etc
 the delivery to the user is for the purpose of his consumption within the State
The fact that such a 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 falling within the Explanation to article 2861a
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 29 226 different if the buyer were obliged by contract or by law not to use or consume the goods sold within the State of delivery ie where he has no choice to consume it there
In 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 harbour 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 consumer 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 article 2861a
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 dispute
But the submission of learned Counsel was that the State Government had power to exempt sales of any particular designated type from tax liability under section 6 of the Sales Tax Act and that the Government had by a 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 learned 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 article 226 and the respondent cannot therefore be denied the benefit of the notification if it applied
Section 6 of the Travancore Cochin Sales tax Act enacts 227 The Government may by notification in the Gazette make an exemption   in respect of any tax payable under this Act  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 ii of any specified class of persons  in regard to the whole or any part of their turnover
It is not necessary to set out the rest of the section
In the Travancore Cochin Gazette dated February 16 1954 the following notification dated February 5 1954 appeared  According to the interpretation given by the Supreme Court to article 2861 of the Constitution in their judgment in the State of Bombay vs 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 Government 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 declarations 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 notification could not have the statutory effect of granting exemption we are 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 section 61 whose relevant terms we have already extracted
Besides this is rather a 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 228 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 notification in the order and it was not stated that it had no statutory effect
In its petition to the High Court under article 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 a 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 a statutory exercise of the power under section 61 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 dealers engaged in inter State transactions which were held to be intra State transactions by reason of the application of the Explanation to article 2861a to such sales by the decision of this Court in the United Motors Case
As the respondent company s transactions 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


Summary:
The appellant executed a deed of trust settling some of his lands for the maintenance of certain temples and Thakoorbaries
He was to be the trustee of the institutions and was to get 15 of the net income of those lands as trustee s remuneration
Before the income tax authorities the appellant claimed that as the income received from agricultural properties of the trust by him as trustee was agricultural income in his hands and was by virtue of section 43viii of the Indian Income tax Act 1922 exempt from liability to pay tax the remuneration which by the covenant contained in the deed of trust he received was also exempt under that section because when he appropriated a fraction of the rent or revenue of agricultural lands towards his remuneration the original character of the income was not altered
Held that the source of the right in which a fraction of the net income of the trust was to be appropriated by the appellant as his remuneration was not in the right to receive rent or revenue of agricultural lands but rested in the covenant in the deed to receive remuneration for management of the trust and the character of the income appropriated as remuneration was not the same as the character in which it was received by the appellant as trustee
Consequently the remuneration not being received as rent or revenue of agricultural lands under a title legal or beneficial in the property from which the income was received it was not agricultural income within the meaning of section 21 of the Indian Income tax Act 1922 and was not exempt from taxation under section 43viii of the Act
Nawab Habibulla vs Commissioner of Income tax Bengal 1943 LR 7D IA 14 and Premier Construction Co Ltd vs Commissioner of Income tax Bombay City 1948 LR 75 IA 246 relied on
Commissioner of Income tax Bihar and Orissa vs Kameshwar Singh 1935 LR 62 IA 215 distinguished