s Nos 39  92 of 1969
Under Article 32 of the Constitution of India for the enforcement of Fundamental rights
VM Tarkunde GR Chopra and CM Kohli for the petitioners
Gobind Das and section K Nayar for the respondents in WPNo 3969 and respondents Nos
1 4 in WP No 9269
PK Chatterjee and GS Chatterjee for respondents Nos
5 6 in W P No 9269
Judgment of the Court was delivered by MATHEW J These are petitions filed under article 32 of the Constitution praying for issue of appropriate direction or order for the enforcement of the fundamental right of the petitioners under article 311 of the Constitution
The question raised in the petitions is that we propose to deal with Writ Petition No 39 of 1969 decision there will govern and dispose of Writ No 92 of 1969
The petitioner is a company incorporated under the Indian Companies Act 1913
It has its registered office in Calcutta and a branch office at Binani House Khundi Katra Mirzapur UP
The petitioner is an importer and a dealer in non ferrous metals like zinc lead copper tin etc
and is on the approved list of registered suppliers to the Directorate General of Supplies and Disposals hereinafter referred to as DGSD
It is also a registered dealer in the State of West Bengal under the Bengal Finance Act 1941 and the 
The petitioner used to procure nonferrous metals from various countries and also from within the country for fulfilling its contracts with the Government of India through _the DGSD
The import of non ferrous metals was under Open General Licence till June 30 1957
Thereafter a licensing systems was introduced by the Government of India and the established traders including M 602 Sup CI74 622 the petitioner were asked to get their quotas fixed on the basis of their past imports
On April 2 1958 the Government of India promulgated the Non Ferrous Metals Control Order 1958 under the Essential Commodities Act 1951 by virtue of which free sale of copper was banned
Any import of copper by the established licence holders was to be distributed under the directions of the Controller of Nonferrous Metals
Under the Non Ferrous Metals Control Order 1958
and also under the Import Trade Regulations the established importers were not free to sell the metals imported by them against their quota licences even to the DGSD
The petitioner in order to effect supplies to the DGSD had to obtain additional import licence
Under the Import Trade Control Policy the established importers including the petitioner obtained quota licences for import of non ferrous metals for the licensing period upto April 1964 March 1965 but the imports mentioned here were to be distributed only under the directions of the Controller of Non Ferrous Metals or the Import Trade Control Authority
On September 14 1965 the Government of India promulgated the Scarce Industrial Materials Control Order 1965 under the Defence of India Rules
Stocks of non ferrous metals including incoming imports were thus frozen
The Non Ferrous Metals Control Order 1958 was repealed
The Scarce Industrial Materials Control Order 1965 was also repealed on June 6 1966
The Government of India in placing orders with the petitioner used to grant import licences in terms of the contract
The petitioner had been importing and supplying non ferrous metals to respondents 1 2 and 3 during the last 19 years
Respondent No 2 had agreed to pay and was paying the Central Sales Tax andor West Bengal Sales Tax whichever was applicable to the petitioner in terms of the contract
In 1966 this Court held in KG Khosla and Co vs Deputy Commissioner of Commercial Taxes1 hereinafter
referred to as the Khosla Case that the sale by Khosla  Co to DGSD in India of axle box bodies manufactured in Belgium by their principal occasioned the movement of goods in course of import and sales tax was not exigible on the transaction in view of section 52 of the 
On the basis of this judgment respondent No 2 issued an order
Annexure P 1 to all the authorities concerned including respondent No 4 namely the Pay and Accounts Officer Ministry of Works Housing and Supply directing that sales tax should not be allowed in respect of supply of stores which has been specifically imported against licences issued by the Chief Controller of Imports and Exports on the basis of Import Recommendation Certificates issued by the DGSD or other authorities like the State Trading Corporation for supplies against contracts placed by the DGSD
The Pay and Accounts Officer acting on Annexure P 1 deducted the amounts of sales tax paid by the respondents under all the old contracts from the current bills which were submitted by the petit ioner to him
Respondent No 4 actually deducted a sum of Rs 60780 from the bills which were pending payment and also threatened to recover Rs 235130 01 being the amount paid by respondent No 2 as sales tax in respect of 1  623 contracts which had already been executed
The assessments on the petitioner upto the year ending October 27 1962 were completed prior to the date of judgment in Khosla Case and the issue of the order at Annexure P 1
The petitioner when it came to know of Annexure P 1 Order approached the Sales Tax authorities in West Bengal and filed revised returns in the pending assessments and claimed refund of taxes paid on the sales treating the sales as having been made in the course of import on the basis of the judgment in Khosla Case
The West Bengal Sales Tax authorities took the view that there were two sales involved in the transactions in question namely sale to the petitioner by the foreign sellers and sale by the petitioner to the DGSD that there was no privity of contract between the DGSD and the foreign sellers that the petitioner under the import licences granted to it was entitled to import the goods from any person or country and that the import licences issued as against the contracts with the DGSD imposed no obligation on the petitioner to supply the goods to the DGSD after they had been imported
They therefore held that tax was exigible on the sales by the petitioner to the DGSD
The questions which arise for consideration are whether on the basis of Annexure P 1 Order respondent No 4 was entitled to deduct Rs 60 780 from the amount due to the petitioner in respect of pending bills and whether the claim of the respondents to recover a further sum of Rs 23513001 from the petitioner is justified
It was contended on behalf of the petitioner that the transactions in question namely the sales which the petitioner made to DGSD were not the sales which occasioned the movement of the goods in the course of import and as those sales were separate and distinct from the contracts of purchase made by the petitioners with the foreign sellers which alone occasioned the movement of goods in the course of import tax was exigible upon the transactions of sale by the petitioner to DGSD and therefore the decision in Khosla Case has no application to facts here
Article 2861b provides 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 b in the course of import of the goods into or export of the goods out of the territory of India
In State of Travancore Cochin  Others vs The Bombay Co Ltd 1 Patanjali Sastri CJ said that a sale by export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea and that such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale and resultant export form parts of a single transaction
Of these two integrated activities which together 1  624 constitute an expert sale whichever first occurs can well be regarded as taking place in the course of the other
In State of Travancore Cochin  Others vs Shanmugha Vilas Cashew Nut Factory and Others 1 it was observed by the same learned Chief Justice that the phrase integrated activities  was used in the previous decision to denote that such a sale  ie a sale which occasions the exportcannot be dissociated from the export without which it cannot be effectuated  and the sale and the resultant export form parts of a single transaction and that it is in that sense that the two activities the sale and the export were said to be integrated
There was no definition of the expression in the course of import  before the Sixth Amendment of the Constitution
By that Amendment Parliament was given power to formulate the principles for construing the expression
And in s52 of the  Parliament has given a legislative meaning to the expression 52 A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India
 In Ben Gorm Nilgiri Plantations Company V Sales Tax Officer2 the question was whether the sales of the tea chests at auctions held at Fort Cochin were exempt from levy of sales tax by virtue of article 2861b
The nature of the transaction was as follows A manufacture obtains from the Tea Board allotment of export quota the manufacturer then puts the tea in chests which are sold in public auctions bids are made by agents or intermediaries of foreign buyers agents and intermediaries then obtain licences from the Central Government for export
This Court found nothing in the transaction from which a bond could be said to spring between the sale and the
intended export linking them as parts of the same transaction
The sellers had no concern with the export the sale imposed or involved no obligation to export and there was possibility that the goods might be diverted for internal consumption
The Court considered the sales as sales for export and not in the course of export
The Court observed that to occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is in extricably connected with the one immediately preceding it and that without such a bond a transaction of sale cannot be called a sale in the course of export of goods out of the territory of India
The Court further said that in general where the sale is effected by the seller and he is not connected with the export which actually takes place it is a sale for export and where the export is the result of the sale the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising 1  63
2  625 by statute contract or mutual understanding between the parties arising from the nature of the transaction the sale is in the course of export
In the Khosla Case the assessee entered into a contract with the DGSD New Delhi for the supply of axle box bodies
The goods were to be manufactured in Belgium according to specifications and the DGISD London or his representative had to inspect the goods at the works of the manufacturers and issue an inspection certificate
Another inspection was provided for at Madras
The assessee was entitled to be paid 90 per cent
after inspection and delivery of the stores to the consignee and the balance of 10 per cent
was payable on final acceptance by the consignee
In the case of deliveries on for
basis the assessee was entitled to 90 per cent
payment after ins pection on proof of despatch and balance of 10 per cent
after receipt of stores by the consignee in good condition
The assessee was entirely responsible for the execution of the contract and for the safe arrival of the goods at the destination
The contract provided that notwithstanding any approval or acceptance given by an Inspector the consignee was entitled to reject the goods if it was found that the goods were not in conformity with the terms and conditions of the contract in all respects
The manufacturers consigned the goods to the assessee by ship under bills of lading and the goods were cleared at the Madras Harbour by the Assessee s Clearing Agents and despatched for delivery to the Southern Railway in Madras and Mysore
The question was whether the sales by the assessee to the Government departments were in the course of import and export from taxation under s52 of the 
Sikri J as he then was delivering the judgment of the Court said after referring to s52 of the that the movement of goods to India was occasioned by the contract of sale between the appellant Khosla  Co and the DGSD that if the movement of goods is the result of a covenant or incidental to the contract of sale it is quite immaterial that the actual sale took place after the import was over
In Coffee Board vs Joint Commercial Tax Officer 1 hereinafter referred to as Coffee Board Case the Coffee Board claimed that as certain sales of coffee to registered exporters in March and April 1963 were sales made in the course of export it could not be taxed under the Madras General Sales Tax Act 1959
The rules framed by the Coffee Board provided that only dealers who had registered themselves as exporters of coffee with the Coffee Board or their agents and who held permits from the Chief Coffee Marketing Officer in that behalf would be permitted to participate in the auction  and after the bidding comes to an end the payment of price would take place in a particular way
Condition No26 he added export guarantee provided that it was an essential condition of the auction that the coffee sold thereat shall be exported to the destination stipulated in the Catalog of lots or to any other foreign country outside
India as may be approved by the Chief Coffee Marketing Officer within three 1  626 months from the date of Notice of Tender issued by the Agent and that it shall not under any circumstances be diverted to another destination sold or be disposed of or otherwise released in India
Condition 30 stated that if the buyer failed or neglected to export the coffee as aforesaid within the prescribed time or within the period of extension if any granted to him he shall be liable to pay a penalty calculated a Rs 50 per 50 kilos which shall be deductible from out of the amount payable to him as per condition 31
And Condition 31 provided that no default by the buyer to export the coffee aforesaid Within the prescribed time or such extension thereof as may be granted it shall be lawful for the Chief Coffee Marketing Officer without reference
to the buyer to seize the un exported coffee and take possession of the same and deal with it as if it were part and parcel of Board s coffee held by them in their Pool stock
The case of the petitioners before this Court was that the purchases at the export auctions were really sales by the Coffee Board in the course of export of coffee out of the territory of India since the sales themselves occasioned the export of Coffee and that the coffee so sold was not intended for use in India or for sale in the Indian markets
The case of the Sales Tax Authorities oil the other hand was that these sales were not inextricably bound up with the export of coffee and that the sales must therefore be treated as sales taking place within the State of Tamil Nadu liable to sales tax under the Madras General Sales Tax Act
This Court held that the Board was not entitled to the exemption claimed
The Court said that the phrase sale in the course of export  comprises three essentials namely that there must be a sale that goods must actually be exported and that the sale must be a part and parcel of the export
The Court further said that the sale must occasion the export and that the word occasion  is used as a verb and means to cause  or to be the immediate cause of 
The Court was of the view that the sale which is to be regarded as exempt from tax is a sale which causes the export to take place or is the immediate cause of the export that the introduction of an intermediary between the seller and the importing buyer breaks the link for then there are two sales one to the intermediary and the other to the importer and that the first sale is not in the course of export for the export begins from the intermediary and ends with the importer
According to the Court the test was that there must be a single sale which itself causes the export and that there is no room for two or more sales in the course of export The Court therefore held that though the sales by the Coffee Board were sales for export they were not sales in the course of export that there were two independent sales involved in the export programme the first sale by the Coffee Board to the export promoter and the second sale by the export promoter to a foreign buyer which occasioned the movement of goods and that the latter sale alone could earn the exemption from sales tax as being a sale the in the course of export
Khosla Case it might be recalled that Khosla and Co entered into
the contract of sale with the DGSD for the Supply of axle bodies manufactured by its Principal
in Belgium and the goods were to be 627 inspected by the buyer in Belgium but under the contract of sale the goods were liable to be rejected after a further inspection by the buyer in India
It was in pursuance to this contract that the goods were imported into the country and supplied to the buyer at Perambur and Mysore
From the statement of facts of the case as given in the judgment of the High Court it is not clear that there was a sale by the manufacturers in Belgium to Khosla  Co their agent in India
it would seem that the only sale was the sale by Khosla  Co as agent of the manufacturer in Belgium In the concluding portion of the judgment of this Court it was observed as follows  
It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle box bodies would be manufactured in Belgium inspected there and imported into India for the consignee
Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director General of Supplies
There was no possibility of these goods being diverted by the assessee for any other purpose
Consequently we hold that the sales took place in the course of import of goods within s52 of the Act and are therefore exempt from taxation
 As already stated there was to be an inspection of the goods in Belgium by the representative of the DGSD but there was no completed sale in Belgium as under the contract the DGSD reserved a further right of inspection of the goods on their arrival in India
Be that as it may in the case under consideration we are concerned with the sales made by the petitioner as principal to the DGSD No doubt for effecting these sales the petitioner had to purchase goods from foreign sellers and it was these purchases from the foreign sellers which occasioned the movement of goods in the course of import
In other words the movement of goods was occasioned by the contracts for purchase which the petitioner entered into with the foreign sellers
No movement of goods in the course of import took place in pursuance to the contracts of sale made by the petitioner with the DGSD
The petitioner s sales to DGSD were distinct and separate from his purchases from foreign sellers
To put it differently the sales by the petitioner to the DGSD did not occasion the import
It was purchases made by the petitioner from the foreign sellers which occasioned the import of the goods
The purchases of the goods and import of the goods in pursuance to the contracts of purchases were no doubt for sale to the DGSD
But it would not follow that the sales or contracts of sales to DGSD occasioned the movement of the goods Into this country
There was no privity of contract between DGSD and the foreign sellers
The foreign sellers did not enter into any contract by themselves or through the agency of the petitioner to the DGSD and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to DGSD
It was contended on behalf of the Central Government that the contracts of sale between the petitioner and the DGSD envisaged 628 the import of goods for fulfilling the contracts and it was for that reason that there was first the recommendation for issue of import licences by DGSD and then the actual issue of import licences and as the contracts of sale visualised the import of goods for fulfilling them the movement of goods in the course of import was occasioned by the contracts of sale to the DGSD and therefore the sales to the DGSD were the sales which occasioned the movement of goods in the course of import
There was no obligation under the contracts on the part of the DGSD to procure import licences for the petitioner
On the other hand the recommendation for import licence made by DGSD did not carry with it any imperative obligation upon the Chief Controller of Imports and Exports to issue the import licence
Though under the contract DGSD undertook to provide all facilities for the import of the goods for fulfilling the contracts including an Import Recommendation Certificate there was no absolute obligation on the DGSD to procure these facilities
And it was the obligation of the petitioner to obtain the import licence
Thereforeeven if the contracts envisaged the import of goods and their supply to the DGSD from out of the goods imported it did not follow that the movement of the goods in the course of import was occasioned by the contracts of sale by the petitioner with DGSD
We see no reason in principle to distinguish this case from the decision in the Coffee Board Case though that case was concerned with the question when a sale occasions the movement of goods in the course of export
In the result we quash Annexure P 1 order so far as the petitioners are concerned and allow the writ petitions with costs
SC Petitions allowed


Summary:
In W P No 92 of 1969 the Petitioner Company prayed for issue of appropriate direction or order for the enforcement of its fundamental rights guaranteed under article 311 of the Constitution
The facts are as follows The petitioner company was a dealer in non ferrous metals and was a registered supplier to the Directorate General of Supplies and Disposals
The company was also a registered dealer in the State of West Bengal
The petitioner used to procure non ferrous metals from various countries and also from within the country for fulfilling its contracts with DGS  D
The import of non ferrous metals was under open General licence till June 30 1957
Thereafter a licensing system was introduced by the Government of India and the petitioner was asked to get their quotas fixed on the basis of their past imports
On April 2 1958 the Government of India promulgated the Non ferrous Metals Control Order 1958 by virtue of which free sale of copper was banned
Any import of copper by the licence holders was to be distributed under the directions of the Controller of Non ferrous metals
Under the Non ferrous Metals Control Order 1958 and also under the Import Trade Regulations the established importers were not free to sell the metals imported by them against their quota licences even to DGS D The petitioner in order to effect supplies to DGS  D had to obtain additional import licence
The petitioner obtained quota licences for import of non ferrous metals for the licensing periods upto April 1964 March 1965 but the imports were to be distributed only under the directions of the Controller
On Sept 14 1965 the Govt
of India promulgated the Scarce Industrial Materials Control Order 1965 under the Defence of India Rules
Stocks of non ferrous metals including incoming imports were thus frozen
The Non ferrous Metals Control Order 1958 and the Scarce Industrial Materials Control Order 1965 were both repealed
The Government of India in placing orders with the petitioner used to grant import licences in terms of the contract
The petitioner had been importing and supplying non ferrous metals to respondents 12 and 3 during the last 19 years
Respondent No 2 had agreed to pay and was paying the Central Sales Tax andor West Bengal Sales Tax whichever was applicable to the petitioners in terms of the contract
In 1966 the Supreme Court held in K G khosla and Co vs Deputy Commissioner of Commercial tax  that the sale by Khosla  Co to DGS  D in India of axle box bodies manufactured in Belgium by their principal occasioned the movement of goods in the course of import and sales tax was not exigible on the transaction in view of Sec
52 of the  and article 286 of the Constitution
Thereafter respondent No 2 issued an order to respondent No 4 that Sales Tax should not be allowed in respect of supply of stores which had been specifically 620 imported against contracts placed by DGS  D Respondent No 4 acting in terms of the order deducted Rs 60780 being the Sales Tax already paid from the pending bills of the petitioner and also threatened to recover more than Rs 2 lakhs being the amount paid by respondent No 2 as Sales Tax in respect of contracts which had already been executed
The petitioner thereafter approached the Sales Tax Authorities in W Bengal and filed revised returns in the pending assessments and claimed refund of taxes paid on the sales treating the sales as having been made in the course of import on the basis of the judgment in Khosla s case
The West Bengal Sales Tax Authorities took the view that there were two sales one to the petitioner by the foreign seller and the other by the petitioner to DGS  D and that there was no privity of contract between DGS  D and the foreign sellers that the petitioner under the import licences granted to it was entitled to import the goods from any person or country and that the import licences issued as against the contracts with the Directorate General of Supplies  Disposals imposed no obligation on the petitioner to supply the goods to the DGS  D after they had been imported they therefore held that tax was exigible on the sales by
the petitioner to the DGS  D
The questions which arose for consideration were i whether on the basis of the order respondent No4 was entitled to deduct Rs 60780 from the amount due to the petitioner and ii Whether the claim of the respondent to recover a further sum of more than Rs 2 lakhs from the petitioner was justified
The petitioner contended that the sales which the Company made to DGS  D were not the sales which occasioned movement of any goods in the course of import as those sales were separate and distinct from the contracts of purchase made by the Company with the foreign sellers which alone occasioned the movement of goods in the course of import tax was exigible upon the sales by the petitioner to DGS  D and therefore the decision in Khosla s Case has no application to the facts here
Allowing the writ petitions HELD  i article 2861 b provided that no law of a State shall impose a tax on the sale or purchase of goods where such sale or purchase takes place in the course of the import or export of the goods in India
A sale by export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea and that such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale or resultant export from parts of a single transaction of these two integrated activities which together constituted an export sale whichever occurs first can well be regarded as taking place in the course of the other
623H State of Travancore Cochin and Ors
vs The Bombay Co Ltd  12 referred to ii The words Integrated activities  were used in the earlier case to denote that such a sale  ie 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  and in that case the sale and the export were said to be integrated
624B per Patanjali Sastri CJ in State of Travancore Cochin and Ors
vs Shamugha Vilas Cashew Nut Factory and Ors  referred to 
iii There was no definition of the expression in the course of import  before the Sixth Amendment of the Constitution
Later Parliament gave legislative meaning to the expression in section 52 of the which provides that a sale or purchase of goods in the course of the import into India shall be deemed to take place if the sale or purchase either occasions such import or is effected by a transfer of documents of title before the goods have crossed the customs frontiers of India
624C 621 iv In the present case the petitioner as principal made the sale to the DGS  D For effecting the sales the petitioner had to purchase goods from foreign sellers and it was these purchases from the foreign sellers which occasioned the movement of goods in the course of imports
In other words the movement of goods was occasioned by the contracts for the purchase which the petitioner entered into with the foreign sellers
No movement of goods in the course of import took place in pursuance to the contracts of sales made by the petitioner with the DGS  D The petitioner s sales to DGS  D were distinct and separate from his purchases from foreign sellers
There was no privity of contract between the DGS  D and the foreign sellers
The foreign sellers did not enter into a contract by themselves or through the agency of the petitioner to the DGS D and the movement of goods through foreign countries was not occasioned on account of the sales by the petitioner to DGS  D
Even if the contracts between the petitioner and the DGS  D envisaged the import of goods and their supply to the DGS  D from out of the goods imported it did not follow that the movement of the goods in the course of import was occasioned by the contracts of sale by the petitioner with the DGS  D
The present case therefore cannot be distinguished from the decision in the Coffee Board s case though that case was concerned with the question when a sale occasioned the movement of goods in the course of export
The order issued by respondent No 2 was therefore quashed
 627E 628E