Civil Appeals Nos
1221 1226 of 1974
Appeals by
Special Leave from the Judgment and Order dated 26 2 1974 of the Andhra Pradesh High Court in Tax Revision Cases Nos 5 10 of 1973
K Sen ST Desai BM Bagaria and DP Mukherjee for the appellants
PP Rao and TVSN Chari for the respondent
The Judgment of the Court was delivered by RAY CJ
These six appeals are by special leave from the judgment dated 26 February 1974 of the Andhra Pradesh High Court
The principal question in these appeals is whether the appellants are the last purchasers of manganese ore within the State of Andhra Pradesh
The appellants contended before the Sales Tax authorities that their sales of manga nese ore to the Mines and Minerals Trading Corporation in short called the MMTC were complete within the State of Andhra Pradesh
The appellants therefore contended that they were not the last purchasers but the MMTC was the last purchaser within the State and therefore the MMTC was liable to pay the tax
The High Court came to the conclusion that the appel lants were the last purchasers in the State
The High Court held that the contract between the appellants and the MMTC indicated that the appellants  contract of sale occasioned the export and that the contract of the appel lants with the MMTC was integrally connected with the contract entered into by the MMTC with their foreign buyer
In short the High Court held that there existed a bond between the contracts of sale entered into by the appellants with the MMTC and the actual exportation of the goods
The High Court held that these contracts were intrinsically linked and connected and the sales effected were held to be sales in the course of export of manga nese ore out of the territory of India
443 The Constitution Bench of this Court in the recent decision in Mohd Serajuddin etc
vs State of Orissa1 held that manganese merchants who bought manganese from mines and thereafter sold the goods to the State Trading Corporation for short the STC could not be said on the terms and conditions of the contracts in that case to be exporters of the goods
The STC contracts with the manganese merchants and the STC contracts with the For eign Buyers were held not to be integrated activities in the course of export
The crucial words in section 5 of the are that a sale or purchase of goods shall be deemed to take place out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India
This Court found that the contracts between the manganese merchants and the STC on the one hand and the contracts between the STC and their foreign buyers on the other were two separate and independent con tracts of sale
The STC entered into direct contract with their foreign buyers
The STC alone agreed to sell the goods to their foreign buyers
The STC was the exporter of goods
There was no privity of contract between the manganese merchants and the foreign buyers from the STC
The privity of contract was between the STC and the foreign buyers
The immediate cause of the movement of goods and export was the contract between the foreign buyers who were the importers and the STC who was the exporter and shipper of the goods
In Serajuddin s case supra this Court referred to the rulings in Coffee Board Bangalore vs Joint Commercial Tax Officer Madras a and Ms Binani Bros P Ltd vs Union of India  Ors3 as laying down the correct tests to find out the sale in the course of export
The tests are that there must be a single sale which itself causes the export or is in the progress or process of export
There is no room for two or more sales in the course of export
The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the export er to the importer
Counsel for the State submitted that there were six contracts and it has been the case of the appellants that the contracts were different and therefore there should be examination of five other contracts
It may be stated here that counsel for the State did not dispute that the decision in Serajuddin s case supra applied to one of the six contracts but he disputed the application of the ruling in Serajuddin s case to the other five contracts
The reasons given by counsel for the State are these
Only one contract was referred to in the High Court
The case of the appellants has all along been that the Sales Tax Appel late authorities considered only one contract
The High Court also considered only one contract
In the special leave petition the appellants assailed the assumption made by the High Court to the effect that all contracts between the appellants and the MMTC were similar
1 1975 Supp
SCR 169
2  3  444 Counsel for the State put in the forefront the conten tion that the MMTC could not be the last purchaser of goods within the State of Andhra Pradesh because property in the goods passed from the appellants to the MMTC on board the ship
In aid of that contention reliance was placed on FOB character of the contract between the appellant and the MMTC
The position is identical in all the six contracts
This Court in Serajuddin s case supra pointed out that mention of FOB price in the contracts between the manga nese merchants and the STC did not render these contracts FOB contracts with the foreign buyers from the STC
The reason is simple
The contracts between the STC and the foreign buyers are different contracts and it is the STC which entered into independent contracts with their foreign buyers on FOB basis
Under the contracts between the manganese merchants and the STC the merchants were required to bring the goods FOB to the ship named by the STC
It has to be appreciated that quite often merchants dealing in goods which are exported out of our country enter into what is called string contracts for purchase of the goods from the factory or the mines for sale to exporters for sale to foreign buyers
The Trading Corporations are often the only authorities allowed to export out of our country
These Corporations enter into direct contracts with their foreign buyers for export
The directions given by the Corporations to the merchants to place the goods on board the ship are pursuant to the contracts of sale between the merchants and the Corporation
These directions are not in the course of export because the export sale is an independent one between the Corporation and their foreign buyers
The taking of the goods from the merchants  place to the ship is completely separate from the transit pursuant to the export sale See Serajuddin s case at pp
184 185
In string contracts or chain contracts delivery is made by the original seller and eo instanti it is delivered in implement under each separate contract in the chain
In chain or string contracts starting between the mills or mines or factories and their immediate buyer and ending with the ultimate buyer through several intermediaries not only does the mill give and its immediate buyer take actual delivery but eo instanti each middleman gives and takes actual delivery This process of delivery of possession goes all along the chain at the same moment when delivery is made to the steamer
See Duni Chand Rataria vs Bhuwalka Brothers Ltd1
In FOB contracts the seller s duty is to place the goods free on board a ship to be named by the buyer
When the seller delivers the goods for loading on board he normally obtains a mate s receipt which he transmits to the buyer and the buyer exchanges this for the proper bill of lading
In this sort of FOB contract the almost univer sal rule is that property and risk both pass on shipment as soon as the goods are over the ship s rail and if it should be material the property and risk in each part of the cargo will pass as it crosses the 1  445 ship s rail
The loading of the goods is an unconditional appropriation which passes the property
This is not because of any peculiarity of FOB contracts but because in this type of contract the seller s duty is to deliver the goods FOB Once they are on board the seller has delivered them to the buyer and it is natural that they should thereafter be at the buyer s risk
Now a days a party which has contracted to sell goods to a foreign buyer may itself buy the goods FOB Indian port from Indian seller in order to fulfill FOB contract with a foreign buyer
This Court in Serajuddin s Case supra has laid down that the mere mention of FOB price or FOB delivery in contract between a merchant and the STC which exports the goods under a separate contract with the foreign buyer to the latter will not make the two contracts either inte grated or the contract between the merchant and the STC an FOB contract
There cannot be two last purchasers in the sale of same goods within the same State
Similarly there cannot be two exporters in respect of the same goods
After the decision of the Constitution Bench in Serajuddin s case supra the decision in National Tractors Hubli vs Commissioner of Commercial Taxes Bangalore1 is no longer good law
In the National Tractors case supra which was a three Judge Bench decision reliance was placed on the decision in BK Wadeyar vs Ms Daulatram Rameshwarlal2
In Wade yar s case supra this Court said that the normal presump tion attaching to FOB contracts is that property in the goods passes only when they are put on board the ship
Wadeyar s case supra was before the Central Safes Tax Act 1956
Further the Bill of Lading the export licence and the export clause all showed that the export did not commence till the slip left the port
In the National Tractors case supra it was said that the purchase by the State Trading Corporation from the merchant was in the course of export by the STC to the foreign buyer and therefore the purchase by the merchant from the mine owner was the last purchase in the State
The basis of the decision is that these were integrated FOB contracts in the course of export
The decision in National Tractors case supra made no reference to the decision of this Court in Coffee Board case supra
The correct law is laid down by this Court in the Coffee Board case and Serajuddin s case supra
The law is this
It has to be found out whether the contracts between the merchants and the Corporation are integrated contracts in the course of export or they are different
If they are different contracts as they are in the present case the last purchaser within the State is the MMTC
For the foregoing reasons the appeals are accepted
The judgment of the High Court is set aside
The parties will pa their costs
PBR Appeals allowed


Summary:
Under item 1 in the Second Schedule to the Andhra Pradesh General Sales Tax Act 1957 manganese ore was liable to be taxed at the point of purchase by the last dealer who bought in the State
The appellants sell manganese ore to the Mines and Minerals Trading Corporation which exports the ore to buyers in foreign countries
Their contention before the Sales Tax authorities that the sales of the ore to the MMTC were complete within the State of Andhra Pradesh and that it was the MMTC which was the last purchaser liable to pay sales tax was rejected
On appeal the High Court held that the appellants  contracts with the MMTC were integrally connect ed with the contract entered into by the MMTC with the foreign buyer and as such the appellants were the last purchasers liable to pay the tax
The respondent State contended before this Court that since the property in the goods passed from the appellants to the MMTC on board the ship in view of the fob
charac ter of the contract it was the appellants who as the last purchasers were liable to pay the tax and not the MMTC Allowing the appeals HELD The law is that it has to be found out whether the contracts between the merchants and the Corporation are integrated contracts in the course of export or different contracts
If they are different the last purchaser within the State is liable to pay the sales tax
446G i The tests for finding out the sale in the course of export are that there must be a single sale which itself causes the export or is in the progress or process of ex port
There is no room for two or more sales in the course of export
The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer
443E F ii State Corporations are often the only authori ties allowed to export goods out of the country
These corporations enter into contracts with foreign buyers for export and the Corporations in turn give directions to the merchants to place the goods on board a ship
These direc tions are not in the course of export because the export sale is an independent one between the Corporations and their foreign buyers
444D E iii In fob contracts the sellers  duty is to place the goods free on board a ship named by the buyer but the mere mention of fob price or fob delivery in a contract between the merchants and the trading corporations which export the goods under a separate contract with the foreign buyers to the latter will not make the two contracts either integrated or the contract between the merchants and the Corporation an f ob contract
There cannot be two last purchasers in the sale of the same goods within the same State
There cannot be two exporters in respect of the same goods
444G  445C 442 iv In string contracts the contracts between the Corporation and the foreign buyers are different and it is the Corporation which enters into independent contracts with foreign buyers on fob basis
Under the terms of the contract the merchants are required to bring the goods fob
to the ship named by the Corporation
444C Mohd Serajuddin etc
vs State of Orissa 1975 Supp
SCR 169 Coffee Board Bangalore vs Joint Commercial Tax Officer Madras  and Ms Binani Bros P Ltd vs Union of India  Ors
1974 1 SCC 459 followed
National Tractors Hubli vs Commissioner of Commercial Taxes Bangalore  no longer good law