Appeal No2402 of 1966
1 2 L694SupCI71 850 Appeal by special leave from the judgment and order dated May 4 1966 of the Patna High Court in Misc
Judicial Case No 284 of 1962
A K Sen and U P Singh for the appellants
N A Palkhivala section B Mehta B Datta for the respondent
Hegde J This is an appeal by special leave
It arises from the judgment of the High Court of Patna in a Reference under section 253 of the Bihar Sales Tax Act 1947
That reference was called for by the High Court at the instance of the assessee company the respondent herein
The questions referred for the opinion of the High Court by the Board of Revenue were  1 With regard to the sales which took place in the period from 1st of April 1955 to the 6th September 1955 whether the assessee is entitled upon the facts found by the Board of Revenue with regard to these categories of sales to exemption from liability under the Bihar Sales Tax Act because of the provision of Article 2861 a of the Constitution as it stood at the relevant date read with the explanation to that article
2 With regard to the sales which took place in the period from 7th September 1955 to 31st March 1956 whether the assessee is entitled upon the facts found by the Board of Revenue with regard to these categories of sales to exemption from liability under the Bihar Sales tax Act on the ground that the sales took place in the course of inter State trade or commerce under article 2862 of the Constitution as it stood at the relevant period
 The High Court answered the first question in the negative and against the assessee
It answered the second question in the affirmative and in favour of the assessee
The assessee has not come up in appeal
This appeal has been brought by the State of Bihar contesting the correctness of the opinion given by the High Court on the second of the two questions referred to earlier
The assessee is a Public Limited Co incorporated under the Indian Companies Act 1913
It carries on business of manufacturing and selling inter alia trucks and bus chassis and spare parts thereof to their appointed dealers State Transport Organizations and individual buyers throughout India
The registered office of 851 the assessee is at Bombay but its factory where manufacturing proCess is being carried on is at Jamshedpur in Bihar
The assessee has appointed several dealers all over India for the sale of its trucks bus chassis and spare parts
Those dealers are appointed under agreements entered into between the in and the assessee
The turnover in dispute relates to the sales made by the assessee to its dealers of trucks bus chassis and spare parts for being sold in the territories assigned to them under the dealership agreements
The agreements between the assessee and its dealers appear to be similar
Under the agreements each dealer is assigned a territory in which alone he can sell the trucks bus chassis and other spare parts purchased by him from the assessee company
He is forbidden from selling anyone of those articles to any purchaser outside his territory
As per the agreements dealers will have to place their indents pay the price of the goods to be purchased and obtain delivery orders from the Bombay office of the assessee
In pursuance of those delivery orders trucks bus chassis and other spare parts were delivered in Bihar to be taken over to the territories assigned to them
Under the contracts of sale the dealers were required to remove the trucks bus chassis and the spare parts delivered to them
in the State of Bihar to place outside Bihar
These are facts found by the Board of Revenue and affirmed by the High Court
On the basis of these facts we have whether the sales with which we are concerned in this appeal are sales that took place in the course of inter State trade and commerce as contemplated by article 2862 of the Constitution as it stood at the relevant time
In other words the question for decision is whether the sales in question were sales for the purpose of inter State trade or commerce or whether they were sales in the course of inter State trade or commerce
As seen earlier the High Court has held that those sales took place in the course of interState trade or commerce
The expression in the course of appearing in article 2861b came up for consideration in State of Travancore Cochin and Ors
vs The Bombay Co Ltd 1 Therein in this Court held that whether else may or may not fall within article 12861b of the Constitution
sales and purchases which themselves occasion the export or import of the goods as the case may be out of or into the territory of India come within the exemption
In that case this Court further observed 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
Such a sale cannot be dissociated fromthe export without which it cannot be effectuated and the sale and the resultant export form parts of a single transaction
Of these two integrated activities which to 1  852 gather constitute an export sale whichever first occurs can well be regarded as taking place in the course of the other
Even in cases where the property in the goods passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey from the State the sales must be regarded as having taken place in the course of the export and therefore exempt under article 2861b
The same exposition of the law is true of cl
2 of article 286 as it stood prior to its amendment on September 11 1956
The next decision in which article 2861a 1b and 2 came to be considered by this Court is State of Travancore Cochin and Ors
vs Shanmugha Vilas Cashew Nut Factory and Ors
1 Therein this Court observed that the word course  etymologically denoties movement from one point to another and the expression in the course of in article 2861b not only implies a period of time during which the movement is in progress but postulates also a connected relation
Consequently a sale in the course of export out of the country should be understood in the context of article 2861 b as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities
But a purchase of goods for the purpose of export is only an act preparatory to their export and
not an act done in the course of the export of the goods
In The Bangal Immunity Company Ltd vs The State of Bihar and Ors
2 Venkatarama Ayyar J observed that a sale could be a sale in the course of inter State trade only if two conditions concur  1 a sale of goods and 2 a transport of those goods from one State to another under the contract of sale
In Endupuri Narasimham and son vs The State of Orissa and Ors
3 this Court held that in order that a sale or purchase might be inter State it is essential that there must be a transport of goods from one State to another under the contract of sale or purchase
IA purchase made inside a State for sale outside the State cannot itself be held to be in the course of inter State and the imposition of tax thereon is not repugnant to article 2862 of the Constitution
In Tata Iron and Steel Co Ltd vs section R Sarkar and ors
4 this Court held that within cl
b of section 3 of the  are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto and also covers sales in which movement of goods from one State to another is the result of a covenant or incident of the contract of sale and property in 1  2 1955 2 SCR603
3  4  853 the goods passes in either State
Clause b of section 3 of the says  That 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 in the course of the import of goods into or export of the goods out of
the territory of India
 In The Cement Marketing Co of India private Ltd and anr
vs The State of Mysore and anr1 this Court held that where the goods were transported outside the State as required by the contract of sale they are inter State sales and hence exempt from sales tax
On the facts of that case it was held that the sales transactions themselves involved movement of goods across the border
In Ben Gorm Nilgiri Plantations Co Coonoor and ors
vs Sales Tax Officer Special Circle Ernakulam and ors2 this Court had to consider what sales are sales in the course of export and what sales are for the purpose of export
In the course of the judgment Shah J one of us observed  A sale in the course of export predicates a connection between the sale and export the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction
In this sense to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export there must be obligation to export
and there must be an actual export
The obligation may arise by reason of statute contract between the parties or from mutual understanding or agreement between them
 or even from the nature of the transaction which links the sale to export
A transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export but is not necessarily to be regarded as one in the course of export unless the sale occasions export In K G Khosla and Co P Ltd vs Deputy Commissioner of Commercial Taxes Madras3  this Court held that before a sale could be said to have occasioned the import the movement of goods must have incidental to the contract or in pursuance of the conditions of the contract and there should be no possibility 1 14 STC 175 SC 2 117 STC 473
SC 3 854 the goods being diverted by the assessee for any other purpose
meaning thereby that there should be no possibility of diversion according to law or contract and not in breach of them  In Tata Engineering and Locomotive Co Ltd vs The Asstt
Commissioner of Commercial Taxes and anr1 this Court after referring to the earlier decisions observed  It has been laid down that the sale in the course of export predicated connection between the sale and export the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction
To occasion export there must exist such a bond between the contract of sale and the actual exportation that each link is inextricably connected with the one immediately preceding it
The principle thus admits of no doubt
according to the decisions of this Court that the sales to be exigible to tax under the Act Central Sales Tax Act 1956 must be shown to have occasioned the movement of the goods or articles from one State to another
The movement must be the result of a covenant or incident of the contract of sale
 If we apply the principles enunciated by this Court in the decisions referred to above to the facts of this case it is obvious that the sales with which we are concerned in this case are sales in the course of inter State trade
The dealers were required to move the trucks buses chassis and other spare parts purchased by them from the State of Bihar to places outside Bihar
They are so required by the terms of the contracts entered into by them with the assessee
They would have committed breach of their contracts and incurred the penalty prescribed in their dealership agreements if they had failed to abide by the term requiring them to move the goods outside the State of Bihar
The decided cases establish that sales will be considered as sales in the course of export or import or sales in the course of inter State trade and commerce under the following circumstances 1 When goods which are in export or import stream are sold 2 When the contract of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other 1 1970 1 SCC622
855 than the State in which the delivery of goods takes place and 3 Where as a necessary incident of the contract of sale goods sold are required to be exported or imported
or transported out of the State in which the delivery of goods takes place
But Mr A K Sen learned Counsel for the State of Bihar contended that this Court has taken a different view of the law in Coffee Board Bangalore vs Joint Commercial Tax Officer Madras and anr1
According to him the ratio of that decision is that whenever goods are delivered in a State in pursuance of a contract of sale the sale in question becomes exigible to tax in the State in which the goods are delivered unless they are taken out of the State for purposes of consumption and not resale or the same is taken out of the State in pursuance of an already existing agreement to resell in the State to which it is taken
The decision in Coffee Board case supra does not in our opinion afford any basis for these contentions
We have earlier noticed that this Court in a series of decisions has pronounced in unambiguous terms that where under the terms of a contract of sale the buyer is required to remove the goods from the State in which he purchased those goods to another State and when the goods are so moved the sale in question must be considered as a sale in the course of inter State trade or commerce
This is a well established position in law
In the Coffee Board case this Court did not deviate from this position nor could it deviate as the earlier decisions were binding on it
Fur ther in the course of his judgment the learned Chief Justice who spoke for the Court referred with approval to the earlier decisions of this Court where distinction between the sales in the course of inter State trade or commerce and sales for the purpose of interState trade and commerce were explained
On the basis of the facts in that case his Lordship came to the conclusion that the export of the coffee in question was not integrated with the sales with which the Court was concerned and that there was no direct bond between the export and the sales
In the course of his judgment his Lordship observed  Here there are two independent sales involved in the export programme
The first is a sale between the Coffee Board as seller to the export promoter
Men there is the sale by the export promoter to a foreign buyer
Of the latter sale the Coffee Board does not have any inkling when the first sale takes place
The Coffee Board s sale is not in any way related to the second sale
Therefore the first sale has no connec 1 25 STC 528 SC 856 tion with the second sale which is in the course of export that is to say movement of goods between an exporter and an importer
 This finding clearly brings out the distinction between the facts of the Coffee Board s case supra and the facts of the cases wherein this Court held that the sales in question were sales in the course of export or import
In the Coffee Board s case this Court found that what was insisted on by the Coffee Board was that the coffee set apart for the purpose of the export must be exported it was not incumbent for the purchasers at the auction to export that coffee themselves they may do it themselves or they may sell it to somebody who may export it outside India
On that basis this Court came to the conclusion that the sales effected by the Coffee Board are not sales in the course of export they are only sales for the purpose of export
The ratio of that decision does not bear on the facts before us
Herein under the terms of the contracts of sale the purchasers were required to remove the goods from the State of Bihar to other States
Hence the sales with which we are concerned in this case must be held to be sales in the course of inter State trade or commerce
For the reasons mentioned above we agree with the findings of the High Court
In the result this appeal fails and the same is dismissed with costs


Summary:
The assessee having its registered office in Bombay and its factory in Bihar was carrying on the business of manufacturing and selling trucks bus chassis and spare parts to their appointed dealers and others
Agreements were entered into between the assessee and the appointed dealers under which each dealer was assigned a territory in which alone the dealer could shell
The dealers had to place the indents pay the price of goods to be purchased and obtain delivery orders from the Bombay office
In pursuance of the delivery orders the trucks etc
were delivered in Bihar to be taken to the territories assigned to them for sale there
If the dealers failed to abide by the term requiring them to move the goods outside the State of Bihar they would have committed breach of their contracts On the question whether the turnover relating to the sales made by the assessee to its dealers for sale by them in their respective territories outside the State of Bihar during the period 7th September 1955 to 31st March 1956 was exempt from liability to pay sales tax under the Bihar Sales Tax Act on the ground that the sales took place in the course of inter State trade or commerce under article 2862 as it then stood HELD  Where under the terms of a contract of sale the buyer is required as a necessary incident of the contracts to remove the goods from the State in which he purchased the goods to another State and when the goods are so removed the sale must be considered as a sale in the course of inter State trade or commerce
854 G H 858 A 13 State of Travancore Cochin vs The Bombay Co Ltd   State of Travancore Cochin vs Shanmugha Visal Cashew Nut Factory   Bengal Immunity Co Ltd vs State of Bihar  Endupuri Narasimham  Son vs State of Orissa   Tata Iron  Steel Co Ltd vs section R Sarkar 1961  SCR 379 The Cement Marketing Co of India P Ltd vs State of Mysore 14 STC 175 Ben Gorm Nilgiri Plantations Co vs Sales Tax Officer Special Circle Ernakulam   K G Khosla  Co P Ltd vs Dy
Commissioner of Commercial Taxes Madras 17 STC 473 and Tata Engineering  Locomotive Co Ltd vs Asstt
Commissioner of Commercial Taxes  Anr   applied
Coffee Board Bangalore vs Joint Commercial Tax Officer Madras 25 STC 528 explained