Case: State Of Madras Vs. Davar And Company Etc

of India.Clause (2) of Article 286 gives power to the Parliament, by law, to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1). According Parliament has enacted the Central Act. Section 5 of that Act lays down the conditions under which a sale or purchase of goods can be said to take place in the course of import or export. Sub-section (1) and (2) deal with sale or purchase of goods in the course of export and sale or purchase of goods in the course of import, respectively. As we are concerned with a sale in the course of import, the relevant provision is sub-section (2) of Section 5, which is as follows:"5 (2) 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".11. In this case, the claim made by the assessee for exemption from tax liability is on the ground that the sale was effected by transfer to the buyer of documents of title to the goods. Under Section 5 (2) of the Central Act, in order to treat the sale as one in the course of import, the documents of title must have been transferred before the goods have crossed the customs frontiers of India.12. The question is what does the expression customs frontiers of India, in Section 5 of the Central Act, mean? To answer this question, it is necessary to refer to certain Proclamations made by the President of India and Notifications issued by the Central Government under S.3-A of the Sea Customs Act, 1878 (Act VIII of 1878) (hereinafter called the Act).13. The President of India has issued a Proclamation dated March 22, 1956 and that contains a declaration as to the extent of the territorial waters of India. The Proclamation has been published with the notification of the Government of India in the Ministry of External Affairs, No. S. R.O. 669, dated March 29, 1956 and is as follows:"S.R.O. 669 - The following proclamation by the President is published for general information:PROCLAMATION"Whereas international law has always recognised that sovereignty of a State extends to a belt of sea adjacent to its coast;And whereas international practice is not uniform as regards the extent of this sea-belt commonly known as the territorial waters of the State, and consequently it is necessary to make a declaration as to the extent of the territorial waters of India;I, Rajendra Prasad, President of India, in the Seventh Year of the Republic, do hereby proclaim that, notwithstanding any rule of law or practice to the contrary which may have been observed in the past in relation to India or any part thereof, the territorial waters of the India extend into the sea to a distance of six nautical miles measured from the appropriate base line".RAJENDRA PRASADPresident".14. On September 30, 1967 another Proclamation was issued by the President of India and published with the notification of the Government of India in the Ministry of External Affairs, No. F.L./111 (1)/67 dated September 30, 1967. By this Proclamation the earlier Proclamation of March 22, 1956 has been superseded and the territorial waters of India have been declared to extent into the sea to a distance of twelve nautical miles measured from the appropriate base line. But in the present appeals, we are concerned only with the earlier Proclamation dated March 22, 1956.15. Section 3-A of the Act gives power to the Central Government, to define, by notification in the Official Gazette, the customs frontiers of India. By virtue of the powers conferred by this section, the Central Government (Ministry of Finance, Revenue Division) had issued a notification, No. 25-Customs, dated April 1, 1950, defining the customs frontiers of India; but it is not necessary to consider the definition contained in this notification as it has been superseded by the issue of a fresh Notification, No. S. R.O. 1683 dated August 6, 1955. The later notification, issued by the Ministry of Finance (Revenue Division), Customs, which is relevant for the present purpose, is as follows:"New Delhi, the 6th August,1955.S. R.O. 1683 - In exercise of the powers conferred by Section 3-A of the Sea Customs Act, 1878 (VIII of 1878), and in supersession of the notification of the Government of India in the Ministry of Finance (Revenue Division) No. 25- Customs, dated the 1st April 1950, the Central Government hereby defines the customs frontiers of India as the boundaries of the territory, including territorial waters of India.Sd/-Jt. Secretary".16. The expression customs frontiers of India in Section 5 of the Central Act, in our opinion, must be construed in accordance with the notification issued by the Central Government under Sec. 3-A of the Act, on August 6, 1955 read with the Proclamation of the President of India dated March 22, 1956. So applying the definition of customs frontiers it is clear that, in the instant case, the sales were effected by transfer of documents of title long after the goods had crossed the customs frontiers of India. We have already stated that the ships carrying the goods in question were all in the respective harbours within the State of Madras when the sales were effected by the assessees by transfer of documents of title to the buyers. If so, it follows that the claim made by the assessees that the sales in question were sales in the course of import, has been rightly rejected by the assessing authority.Unfortunately, though various aspects seem to have been pressed before the High Court by the State of Madras, this notification of August 6, 1955, issued by the Government of India, defining the customs frontiers of India, was not brought to the notice of the High Court.17.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. We are of the view that the judgment of the Madras High Court cannot be sustained and the expression customs frontiers in Section 5 of the Central Act cannot be construed to mean customswe are concerned with a sale in the course of import, the relevant provision is sub-section (2) of Sectionexpression customs frontiers of India in Section 5 of the Central Act, in our opinion, must be construed in accordance with the notification issued by the Central Government under Sec. 3-A of the Act, on August 6, 1955 read with the Proclamation of the President of India dated March 22, 1956. So applying the definition of customs frontiers it is clear that, in the instant case, the sales were effected by transfer of documents of title long after the goods had crossed the customs frontiers of India. We have already stated that the ships carrying the goods in question were all in the respective harbours within the State of Madras when the sales were effected by the assessees by transfer of documents of title to the buyers. If so, it follows that the claim made by the assessees that the sales in question were sales in the course of import, has been rightly rejected by the assessing authority.Unfortunately, though various aspects seem to have been pressed before the High Court by the State of Madras, this notification of August 6, 1955, issued by the Government of India, defining the customs frontiers of India, was not brought to the notice of the High Court.of the Act gives power to the Central Government, to define, by notification in the Official Gazette, the customs frontiers of India. By virtue of the powers conferred by this section, the Central Government (Ministry of Finance, Revenue Division) had issued a notification, No.dated April 1, 1950, defining the customs frontiers of India; but it is not necessary to consider the definition contained in this notification as it has been superseded by the issue of a fresh Notification, No. S. R.O. 1683 dated August 6, 1955. The later notification, issued by the Ministry of Finance (Revenue Division), Customs, which is relevant for the present purpose, is asDelhi, the 6th August,1955.S. R.O. 1683In exercise of the powers conferred by Sectionof the Sea Customs Act, 1878 (VIII of 1878), and in supersession of the notification of the Government of India in the Ministry of Finance (Revenue Division) No. 25Customs, dated the 1st April 1950, the Central Government hereby defines the customs frontiers of India as the boundaries of the territory, including territorial waters of India.e expression customs frontiersof India in Section 5 of the Central Act, in our opinion, must be construed in accordance with the notification issued by the Central Government under Sec.of the Act, on August 6, 1955 read with the Proclamation of the President of India dated March 22, 1956. So applying the definition of customs frontiers it is clear that, in the instant case, the sales were effected by transfer of documents of title long after the goods had crossed the customs frontiers of India. We have already stated that the ships carrying the goods in question were all in the respective harbours within the State of Madras when the sales were effected by the assessees by transfer of documents of title to the buyers. If so, it follows that the claim made by the assessees that the sales in question were sales in the course of import, has been rightly rejected by the assessing authority.Unfortunately, though various aspects seem to have been pressed before the High Court by the State of Madras, this notification of August 6, 1955, issued by the Government of India, defining the customs frontiers of India, was not brought to the notice of the High Court.