Case: A.V. Thomas &amp; Company Ltd Vs. Dy. Commr. of Agrl. Income Tax &amp; Sales Tax. Trivandrum

The assessment period is 1952-53 and the turnover was of a sum of Rs.3, 77, 644/- on which a tax of Rs. 5900/11/- was levied. The appellant before us is the assessee company and the respondent is the Deputy Commissioner of Agricultural Income-tax and Sales tax3. The assessment was made on March 30, 1955, under r. 33(1) of the Act on the ground that the sales of tea had escaped assessment. The appeal against that order was unsuccessful and thereafter a further appeal was taken to the Sales tax Appellate Tribunal which by its order dated August 12, 1957, held that the ban under Art. 286(1)(a) of the Constitution on sales which are outside the State applied, in regard to the sales of full lots and therefore remanded the case to the Sales tax Officer4. Against that order a revision was taken to the High Court which held that the decision of the Appellate Tribunal in regard to the applicability of Art. 286(1)(a) was erroneous and therefore the sales were subject to sales tax under the Act.Put shortly, the nature and procedure of sales of teas was this; that the teas were stored in the godowns at Willingdon Island which was in the State of Travancore Cochin., samples of those teas etc., were taken to Fort Cochin which at the relevant time was in the State of Madras. There by the samples the teas were sold by public auction in lots, some were purchased in their entirety and others in parts and after the consideration money was paid at Fort Cochin delivery orders. were given to the buyers addressed to the godown keepers at Willingdon Island and actual delivery of tea was taken there. These teas were then sent out from Willingdon Island in Travancore Cochin for consumption either in other parts of India or were exported out of India5. The taxability of the sales of teas in the manner above- mentioned will depend upon whether the sales can be held to have taken place at Willingdon Island i.e. within the territory of Travancore Cochin State and were liable to the imposition of sales tax under the Act or they were what for convenience are called Ire outside sales" and therefore not subject to sales tax in the State of Travancore-Cochin. The argument raised on behalf of the assessee company was that these sales were effected at Fort Cochin which was outside the territory of Travancore Cochin and therefore were not liable to tax because of the ban imposed by Art. 286(1)(a) of the Constitution. That Aricle with the Explanation at the relevant time was as follows "Art. 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 (a) outside the State; or (b).......................................... Explanation :-For the purpose of sub-clause (a) a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwith- standing the fact that under the general law relating to sale of goods the property in the goods has, by reason of such sale or purchase, passed in another State". Under the Sale of Goods Act in an auction sale the title in goods passes and the sale is complete as soon as the hammer falls. The relevant portion of s. 64 of the Sale of Goods Act dealing with sale by auction reads as follows In the case of a sale by auction...... (1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of the separate contract of sale; (2) the sale is complete when the auctioneer announces its completion by the fall of the hammer or in the customery manner; and until such announcement is made any bidder may retract his bid."

Reasoning: Specific goods in s. 2 (14) of the Sale of Goods Act means goodsidentified and agreed upon at the time contract is made. Therefore on the fall of the hammer theoffer is accepted and if the goods are specified goods the title passes to the buyerIn the present case as soon as the hammer fell the title in the goods passed to the buyer as the goods were specific goods i.e. goods which were auctioned in full lots and this event took place at Fort Cochin which was in the State of Madras. But in the case of unascertained goods the title in the goods does not pass to the buyer unless and until the goods are ascertained. It was for this reason that a distinction was drawn by the Sales tax Appellate Tribunal between goods which were sold in full lots and those which were sold in portions. In regard to the former it was held that the title passed as soon as the hammer fell but not so in regard to the latter and therefore the sale of "full lots was held to have taken place outside the State of Travancore Cochin and of portions of lots inside that State. The case was consequently remanded to the Sales tax Officer for determining the amount of the tax6. The High Court in revision held that the words in Art. 286 (1) (a) "outside the State" do not mean transfer of ownership, according to the Sale of Goods Act but it was lex situs which determines the taxability of the transaction and the correct position is that the ownership in the goods is transferred according to the law of the place where the goods are situate. Therefore the sale in the present case was in the State of Travancore Cochin and there is nothing in the Explanation to Art. 286 (1) (a) which provides to the contrary7. It has been found and it has not been disputed that the title to the goods in the present case passed at Fort Cochin. The purchase money was paid there and the purchaser obtained from the auctioneer delivery notes directing the godown keepers at Willingdon Island to deliver the goods and only the actual physical delivery of the goods took place at Willingdon IslandIn somewhat similar circumstances this court in Indian Copper Corporation Ltd. v. State of Bihar ([1961] 2 S.C.R. 276, 286, ) held by a majority decision that the opening words of Art: 286 (1) which speak of a sale or purchase taking place and the non-obstante clause in the Explanation which refers to the general law relating to the sale of goods, indicated that it was the "passing of property within the State" that was intended to be fastened on, for the purpose of determining, whether the sale in question was "inside" or "outside" the State and therefore subject to the operation of the "Explanation", that State in which property passed would be the only State which would have the power to levy a tax on the sale. At page 286 it was observed: "The conclusion reached therefore is that where the property in the goods passed within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of Art. 286 (1) (a) unless the Explanation operates". The majority decision in Indian Copper Corporation Ltd. v. State of Bihar (1) concludes the point in favour of the appellant. On the facts of this case it was found by the Sales Tax Appellate Tribunal that in regard to the sales of tea in full lots the property passed at Fort Cochin and this view has not been challenged in this court. Therefore, on the majority decision in Indian Copper Corporation Ltd. v. State of Bihar ([1961] 2 S.C.R. 276, ) the only State which would have the power to levy a tax on such sales would be the State of Madras and so far as Travancore Cochin was concerned, the sale would be an outside sale.In the present case therefore the sale was an "outside sale" and cannot be said to be an "inside sale" qua Travancore Cochin because the title passed at Fort Cochin which is in the State of Madras. Apart. from that the money was paid there and the delivery order was also received there even though the actual physical delivery of goods was made at a Willingdon Island in the State of Tranvancore Cochin. The fiction created by the Explanation to, Art. 286 (1)(a) is inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State. There then remains the question of goods which were exported out of India from Willingdon Island. In the case of those goods also it cannot be said that there was a sale inside the State of Travancore Cochin because the same considerations will apply to those sales as to the sales already discussed i.e. goods the title to which passed at Fort Cochin were delivered at Willingdon Island and were delivered for consumption in parts of India other than Travancore Cochin.