Case: State of Travancore-Cochin &amp; Others Vs. The Bombay Company Limited &amp; Others

1. These are connected appeals from the judgment and order of the High Court ofquashing the assessments under the United State of Travancore and Cochin Sales tax Act (No. 11 of 1125 M. E.) (hereinafter referred to as "the Act") on the respondents on the turnover of the sale of the commodities (coir products in C. A. 25, lemon grass oil in C. A. 28, and tea in C. A. 29) in which they respectively deal.2. The dealings followed more or less the same pattern in all the cases and consisted of export sales of the respective commodities to foreign buyers on c. i. f. or f. o. b. terms as the case may be.3. The respondents in each case claimed exemption from assessment in respect of the sales effected by them on the ground,inter alia,that such sales took place "in the course of the export of the goods out of the territory of India" within the meaning of Art. 286 (1) (b) of the Constitution. The Sales Tax Authorities rejected the contention as, in their view, the sales were completed before the goods were shipped and could not, therefore, be considered to have been taken place in the course of the export.4. Thereupon the respondents by separate petitions applied on the High Court of the United State of Travancore and Cochin (hereinafter referred to as the State) under Art. 226 of the Constitution for issue of writs ofcertiorariand prohibition quashing the assessments made on them and prohibiting such assessment in future. The applications were heard, along with nine other applications for similar reliefs by dealers in cashew nuts, by a Division Bench (Kunhiraman C. J. and Subramania Iyer J.) who upheld the claim of exemption and quashed the assessment orders in respect of the transactions subsequent to the commencement of the Constitution. From that decision the State has preferred appeals in all the cases on a certificate granted by the High Court under Art. 132 (1) of the Constitution.

Court's reasoning:
We are clearly of opinion that the sales here in question, which occasioned the export in each case, fall within the scope of the exemption under Art. 286 (1) (b).Such sales must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say, by employing the machinery of export. A sale by export thus 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 from the export without which it cannot be effectuated, and the sale and resultant export from parts of a single transaction. Of these two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Assuming without deciding that the property in the goods in the present cases passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under Art. 286 (b).That clause, indeed, assumes that the sale has taken place within the limits of the State and exempts it if it takes place in the course of the export of the goods concerned.In the foregoing discussion we have assumed that the word "sale" used in the Constitution has the same meaning as in the law relating to the Sale of Goods, but it has been suggested in the course of the argument that it imports a wider concept than the passing of title from the seller to the buyer which under that law is determined by highly technical rules based upon the presumed intention of the parties and liable to be displaced by their expressed intention. We leave the point open as it is unnecessary for the purpose of these appeals to pronounce any opinion upon it.It was said that, on the construction we have indicated above, a "sale in the course of export" would become practically synonymous with "export" and would reduce cl. (b) to a mere redundancy, because Art. 246 (1), read with Entry No. 83 of List I of the Seventh Schedule, vests legislative power with respect to "duties of customs including export duties" exclusively in Parliament, and that would "be sufficient to preclude State taxation of such transactions. We see no force in this suggestion. It might well be argued, in the absence of a provision like cl. (b) prohibiting in terms the levy of tax on the sale or purchase of goods where such sales and purchases are effected through the machinery of export and import, that both the powers of taxation, though exclusively vested in the Union and the States respectively, could be exercised in respect of the same sale by export or purchase by import, theand the export duty being regarded as essentially of a different character. A similar argument induced the Federal Court to hold in Province of Madras v. Boddu Paidanna and Sons,1942 F. C. R. 90 that both central excise duty and provincialcould be validly imposed on the first sale of groundnut oil and cake by the manufacturer or producer as "the two taxes are economically two separate and distinct imposts". Lest similar reasoning should lead to the imposition of such cumulative burden on thetrade of this country which is of great importance to the nations economy, the Constitution Assembly may well have thought it necessary to exempt in terms sales by export and purchases by import fromby inserting Art. 286 (1) (b) in the Constitution.We are not much impressed with the contention that no sale or purchase can be said to take place "in the course of" export or import unless the property in the goods is transferred to the buyer during their actual movement, as for instance, where the shipping documents are indorsed and delivered within the State by the seller to a local agent of the foreign buyer after the goods have been actually shipped, or where such documents are cleared on payment or on acceptance by the Indian buyer before the arrival of the goods within the State. This view, which lays undue stress on the etymology of the word "course" and formulates a mechanical test for the application of cl. (b), places, in our opinion, too narrow a construction upon that clause, in so far as it seeks to limit its operation only to sales and purchases effected during the transit of the goods, and would, if accepted, rob the exemption of much of its usefulness.We accordingly hold that whatever else may or may not fall within Art. 286 (1) (b), sales and purchases which themselves occasion the export or the import of the goods, as the case may be, out of or into the territory of India come within the exemption and that is enough to dispose of these appeals.Our attention was called, in the course of the debate, to various American decisions which hold that the power "to regulate"commerce vested exclusively in the Congress by Art. I. S. 8 (3) of the American Constitution (the Commerce Clause) excludes by implication the State power of taxation only when the goods enter "the export stream", and until then such goods form part of "the general mass of property in the State" subject, as such, to its jurisdiction to tax, and that this principle was also applicable to cases arising under Art. I. S. 9 (5) and S. 10 (2) (theclause), see e.Siderurgica v. Merced Co.,(1949) 337 U. S.154. These clauses are widely different in language, scope and purpose, and a varying body of doctrines and tests have grown around them interpreting, extending or restricting, from time to time, their operation and application in the context of the expanding American commerce and industry, and we are of opinion that not much help can be derived from them in the solution of the problems arising under Art. 286 of the Indian Constitution.It remains only to point out that the use made by the learned Judges below of the speeches made by the members of the Constituent Assembly in the course of the debates on the draft Constitution is unwarranted. That this form of extrinsic aid to the interpretation of statutes is not admissible has been generally accepted in England, and the same rule has been observed in the construction of Indian statutes – seeof Bengal v. Premlal Mallick,22 Ind. App. 107 (P. C.) at p. 118. The reason behind the rule was explained by one of us in Gopalan v. State of Madras,1950 S. C. 88 thusspeech made in the course of the debate on a bill could at best be indicative of the subjective intent of the speaker, but it could not reflect the inarticulate mental process lying behind the majority vote which carried the bill. Nor is it reasonable to assume that the minds of all those legislators were inas it is more tersely put in an Americanwho did not speak may not have agreed with those who did; and those who spoke might differ from each otherUnited States v.Freight Association,(1897) 169 U. S. 290 at p. 318rule of exclusion has not always been adhered to in America, and sometimes distinction is made between using such material to ascertain the purpose of a statute and using it for ascertaining its meaning. It would seem that the rule is adopted in Canada and Australiasee Craies on Statute Law, 5th Edn. p. 122.