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Milkhiram (India) Private Ltd. Vs. the State of Bombay - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 9 of 1959
Judge
Reported in[1963]14STC18(Bom)
ActsBombay Sales Tax Act, 1953 - Sections 27 and 34; Constitution of India - Article 286; Sale of Goods Act - Sections 19, 23 and 25
AppellantMilkhiram (India) Private Ltd.
RespondentThe State of Bombay
Appellant AdvocateM.J. Mistry, Adv., i/b Thakoredas & Co.
Respondent AdvocateN.A. Palkhiwala, Adv.
Excerpt:
sales tax - actual delivery - sections 27 and 34 of bombay sales tax act, 1953 - whether property in goods passed to respondent when applicant has delivered shipping documents to him and paid value of cost insurance and freight of said goods when goods were on high seas - delivery after endorsement of bill lading will be effectual in passing property in goods unless there is evidence of a contrary intention between parties - there is contrary intention expressed in contract between applicant and respondent - according to contract property in goods passed from seller to buyer after goods have passed customer barrier of importing country - held, property in goods had not passed. - - in his view clause (12) of the contract which entitled the government of india to terminate the contract.....desai, j.1. in this reference under section 34 of the bombay sales tax act of 1953, the sales tax tribunal has referred to this court the following four questions :- 1. whether on the facts and in the circumstances of this case the property in the goods passed to the government of india on or about the 3rd december, 1953, on the applicants' delivering the shipping documents to the government of india and on the government of india paying the c.i.f. value of the said goods to the applicants when the said goods were on the high seas outside the bombay state. 2. whether on the facts and in the circumstances of this case there was any sale in bombay taxable under the bombay sales tax act, 1953. 3. whether the bombay sales tax tribunal was right in not allowing fresh evidence on the point of.....
Judgment:

Desai, J.

1. In this reference under section 34 of the Bombay Sales Tax Act of 1953, the Sales Tax Tribunal has referred to this Court the following four questions :-

1. Whether on the facts and in the circumstances of this case the property in the goods passed to the Government of India on or about the 3rd December, 1953, on the applicants' delivering the shipping documents to the Government of India and on the Government of India paying the c.i.f. value of the said goods to the applicants when the said goods were on the high seas outside the Bombay State.

2. Whether on the facts and in the circumstances of this case there was any sale in Bombay taxable under the Bombay Sales Tax Act, 1953.

3. Whether the Bombay Sales Tax Tribunal was right in not allowing fresh evidence on the point of endorsement on the bill of lading in favour of the Government of India, and

4. Whether on the facts and in the circumstances of this case the sale of goods made to the Government of India is protected under clause (1)(b) of Article 286 of the Constitution of India and as such exempt from the sales tax.

2. The applicant, which is a private limited company, entered into a contract with the Government of India, Ministry of Food and Agriculture, New Delhi, in September, 1953, for sale of large quantities of Cuban Sugar on terms and conditions mentioned in the letter dated 12th September, 1953, addressed to them by the Government of India. After the sugar had been shipped by the foreign exporters, the bill of lading was received by applicants on the 3rd December, 1953, and thereupon a bill for full payment of the c.i.f. value was submitted by the applicants to the officer of the Government of India designated in the contract along with a complete set of bill of lading and other documents in accordance with clause (8) of the contract. On the 23rd of December, 1953, the applicants received payment from the Government in accordance with the bills submitted by them. On the 3rd of January, 1954, the consignment of sugar arrived at Bombay by S. S. Ameriki. Thereafter the goods were inspected and weighed before an authorised officer of the Government under clause (5) of the contract and they were delivered to the Government of India by the applicants ex-docks after clearance, and payment of all costs and charges referred to in clause (7) of the contract. On the 11th of February, 1954, the applicants prepared their final bill for the balance price under clause (8) of the contract. On the 20th of April, 1955, the applicants made an application to the Collector of Sales Tax under section 27 of the Bombay Sales Tax Act of 1953 to determine whether any sales tax was payable on the sales made by the applicants to the Government of India under the contracts mentioned in the application under which sugar was supplied by them to the Government of India. The Additional Collector of Sales Tax, who decided the application held that sales tax was payable in respect of the said sales of sugar effected by the applicants. He held, relying on clauses (5) and (6) of the contract, which related to inspection, weighment and delivery, that the sale could not have taken place on the high seas particularly as the inspection and weighment was to be made before the delivery, which was to be made ex-docks by the applicants and that even the weighment charges were to be incurred by the applicants. In his view clause (12) of the contract which entitled the Government of India to terminate the contract forthwith in the event of the failure on the part of the applicants to abide by any of the provisions of the contract even after the goods were landed in Bombay, indicated that the property in the goods was not intended to pass before the goods had been cleared by the applicants and delivered to the Government. He also negatived a further contention, which was set up by the applicants before him, viz., that the sales were not liable to tax under the Bombay Sales Tax Act, 1953, because the sale had taken place at New Delhi and the sale in question had been completed prior to 1st January, 1954. Against the decision given by the Additional Collector of Sales Tax, the applicants preferred an appeal before the Sales Tax Tribunal at Bombay. The main contention, which was urged before the Tribunal, was that the sale in the present case was in the course of import since it had taken place while the goods were on the high seas. It was contended that property in the goods had passed by transfer of the shipping documents while the goods were in transit and, therefore, the sale had taken place in the course of import. The Tribunal did not accept the above contentions of the applicants because it held that clause (8) of the agreement under which the shipping documents were alleged to have been transferred and delivered to the Government of India, did not show that the bill of lading was required to be endorsed in favour of the Government of India and that there was no evidence produced by the applicants to show that such endorsement was made on the bill of lading. An opportunity was sought by the applicants to produce evidence showing that the bill of lading had been duly endorsed in favour of the Government of India before it was passed on to the Government under clause (8) along with the other documents required under the said clause. The Tribunal, however, refused to grant an opportunity to the applicants on the ground that the applicants had made no attempt at any previous stage to prove the endorsement and, therefore, there was no reason why a further opportunity should be allowed to them at that stage. The Tribunal then concluded that as they were not satisfied that the bill of lading was endorsed to the Government of India while the goods were on the high seas, they were unable to accept the contention urged before them by the applicants that the sales had taken place during the course of import. The view of the Tribunal was that the intention of the parties appeared to be that prior to the sale being completed the applicants were to allow inspection and weighment and give delivery ex-docks in accordance with clauses (5) and (6) of the contract and in view of the said intention, the property in the goods was intended to pass not during the course of import but after the goods had crossed the customs barrier of the importing country. It accordingly dismissed the appeal. At the instance of the applicants, it drew up a statement of the case and referred to this Court the four questions, which we have already set out above.

3. Mr. Mistry, learned counsel who appears for the applicants, has urged that the Tribunal has erred in disallowing thus applicants' request for grant of an opportunity to establish that the bill of lading in respect of the goods had been endorsed by the applicants in favour of the Government of India before it was delivered along with the other documents referred to in clause (8) of the contract. He has pointed out that before the Additional Collector of Sales Tax it was contended on behalf of the applicants in support of their submission that the property in the goods had passed while the goods were on the high seas and that the bill of lading had been transferred by them to the Government after due endorsement, but the Additional Collector of Sales Tax had not applied his mind to the said circumstances and had proceeded on the basis of certain clauses of the contract between the parties and held that in view of the said terms of the contract, the intention between the parties was that the property in the goods should pass to the buyers only after the goods were weighed and inspected and brought out of the customs barriers of the importing country. According to Mr. Mistry, therefore, although the contention was raised by the applicants before the Additional Collector of Sales Tax, it had not been put in issue by the Collector and he had not called upon the applicants to satisfy him with regard to the said contention, his decision being based on other grounds. Before the Tribunal, however, when the contention was raised the Tribunal was prepared to regard it as a contention of substance and material for the determination of the question before it. It, however, did not permit the applicants to substantiate the said contention by producing evidence in support thereof on the ground that such evidence had not been produced by the applicants at an earlier stage. Mr. Mistry complains that since it was only when the matter was before the Tribunal that the question as to whether the bills of lading were endorsed by the applicants in favour of the Government was put in issue, the Tribunal ought to have allowed the applicants an opportunity to produce evidence which the applicants desired to produce before it.

4. In our opinion, there is substance in the contention urged by Mr. Mistry and in view of the said contention, we would have found it necessary to remand the case to the Tribunal to enable the applicants to produce such evidence which they desired to produce in support of the said contention of theirs and which was not allowed to be produced by the Tribunal.

5. Mr. Palkhiwala, who appears for the State, has stated before us that in order to avoid a remand to the Tribunal, he is prepared to argue on the basis that the bill of lading was endorsed by the applicants in favour of the Government of India as contended by them for the purpose of the present reference. He points out that the present reference arises on an application which the applicants have made under section 27 and not out of any order of assessment of sales tax. He has, therefore, no objection to the question raised on the present reference being considered and determined on the basis of the applicants' allegation that the bills of lading were delivered by them to the Government after endorsement. He only wishes to make it clear that if on that basis the questions are answered in favour of the applicants, it should be open to the Sales Tax Authorities when the question of actual assessment of sales tax arises to investigate and determine whether the said basis is factually correct or not. Mr. Mistry for the applicants has agreed that that should be so. In these circumstances, we will proceed on the basis that question No. 3 of the questions referred to us need not be answered and the answers to the other questions should be given on the basis that the bills of lading were endorsed by the applicants in favour of the Government of India and delivered along with the other documents specified in clause (8) of the contract on the 3rd of December, 1953.

6. Now, the answers to the other three questions will depend upon, when, on the terms of the contract, the conduct of the parties and the circumstances of the case, the property in the goods passed from the seller to the buyer in the present case. According to Mr. Mistry the property in the goods passed from the seller to the buyer on the 3rd of December, 1953, when the bill of lading duly endorsed in favour of the Government of India along with the other documents referred to in clause 8 of the contract was handed over by the applicants to the Government of India, and since on the said date the goods were on the high seas, the sale of goods took place during the course of import and was, therefore, saved under Article 286 of the Constitution of India.

7. According to Mr. Palkhiwala, on the other hand, on a proper construction of the several terms of the contract between the parties in the present case, the intention of the parties was that property in the goods should pass only after they were imported within this country and the sale of goods, therefore, has taken place not during the course of import but after the goods had crossed the customs barrier of the importing country.

8. Mr. Mistry's argument briefly stated is this : A bill of lading represents the goods and a transfer of it operates as a transfer of the goods; that is the usual method of effecting sale of goods and delivery thereof in the commercial world. Whenever, therefore, there is a transfer of the bill of lading duly endorsed in favour of the buyer by the seller, such a transfer represents the intention of the parties to pass property in the goods from the seller to the buyer and effect delivery of the goods. In the present case there was such a transfer of the bill of lading after endorsement and consequently the property in the goods passed from the seller to the buyer on the transfer of the bill of lading. In spite of this conduct of the parties, if a contrary intention as to the passing of property must be taken to have been entertained by them, there must be specific terms in the contract between the parties evidencing the contrary intention. According to Mr. Mistry there are no terms in the present contract between the parties which are inconsistent with the intention to pass the property in the goods by transfer of the bill of lading after endorsement. Mr. Mistry argues that the Additional Collector of Sales Tax and the Tribunal have erred in holding that clauses (5), (6) and (12) of the contract between the parties express any such contrary intention. In support of his submission Mr. Mistry strongly relied on a decision of the Supreme Court, J. V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales Tax : [1960]2SCR852 and he also cited certain passages from books of well-known authors on Sale of Goods.

9. Now, there is no doubt that one of the ways of effecting sale of goods, which are in the process of transit, is by endorsing the bill of lading in favour of the buyer and handing over the same to him. A bill of lading is a writing signed on behalf of the owner of the ship in which the goods are embarked acknowledging the receipt of the goods and undertaking to deliver them at the end of the voyage subject to such conditions as may be mentioned in the bill of lading. The legal effect of the transfer of a bill of lading enunciated by Bowen, L.J., in Sanders Brothers v. Maclean & Co. (1883) 11 Q.B D. 327 which was cited with approval by their Lordships of the Supreme Court in J. V. Gokal & Co. v. Assistant Collector of Sales Tax : [1960]2SCR852 , is as follows :-

'A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to someone rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner. It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be.'

10. It would thus be seen that the delivery after indorsement of the bill of lading will be effectual in passing the property in the goods where such as the intention of the parties. It would also be seen that unless there is evidence of a contrary intention between the parties, the transfer of the bill of lading with indorsement in favour of the buyer would amount to the sale of the goods and the passing of property in the goods from the seller to the buyer. Where, however, there is a contrary intention expressed by the terms of the contracts, the property in the goods will not pass even on the transfer of the bill of lading with indorsement in favour of the buyer. The question, therefore, which is to be determined in the present case is what, in view of the terms of the contract between the parties, the conduct of the parties and the circumstances of the case, was the intention of the parties as to the passing of property in the goods contracted to be sold

11. Coming now to the terms of the contract in the present case, clause (1) describes the goods, to which the contract relates, as Cuban or British refined white dry crystal sugar with polarisation not below 99.8 per cent. and moisture content not above 0.2 per cent. at the time of delivery ex-docks Indian ports. In clause (2) the quantity is stated as 30,000 long tons with five per cent. more or less at the option of the seller. Clause (3) of the contract stipulates that the first lot of about 10,000 tons had to be shipped by the seller before the 15th of October, 1953, the second lot of a similar quantity by the 15th of November and the balance of 10,000 tons by the 15th of December, 1953. It is further stipulated in this clause that if the shipments were not effected either in full or in part by the due date or the goods were not delivered in accordance with the terms and conditions stated in the contract, the contract was liable to cancellation to that extent. Clause (4) provides for conditions regarding packing of the goods. Under clause (5) the applicants were to afford all facilities to the Government Inspectors and such other persons as were authorised by them for inspection and weighment of the consignments before delivery. Weighment was to be made at the cost of the seller and whole or such part of a consignment had to be weighed as required by the consignee or his representative. The tare of packing was to be agreed upon between the applicants and the Government at the time of weighment of the consignment at the port of delivery and was to be determined by test weighment of bags selected on random sampling basis. Clause (6), which related to the delivery of the goods, provided that the goods were to be delivered ex-docks after clearance and payment of all costs and charges referred to under price in paragraph 7 at one of the main ports of Bombay, Madras, Calcutta, Cochin or Bhavnagar as may be required by the Government and to the authorities or parties nominated by the Ministry of Food and Agriculture, Government of India, or by any other person duly authorized by them in this behalf. It was further provided that the Government might require any part of the consignment to be discharged at one or two more ports by payment of an extra charge if any such charge was actually paid by the applicants to the shipping company concerned but not exceeding two shillings and six pence per long ton on the entire consignment for each additional port of discharge, and delivery in such cases had to be made ex-docks of such ports. The authorities or persons to whom the sugar was to be delivered were to be intimated to the applicants by the Ministry of Food and Agriculture or their representative at least three days before the arrival of the ship carrying the sugar in question. The concluding part of this clause provided that if, on the arrival in India, the imported sugar was declared by any of the International Superintending Companies to be not conforming to the weight, quality and packing standards prescribed in the contract, the Government were to be free to take over the said sugar at a rebate to be fixed by the Government and the applicants were to dispose of the said sugar in accordance with the instructions issued by the Government. The next clause, i.e. clause No. (7), stated that the price per maund ex-docks Indian ports as mentioned in paragraph 6 above inclusive of all costs and charges including costs of bags and their stacking in the docks according to the Port Trust Rules, import duty, all Port Trust and Customs and clearance charges was to be Rs. 25. Clause (8) provided for payment and ran as follows :

'All payments for supplies will be made by the D.A.G. (F. & R.), New Delhi, in rupees by cheque payable at any Government Treasury in India. Bill for full payment of c.i.f. value should be submitted to that officer duly supported by

(i) a certificate set of bill of lading,

(ii) certificate of sugar origin,

(iii) official customary approved certificate issued by any of the International Superintending Companies, the tenor of which must state quality and weight as shipped and also an analytical certificate stating polarisation degree and moisture percentage at the time of shipping, and

(iv) an insurance policy, which should be all comprehensive, duly endorsed in favour of the President of India through the Joint Secretary to the Government of India, Ministry of Food and Agriculture, New Delhi, cost of such certificate will be borne by (the applicants).

The final bill for the balance price, after adjusting the payment made against shipping documents for the quantity of specific quality actually delivered in accordance with the agreed terms and conditions mentioned in this letter shall be submitted by you after the completion of the delivery of the sugar in question to the D.A.G. (F. & R.) New Delhi. The bill should be accompanied by a certificate of actual delivery from the authorities or parties mentioned by the Ministry of Food and Agriculture in terms of the provisions of paragraph 6 above.

Letter of credit, if and as required, shall be opened by you at your own cost. The Government of India shall, without any obligation or liability in this behalf whatsoever, arrange foreign exchange, as necessary, to the extent of the c.i.f. price of the quantity of sugar mentioned in paragraph 2 above.'

12. Clause (9) provided for the payment of earnest money. Clause (10) deals with security deposit. Clause (11) pertains to damages for late or non-delivery. Clause (12) was as follows :-

'In the event of your failing to observe or perform any provisions of the contract, the Government of India shall have the right to terminate the contract forthwith. The Government of India shall also be entitled to claim against you any extra cost which the Government may incur in purchasing sugar through other sources at your risk and cost. You shall, however, not be entitled to any gain on such repurchases.'

13. The remaining clauses (13), (14) and (15) are not material for the purpose of the questions before us and need not be referred to.

14. Mr. Mistry's argument is that clause (8) of the contract, which provided for payment for supplies to be made on the bill for the full payment of the c.i.f. value being submitted to the Government of India together with a complete set of bill of lading and other documents clearly indicated that the intention of the parties was to pass title in the goods by transfer of the shipping documents duly indorsed against price according to the usual commercial practice. The other clauses of the contract, according to him, were not inconsistent with the intention of the parties as evidenced by clause (8). Thus clause (5), which provided for the inspection and weighment of the goods before delivery ex-docks or clause (6) which provided for delivery of the goods ex-docks, did not show an intention to postpone the passing of property in the goods until inspection and weighment or delivery of goods ex-docks.

15. Relying on certain passages from books of well-known authors on Sale of Goods, Mr. Mistry has urged that in contracts for the sale of goods by the transfer of the shipping documents against price after indorsement, the buyer has a right to inspect the goods on their arrival at the destination and even to reject them if they are not according to the contract. Such right, reserved to the buyer under such contracts, does not militate against the passing of the property in the goods before the exercise of the said right. Clauses (5) and (6) in the present contract are only provisions providing for the usual rights, which the buyer has under commercial contracts, where property in the goods passes while the goods are in transit by the transfer of the shipping documents by indorsement and delivery. According to Mr. Mistry, therefore, none of the terms of the contract in the present case being necessarily inconsistent with the intention to pass property in the goods on the transfer of the shipping documents against price, the property in the goods in the present case passed on the 3rd December, 1953, when the bills of lading after indorsement were transferred by the seller in favour of the buyer. According to Mr. Mistry, the present case before us is not materially distinguishable from the case before their Lordships of the Supreme Court. J. V. Gokal & Co. v. Assistant Collector of Sales Tax : [1960]2SCR852 . Their Lordships of the Supreme Court, on a scrutiny of the terms of the contract in the case before them, came to the conclusion that 'a scrutiny of all the terms of the contract does not indicate an intention that the property in the goods shall not pass to the buyer notwithstanding delivery of shipping documents against payment.' Mr. Mistry argues that where there is a delivery of the shipping documents against payment unless the terms of the contract between the parties could be found to indicate definitely an intention that the property in the goods was not intended to pass on the delivery of the shipping documents against payment, it must be held that the property in the goods has passed on the delivery of such documents against payment.

16. In our opinion, a scrutiny of all the terms of the contract in the case before us, does indicate an intention that the parties to the contract intended that the property in the goods should pass only when the goods were delivered ex-docks in Bombay and not at any earlier stage. In clause (8) of the contract, on which strong reliance is placed by Mr. Mistry no doubt provision has been made for full payment of the c.i.f. value to be made to the seller by the buyer on his having delivered the bill of lading and other documents as provided in the said clause, but the said clause cannot, in our opinion, be intended by the parties to have the legal effect of passing the property in the goods sold at that stage. The delivery of the bill of lading may operate as a symbolical delivery of the cargo and the property in the cargo may pass by indorsement and delivery of the bill of lading wherever it is the intention, however, is not to pass property in the goods by such indorsement and delivery the said indorsement and delivery of the bill of lading will not have such effect. As has been pointed out in Scrutton on Charter Parties and Bill of Lading, 14th Edn., Article 58, at page 200 :

'The presumed intention of the parties in indorsing a bill of lading may vary widely according to the circumstances.'

17. Five different intentions have been catalogued, they being :

'1. To transfer absolutely the property in the goods, subject only, if the price be unpaid, to the right of the unpaid vendor to stop the goods in their transit to the vendee, as a means of re-asserting his lien on the goods for the price unpaid.

2. To pass property on certain conditions.

3. To effect a mortgage of the goods as security for an advance.

4. To effect a pledge of the goods for the same purpose, and

5. To pass no property at all in the goods.'

18. It cannot, therefore, be said that because a contract contains a provision for the payment on presentation of bills of lading with certain other documents that the parties must necessarily have intended thereby that the property in the goods should pass at that stage. It must further be remembered that under clause (8) the payment, which is to be made on the presentation of the bill of lading, is not the full price of the goods. It is a payment only of the c.i.f. value and the clause further provides for the presentation of the final bill for the balance price at a subsequent stage after adjusting the payments made against the shipping documents. Under the terms of the contract, it is the rate that has been fixed at Rs. 25 per Bengal maund. The total price for the goods purchased has to be ascertained on the actual quantity of the goods supplied, which had to be 30,000 long tons with 5 per cent. more or less at the option of the seller. The goods in respect of which the bill of lading was transferred was a part of the 30,000 tons agreed to be purchased and the payment was made in respect of the c.i.f. value of the consignment. It could not, therefore, be strictly said that the payment contemplated under clause (8) of the contract was the payment of price against the delivery of the shipping documents. What constitutes a sale of the goods by delivery after indorsement of the bill of lading is the transfer and delivery of the bill of lading after indorsement against the price of the goods. Clause (8) does not contemplate for the delivery of such documents against price but only the delivery of the said documents against certain payments to be adjusted in the final bill for the price of the goods after the price was ascertained. Even if it were assumed that the transfer of the bill of lading after indorsement, even when it is not against payment of the full price of the goods, may still operate to pass title in the goods from the seller to the buyer, that, as we have already pointed out, would be in the absence of an intention to the contrary expressed by the other terms of the contract. We have in the present contract before us such terms evidencing an intention to the contrary. Under clause (1) of the contract, the goods were required to conform to the specified description at the time of the delivery ex-docks Indian ports and clause (5) provides for inspection of goods and weighment before delivery. These clauses indicate, in our opinion, that the parties intended that the goods were to be appropriated to the contract after their arrival at the port of delivery on the satisfaction of the buyer that they conform to the specified description as to quality, weight and packing standards. Clause (6) relating to delivery is also indicative of the same intention. This clause provides that the delivery had to be ex-docks after clearance and payment of costs and all charges referred to under price in paragraph 7. The delivery contemplated under this clause has to be after the goods are cleared beyond the customs barrier by the seller. It has been found by the Additional Collector of Sales Tax as also by the Sales Tax Tribunal that the goods after they had arrived at Bombay, had been cleared by the seller. In other words, they were taken beyond the customs barrier of the importing country by the seller before they were delivered to the buyer. Mr. Mistry has complained that the said conclusion of the Additional Collector of Sales Tax and the Tribunal is not factually correct. We cannot, however, entertain the said complaint of Mr. Mistry, since no grievance with regard to the same has been made at any stage so far. The Additional Collector of Sales Tax specifically referred to this fact in his decision, but no grievance about this statement by the Sales Tax Authority was made before the Sales Tax Tribunal. The Sales Tax Tribunal has referred to the said factual position both in its decision as well as in the statement of the case drawn by it. We do not find that the applicants have made any grievance of this factual statement at any time. We must, therefore, for the purposes of the present reference at any rate, proceed on the basis that the said factual statement is correct. If the goods were intended to pass from the seller to the buyer while they were on the high seas under clause (8) we do not see why the seller should have been required to clear the goods through the customs. Further, the concluding part of clause (6) provides that if the imported sugar is declared by any of the International Superintending Companies to be not conforming to the weight, quality and packing standards prescribed in the contract, the Government will be free to take over the same sugar at a rebate to be fixed by the Government and the applicant shall dispose of the said sugar in accordance with the instructions issued by the Government. The language used in this clause appears to indicate to us that the sugar even upto its landing, inspection and weighment by the Government authorities, was intended to be the property of the seller and not of the buyer.

19. The case in J. V. Gokal & Co. v. Assistant Collector of Sales Tax : [1960]2SCR852 , to which Mr. Mistry has made a reference is, in our opinion, clearly distinguishable on facts from the present case. There the inspection of quality, weight and packing of sugar by the Government was required to be made at the time of shipment of the sugar from the foreign country to India. As observed by their Lordships :

'Under the contract every safeguard for securing the goods of agreed specifications was provided for in the earlier clauses and therefore there was no reason for postponing the passing of the property in the goods to the buyer till the goods were actually delivered in the port.'

20. In the present case before us inspection and weighment had not been done at the time of shipment and it could not, therefore, be said that there was no reason for postponing the passing of property in the goods to the buyer till the goods were actually delivered in the ports. We do not know whether clause (6) in the contract in the case before their Lordships of the Supreme Court was in language similar to clause (8) of the contract before us, which we have already discussed earlier. It may be that clause (6) of the contract in the Supreme Court case might have provided for the presentation of the shipping documents after indorsement in favour of the Government of India. At page 861 of the report, their Lordships have observed :

'From the facts narrated supra, it is seen that the petitioner, pursuant to the earlier contracts entered into with the Government of India, delivered the shipping documents, including the bill of lading to the Government against payment when the goods were on the high seas.'

21. Thus, whereas in the case before their Lordships of the Supreme Court, the terms of the contract did not evidence an intention contrary to the passing of the property on the transfer of the shipping documents after indorsement, in the case before us such a contrary intention is indicated by some of the terms of the contract. Thus the inspection and weighment of the goods and the satisfaction of the buyer that the goods conform to the specified standards as regards quality, weighment and packing are postponed until the arrival of the goods at the docks at the port of destination. The entire responsibility of bringing the goods to this country is on the seller, and the seller has also to clear the goods through the customs barrier of the importing country. In the case before their Lordships of the Supreme Court, the clearance through the customs barrier was to be done by the Government, who were the buyers. The condition as to the termination of the contract in the Supreme Court case was capable of being confined in the context of the other terms up to the point of transfer of property in the goods by the transfer of the shipping documents after indorsement. In view of the terms of the contract in the case before us, it could not be said the clause relating to the termination of the contract was operative only up to the transfer of the documents after indorsement. In the case before us the said clause could legitimately be said to be operative until delivery was taken ex-docks after the goods had been cleared through the customs barrier by the seller. In our opinion, therefore, the terms of the contract in the case before us are clearly different from the terms of the contract which their Lordships of the Supreme Court were considering in the case before them.

22. There is another way of looking at the contract before us. Clause (8), which provides for the payment of the c.i.f. value on the presentation of the documents mentioned therein, does not provide for the bill of lading to be indorsed in favour of the buyer before delivery. On the terms of the present contract as they stand, if there was no indorsement of the bill of lading, there could have been no doubt whatsoever that no property in the goods had passed by the delivery of the shipping documents mentioned in clause (8) of the contract. As has been held in Shepherd v. Harrison (1869) L.R. 4 Q.B. 196, an unendorsed bill of lading has not the effect of passing title in the goods. The contract, therefore, as it stood, did not contemplate the passing of title in the goods while they were on the high seas by the transfer of the documents by the seller to the buyer. The question to be considered is whether, in view of these terms of the contract, the sellers' act in handing over the documents after indorsement had the effect of transferring the title to the goods to the buyers. If the effect of indorsement and delivery of the shipping documents was to have the said effect invariably and in all cases irrespective of the terms of the contract between the parties it might have been possible to say that since the seller had delivered the documents after indorsement and the buyer had accepted them, the title in the goods had passed to the buyer, but, as we have already pointed out earlier, the indorsement and delivery of the shipping documents may, in different set of circumstances, have different effects. It must be remembered that it is not the case of the applicants that the handing over of the documents after indorsement has been done by the applicants in variation of the original contract. As a matter of fact in the application, which they had made under section 27, they had asked the Collector of Sales Tax to determine the liability of the sales in the present case to tax in view of the terms of the contract. If, therefore, the terms of the contract, as they stood, did not contemplate the passing of the property from the seller to the buyer until delivery of the goods was taken ex-docks after weighment and inspection, the transfer of the shipping documents after indorsement could not have the effect of passing the property in the goods to the buyer. It seems to us, therefore, that on the terms of the contract in the case before us, the parties intended that the property in the goods should pass from the seller to the buyer when the delivery was taken after weighment at the docks and this intention is in no way negatived by the transfer of the shipping documents by the seller to the buyer while the goods were on the high seas.

23. Mr. Mistry for the applicants has urged that we should not attach undue importance to clauses (5) and (6) of the contract to come to the conclusion that the intention of the parties was that the property should pass only when the goods were delivered ex-docks after inspection and weighment. He has pointed out that even in cases of contracts where the property in the goods passes to the buyer before he takes delivery of the goods he may be entitled to exercise his right of inspection and weighment at the stage of taking delivery and reject the goods, if they are not found to conform to the quality, weighment and packing standards prescribed in the contract. He has in that connection invited our attention to a passage in the Sale of Goods and the Indian Partnership Acts by Pollock & Mulla, 2nd Edn., at page 185, where the learned authors while dealing with sub-section (2) of section 41 of the Sale of Goods Act, have observed :

'The rule declared by sub-section (2) is excluded in the case of c.i.f. contract, the obligation of the seller being to tender the documents within a reasonable time, and he need not wait till the goods have arrived before calling on the buyer to take up the documents. This, however, as has been seen, will not prejudice the buyer's right subsequently to examine the goods on their arrival and reject them if not in conformity with the contract.'

24. A similar statement also occurs in Halsbury's Laws of England, Vol. 34, article 297, at page 104, where the subject of c.i.f. contracts is dealt with. It is stated :

'The buyer by acceptance of the documents does not thereby lose his right to reject the goods on actual delivery, if the goods are not in accordance with the contract.'

25. Another passage referred to in this connection by Mr. Mistry is in Benjamin on Sale at page 987 where the learned author has observed :

'There are cases where, under an implied condition subsequent, the buyer may reject the goods although they have become in the meantime his property. Such are cases where an interval elapses between the time of delivery and the time when it has to be determined whether the seller has performed his contract, and they are referable to the principle that it would be onerous to the seller, by suspending the transfer of the property, to cast upon him the ordinary risks of ownership for an indefinite time, and possibly in places where he can exercise no control. Accordingly, the presumed intention is that the property shall pass subject to the buyer's subsequent right of rejection.'

26. Now, the observations referred to by Mr. Mistry from Pollock and Mulla on Sale of Goods and from Halsbury's Laws of England relate to c.i.f. contracts. It must be remembered that the contract in the case before us is not a c.i.f. contract. It is a contract entered into by the sellers to deliver sugar of certain quality and specification ex-docks in Bombay at a given rate per maund of sugar. It may be that in the case of a c.i.f. contract there might be a condition implied in the contract itself that the buyer will have a right to reject the goods even after the property in the goods has passed on to the buyer, but ordinarily, in cases on contracts of sale of goods, on the property in the goods passing from the seller to the buyer the goods become the property of the buyer and no longer belong to the seller although the buyer may have certain remedies against the seller and claim damages from him on the basis of breach of contract. The passages, therefore, which Mr. Mistry has referred to us are not of universal application, applicable to all cases of contracts of sale of goods but contain special rules applicable to certain special class of contracts.

27. Having regard, therefore, to the circumstances of the case and the terms of the contract, in our opinion, the contract in the present case was for sale of goods ex-docks after they had been cleared through the customs barrier and was, therefore, not a sale in the course of import. The property in the goods sold has passed in the present case from the seller to the buyer after the goods have passed the customs barrier of the importing country.

28. In the arguments advanced before us, Mr. Palkhiwala sought to rely on the rule contained in section 22 of the Sale of Goods Act in support of his submission that the property in the goods in the present case can be said to have passed only after weighment and inspection after the goods were cleared through the customs barrier at the docks, Mr. Mistry, on the other land, has urged that section 22 will have no application in the present case because that section relates to cases where the contract is for a sale of specific goods in a deliverable state while in the case before us the contract is for sale of goods by description. He has, on the other hand, relied on the rules contained in section 23 and 25 of the Sale of Goods Act in support of his submission that the title to the goods must be taken to have passed on the transfer of the shipping documents after indorsement while the goods were on the high seas. We do not propose to enter into a detailed discussion as to the application of the rules contained in those sections to the present case. Section 19 of the Sale of Goods Act expressly recognises the right of the parties to make agreements for themselves relating to the transfer of property and the application of the rules contained in the said section is subject to the said agreement between the parties. Where, we have, as in the case before us, a contract containing specific terms entered into between the parties, the intention of the parties as to the passing of property has to be gathered from the terms of the contract although in arriving at the proper construction of the terms, the said rules may have to be borne in mind. As we have already pointed out earlier, on a construction of the several terms of the contract, there does not appear to be any doubt that there was no intention of the parties to the contract in the present case that the property in the goods covered by the contract should pass at any stage before the goods were delivered by the seller to the buyer ex-docks after clearance.

29. Before the Tribunal an argument was also advanced that the sale in the present case may be taken to be saved under Article 286 of the Constitution as being one which occasioned the import. The Tribunal rejected the said contention and rightly in our opinion. If the property in the goods passed from the seller to the buyer at the docks only after the goods were cleared through the customs barrier of the importing country by the seller, there can be no doubt whatsoever that the sale took place within the State of Bombay. It was neither a sale in the course of import, nor a sale which occasioned the import. The sale which occasioned the import may be the sale by the Cuban merchants to the applicants when the applicants purchased the stock of sugar before putting it on board for the purpose of importation to India. But it is not that sale, which is being taxed. The sale, which is being taxed, is the sale which has taken place at Bombay between the seller and the buyer and it is not that sale which has occasioned the import of the goods.

30. In view of the conclusions arrived at by us, question No. 1 must be answered in the negative, question No. 2 in the affirmative and question No. 4 in the negative.

31. For the reasons, which we have already stated, question No. 3 need not be answered and we accordingly do not answer the same.

32. The appellants will pay the costs of the opponent.

33. Reference answered accordingly.


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