1. This is a reference under Section 11(1) of the U. P. Sales Tax Act, 1948 (hereinafter referred to as 'the Act') soliciting the opinion of this Court on the following question of law:--
'Whether in the facts and circumstances of the case, the applicant is entitled to claim benefit of Article 286(1)(b) for sales in the course of export outside India even though the actual delivery of the goods was taken by the purchasers inside India.' This reference came up for hearing before a Division Bench of this Court constituted by the Hon'ble Mr. Justice S. C. Manchanda and the Hon'ble Mr. Justice M. H. Beg. The Division Bench noticed that two cases involving somewhat similar question had already been decided by two different Benches of this Court and the decisions in the two cases were somewhat conflicting even though the facts in the two cases were different. It is for this reason that the instant case has been referred to Full Bench.
2. The facts of the case, as set out in the statement of the case accompanying the reference, are briefly these:
Messrs. National Carbon Company Limited (India) (hereinafter referred to as 'the assessee') manufactures and sells bulbs, torches, flashlights and radio batteries, etc., and has its factory and head office at Calcutta and some branches in U. P.
3. In respect of the assessment year 1958-59, the assessee claimed exemption from tax in respect of its turnover amounting to Rs. 2,14,153, being the sale proceeds or articles supplied to dealers in Nepal. The exemption was claimed under Article 286(1)(b) of the Constitution. The modus operandi of the sales to Nepal dealers and the manner in which the relevant goods were transported to Nepal are set out in two short paragraphs of the statement of the case which are reproduced below:--
'The head office at Calcutta received some orders from Nepal dealers for the supply of the above articles. The goods were packed at Calcutta and despatched to its godowns within U. P. from where they were sent by rail to the last railway station for Nepal. The documents of title were sent to the purchasers in Nepal through banks some situated in Nepal and the others situated in India.
The above articles were subject to the levy of Central excise duty. So they were sent out from Calcutta under a Form (AR-1) prescribed in Central Excise Manual which were filled up in Calcutta. The purchaser took delivery of the documents of title from the bank after making necessary payments. The actual delivery of the goods was taken by the purchasers from the railway station within India. The purchasers then transported the goods to Nepal. While crossing the Indian border they presented the documents of title to the Excise authorities at the border who informed the Excise authorities at Calcutta that the goods had passed outside India.'
The assessee company's claim is that in thecircumstances of the case, its sales to itsNepal dealers were sales in the course ofexport outside India within the meaning ofArticle 286(1)(b) and as such were exemptfrom sales tax. This claim of the assesseehas not been accepted by the Sales Taxauthorities on the ground mainly that thegoods were taken delivery of by the purchasers at the railway terminus within theIndian territory and were thereafter transported by the purchasers into Nepal territory. This fact has been interpreted by theSales Tax authorities to mean that the purchasers, after taking physical delivery of thegoods within the Indian territory, were freeto resell the goods in the. Indian territory itself.
4. One more fact which is not in dispute may be mentioned here. It is common ground that there is no rail link between India and Nepal. The assessee company consigned the goods to the railway terminus near Nepal border from where the goods were transported into Nepal territory by other means of transport. Yet another fact which has been mentioned in the statement of the case but to which due importance does not appear to have been given is the fact that the goods which were the subject-matter of sales to Nepal dealers were excisable goods liable to excise duty under the Central Excise Act. These goods were despatched under Form AR-4 (wrongly mentioned in the statement of the case as AR-1) as prescribed in the Central Excise Manual. Form AR-4 has been prescribed for the purpose of Rule 12 of the Central Excise Rules to enable the manufacturers of excisable goods to claim rebate or exemption from the excise duty in respect of the excisable goods which are exported outside India. Form AR-1 prescribes an application for payment of excise duty before the removal of the goods from the factory in accordance with Rule 9 of the Excise Rules. From the entries in the form annexed to the statement of the case it appears that the excise duty on the goods in question was paid by the assessee company on 10-2-1960 against Form AR-1-1222. When the goods upon which excise duty has been paid are exported outside India, they are despatched against Form AR-4 to enable the exporter to claim refund of the excise duty.
5. Article 286(1)(b) of the Constitution reads thus;
'286 (1) No law of 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) ......; or
(b) In the course of import of the goods into or export of the goods out of the territory of India.' The expression 'sale of goods...... in the course of..... .export out of the territory of India' came up for interpretation before the Supreme Court in several cases and the interpretation which was placed by the Supreme Court was given statutory recognition in Section 5 of the Central Sales Tax Act of 1956 which reads as under:
'A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.' A plain reading of Section 5 of the Central Sales Tax Act, as quoted above, makes it clear that a sale can be said to have taken place in the course of export only if it fails within either of the following two categories:--
(i) When the sale itself occasions the export; or
(ii) When the export has already commenced then the sale by transfer of documents if the goods have crossed the frontiers of India.
6. The assessee's case falls in the first category of sales which 'occasions the export . This expression has been borrowed by the legislature from the decisions of the Supreme Court which interpreted the expression 'in the course of export out of the territory of India' and has, therefore, to be understood in the same sense in which their Lordships used it in their pronouncements.
7. The State of Travancore-Cochin v. Bombay Co. Ltd., Alleppey, 1952-3 STC 434 = (AIR 1952 SC 366) is the first of these cases and is known as the first Travancore-Cochin case. In that case the Supreme Court was dealing with a set of cases involving export sales to foreign buyers on c.i.f. or f.o.b. terms. The question was whether the sales of that type were the sales 'in the course of the export of the goods out of the territory of India' within the meaning of Article 286(1)(b) of the Constitution. The Sales Tax authorities rejected the claim of the assessees as in their view the sales were completed before the goods were shipped and could not, therefore, be considered to have taken place in the course of the export. After examining the rival contentious, the Court observed at p. 438 (of STC) = (at p. 36T of AIR):
'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 Article 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 or 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 form 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 Article 286(1)(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.' It is clear from the extract of the judgment quoted above that in the opinion of the Supreme Court a sale would be considered to oe a sale in the course of export if the export was occasioned by the agreement of sale and the fact that the property in the goods passed to the foreign buyers within the Indian territory made no difference whatsoever.
8. The State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, (1953) 4 STC 205 = (AIR 1953 SC 333) is known as the 2nd Trav.-Cochin case. In that case the Supreme Court drew a distinction between an 'export sale' and a 'sale for export'. The question involved in that case was as to whether the last purchase of goods made by an exporter for the purpose of exporting them to implement orders already received from a foreign buyer or expected to be received subsequently in the course of the business would also be covered by the exemption under Article 286(1)(b) of the Constitution. The answer given by the Supreme Court was in the negative. It was held that a sale in favour of au exporter who bought the goods with the intention of exporting them outside India was not covered by the exemption contained in Article 286(1)(b) for the simple reason that such a sale did not occasion the export. In other words, there was no direct and immediate link between the sale to an exporter and the subsequent exportation of the goods by him. In the words of the Supreme Court 'the purchase for the purpose of export by a dealer in the State from another dealer in the State is only a home transaction and it is only where the goods were sold to a buyer abroad that the sale can be said to have occasioned an export.'
9. The next case in the series of the cases of this nature is the case of Ben Gorm Nilgiri Plantation Co., Coonoor v. Sales Tax Officer, Spl. Circle, Ernakulam, 1964-15 STC 753 = (AIR 1964 SC 1752). This also was a case of sale for export as distinguished from export sales and was concerned with the export of tea from India. In the State of Kerala, trade in tea is controlled and is carried on through certain definite channels. The manufacturers of tea are granted from the Tea Board allotment of export quota rights. The tea is then sent to a warehouse where it is auctioned. At the auction sale certain agents and intermediaries of foreign buyers bid for purchasing tea. The chests of tea are delivered to the buyers at the warehouse. The agents or intermediaries of the foreign buyers then obtain licence from the Government for the export of tea and thereafter the tea is exported outside the territory of India. The question was whether the sale by auction to me agents or intermediaries of the foreign buyers was a sale in the course of export and was exempt from the sales tax. It was held by the Supreme Court that such transaction of sale by auction did not occasion the export of the goods even though it was known to the owners of tea that the tea was intended to be exported outside India. It was held that between the sale and export there was no such bond as would justify the inference that the sale and the export formed part of a single transaction. In the course of his judgment, Mr. Justice Shah observed at p. 759 (of STC)=(at p. 1755 of AIR):
'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 sellar to export, there must be an obligation to export, and there must be an actual export.
Further down in the same paragraph, it was observed:
'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.' Still further down in the same paragraph, there is the following observation:-- 'No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But that is not to say that the distinction between transactions which may be called sales for export and sales in the course of export is not real. In general, where the sale is effected by the seller, and he is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of export.' On a combined reading of the three Supreme Court cases cited above, the following general principles emerge.
10 (i) In order that a sale may qualify for exemption under Article 286(1)(b) of the Constitution as being a sale in the course of export, the sale must occasion the export. In other words, the exportation of the goods must be a part of the contract of sale or must be a necessary incident thereof.
(ii) A sale can be said to occasion an export only-
(a) if there is common intention of both seller and buyer to export;
(b) there is an obligation to export; and (c) there is an actual export, (iii) The obligation to export may arise from statute, from contract or from the nature of the transaction. In other words, the obligation may be implicit or explicit.
(iv) The bond between the sale and the export should be such as cannot be broken without a breach of the obligation. From a perusal of the facts of the instant case it is clear that all these tests are satisfied.
11. That there was a common intention of both the buyer and the seller to export cannot be doubted. The buyers are all foreign buyers belonging to Nepal. They placed orders for the supply of the goods direct with the assessee company. There was no intermediary. The goods were to be supplied in Nepal and the assessee company did arrange for the supply of the goods in Nepal. The goods were booked and put on rail at Calcutta, for their ultimate destination in Nepal, by the assessee company. The documents of title were sent to the buyers through banks some of which were situated in Nepal and some in India. The goods were eventually exported to Nepal after having been transhipped at Varanasi and unloaded at a railway terminus near the Nepal border. As the goods were excisable upon which excise duty had already been paid, they were exported against Form AR-4 in order to enable the assessee company to claim rebate of the excise duty. The copy of the Form AR-4 annexed to the statement of the case contains the following significant entries:--
1. R/R No. 145773 dated 10-2-1960 from Howrah to Varanasi en route to Bhairwa in Nepal.
2. Consignment Messrs. Mohan Lal & Brothers, Bhairwa, Nepal.
3. A declaration by the assessee company to the following effect:--
'We hereby declare that the above-mentioned particulars are true and correctly stated and that the consignment of goods is intended for export to Nepal, Bhairwa via Nautanwa and should not be diverted to any other country.' 4. A certificate signed by an officer of the Excise Department in the following words:--
'Certified that the above-mentioned packages have been identified by me and sealed with the Central Excise seal under my supervision.' Finally, it is mentioned in the statement of the case that the Excise authorities at the border certified to the Excise authorities at Calcutta that the goods had passed outside India.
12. From what has been stated above, it is clear that the destination of the goods shown in Form AR-4 was a place in Nepal and the route by which the goods were intended to be exported was also indicated. The name of the buyers mentioned in that form also is that of the dealer of Nepal. These facts show very clearly not only the intention of the parties to export, but also an obligation on their part to do so. As the assessee company was to claim rebate of the excise duty and that rebate was admissible only if the goods were actually exported outside India in accordance with the declaration contained in Form AR-4, an understanding between the assessee company and the buyers to export the goods outside the Indian territory can safely be assumed. This procedure for the rebate of the excise duty is provided in Rule 12 read with Rules 185, 187 and 189 of the Central Excise Rules. These rules have been framed by the Central Govt, in exercise of its rule-making power under Section 37, Sub-section (2) (xvi).
In such circumstances it is impossible to hold that the purchasers after taking delivery of the goods at the railway terminus were not under an obligation to take the goods across the Indian border or that they were free to sell them in the Indian territory itself. The contrary inference drawn by the Sales Tax authorities was unwarranted. As has already been observed, the change in the mode of transport from the railway terminus to the Nepal territory was unavoidable due to non-existence of railway link between Nepal and India and must have been foreseen and agreed upon between the parties. In these circumstances the buyers could not have broken the link between the sale and the export without committing a breach of the contract or the understanding arising from the nature of the transaction.
13. A somewhat similar case came up before the Patna High Court in 1963. The case is that of Dulicnand Hardwari Mull v. State of Bihar, AIR 1963 Pat 359. In that case also the assessee had exported certain articles to Nepal which were taken delivery of by the purchasers at the railway terminus in the Indian territory and were men transported by them into Nepal territory. There also the Sales Tax authorities refused the assessee's claim under Article 286(1)(b) relying mainly upon the fact that the delivery of the goods had been taken by the purchasers in the Indian territory. The Patna High Court relying upon the finding that the credit memos were prepared in the name of the Nepal parties and the goods were actually exported to Nepal in pursuance of the contract of sale between the parties, upheld the claim of the assessee on the basis of the first Travancore-Cochin case, 1952-3 STC 434 = (AIR 1952 SC 366) (supra). The Patna High Court attached no importance to the fact that the delivery of goods had been taken by the purchasers in the Indian territory, nor to the fact that the delivery of the goods by the assessee was not made to a common carrier for transport out of the country by land or sea as was the case in the first Travancore-Cochin case, 1952-3 STC 434 = (AIR 1952 SC 366) (supra). Dealing with this argument, their Lordships observed at p. 361:
'We do not think that there is any substance in this argument. It is true that in the case reported in 1952-3 STC 434 = (AIR 1952 SC 366), there was delivery of the goods to a common carrier for transport out of the country, but this fact is not part of the ratio decidendi of that case. It appears in the present case that there is no rail connection between Nirmali and Nepal border and the common means of transport is a bullock-cart over a distance of about 25 miles and the goods are despatched by means of bullock-cart over this distance. In our opinion, the delivery of goods to a common carrier is not a material circumstance.' We respectfully agree with this observation of the Patna High Court and hold that the true test is whether the sale and the 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 for transport out of the country by land or sea.
14. There are three Division Bench cases of this Court:
(1) Ram Narain Har Charan Lal v. Commissioner of Sales Tax, U. P., S.T. Ref. No. 617 of 1964, D/-16-11-1966 (All.), by S. C. Manchanda and M. H. Beg, JJ.
(2) Damodar Dass Vishwanath v. Commissioner of Sales Tax, U. P., Lucknow, S.T.C. No. 137 of 1964, D/-20-1-1967 (All.), by Jagdish Sahai and M. H. Beg, JJ.
(3) Gobind Sugar Mills Ltd. v. The Judge, Sales Tax, Spl. Appeal No. 105 of 1967, D/-26-9-1967 (All.), by S. N. Dwivedi and Gangeshwar JJ. In the first, a view similar to what we have said above was taken. The last two cases are distinguishable as in those cases there was nothing to show either that the goods had crossed the border of India or there was any obligation to export.
15. In the end, it would be useful to reiterate that, where an export sale has all the three essential requisites enumerated above, it would qualify for exemption under Article 286(1)(b) and it would not be necessary to exclude any imaginary possibility or diversion of the goods from the export channel because such a diversion would entail a breach of the obligation to export. In a given case, if there is an interruption in the movement of the goods during the course of export and the goods are not exported, the exemption contemplated by Article 286(1)(b) would not be available regardless of whether the interruption is by accident or by design for the simple reason that there would in fact be no export.
16. As a result of the above discussion, we would answer the question in the affirmative by saying that the assessee is entitled to claim benefit of Article 286(1)(b) of the Constitution for sales in the course of export outside India, even though the actual delivery of the goods was taken by the purchaser inside India.
17. The assessee will be entitled to the costs of this reference which we assess atRs. 300. The fee of the learned counsel forthe department is also assessed at the samefigure.