1. This application for revision arises out of the assessment proceedings for 1952-53 under the provisions of the Madras General Sales Tax Act. The assessment was completed on 31st March, 1954.
2. The petitioner, the Indian Coffee Board, is a statutory body constituted under the provisions of the Coffee Market Expansion Act, VII of 1942. The scope of Act VII of 1942 was explained in Indian Coffee Board v. State of Madras  5 S.T.C. 292, where it was held that despite the statutory composition the Board was a dealer as defined by Section 2(b) of the Madras General Sales Tax Act, (hereinafter referred to as the Act). The learned counsel for the petitioner, however, represented that he was not accepting as correct the decision in Indian Coffee Board v. State of Madras  5 S.T.C. 292. But as a decision of a Division Bench of this Court, it is an authority which we are bound to follow. It is on the basis of the liability of the petitioner as a dealer within the meaning of the Act that we shall consider the several heads of assessment, to the inclusion of which in the turnover the petitioner objected unsuccessfully before the Appellate Tribunal. Despite the contention, that the petitioner was not a dealer at all as defined by the Act, the petitioner obtained registration as a dealer under the provisions of the Act.
3. Three items, to the inclusion of which in its taxable turnover the petitioner Board objected, can be considered together. Rs. 6,14,510-13-0 represented the total of the amounts the petitioner Board collected by way of tax under the authority of Section 8-B of the Act on the sales * effected by it. A further sum of Rs. 9,598-3-3 was collected by the Board from its purchasers to cover any claim that might be made by the department on the basis that the amounts collected by the Board by way of tax were themselves liable to be included in the petitioner's taxable turnover. Rs. 1,63,259-12-3 represented the total of the collections made by the Board from its purchasers, which the Board showed in its books as a 'contingency deposit.' The nature of these collections was correctly explained by the Appellate Tribunal in paragraph 12 of its judgment:-
It is conceded by the Board that it collected this amount only to cover the tax on certain sale transactions which in its view were not liable to be taxed by the the Madras State. It collected this amount in order to safeguard its interests in case it should be decided that these were transactions which are liable to tax under the Madras General Sales Tax Act.
4. The Board contended that a sum of Rs. 85,03,048-11-0 was the turnover of sales in the course of export and that a sum of Rs. 14,52,297-1-0 was the turnover of inter-State sales, and that both these were entitled for exemption from taxation granted by Article 286 of the Constitution. We shall deal with these contentions later in the judgment. It should be sufficient to mention at this stage that in our opinion these two items were also rightly held by the Tribunal to be liable to sales tax under the Act. Rs. 1,63,259-12-3 was the total of the amounts collected by the Board to cover the levy of sales tax on the two items of sales referred to above. Though the collection was on a provisional basis they were still collections by way of tax under Section 8-B of the Act. As pointed out, the turnover of the sales in question was taxable. Thus all the three items, (1) Rs. 6,14,310-13-0, (2) Rs. 9,598-3-3 and (3) Rs. 1,63,259-12-3, fell within the scope of Section 8-B of the Act.
5. The inclusion of these three items in the taxable turnover of the petitioner Board was upheld by the Appellate Tribunal on the basis of the Madras General Sales Tax (Definition of Turnover and Validation of Assessments) Act, XVII of 1954. Though the petitioner challenged the validity of Act, XVII of 1954 before the Appellate Tribunal, the Tribunal declined to investigate that question. We have upheld the validity of the impugned Act in T.R.C. No. 58 of 1955 Since reported as Sri Sundararajan and Co., Ltd. v. The State of Madras at page 105 supra, in which we have just delivered judgment. On this point, the learned counsel for the petitioner in this case was heard along with the counsel who appeared for the petitioner in T.R.C. No. 58 of 1955 Since reported as Sri Sundararajan and Co., Ltd. v. The State of Madras at page 105 supra. For the reasons given in our judgment in T.R.C. No. 58 of 1955 Since reported as Sri Sundararajan and Co., Ltd. v. The State of Madras at page 105 supra, we uphold the validity of Act XVII, of 1954. It follows that these three items were rightly included by the Appellate Tribunal in the taxable turnover of the petitioner Board.
6. The Appellate Tribunal negatived the claim of the petitioner based on Article 286(1)(b) of the Constitution, that a sum of Rs. 85,03,048-11-0 was exempt from liability to sales tax. That was the total of the amount paid to the petitioner during the assessment year by persons, who held certificates of registration issued by the petitioner Board, against delivery of coffee from out of the pool under the control of the Board to enable those persons to export that coffee outside India. It should be convenient to refer to these purchasers as 'registered exporters'. The Tribunal found that under the provisions of Act VII of 1942 the ownership of the coffee in the pool vested in the Board. The correctness of that finding, which was accepted, was not challenged by the learned counsel for the petitioner. Section 20 of Act VII of 1942 directed that no coffee shall be exported from India except by the Board or under an authorisation granted by the Board. It was not disputed that the Board itself did not export the coffee. It was the registered exporters who obtained the coffee from the Board that exported that coffee.
7. The first question is, was the transaction between the Board and each of the registered exporters a sale as defined by the Act The Tribunal answered that question in the affirmative. The Tribunal found that the sale completed by the delivery of the coffee to the registered exporter was within the State of Madras, and that the ownership of the goods sold, that is, the coffee delivered no doubt for export was transferred from the Board to the registered exporter. That finding in our opinion, is correct and must be affirmed.
8. The learned cousel for the petitioner urged that at best it was a case of conditional sale. If we understood him aright, his contention was that the transaction of sale was completed only when the goods were exported out of India. No doubt, under the terms of the contract between the registered exporter and the Board, the registered exporter was bound to export the coffee which he obtained from the Board. The other relevant clauses of the contract were correctly summarised in paragraph 6 of the judgment of the Appellate Tribunal. The contract provided that if the registered exporter failed to export the coffee within the time allowed by the Board, it could call upon him either to pay liquidated damages at Rs. 50 per cwt. or to deliver back to the Board the coffee at the market rate that prevailed then. None of those conditions really affect the question at issue, was the transaction between the registered exporter and the Board, under which the registered exporter paid the price and obtained delivery of the goods, a sale? That the contract provided for retransfer of ownership from the registered exporter to the Board, if the former defaulted performance of the conditions of the contract to export the coffee, did not affect the transfer of ownership from the Board to the registered exporter. The transaction was a sale.
9. If the transaction was a sale, as we have held it to be, that the sale was concluded within the State of Madras and that delivery of the goods sold was effected within the State could not be in doubt.
10. The goods were admittedly sold for export by the registered exporter. Does that attract the exemption granted by Article 286(1)(b) of the Constitution is the next question. There should be little difficulty in answering that question in the negative. The purchase by the registered dealer was a purchase for export. Conversely, the sale by the Board was a sale for export. The distinction between a sale for export and a sale in the course of export within the meaning of Article 286(1)(b) of the Constitution was pointed out in The State of Travancore-Cochin v. S.V.C. Factory  4 S.T.C. 205. were summed up the conclusions, and the second of the propositions laid down there ran :-
Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption [of Article 286(1)(b)].
11. It was this principle that was applied by a Division Bench of this Court in Mahalakshmi Textile Mills v. State of Madras  5 S.T.C. 252. Satyanarayana Rao, J., pointed out :-.the sale and the export which are treated as integrated activities are alone exempt if the sale is the occasion for the export and it commences from the time when the agreement of sale was entered into with the foreign buyer. A purchase anterior to it by the exporter and a sale to the exporter by another person would not be within the limits of integrated activity as defined by the Supreme Court. Both the purchase by the exporter and the sale by the assessee to the exporter who ultimately exports the goods under a sale are beyond the limits and therefore cannot be treated as a sale in the course of export which attracts the exemption. The line has been drawn definitely and clearly by the Supreme Court, and notwithstanding the fact that the goods by virtue of the Cotton Textiles (Export Control) Order, 1949, were earmarked by the assessee for the purpose of export and export only, he cannot claim the exemption, for it is not the export alone that entitles him to exemption but the sale in the course of export. It is that which attracts the exemption, and as in this case the assessee sold the goods to an exporter, he has been rightly held not to be entitled to the exemption by the Appellate Tribunal.
12. That the registered dealer was under an obligation, statutory or contractual, to use the goods he bought in a specified manner did not make the transaction between him and the Board any the less a sale. That sale was itself not a sale in the course of export to attract the exemption granted by Article 286(1)(b) of the Constitution. Though the registered dealer eventually exported the goods, it was as his goods that he exported them. It was he who entered into the contract of sale with the buyer abroad. It was only that transaction with his purchaser abroad that could be brought within the scope of Article 286(1)(b) of the Constitution and not the earlier purchase by the exporter himself from the Board. The Appellate Tribunal was therefore right in negativing the claim of the petitioner-assessee.
13. The next item of disputed turnover is Rs. 14,52,237-1-0. In paragraph 11 of his judgment, the learned Chairman of the Tribunal recorded :-
The admitted position in this case is that though the sales were effected to extra-State buyers, the delivery of the goods was made to the agents of those extra-State buyers within this State. In respect of cases, where in pursuance of the sale transaction, the goods were forwarded to the buyer either by post or by rail, the Commercial Tax Officer has excluded the turnover. With regard to the transactions, the turnover of which is Rs. 14 lakhs and odd, which is now in dispute, it is not denied by the appellant that the delivery was effected to the agent or representative of the buyer within this State.
14. The Appellate Tribunal held that such sales did not come within the scope of Article 286(2) of the Constitution.
15. In The Bengal Immunity Co. Ltd. v. State of Bihar  6 S.T.C. 446, the learned Acting Chief Justice, who delivered the judgment of the majority of the Court, left open for determination, when the need should arise, the question what constituted inter-State trade or commerce within the meaning of Article 286(2). The question we have to answer in this case is a limited one, whether the sale by the petitioner Board, completed by delivery within the State of Madras to the purchaser or his agent, comes within the scope of Article 286(2), because the purchaser bought the goods with the intention of transporting them outside the State and did transport them outside the State.
16. The residence of the purchaser himself is not a relevant factor. Willoughby in his Constitution of the United States, 2nd Edn., Vol. II, at page 753 pointed out:-
A mere making of contracts between persons in different States does not constitute inter-State commerce.
17. In the present case it should be remembered the contract to sell and the sale itself took place at the headquarters of the Board of Batlagundu within the State of Madras.
18. The goods sold by the petitioner were admittedly transported out of the State of Madras. But antecedent to that transport the property in the goods sold had passed to and had vested in the purchaser. It was as his goods that the purchaser transported them out of the State. Such a transport, in our opinion, does not make the antecedent transaction of sale, a sale or purchase in the course of inter-State trade or commerce within the meaning of Article 286(2) of the Constitution.
19. It was a well-settled principle of law in America that Rottschaeffer summed up in his Constitution Law at page 229:-
The activities of buying and selling constitute inter-State commerce if the contracts therefor contemplate or necessarily involve the movement of goods in inter-State commerce.
20. At page 235 the learned author pointed out :-
The decisive factor that renders making a contract an act of inter-State commerce is that it contemplates or necessarily involves the movement of goods in inter-State commerce, and this test applies whether it be a contract to buy or one to sell.
21. It was the same principle that Willoughby stated at page 753 of his Constitution of the United States : -.the test whether agreements to purchase or to sell are to be deemed constitutent parts of inter-State commercial transactions is as to whether inter-State transportation of goods is necessarily involved in their execution.
22. It was these principles that Venkatarama Ayyar, J., explained in his dissenting judgment in The Bengal Immunity Co. case  6 S.T.C. 446 the learned Judge observed :-
A sale could be said to be in the course of inter-State trade only if two conditions concur : (1) A sale of goods, and (2) a transport of those goods from one State to another under the contract of sale. Unless both these conditions are satisfied, there can be no sale in the course of inter-State trade. Thus, if X, a merchant in State A goes to State B, purchases goods there and transports them into A, there is undoubtedly a movement of goods in inter-State commerce. But that is not under any contract of sale. X might be entitled under Article 301 to certain rights in the matter of transportation. But Article 286(2) has no application, as there is no sale in the course of inter-State trade or commerce. In the same illustration, if X after transporting the goods into State A sells them, then also there is no sale in the course of inter-State trade. It is true that there is a sale, and there is also a movement of goods from one State to another. But that movement has not been under the sale, there having been no sale at the time of transportation.
23. The learned Judge then quoted with approval the passage from Rottschaeffer, to which we have referred above. The learned Judge also quoted with approval a passage from William T. Wagner v. City of Covington 64 L. Ed. 157:-
Of course the transportation of plaintiffs' goods across the State line is of itself inter-State commerce; but it is not this that is taxed by the City of Covington, nor is such commerce a part of the business that is taxed, or anything more than a preparation for it. So far as the itinerant vending is concerned the goods might just as well have been manufactured within the State of Kentucky ; to the extent that plaintiffs dispose of their goods in that kind of sales, they make them the subject of local commerce ; and this being so, they can claim no immunity from local regulation, whether the goods remain in original packages or not.
24. Even though the observations of Venkatarama Ayyar, J., constituted obiter dicta, they are entitled to the highest respect ; and they are in accord with the well-settled principles of American law defining the scope of inter-State commerce. Further, the linking up of transportation, that is movement of the goods, with the sale itself in deciding whether a given transaction constitutes inter-State trade or commerce within the meaning of Article 286(2) of the Constitution is but an extension of the principle settled by the Supreme Court which marked off a sale for export from a sale in the course of export within the meaning of Article 286(1)(b). A sale for transport outside the State does not alter the fact that the sale itself was intra-State sale, a sale within the State of Madras. The subsequent transport by the purchaser is not part of the transaction of sale. The distinction between transport as part of the contract of sale and transport after the completion of sale was pointed out by Venkatarama Ayyar, J., in the passage we have extracted above. That was consistent with the principles laid down earlier by the Supreme Court. In The State of Bombay v. United Motors (India) Ltd.  4 S.T.C. 133, Patanjali Sastri, C.J., observed : -
It is said that even though all the essential ingredients of a sale took place within one State and the sale was, in that sense, a purely intra-State transaction, it might involve transport of the goods across the State boundary, and that would be sufficient to bring it within the scope of Clause (2). We find it difficult to appreciate this argument.
25. No doubt these observations were with reference to the scope of Article 286(1)(a), and the ultimate decision in The United Motors case  4 S.T.C. 133, that by a legal fiction the real nature of the transaction was masked and what was an inter-State trade became an intra-State trade, was subsequently reversed by the Supreme Court in The Bengal Immunity Co. Ltd. case  6 S.T.C. 446. But that, in our opinion, does not affect the principle laid down by Patanjali Sastri, C.J., stressing the distinction between transport as part of sale and transport across the borders of the State subsequent to the completion of the sale.
26. Patanjali Sastri, C.J., pointed out at page 218 in The State of Travancore-Cochin v. S.V.C. Factory  4 S.T.C. 205:-.if...the purchases were effected by the employment of firms doing business as commission agents outside the State, and the deliveries were made through normal commercial channels, the transactions would partake of an inter-State character and fall under Clause (2) (of Article 286).
27. But such is not the claim in this case.
28. The sale was effected and the delivery was completed at Batlagundu, and the purchaser's agent took delivery of the goods within the State of Madras. The sale was completed within the State before the goods were transported, and in the transport of the goods themselves, which was subsequent to the sale, there was no element of sale. Subsequent transport does not therefore entitle the purchaser to the benefit of Article 286(2) of the Constitution.
29. The Appellate Tribunal was right in rejecting the claim of the petitioner Board that this item should be excluded from its taxable turnover.
30. The last item to be considered is Rs. 4,681-7-3, which was the excess collection made by the petitioner Board and was therefore claimed by the Government under Section 8-B (2) of the Act. The decision of the Tribunal was right. The assessee did not press his claim even before the Tribunal because the learned Chairman recorded:-
This point has not been argued.
31. This petition fails and is dismissed with costs. Counsel's fee Rs. 250.