(T.C. No. 29 of 1961)
1. The respondents were assessed by the Assessment Commercial Tax Officer, South Madras and Chingleput, under the Madras General Sales Tax Act on a turnover of Rs. 6,60,200-07 for the year 1957-58. They are dealers in timber carrying on business at Madras and their course of business partly consisted of importing timber from Burma and selling it to customers in India. They disputed their liability to the extent of a turnover of Rs. 1,95,490-67 on the ground that it represented sales of timber in the course of import. They relied upon the constitutional ban under Article 286(1)(b) of the Constitution as it then stood (before the sixth amendment). The Appellate Assistant Commissioner before whom the objection was raised however overruled it. They preferred a further appeal before the Sales Tax Appellate Tribunal, Madras, and reiterated their contention that the turnover of Rs. 1,95,490-67 was not taxable. The Tribunal upheld this contention and granted relief excluding the turnover from the assessment made by the department. This revision petition has therefore been preferred by the State.
2. The State does not object to any of the findings recorded by the Tribunal in regard to the import of timber by the respondents and the sales effected by them. The respondents entered into contracts for the sales of timber to be imported from Burma with a firm of merchants called Messrs Velu and Brothers. The salient terms of the contract were that Messrs Velu and Brothers should pay the respondents a profit of 8 percent. on the C.I.F. value of the timber sold and also pay the sales tax and other charges and expenses, that the necessary letter of credit should be opened by Messrs Velu and Brothers with their bankers, that the goods should be sold as 'floating consignments' (shortage, damages, pilferage etc. in transit and clearance to be debited to Messrs Velu and Brothers) and that the latter should retire the shipping documents at least ten days before the expected arrival of the steamer carrying the timber cargo. In pursuance of this agreement the respondents imported two consignments of timber from Rangoon. The value of the first consignment was Rs. 99,098-05. The ship carrying this consignment arrived at the Madras Harbour on 17th October, 1957. The respondents got Rs. 1,00,000 from Messrs Velu and Brothers on 24th October, 1957, and retired the documents of title (bill of lading etc.) from the bank. They handed over these documents to Messrs Velu and Brothers on the same date to enable them to clear the goods on their behalf through the agents Messrs K.P.P.V. Co. All charges and expenses by way of import duty, clearance charges and other incidental charges were met and paid by Messrs Velu and Brothers on behalf of the respondents The second consignment reached the Madras Harbour by ship on 17th December, 1957. The value of the consignment was obtained by the respondents from Messrs Velu and Brothers on 23rd December, 1957, and the necessary shipping documents were handed over to them. The stipulated profit under the terms of the contract which would have to be paid by Messrs Velu and Brothers to the respondents was received by the latter on 16th October, 1957, itself on intimation from Burma that the goods were shipped and that copies of bill of lading were despatched to the bank. It is on these materials the Appellate Tribunal reached the conclusion that the sales effected by the respondents to Messrs Velu and Brothers were not local sales but were sales in the course of import.
3. The main ground on which the Tribunal rested its conclusion was that the documents of title relating to the goods were transferred by the respondents to Messrs Velu and Brothers before the goods crossed the customs barrier. In other words, according to the Tribunal, as the property in the goods was transferred before the import became complete and the goods were actually cleared from the harbour,. the sales should be treated as being in the course of import. While' not disputing these facts, the point that is now raised by the State is that the documents of title having been handed over to the buyers after the ship had crossed the 'territorial waters', they should be held not to be sales in the course of import. The crucial question, therefore, is whether the goods imported from a foreign country and sold by the importer to others by transfer of documents of title after the ship carrying the goods crossed the territorial water belt can be construed as sales in the course of import. Stress is laid on behalf of the State that the governing factor is not the 'barrier' of the customs department which operates to prevent the goods being taken delivery of unless and until the customs charges and the import duty are paid, but only what may be called, the 'customs frontiers'. It is pointed out that the Central Sales Tax Act which defines under Section 5 of the Act what is an import sale or an export sale uses the expression 'customs frontiers' of India. Sub-section (2) is the provision that relates to import and that reads :
A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
4. Before the Central enactment, what prevailed was Article 286(1)(b) of the Constitution which, however, merely referred only to sales in the course of import without making any reference to sales effected by transfer of documents of title to the goods before they crossed the customs 'barrier' or the customs 'frontier'. But the Supreme Court has dealt with the precise scope and meaning of sales in the course of import or export and we shall refer to these decisions a little later. There is no difficulty in understanding the expression 'customs frontiers' from what may be called the geographical point of view. Whether the word 'frontiers' denotes the boundary of the State, land or water, or whether it comprehends a hurdle or barricade imposed by the laws and Regulations of the Indian Union is the question that confronts us.
5. In exercise of the powers conferred by Section 3-A of the Sea Customs Act, 1878 (VIII of 1878) the Central Government has issued the following proclamation dated 23rd March, 1956, defining the customs frontiers of India.
Whereas International Law has always recognised that the sovereignty of a State extends to a belt of sea adjacent to its coast and whereas international practice is not uniform as regards the extent of this sea-belt commonly known as the territorial waters of the State, and consequently it is necessary to make a declaration as to the extent of the territorial waters of India.
2. I, Rajendra Prasad, President of India, in the seventh year of the Republic, do hereby proclaim that, notwithstanding any rule or law or practice to the contrary which may have been observed in the past in relation to India or any part thereof, the territorial waters of India extend into the sea to a distance of six nautical miles measured from the appropriate base line.
6. It is this proclamation which is really the foundation of the entire structure of the argument of the learned Government Pleader in the present case urging that any sale by transfer of documents of title within six nautical miles of the sea surrounding the Madras coastal area would be purely a local sale and not a sale in the course of import.
7. It is now a well accepted doctrine of International Law that the territory of a State, a littoral State, is not confined to the lineament of land but includes, 'national waters' and 'territorial 'Waters'. The former consist of its lakes, canals, rivers, ports and harbours, gulfs and bays and the latter consist of the waters surrounding the State in a certain zone called the maritime or marginal belt. A rim of the sea within certain definite limits adjacent to the coastal land of the State is part of the State. Portions of the sea along the coast of the State are within its jurisdiction and control. The sovereignty of the State having a sea coast is not conterminous with the shore but extends further and beyond up to a few miles of marginal belt generally prescribed by international conventions. The freedom of the sea exists only in the open sea lying beyond the territorial belt. This principle has found acceptance by this Court in A.M.S.S.V.M. & Co. v. State of Madras (1953) 2 M.L.J. 587, where it was held that the State Legislature had power to enact laws relating to fisheries within the territorial waters. The President's proclamation set out above only prescribes the limits of the territorial waters of India.
8. The controversy now is as regards the expression customs frontier. On the one hand the contention urged is that the words should receive the same meaning and be understood in the same sense which is attributed to them under the President's notification by virtue of the Sea Customs Act. What is argued per contra is that in the context of a fiscal enactment like the sales tax law the words have a different meaning and it would not be safe or sound to read them in the same way as the customs department would in dealing with cases arising under the Sea Customs Act. There is no direct decision on the question in issue and the cases cited at the Bar to which we shall advert to later do not afford much guidance. We may however mention that the implication of the decision of the Supreme Court in Gokal's case  11 S.T.C. 186 is clearly against the State's contention that the import is complete after the ship carrying the goods from the foreign port enters the territorial waters, or the marginal belt prescribed by the President's notification and that any sale by the importer by transfer of documents of title to the goods subsequently would not amount to a sale in the course of import.
9. We shall assume that the Madras State includes the six mile belt of the ocean adjoining its sea coast. The logical result of this assumption is that both the Parliament and the State Legislature can enact laws within their respective spheres which would effectively operate on the water zone or belt. But the question here is not whether the aquatic region is or is not part of the State. What we have to decide is whether a sale by transfer of documents of title relating to goods on board a ship at a point of time after the ship had navigated into the six mile limit is a sale in the course of import within the meaning of the expression in Article 286(1)(b) of the Constitution (since repealed) or in Section 5 of the Central Sales Tax Act.
10. We shall now turn our attention to the words 'in the course of import'. Article 286(1)(b), as it was, read thus :
No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
11. Section 5 of the Central Sales Tax Act is in these words :
(1) 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 a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) (Already extracted above in this judgment).
12. The course of import or export covers a range of integrated activities. These activities are similar in character and cover the same field whether in respect of export or import. We shall, however, deal with the course of import as the instant case is concerned with import; but we have no doubt that the course of export is precisely of the same pattern as that of import. One is the reverse of the other. The Supreme Court of the United States used the expression 'export stream'. We are having in mind the following passage in Empresa Siderurgica, S.A. v. Merced 337 U.S. 154:
It is the entrance of the articles into the export stream that marks the start of the process of exportation. Then there is certainty that the goods are headed for their foreign destination and will not be diverted to domestic use. Nothing less will suffice.
13. If we can coin the expression 'import stream' it would not be a mere metaphor, but it would serve to illustrate the true significance of the course of import. A stream has its starting point and the end and so has the import course. When does the import begin and when does it end What is the interval between its commencement and termination These are the vital questions the answer to which would solve the problem before us. The import taken as a whole from start to finish, or the course of import, to use the language of the Constitution-makers or the Parliamentarian, consists of a bundle of interlinked and interlaced activities spread over a duration of time beginning from the goods going through the customs gate of the exporting country and ending with the crossing of the customs barricade of the importing country. The import stream dries up and ceases to flow after the customs department of the importing State levies the duty and thereby declares the eligibility of the goods to be cleared and mingled with the general mass of goods and merchandise in the country. It is not necessary that the goods should be physically removed from the harbour premises. Once the duty is levied despite the non-payment of the duty and its retention in bonded warehouse, the import is at an end and the notional customs barrier is supposed to have been crossed.
14. In State of Travancore-Cochin v. S.V.C. Factory  4 S.T.C. 205 Patanjali Sastri, C.J., construing the expression 'course of import and export' as found in the Constitution observed thus :
The word 'course' etymologically denotes movement from one point to another, and the expression 'in the course of not only implies a period of time during which the movement is in progress but postulates also a connected relation.
15. Das, J., as he then was, expressed his opinion as follows :
The word 'course' conveys to my mind the idea of a gradual and continuous flow, an advance, a journey, a passage or progress from one place to another. Etymologically it means and implies motion, a forward movement. The phrase 'in the course of clearly has reference to a period of time during which the movement is in progress. Therefore, the words 'in the course of the import of the goods into and export of the goods out of the territory of India obviously cover the period of time during which the goods are on their import or export journey.
16. Patanjali Sastri, C.J., summed up the position as follows :
(1) Sales by export and purchases by import fall within the exemption under Article 286(1)(b)...
(2) 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.
(3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State-power of taxation extends to such transactions.
17. The Supreme Court in a later decision in Gokal & Co. (P.) Ltd. v. Assistant Collector of Sales Tax  11 S.T.C. 186 has approved of the above observations of Patanjali Sastri, C.J., and Das, J. This case is of special importance as it seems to us that it has got a good deal of bearing on the point raised in this case. We shall therefore refer to the facts of that case in detail. The assessee was a private company carrying on business at Bombay. It entered into contracts with the Government of India in 1954 for supplying and selling two consignments of sugar-one of 9,500 long tons of sugar of Peruvian origin and the other of 25,000 metric tons of sugar of continental origin. It placed orders with the dealers in foreign countries. Weeks before the vessels carrying the sugar arrived at the Bombay harbour, that is when the vessels were on the high seas, the Government of India received the documents of title including bills of lading pertaining to the sugar purchased by them and paid the price to the assessee. After the goods reached the port they were unloaded, taken delivery of and cleared by the Government of India after paying the requisite customs duties to the authorities concerned. For the assessment year 1954-55 the assessee was assessed to sales tax and in calculating the turnover the officer deducted the price of the said two sales from the taxable turnover. Subsequently, the Assistant Collector of Sales Tax issued a notice to the assessee proposing to review the said assessment order passed by the Sales Tax Officer. The assessee objected. It contended that the notice issued was not valid in law and that in any event the sales had taken place in the course of import and that therefore they were not liable to tax. These coatentions were rejected and a re-assessment followed. Then the assessee filed a writ of certiorari before the Supreme Court under Article 32 of the Constitution calling in question the validity of the re-assessment proceeding. The following contentions were raised: (1) Under Article 286(1)(b) of the Constitution, as it stood before the Constitution (Sixth Amendment) Act, 1956, the sales in question were not liable to sales tax inasmuch as they took place in the course of import of the goods into the territory of India ; (2) the said sales were exempted from sales tax by the Bombay State under the Explanation to Article 286(1) of the Constitution, as the goods were delivered for the purpose of consumption in States other than Bombay; (3) the sales were effected outside the State of Bombay, i.e., New Delhi, and therefore they were also exempted under Article 286(1)(a) of the Constitution; and (4) the first respondent could have only interfered with the earlier order of assessment under Section 15 of the Act within three years from the end of the assessment year 1954-55, i.e., 31st March, 1955, and that the said period having elapsed, he had no power to interfere in revision under Section 31 of the Act. It is really the decision of the Supreme Court on the first point which is relevant for the purpose of the present case. The Supreme Court held that the sales by the assessee to the Government were sales in the course of import within the meaning of Article 286(1)(b) of the Constitution and were therefore not liable to be taxed. At page 203 Subba Rao, J., summed the position thus:
(1) The course of import of goods starts at a point when the goods cross the customs barrier of the foreign country and ends at a point in the importing country after the goods cross the customs barrier; (2) the sale which occasions the import is a sale in the course of import; (3) a purchase by an importer of goods when they are on the high seas by payment against shipping documents is also a purchase in the course of import, and (4) a sale by an importer of goods, after the property in the goods passed to him either after the receipt of the documents of title against payment or otherwise, to a third party by a similar process is also a sale in the course of import.
18. We have to take note of the fact that the Supreme Court has used the expression 'customs barrier'.
19. The learned Government Pleader strongly relies upon another decision of the Supreme Court in Wadeyar v. Daulatram Rameshwarlal  11 S.T.C. 757 and contends that the element which terminates the import or commences the export is the crossing of the customs frontier which extends up to the farthest end of the territorial waters of the State. In that case a firm of dealers claimed exemption from sales tax (Bombay State) in respect of sales of cotton and sales of castor oil on the ground that these sales were FOB contracts under which they continued to be the owners of the goods till the goods had crossed the customs barrier and entered the export stream. The contention was that no tax was leviable in regard to these sales. The real point that arose for decision was whether the property in the goods passed on shipment or at some point of time before shipment. The Bombay High Court had held that the goods had remained seller's property till they had been put on board the ship and that therefore the sales were exempt from taxation under Article 286(1)(b) of the Constitution. That was a case of an export. The Supreme Court affirmed the decision of the Bombay High Court and held that once the goods crossed the customs barrier any sale of the goods subsequently would be a sale in the course of export. We have no doubt that their Lordships of the Supreme Court understood the expression 'customs frontier' only in the sense of the customs barrier. At page 760 Das Gupta, J., observed:
The law is now well settled that if the property in the goods passes to the buyer after they have, for the purpose of export to a foreign country, crossed the customs frontier the sale has taken place 'in the course of export' out of the territory of India. If therefore in the present sales the property in the goods passed to the buyers on shipment, that is, after they had crossed the customs frontier the sales must be held to have taken place 'in the course of export' and the exemption under Article 286(1)(b) will come into operation.
20. One of the contentions urged before the Supreme Court was that having regard to the provisions of the Export Control Order, 1955, which provides that it shall be deemed to be a condition of the export licence that the goods for the export of which licence is granted shall be the property of the licensee at the time of the export, the property in the goods should have passed to the buyer even before the goods were put on board the ship and that the sale was not a sale in the course of export. But their Lordships negatived the contention observing thus:
We see however no justification for thinking that in this clause 'the time of the export' means the time when the goods cross the customs frontier. Export has been defined in the Import and Export (Control) Act, 1947, as 'taking out of India by sea, land or air'. In the Exports (Control) Order, 1954, the word must be taken to have the same meaning as in the Act. On that definition the time of the export is the time when the goods go out of the territorial limits of India. These territorial limits would include the territorial waters of India. Consequently the time of the export is when the ship with the goods goes beyond the territorial limits.
21. Stress is laid on this passage on behalf of the State in support of its present contention. We need hardly point out that the above observation was made while repelling the contention based upon the provisions of the Export Control Order. We are not now concerned with the expression 'time of export'. Indeed another passage from the same judgment at page 762 would clearly indicate that so far as the assessment to tax is concerned what should be regarded is the crossing of the customs barrier. That passage reads ;
Whichever view is taken there is nothing to indicate that the intention to comply with the requirements of Clause 5(2) of the Exports (Control) Order carries with it an intention that the property should pass to the buyer at the time the goods cross the customs frontier. It is true that in the United Motor's case  4 S.T.C. 133 and in other cases it has been eld by this Court that the course of export commences to run when the goods cross the customs barrier. What the Court had to consider in those cases was not however when export commences within the meaning of the Exports (Control) Order but when the course of export commences for the purpose of Article 286(1)(b) of the Constitution. For the reasons which need not be detailed here it was decided that the course of export commences at the time when the goods cross the customs barrier.
22. We are quite definite that the Supreme Court in Wadeyar's case  11 S.T.C. 757 far from going back upon their previous decisions in State of Travancore-Cochin v. S.V.C. Factory  4 S.T.C. 205 and Gokal & Co. (P.) Ltd. v. Assistant Collector of Sales Tax  11 S.T.C. 186 really affirmed the principles laid down therein. There is hardly any justification for holding that the Supreme Court has taken the view in Wadeyar's case  11 S.T.C. 757 that the customs barrier itself should be deemed to be located at the end of the six nautical miles limit of the President's notification. It would be illogical to assume, and we see no basis for it, that though the property in the goods did not pass to the buyer at any point of time before shipment, as the contracts were FOB and there was no special agreement, the Supreme Court yet held that the sales were in the course of export. It is quite manifest that the Supreme Court equated the expression 'frontier' to 'barrier' and therefore held that the sales effected after the crossing of that barrier as being in the course of export. The ratio of the decision in Wadeyar's case  11 S.T.C. 757 is against the State's contention.
23. Our attention has been drawn to a decision of the Andhra Pradesh High Court in Burmah-Shell Co., Ltd. v. State of Andhra Pradesh  11 S.T.C. 533 on behalf of the State and reliance has been placed upon the observations of the learned Judge who delivered the judgment of the Division Bench. The question raised in that case was whether the sale of furnace oil and other petroleum products to the ocean-going ships directly from the bonded warehouse of Vizagapatnam port was a sale in the course of import or export within the meaning of Article 286(1)(b) of the Constitution and as such exempt from the levy of sales tax. The decision of the Andhra Pradesh High Court was that the moment the oils and petroleum products crossed the outer limit of the territorial sea abutting the shores of Vizagapatnam and entered the territorial water limits of India the goods must be regarded as having crossed the customs frontier and once the customs frontier was crossed the exemption under Article 286(1)(b) would vanish as the goods must be regarded as having ceased to be in the course of import. The correctness of this decision has been doubted by us in Deputy Commissioner of Commercial Taxes v. Caltex (India) Ltd.  13 S.T.C. 163 In the Andhra case the learned Judge stated the position thus at page 537 :.the customs frontier must be regarded as the same as the frontier of India and this frontier extends along the sea to a width of six miles, which, according to law, has been declared as the territorial water belt. So that, as soon as that frontier is crossed by the goods, the import within the meaning of the Supreme Court's decision must be regarded as complete.
24. We have already referred to the decisions of the Supreme Court and we wish to point out, with great respect to the learned Judge, that the conclusion reached by him does not follow or receive support from the said decisions. In Deputy Commissioner of Commercial Taxes v. Caltex (India) Ltd.  13 S.T.C. 163 we pointed out as follows :-
The customs frontier is only a notional barrier. When once the goods have been landed at a customs port and have been subjected to tax in the sense that levy of tax has been made thereon, even though the goods might not have been cleared for home consumption, the proper view to take should be that the goods have ceased to be part of the import stream and have notionally crossed the customs frontier. There is thereafter no objection to the goods being brought into the country and the mere fact that the importer, for the purposes of his own convenience, warehouses the goods and thereby postpones the payment of the duty levied on the goods cannot be taken to indicate that the goods are still beyond the customs frontier.
25. Dealing with the Andhra case we observed:-
It does not appear to us that the decisions of the Supreme Court in which the customs frontier has been referred to look upon that expression as indicating the enlarged construction which the learned Judges of the Andhra Pradesh High Court have placed upon it.
26. In our opinion, the customs frontier as elucidated by the Supreme Court in dealing with the constitutional provision would not mean any geographical features like land or coast or limits of territorial waters, but would only mean the operation of the machinery of the customs department consisting of levy and collection of duty and clearance of the goods. We see no reason to construe the expression customs frontier occurring in Section 5 of the Central Sales Tax Act in any way different from the sense in which it was understood prior to its enactment. The object and purpose of the President's notification in including six nautical miles of the sea-belt as part of the Union or State territory are entirely foreign to the scope and determination of the taxability or otherwise of goods to sales tax enacted by the State Legislature. The use of the words 'customs frontiers' in the Central enactment has given scope for the State to contend that they should receive their ordinary and plain meaning and not any other meaning presumed to be intended by the Parliament. To read words in a Statute in their etymological sense is a sound canon of construction. Literally the word 'frontier' means 'border of a country-the border of a settled country' : (Chambers Dictionary). The inclusion of the sea-belt of six nautical miles is fairly within the scope of the expression 'customs frontier'. But, quoting Maxwell, we may say that the meaning of words 'is found not so much in a strictly grammatical or etymological propriety of language nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained' (Maxwell, nth edition, page 51). The acceptance of the view that the customs frontier is the water-line at the end of six nautical miles from the shore would necessitate the investigation of the exact minute when the ship crossed into the territorial waters and when the documents of title to goods were actually transferred. We doubt whether such matters can be satisfactorily determined by any court or tribunal. Though difficulties in the way of working an Act should not affect the plain meaning of the statutory language, they have a bearing when there is at least a doubt regarding its true meaning. In our opinion, it would be proper to construe the words 'customs frontiers' as 'customs barriers' in the Central Act. The contention urged by the State therefore fails.
27. In the result, T.C. No. 29 of 1961 is dismissed with costs. Counsel's fee Rs. 100.
(T.C. Nos. 47, 132 and 160 of 1961)
28. It is not necessary to set out the facts of these cases as they have been fully set out in the judgment of the Tribunal. The only question urged on behalf of the State, which is the petitioner in all these cases, is the one that was raised in T.C. No. 29 of 1961. We have repelled its contention in that revision petition. These revision petitions also fail and are dismissed with costs. Counsel's fee Rs. 100 in each case.