1. The assessees are dealers in ships stores. During the assessment years 1964-65 and 1965-66 they imported goods from foreign countries, and as soon as the goods were landed in the Madras Harbour they were kept in bonded warehouses and on receipt of orders from ships' masters, they sold the goods to the outgoing ships. The assessees, however, had not registered themselves as dealers and they had not filed any return, since according to them, the sales effected by them from bonded warehouses were not taxable for the reason that they were in the course of import. The assessing authority, however, took the view that the sales effected by the assessees from the bonded warehouses to the outgoing ships were taxable under the Madras General Sales Tax Act, as they were effected after the course of import had ended, and in that view he assessed the respondents for the year 1964-65 on a taxable turnover of Rs. 35,674.93 and for the year 1965-66 on a taxable turnover of Rs. 65,150.98. The assessing authority also levied a penalty of Rs. 1,271 for the year 1964-65 and a penalty of Rs. 2,250 for the year 1965-66 under Section 12(3) of the Act. Both against the assessments as well as against the levy of penalty, there were appeals before the Appellate Assistant Commissioner. But those appeals were unsuccessful. There were further appeals to the Tribunal. Before the Tribunal, it was urged by the assessees that the sales effected by them of goods from the bonded warehouse to the outgoing ships being sales in the cours of import were not taxable under the Madras General Sales Tax Act. The Tribunal upheld the contention put forward on behalf of the assessees and set aside the orders of assessment as well as the orders levying penalty. Aggrieved against the orders of the Tribunal, the State has come before us. It is urged by the learned Government Pleader that the view taken by the Tribunal that the sales by the assessees from the bonded warehouse to the outgoing ships had taken place before the goods crossed the customs barriers and, therefore, they were not taxable by the Madras State is based on a decision of this court in Deputy Commissioner of Commercial Taxes, Madras Division v. Devar and Co.  14 S.T.C. 904, that the said decision has since been reversed by the Supreme Court in State of Madras v. Devar and Co.  24 S.T.C. 481 and that, therefore, the Tribunal's view is no longer tenable. This contention advanced on behalf of the revenue has to be accepted.
2. In the present case, the Tribunal purports to follow the decision in Deputy Commissioner of Commercial Taxes, Madras Division v. Devar and Co.  14 S.T.C. 904, which held that the customs frontier 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 collection of duty and clearance of the goods, and held that as the goods imported from foreign countries had not been assessed to duty by the customs but were kept in the bonded warehouse without payment of customs duty and straightaway sold to ocean-going vessels by the assessees, they should be held not to have crossed the customs frontier. According to the Tribunal on the facts of this case, the course of import of the goods had not ended and the sales of the goods from the bonded warehouse by the assessees should, therefore, be treated as sales in the course of import. In view of the aforesaid decision of the Supreme Court in State of Madras v. Devar and Co.  24 S.T.C. 481 the Tribunal's view is no longer tenable. In that case, their Lordships of the Supreme Court have not accepted the view taken by this court in Deputy Commissioner of Commercial Taxes, Madras Division v. Devar and Co.  14 S.T.C. 904 According to the Supreme Court, 'customs frontiers' meant the boundaries of the territory including territorial waters and if the sales were effected by transfer of documents of title after the goods had crossed the customs frontiers of India before they are cleared from the customs, that is, when they are within the territorial waters of India, the sales should be taken to be sales within the State of Madras, even though the goods might not have suffered duty at the customs and had not been cleared for local consumption or trade. The facts in the case before the Supreme Court were somewhat similar to the facts in this case and the Supreme Court had ultimately held in that case that the sales were taxable, they not having been effected in the course of import. In our view, the above decision of the Supreme Court straightaway applies to the facts of this case. Therefore, we hold that the turnovers in question are liable to be taxed by the Madras State under the Madras General Sales Tax Act. Hence the orders of the Tribunal setting aside the assessments are set aside.
3. As regards the order levying penalty, it is seen that the assessees' stand was that the sales effected by them were not taxable and, therefore, they need not register themselves as dealers under the Act. The question whether the sales effected by the assessees were taxable or not has now been decided by this court in the affirmative and the question was being agitated bona fide by them right through. It is well-settled that in cases where the assessability of the transactions of a dealer is in doubt and he bona fide thinks that his transactions will not come under the purview of the Sales Tax Act, his non-registration as a dealer or non-submission of the return in respect of his transactions cannot attract Section 12(3) of the Act. We, therefore, confirm the order of the Tribunal setting aside the orders of penalty.
4. The tax cases are, therefore, allowed in part with costs. Counsel's fee Rs. 200 (one set).