DAULATRAM RAMESHWARLAL Vs. B K WADEYAR

JUDGEMENT

(1.) THE appellants deal in cotton and castor oil. They are registered dealers under Section 11 of the Sales Tax Act, and they have also received the necessary authorisation under Section 12-A. On the 29th of September 1956, a notice of demand was served upon them calling upon them to pay a sum of Rs. 25,448-9-9, the notice dealt with the period from 1-4-1954 to 31-3-1955. As the notice indicated, the assessees were liable to pay sales tax and purchase tax in respect of certain quantities of castor oil and cotton sold by the appellants to the firm of Godimetla China Appalaruju. The matter came up before Mr. Justice K. T. Desai, and he took the view that the demand made was justified and dismissed the petition of the appellants, which had been filed to challenge this notice of demand.

(2.) THE question briefly is this. The sale with which we are concerned and which is sought to be taxed under the Sales Tax Act is a sale effected by the appellants with the firm of Godimetla China Appalaraju (hereinafter referred to as 'the exporters') under certain contracts, a specimen of which has been annexed to the petition. The contention of the appellants is that the sale is exempted by the provisions of Article 286 of the Constitution, inasmuch as the sale was effected in the course of export of these goods outside India. Everyone of the contracts shows that the goods were sold by the appellants to the exporters F. O. B. It also shows that the exporters were to make-payment against presentation of the documents, and also shows that the goods were covered by the buyers' export licence. On these provisions of the contract, the material question that we have to determine is: when did the property in these goods pass? because, as we shall presently point out, it has been laid down by the Supreme Court that if a sale is effected after the goods have entered the export stream or have passed the customs barrier, then such a sale attracts the provisions of Article 286 and is exempt from taxation.

(3.) BEFORE we look at the authorities, it will perhaps be better if we look at the principle of the matter. A sale by A to B of certain goods, which goods could be diverted by B for domestic use or which goods could be sold by B in the State itself could not be covered by the exemption under Article 286 because such goods would not be in the export stream. They would still be outside the stream because they could be diverted and never reach the stream so as ultimately to be exported outside India. It is. therefore, that the Supreme Court has emphasised the fact that it is only that sale which takes place after the goods are incapable of being diverted that attracts the application of Article 286 of the Constitution.