BLACKWOOD HODGE INDIA LIMITED Vs. STATE OF BIHAR

JUDGEMENT

(1.) In these two cases the Board of Revenue has submitted the following questions of law for the determination of the High Court under Section 25(3) of the Bihar Sales Tax Act:- (1) Whether in the facts and circumstances of the case, the sales of goods delivered for consumption in Bihar are exempt from taxation on the ground that the sales took place in the course of import or export of goods outside the territory of India, within the meaning of Article 286 of the Constitution ? (2) Whether in the facts and circumstances of the case the sale of goods delivered for consumption in Bihar can be lawfully taxed in view of the provisions of Article 286(2) of the Constitution ?

(2.) The assessment periods with which we are concerned are from the 1st of April, 1950, to the 31st of March, 1951 and from the 1st of April, 1951, to the 31st of March, 1952. It appears that the assessee supplied during this time a large quantity of heavy earth moving equipments, machineries and spare parts to the Damodar Valley Corporation at different places within the territory of Bihar. The assessee, Messrs Blackwood Hodge (India) Ltd. has its head office located at Calcutta and it is the admitted position that during the periods in question the assessee supplied machineries valued at Rs. 52,000,00 to the Damodar Valley Corporation. The main argument on behalf of the assessee was that the machineries had been directly supplied by the manufacturers overseas to the Damodar Valley Corporation and so these sales are exempt from taxation under Article 286(1) of the Constitution. It was also contended on behalf of the assessee that in any event the sale of the machineries took place in the course of inter-State trade or commerce and so the assessee is exempted from taxation under Article 286(2) of the Constitution. The argument of the assessee was rejected by the Sales Tax Officer during the course of assessment and by the Deputy Commissioner of Sales Tax on appeal. A petition for revision was filed on behalf of the assessee to the Board of Revenue, but the petition was dismissed. As ordered by the High Court, the Board of Revenue has stated a case under Section 25(3) of the Bihar Sales Tax Act on the two questions of law stated above.

(3.) With regard to the first question, the argument of learned counsel for the assessee is that the sale of machineries is exempted from taxation because the sale took place in the course of import of the machineries from outside the territory of India within the meaning of Article 286(1)(b) of the Constitution, as it stood before the amendment. We do not accept the contention of learned counsel as correct. The matter is covered by a recent decision of this High Court in Mahadeo Ram Bali Ram v. State of Bihar [1958] 9 S.T.C. 173. It was pointed out by the Bench in that case that in order to attract the exemption under Article 286(1)(b) of the Constitution as it stood before the amendment it was necessary for the assessee to show that the sale took place not only during the activities directed towards the import of goods from outside the country, but also that the sale was a part of the activities of such import. That is also the test applied by the Supreme Court in State of Travancore-Cochin and Ors. v. Shanmugha Vilas Cashew-nut Factory, Quilon A.I.R. 1953 S.C. 333 and it was held by a majority of the learned Judges of the Supreme Court in that case that the purchase of goods for the purpose of export was only an act preparatory to their export and not an act done in the course of export of goods. It appears that the respondents in that case had purchased raw cashew-nuts within the State of Travancore-Cochin from the neighbouring States for the purpose of refining them and exporting them to America. One of the questions which was debated in that case was whether the respondents were exempted from taxation under Article 286(1)(b) with regard to the purchases made in the local markets of the State. The question was answered in the negative and it was held by the Supreme Court that as regards the purchases made in the local markets of the State, the respondents were not exempted under Article 286(1)(b) of the Constitution. The matter has been put clearly by the learned Chief Justice at page 336 as follows :- The only question debated before us was whether in addition to the export-sale and import-purchase, which were held in the previous decision to be covered by the exemption under Clause (1)(b), the following two categories of sale or purchase would also fall within the scope of that exemption : (1) The last purchase of goods made by the 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 business and the first sale by the importer to fulfil orders pursuant to which the goods were imported or orders expected to be received after the import. (2) Sales or purchases of goods effected within the State by transfer of shipping documents while the goods are in the course of transit. As regards the first mentioned category, we are of opinion that the transactions are not within the protection of Clause (1)(b). What is exempted under the clause is the sale or purchase of goods taking place in the course of the import of the goods into or export of the goods out of the territory of India. It is obvious that the words 'import into' and 'export out of' in this context do not mean the article or commodity imported or exported. The reference to 'the goods' and to 'the territory of India' make it clear that the words 'export out of and 'import into' mean the exportation out of the country and importation into the country respectively. 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. For instance, it has been held that the words 'debts due to the bankrupt in the course of his trade' in Section 15(5) of the English Bankruptcy Act, 1869, do not extend to all debts due to the bankrupt during the period of his trading but include only debts connected with the trade (see In re Pryce; Ex parte Rensburg (1877) 4 Ch. D. 685 and Williams on Bankruptcy, 16th Edn., p. 307). A sale in the course of export out of the country should similarly be understood in the context of Clause (1)(b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities.