Holding

The sale is deemed to have taken place within Tamil Nadu because appropriation occurred in the bonded warehouse, making the transaction taxable under the Tamil Nadu General Sales Tax Act and not exempt as a sale in the course of export.

Summary

Madras Marine & Co., a ship‑chandler, imported goods, stored them in a customs‑bonded warehouse in Tamil Nadu and supplied them on board foreign‑going vessels. The State of Madras assessed sales tax under the Tamil Nadu General Sales Tax Act, 1959, contending the sales occurred within the state. The company argued the sales were in the course of export, that the transaction took place in Indian territorial waters (outside the state), and that the amendment to the Central Sales Tax Act, 1956 did not affect the position. The Supreme Court held that appropriation of the goods in the bonded warehouse – located in Tamil Nadu – constituted the point of sale, so the sales were deemed to have taken place inside the state and were taxable; they were not sales in the course of export under Art. 286(1)(b) of the Constitution. Consequently, the appeals, writ petitions and special leave petitions were dismissed.

Issues considered

The sale of goods stored in a bonded warehouse and delivered to foreign‑going vessels – whether it took place within Tamil Nadu for sales‑tax purposes.
Whether such sales qualify as "sales in the course of export" exempt under Article 286(1)(b) of the Constitution.
Whether the point of sale is the appropriation of goods in the bonded warehouse.
Effect of the definition of "customs frontiers" and the 1976 amendment to the Central Sales Tax Act on jurisdiction.
Whether Indian territorial waters form part of the State of Tamil Nadu for tax purposes.

Legislation cited

Central Sales Tax Act, 1956s. 2(ab), s. 4(2)(a), s. 4(2)(b), s. 5
Constitution of Indias. Art. 286(1)(a), s. Art. 286(1)(b)
Customs Act, 1962s. 59, s. 60, s. 61, s. 62
Tamil Nadu General Sales Tax Act, 1959
Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976

Subjects

Sales taxExport exemptionBonded warehouseAppropriation of goodsCentral Sales Tax ActTamil Nadu General Sales Tax ActCustoms frontiersTerritorial watersShip chandlersConstitutional law

Judgment

A

MADRAS MARINE & CO.
v.
STATE OF MADRAS
B
JULY 16, 1986

IR.S. PATHAK AND SABYASACHI MUKHARJI, JJ.]

Tamil Nadu General Sales Tax Act, 1959-Goods-Segregated in
bonded ware houses-Sale of goods for consumption on board foreign
c ·going ships-Liability for sales tax.

Central Sales Tax Act !956, s. 4(2) (a) and (b)-Goo'ds-Segre-
gated in bonded ware houses for delivery to foreign going vessels--Sale >
of such goods for consumption on board the ships-Whether case of
'D export of goods-Whether liable to levy of State Sales Tax.

Constitution of India, A rt. 286( ! ) (b )-Concept of export--Defi-
nition of.

The appeliant•company in Civil Appeal No. 642 llf 1974 was doing
l: the business as ship chandler. It imported the goods from foreign
cotintries and after receipt of' the goods, kept them in a bonded ware-
house under the relevant. provisions of the Customs Act, 1962. The
ware-house was under dual control of the Customs Department and the
Importers like the appellant so that it could not he opened by one
without the presence of the other. On receipt of order from the Captain
,.,1= ·of the Ship requiring ship stores, the appellant supplied the goods on
board after observing certain formalities imposed by the Customs Act,
the rules and regulations made thereunder.

Fot the Assessment year 1964·65 a question arose whether
Rs.3,51,438.08 which was the taxable tumover, determined by the
G assessing ·authority, was subject to the tax under the Tamil Nadu ·Gene-
tal Sales 'Tax Act, 1959. The appellant objected lo the assessment on
such turnover on the ground that the goods relating lo such turnover
were imported from abroad, stored in the customs ware house and were
not btou·ght to the country across the customs frontiers. The Sales Tax
Ol'l'icer .assessed the turnover and the Appellate Assistant Commis-
'H Sioner 'dlnfinned the assessment on the hasis that sales were effected
MADRAS MARINE & CO. v. STATE OF MADRAS 237

.. within the State of Tamil Nadu. However, the Tribunal, in appeal by
the appellant, held that the sales did not take place within the State of
A

Tamil Nadu since the import of goods in question had not become
complete and as the goods were sold to the foreign going vessels, the
sales in question could not be deemed to be within the State of Madras.
On revision, the High Court relying on the decision of the Supreme B
Court in the State of Madras v. Davar and Co., 24 STC 481, held that

L
the sales took place in the State of Madras and assessment to tax was
valid. The facts in all the other connected appeals, writ petitions and the
special leave petitions being identical, a similar question of law also
arose in them.
' c
In appeal to the Supreme Court by the appellant/petitioners, it
was contended on their behalf: (i) that the property in the goods, did not
pass in the territory of Tamil Nadu and the sales were therefore, in the
course of export because goods were to be on board the ship and were
exported outside the country and could not be consumed before they
reached the high seas; (ii) that the sale of goods took place in the D
territorial water of India and not within the State of Tamil Nadu; (iii)
that the legislative competence of the State of Tamil Nadu as regards
levying of the sales-tax was confined to the territories of the State as
specified in item No. 7 of the First Schedule to the Constitution. That
legisiative competence did not extend to any territorial waters simply "' ,
because these were abutting the land mass of the State of Tamil Nadu; E
(iv) that the Sovereignty over the limits of territorial waters extended
and always extended to the entire territorial waters of India. The limits
and extent of the said territorial waters had not been altered by any
notification of the Central Government. The territorial waters extended
) to a distance of 12 nautical miles from the sea shore adjacent to the land
mass of the State; and (v) that there was no definition at all of "Customs F

• Frontiers" in the Central Sales Tax Act, 1956. The definition inserted
in the Act ins. 2(ab) by the Amending Act 103 of 1976 must be read as
declaratory or explanatory and no questions of prospective operations
Would arise. On the other hand, it was argued on behalf of the
respondent-State that the appellant's godowns and bonded Ware-houses
were within the State of Tamil Nadu. When orders were received, the G
appellants/petitioners supplied the required quantity from the stock
If either in the godown or in the bonded ware-houses and delivered these or
set these apart in fulfilment of the orders placed by the concerned
..... officer of the foreign bond ship and that at that time only appropriation
was made towards the contract of sale and such awropriation took
place within the State of Tamil Nadu. It was, therefore, on such ap· H
238 SUPREME COURT REPORTS [1986] 3 S.C. R.

A propriation that the sale tonk place; and (ii) that it was not correct to
say that the transactions of sale were completed only when the masters
of the vessels acknowledged delivery of the goods on board the vesselS.

Dismissing the Appeals and the Petitions,
B
Held: I. I The concept of export in Article 286( I) (b) of the Con-
stitution postulates the existence of two termini as those between which
the goods were intended to move or between which they were intended
to be transported and not a mere movement of goods out of the country
without any intention of their being landed in specie in some foreign
I
port. Goods might he consumed within the meaning of the Explanation
c to Article 286(1) (a) either by destruction or by way of use depending on
the nature of the goods. Therefore, the sales were not sales "in the
course of export" within the meaning of Article 286( I) (h) and were not
exempt under that Article but they fell within the Explanation to Article
286( I) (a). [247C-D; GI
D
I. 2 l\lere movement of goods out of the country following a sale
would not render the sale, one in the course of export within Article
28611) (b) of the Constitution oflndia. Before a sale can be said to be a
sale in the course of export, the existence of two termini between which
the goods are intended to move or to be transported is necessary. [249F-G I ~

E
In the instant case the appropriation of goods took place in the
State of Tamil Nadu when the goods were segregated in the bonded
ware-house to be delivered to the foreign going vessels. Therefore, un-
der sub-s. (2), sub-cl. (a) and (b) of s. 4 of the Central Sales Tax Act,
1956, the sale of goods in question shall be deemed to have taken place \
F inside· the State because the contract of sale of ascertained goods was
made within the territory of Tamil Nadu and furthermore in case of
unascertairied goods approrpriation had taken pake in that State in
terms of cl. (b) of sub-s. (2) of s. 4 of the Central Sales Tax Act, 1956.
There is no question of sale taking place in course of export or import
under s. 5. From that point of view, the amendment introduced by Act
G 103 of 1976 by incorporating in cl. (ab) of s. 2 of the Central Sales Tax
Act. 1956 does not affect the position. It was not a case of export as
there was no destination for the goods to a foreign country. The sale was
for the purpose of consumption on board the ship. It was not as if only
on delivery on board, the vessel that the sale took place. The mere fact
that shipping bill was prepared for sending it for custom formalities
H which were designed to effectively control smuggling activities could not
MADRAS MARINE & CO. e. STATE OF MADRAS 239

determine the nature of the transaction for the purpose of sales tax nor A
does the circumstances that delivery was to the captain on board the
ship within the territorial waters make it a sale outside the State of
Tamil Nadu. [252E·H; 247A-B]

Burmah Shell Oil Storage and Distributing Co. of India Ltd., and
B
Anr. v. Commercial Tax Officer & Ors., 11 STC 764; Deputy Commis-

,_ sioner of Commercial Taxes v. Caltex India Ltd., Madras, 13 STC 163;
The State of Madras v. Davar & Co., 24 STC 481; Fairmacs Trading
Co. v. The State of Tamil Nadu, 41 STC 157; Tata Iron and Steel Co.
Ltd. Bombay v. S.R. Sarkar & Ors., 11 STC 655; and The State of
"· Kera/a & Ors. v. The Cochin Coal Co., Ltd., 12 STC I relied upon.
c
Fairmacs Trading Co. v. The State of Tamil Nadu, 41 STC 157
and Fairmacs Trading Co. v. The State of Andhra Pradesh, 36 STC 260
approved.

3. Customs barrier does not set a terminal limit to the territory of
the State for sales tax pnrposes. Sale, therefore, beyond the customs D
barrier is still a sale within the State. The amendment introduced in s.2
by the Act 103 of 1976 does not affect the position because the custom
station is within the State of Tamil Nadu. [253A-B I

4. In the facts and circumstances of the case, it is not necessary to
express any opinion on the arguments whether introduction of cl.(ab) of E
s.2 of the Central Sales Tax Act by Act 103 of 1976 is prospective or not.
[253C·D]

J Deputy Commissioner of Commercial Taxes v. Caltx India Ltd.,
~ Madras, 13 STC 163; Tata Iron and Steel Co. Ltd. Bombay v. S.R. Sarkar F
& Ors., 11 STC 655; Furby v. Hoey I1947) I All England Report 236; The
Central Bank of India v. Their Workmen [1960] 1 SCR 200; and Chanan
Singh & Anr. v.Jai Kaur, [1970] I SCR 803at 804-807 referred to.

R. v. Kent Justices Ex Parte LYE & Ors., I 1967) I All England
Report 560 at 564-65 held inapplicable.
G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6.Jc
(NT) of 1974. etc.

From the Judgment and Order dated 25.4.1973 of the Madras
High Court in T.C. No. 243 of 1969. H
240 SUPREME COURT REPORTS (19861 3 S.C.R.
A S.T. Desai, Inbarajan and A.T.M. Sampath for the Appellant. F
•
M.M. Abdul Khader, V.C. Nagarajan and A.V. Rangam for
the Respondent.

B The Judgment of the Court was delivered by
\
SABYASACHI MUKHARJI, J. We are concerned with Civil
Appeal No.642(NT) of 1974, Civil Appeal Nos. 1798-18111J of 1981 and
the Writ Petition No. 196 of 1974 along with Special Leave Petitions
Nos. 12943-44 of 1985. All these will have to be disposed of on the
main question stated hereinafter and these .raise a common question,
c facts in all these matters are more or less identical except that certain
assumptions of facts have been made in Special Leave Petitions Nos.
12943.-44 of 1985 because in these there were no investigation of facts
by the revenue authorities.

0 The question involved in all these, is, whether the sales in ques-
tion were within the State of Tamil Nadu and as such subjec(to tax
under the Tamil Nadu General Sales Tax Act, 1959, hereinafter called
the 'Act'.

E
The dealers who are the petitioners in the writ petitions and are
the appellants in the appeals and the petitioners in Special Leave
·r
Petitions are dealers in stores and were doing business as ship chand-
lers in the relevant years. The appellantsipetitioners used to supply the
goods imported as stores to foreign going vessels and other diplomatic
personnel. The appellants/petitioners imported these goods from ,
foreign countries. At the time of import they complied with the statu- \
F tory provisions of the Cm.toms Act and other enactments relating to I
import of goods. They had given an un,dertaking to the. concerned
authorities to supply the imported gobds to foreign going vessels andi ·•..
or to diplomatic personnel and to receive the goods in custom bonded
ware-house. Under section 59 of the Customs Act, 1962 the importer of
any dutiable goods which had been entered for warehousing and asses-
G sed to duty under section 17 or section 18 should execute a bond
binding himself for a sum equal to twice the amount of the duty asses-
sed on such goods (a) to observe all the provisions of the Act and the \
rules (b) to pay on or before a date specified in a notice of demand all ,
duties, rent and charges claimable on account of such goods under the
Act, and (c) to discharge all penalties incurred for violation of the
H provisions of the Customs Act and relevant statutes. For the above
MADRAS MARINE & CO. v. STATE OF MADRAS [MUKHARJI, J.[ 241
A
purpose, the Assistant Collector of Customs might permit an importer
to enter into a general bond for such amount as the Assistant Collector
of Customs might approve in respect of the warehousing of goods to be
imported by him within a specified period.

Sections 60, 61 and 62 of the Customs Act, 1962 provide for B
ancillary purp<:ises. In substance these provide for control by the
proper officer of the goods warehoused. It is not necessary for the

I determination of the issue involved to deal with other relevant provi-
sion of the Customs Act. 1962.

The appellants/petitioners after receipt of the goods kept these c
in a bonded ware-house under the relevant provisions. The ware-house
was under dual control of the Customs Department and the importers
like the appellants/petitioners so that it could not be opened by one
'· without the presence of the other. On receipt of order from the captain
of the ship requiring ship stores the petitioners supplied the goods on
board after observing certain formalities imposed by the Customs Act. D
the rules and regulations thereunder. These were the broad features of
the-way the appellants/petitioners operated. We will, however, deal
with the facts as found in Civil Appeal No. 642 of 1974.

The case of the appellants/petitioners was that all these goods
were intended for re-export only and were at all relevant time in a E
bonded warehouse .. The delivery was on board the ship to foreign
going ship. The goods were consumed only on the high seas. The
property i11 the goods had passed only after the goods had crossed the
custom frontiers. The contention was that the property in the goods
/ did not pass in the territory of, Tamil Nadu. The sale.s were therefore
F
(i) in the course of export because goods were to be on board the ship
and were exported outside the country and could not be consumed
"\ before they reached the high seas; (ii) the .sale of the goods took place
in the territorial waters of India and not within the State of Tamil
Nadu, "Indian Customs Water" is defined in the Customs Act under
section 2(28) as follows:
G
"Indian customs waters" means the waters extending into
the sea up to the limit of continguous zone of India under
section 5 of the Territorial Waters, Continental Shelf, Ex-
' elusive Economic Zones Act, 1976 and includes any bay,
gulf, harbour, creek or tidal river."
H
242 SUPREME COURT REPORTS [1986] 3 S.C.R.

A Under article 297 of the Constitution, all lands, minerals and
other things of value underlying the ocean within the territorial waters
or the continental shelf of India shall vest in the Union and are held for
the purposes of the Union.

It is the contention of the appellants/petitioners that sales there-
8
fore took place outside the State as territorial waters vested in the
Union Government and not in the State of Tamil Nadu. The turnover
in question was not exigible according to the appellant/petitioners, to
sales tax under the provisions of the Act. It is this plea which the
petitioners/appellants sought to raise as an additional ground before
the High Court in the appeal out of which Civil Appeal No. 642of1974
c arose. But it was not pem1itted by the High Court.

The Taxing Authorities' plea on the other hand was that the
various goods sold to foreign bound vessels were within the State of
>
Tamil Nadu when the concerned officer of the foreign bond vessels
D placed indents for the supply of goods. Further, the appellants'
godowns and bonded warehouses were within the State of Tamil
N adu. When orders were received the appellants/petitioners supplied
the required quantity from the stock either in the godown or in the
bonded warehouses and delivered these or set these apart in fulfihnent
of the orders placed by the concerned officer of the foreign bond ship.
E
It is the case of the respondents that at that time only appropriation
was made towards the contract of sale and such appropriation took
place within the State of Tamil Nadu. It is the further case of the
respondents that it was on such appropriation that the sale took place.
In the premises it was submitted on behalf of the respondents that the
contention of the appellants/petitioners, that the transactions of sale \
were completed only when the masters of the vessels acknowledged
F
delivery of the goods on board the vessels was not correct. It was
further urged that it was not correct to contend that the appellants/
petitioners should be treated as actual exporters. The place of delivery
would not alter appropriation which had already taken place.

In support of this contention, reliance was placed on the decision
G
of this Court in the case of Burmah Shell Oil Storage and Distributing
Co. of India Ltd., and Another v. Commerica/ Tax Officer and Others., \
11 S.T.C. 764.

It is necessary in this background, to examine the facts involved
H in Civil Appeal No. 642 of 1974. There, the main question involved
MADRASMARINE&CO. '·STATE OF MADRAS [MUKHARJI,J.I 243
A
was whether Rs.3,51,438.08 which was the taxable turnover deter-
mined by the assessing authority was subject to the tax under the said
Act. The appellant objected to the assessment on such turnover on the
ground that the goods relating to such turnover were imported from
abroad, stored in the customs warehouse and were not brought to the
country across the customs frontiers. The lower appellate authority B
allowed some deduction in the determination of the taxable turnover
in respect of sales to local diplomatic corps and determined the figure
[ at Rs.3,51,045.68. The Appellate Assistant Commissioner confirmed
the assessment on the basis that sales were effected within the State of
Tamil Nadu and as such dismissed the appeal. There was an appeal
before the Tribunal. The Appellate Assistant Commissioner relied on c
the decision of the Madras High Court in the case of Deputy Commis-
sioner of Commerical Taxes v. Caltex India Ltd Madras, 13 STC. 163.
The Tribunal accepted the contentions of the dealer and held that the
sales did not take place within the State of Tamil Nadu. lt was pointed
out that there was significant change in the Customs Act, 1962 from
Sea Customs Act, 1978, and the Tribunal held that import of goods in D
question had not become complete and as the goods were sold to the
ocean going vessels, the sales in question could not be deemed to be
within the State of Madras. On revision the High Court relying on the
decision of this Court in The State of Madras v. Davar and Co., 24
S.T.C. 481 held that the sales took place in the State of Madras and
assessment to tax was valid. Civil Appeal No. 642 of 1974 arises from E
the said decision.

Civil Appeals Nos. 1798-1800 of 1981 followed the said decision
and are based on the said reasons. These appeals are for the assess-
j ment years 1968-69 and 1970-71. Jt may be mentioned that Civil Ap-
peal No. 642 of 1974 was concerned with the assessment to tax for the F
ml. year 1964-65.

The writ petition challenges the assessment made for the assess-
ment year 1972-73 where the taxing authorities and the appellate
authorities under the Act followed the said decision which is under
appeal in Civil Appeal No. 642 of 1974. Special Leave Petition G
Nos. 12943-44 of 1985 challenge the assessments for 1978-79 and 1979-
80 where the High Court took the view upholding the revenue's con-
.j
tention that sales were taxable relying on the decision in the case of
" Madras High Court of Fairmacs Trading Company v. The State of
Tamil Nadu, 141S.T.C.157.
J-i
244 SUPREME COURT REPORTS [1986) 3 S.C.R.

A As mentioned hereinbefore, before the High Court in Civil Ap-
peal No. 642 of 1974, the grounds urged in the writ petition were
sought to be urged as additional grounds but were not permitted as
these had not been taken before the taxing authorities.

B On behalf of the appellants/petitioners, Mr. S.T. Desai, learned
counsel, submitted that the legislative competence of the State of
Tamil Nadu as regards levying of the sales-tax was confined to the
territories of the State as specified in item No. 7 of the First Schedule
to the Constitution. That legislative competence did not extend to any
territorial waters simply because these were abutting the land mass of
the State of Tamil Nadu. It was further urged that the Sovereignty over
c the limits of territorial waters extended and always extended to the en-
tire territorial waters of India. The limits and extent of the said territorial
waters had not been altered by any notification of the Central Govern-
)<----
ment. The territorial waters extended to a distance of 12 nautical miles
from the sea shore adjacent to the land mass of the State. See in this
D connection The Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976.

It was further urged that there was no definition at all of
'Customs Frontiers' in the Central Sales Tax Act, 1956. The definition
inserted in the Act in section 2(ab} by the Amending Act 103 of 1976 }
E must be read as declaratory or explanatory and no questions of pros-
pective operations would arise according to counsel for the appellants/
petitioners. He submitted that that definition would also be applicable
to sales prior to 1976.

This Court dealt with the history of the definition now appearing
F in the relevant sections of the Central Sales Tax Act in the case of Tata
Iron and Steel Co. Limited, Bombay v. S.R. Sarkar and Others, 11
S.T.C. 655. In that case this Court was dealing with the relevant provi-
sions in a petition under Artical 32 of the Constitution challenging the
demand of the Sales Tax Officer of State of West Bengal under the
Central Sales Tax Act, 1956 in respect of certain sales of steel goods.
G The petitioner company in that case had its registered office in
Bombay and its head sales office in Calcutta in the State of West
Bengal and factories in Jamshedpur in the State of Bihar. The com-
pany was registered as a 'dealer' under the Bihar Sales Tax Act and
was also registered as 'dealer' in the State of West Bengal under the
Central Sales Tax Act, 1956. For the period of asessment 1st July, 1957
H to 31st March, 1958, the company submitted its return of taxable sales
MADRASMARINE&CO. v. STATE OF MADRAS [MUKHARJI,J.J 245

to the Commercial Tax Officer, Lyons Range, Calcutta. The assess- A
ment order was passed. It is not necessary to deal exhaustively with the
history of the present sections 4 and 5 of the Central Sales Tax Act
which has been dealt with by this Court. Interpreting the relevant
provisions of the Central Sales Tax Act, 1956, it was observed that the
Act by section 3 indicates as to when a sale or purchase of goods is said
B
to take place in the course of inter-State sale or trade or commerce.
Section 4 also indicates as to when a sale or purchase takes place
outside the State. The majority of the judges of this Court held on the
facts found as follows:

'·. "In our view, therefore, within clause (b) of section 3 are
included sales in which property in the goods passes dur- c
ing the movement of the goods from one State to another
by transfer of documents of title thereto: clause (a) of
section 3 covers sales, other than those included in clause
(b), in which the movement of goods from one State to
another is the result of a covenant or incident of the con-
D
tract of sale, and property in the goods passes in either
State."

Sarkar and Das Gupta JJ. in a separate judgment held that the
documents of title of goods sold could pass the property in them only if
E
the parties had agreed that that would be the result. In interpreting
whether in the course of import or export, sales took place, the same
principle would be applicable.

j The correct position, so far as the facts of the present case are
concerned, in our opinion, has been laid in the decision of Burmah F
Shell Oil Storage and Distributing Co. of India Ltd. and Another v.
Commercial Tax Officer and Others (supra). This Court observed at
page 765 as follows:

"While all exports involved a taking out of the country, all
goods taken out of the country cannot be said to be ex- G
ported. The test is that the goods must have a foreign
destination where they can be said to be imported. It
matters not that there is no valuable consideration from
the receiver at the destination end. If the goods are ex-
ported and there is sale or purchase in the course of that
export and the sale or purchase occasions the export to a H
246 SUPREME COURT REPORTS [1986] 3 S.C.R.

A foreign destination, the exemption is earned. Purchases
made by philanthropists of goods in the course of export
n
to foreign countries to alleviate distress there, may still be
exempted, even though the sending of the goods was not a
commerical venture.but a charitable one. The crucial fact

,,
B is the sending of the goods to a foreign des tin a ti on where
they would be received as imports."

The appellant in that case dealt in petroleum and petroleum
products and carried on business at Calcutta. They had maintained
supply depots at Oum Oum Airport from which aviation spirit was sold
and delivered to aircraft proceeding abroad .for their consumption.
c The question was whether these supplies to the aircraft which pro-
ceeded to foreign countries were liable to sales tax under the Bengal

0
Motor Spirit Sales Taxation Act, 1941. The contention of the appel-
!ants in that case was that such sales were made in the course of export
of such aviation spirit out of the territory of India that they took place
outside the State of West Bengal, that inasmuch as aviation spirit was
delivered for consumption outside West Bengal, the sales could not
--
fall within the Explanation to clause (!) (a) of article 286 as it then
stood. It was held by this. Court that in order to exclude the taxation by
the State of West Bengal, the appellants had to prove that there was
some other State where the goods could be said to have been delivered
E as a direct result of the sale for the purpose of consumption in that
other State and that as they failed to do so, the aviation spirit loaded
on board an aircraft for consumption though taken out of India, was
not exported since it had no destination, where it could be said to be
imported and so long as it did not satisfy that test, it could not be said
that the sale was in the course of export. It was further held that \
\
F aviation spirit was sold for the use of aircraft and the sale was not even
for. the purpose of export and all the elements of sale including deliv-
ery and payment of price took place within the State of West Bengal ...r
and the sales were complete within the territory of that State. The
customs barrier did not set a terminal limit to the territory of West
Bengal for sales tax purpose. The sale beyond the customs barrier was
G still a sale in fact in the State of West Bengal.

The ratio of this decision would be applicable to the facts and
circumstances of this case. It was rightly urged that the appropriation '
of goods took place in the State of Tamil Nadu when the goods were
segregated in the bonded warehouse to be delivered to the foreign
,H going vessels. It was not a case of export as there was no destination
MADRASMARINE&CO. v. STATE OF MADRAS (MUKHARJI,J.l 247

* , for the goods to a foreign country. The sale was for the purpose of
consumption on board the ship. It was not as if only on delivery on
board the vessel that the sale took place. The mere fact that shipping
bill was prepared for sending it for custom formalities which were
A

designed to effectively control smuggling activities could not deter-
mine the nature of the transaction for the purpose of sales tax nor does
B
the circumstances that delivery was to the captain on board the ship
within the territorial waters make it a sale outside the State of Tamil
Nadu.

' (,
In the case of The State of Kerala and Others v. The Cochin Coal
Company Ltd., 12 S.T.C. 1, it was held that concept of export in
article 286(1)(b) of the Constitution postulated the existence of two
termini as those between which the goods were intended to move or
between which they were intended to be transported and not a mere
c

movement of goods out of the country without any intention of their
being landed in specie in some foreign port. Goods might be consumed
within the meaning of the Explanation to article 286(1)(a) either by
D
destruction or by way of use depending on the nature of the goods. In
that case the respondent-company dealers in coal had their office at
Fort Cochin which was formerly within the State of Madras. The com-
pany had imported and kept stocks of 'bunker coal' at certain places
which at the relevant period was also within the State of Madras. Part
of the activities of the said company consisted in the supply of 'bunker
E
coal' from their depots in Candle Island for steamers arriving at the
port of Cochin in the State of Travancore-Cochin for the outward
voyage of_ the steamers from the Cochin port. In respect of these sales
of coal, tax was claimed by the Travancore-Cochin State for the years
!
) 1951-52 and 1952-53 but the respondent claimed exemption under arti-
cle 286(1)(b) or (2) of the Constitution and also under a Notification F
t
dated 5th February, 1954 and published in the official Gazette of 16th
4
February, 1954. It was held that the sales of coal by the respondent
were sales in the course of inter-State trade and fell within the ban of
article 286(2), but the levy of tax on such sales had been validated by
the Sales Tax Laws Validation Act, 1956. It was further held that the
sales were not sales 'in the course of export' within the meaning of
G
article 286(1)(b) and were therefore not exempt under that article but
they fell within the Explanation to article 286(1)(a) inasmuch as the
{ coal was delivered in the State of Travancore Cochin and the steamers
were the actual consumers who were at liberty to consume the coal
whenever they desired; that the Notification dated 5th February, 1954
was and must be deemed to be one issued in exercise of the power H
248 SUPREME COURT REPORTS [1986) 3 S.C.R.

A conferred on the State Government by section 6(1) of the Travancore-
Cochin General Sales Tax Act, 1125 and as the transactions clearly fell
within the Notification, the respondent would be entitled to the be-
nefit of the tax exemption conferred by the Notification.

B The High Court in Civil Appeal No. 642 of-1971 has based its
decision on the decision of this Court in State of Madras v. Davar and
Co. (supra). In that case the assessee, a dealer in timber, had imported
two consignments of timber from Burma and sold it to buyers in India.
The ship carrying the first consignment arrived at the Madras Harbour
on 17th October, 1957. 1be assessee obtained moneys from the buyers
on 24th October, 1957, retired the documents of title from the bank
c and handed over the documents on the same day to the buyers to
enable them to clear the goods. All charges and expenses by way of
import duty, clearance charges etc., were paid to the buyers on behalf
of the assessee. The second consignment reached Madras by ship on
17th December, 1957 and the assessee obtained on 23rd December,
D 1957, from the buyers the value of the consignment after handing over
to the buyers the necessary shipping documents. The assessee claimed
that these sales were in the course of import and these were not liable
to tax under the Madras General Sales Tax Act, 1959, as these were
covered by article 286(1)(b) of the Constitution. It was held that the
expression 'customs frontiers' in section 5(2) of the Central Sales Tax
E Act, 1956, did not mean 'customs barrier'. It had to be construed in
accordance with Notification No. S.R.O. 1683 dated 6th August, 1955,
issued by the Central Government under section 3-A of the Sea
Customs Act, 1878 read with the Proclamation of the President of
India dated 22nd March, 1956. 'Customs frontiers' meant the bound-
aries of the territory, including territorial waters, of India. The sales in \
\
F this case were effected by transfer of documents of title long after the
goods had crossed the customs frontiers of India; the ships can)'ing the
goods in question were all in the respective harbours within the State
of Madras when the sales were effected by the assessee by transfer of
documents of title to the buyers. The sales were therefore not effected
in the course of import. This Court, in construing the customs fron-
G tiers, referred to the extent of territorial waters, declaration of the
President dated 22nd March, 1956, the contents of which were set out
in that decision which need not be repeated here.

We have noted the further contentions which were only raised in
the writ applications and not raised in Davar's case. In our opinion
H these further contentions have been elaborately discussed in the two
MADRASMARINE&CO. v. STATE OF MADRAS [MUKHARJl,J.[ 249

\ decisions, one of the Andhra Pradesh High Court and another of the
A

Madras High Court, which we shall presently notice but it may be
pointed out that there· is a difference between the two High Courts on
the interpretation whether section 4(2)(a) or 4(2)(b) of the Central
Sales Tax Act would apply or not. It may be noted that it was observed
by Sarkar and Das Gupta JJ. in Tata Iron and Steel Co. Limited, B
Bombay v. S.R. Sarkar and others, (supra) that clauses (a) & (b) of

J
section 3 were mutually exclusive and sale could not fall under both
the clauses. We are not here directly concerned with the question
whether clauses 4(2)(a) and 4(2)(b) of the Central Sales Tax Act, 1956
are mutually exclusive or not. We are concerned with the question
' whether either of these was applicable. c
In the case before the Andhra Pradesh High Court in Fairmacs
Trading Company v. The State of Andhra Pradesh, 36 S.T.C. 260, the
l.. petitioner imported ship-stores from foreign countries, kept these in
bonded warehouses of the customs department without the levy of
customs duty and later on sold and delivered to ships' masters for D
consumption abroad the ship after crossing the port boundaries. On
the question whether the sales were outside.the State or in the course
of export and therefore not liable to tax under the Andhra Pradesh
General Sales Tax Act, 1957, it was observed by the Andhra Pradesh
High Court that the goods were specific and ascertained and were
within the State when the contract of sale took place and therefore the E
requirements of section 4(2)(a) of the Central Sales Tax Act, 1956
were fully satisfied and the sales must be said to have taken place
inside the State; but as the goods sold were meant for consumption
during voyage and they had no destination in any foreign country
where they could be received as imports, the sales were not sales in the
course of exports. It was further held that mere movement of goods F
out -of the country following a sale would not render the sale, one in
""\
the course of export within article 286(1)(b) of the Constitution of
India. Before a sale can be said to be a sale in the course of export, the
existence of two termini between which the goods are intended to
move or to be transported is necessary.
G
The Madras High Court in the case of Fairmacs Trading Com-
, pany v. The State of Tamil Nadu (supra) was-dealing with an assessee,
I who was a dealer in ship's stores and was also doing business as ship
chandlers and who imported goods from abroad for the purpose of
supplying them either to foreign going vessels or to diplomatic person-
nel. These goods were received and kept in the customs bonded H
250 SUPREME COURT REPORTS li986] 3 S.C.R.

A ware-house and were cleared under the supervision of the customs
authorities whenever these were sold by the assessee. In respect of
supplies of specific goods made to certain ships located in the Madras
Harbour, pursuant to orders placed by the Master of the ship or other
officers working in the ship, the transportation of the goods to the ship
B was effected in such a manner as to ensure that the bonded goods,
which had not paid any duty, did not enter the local market. The
delivery receipt sent alon1; with the goods by the assessee was signed
by an officer of the ship in token of having received the goods in good
condition. The question that arose for consideration was whether the
sale took place within the State of Tamil Nadu and liable to be taxed
under the Tamil Nadu General Sales Tax Act, 1959. It was held (i) that
c there was nothing to show in the communications from the ship that
the goods had necessarily to be supplied only in the ship. It was open
to the officers working in the ship to come and take delivery of the
goods in which event the sale would be a local sale. Therefore, assum-
ing that the territorial waters did not form part of the State of Tamil
D Nadu, as there was nothing in the contemplation of the contracting
parties that the goods wen: to be moved from one State to another, it
was held that it was not possible to take the view that the sales were
inter-State sales; and (ii) that the assessee was not selling specific or as-
certained goods, because the goods formed part of a larger stock within
the bonded warehouse and had, therefore to be separated and ap-
propriated to the contract as and when orders were placed by the
E
officers of the ship by description. Therefore, the sales were local sales
in view of the specific provision of section 4(2)(b) of the Central Sales
Tax Act, 1956, read with section 2(n), explanation (3) of the Act
(Tamil Nadu General Sales Tax Act, 1959), and were accordingly
taxable under the Act. Th(: Court did not find it necessary to consider
F the question whether the territory covered by the territorial waters
formed part of the State of Tamil Nadu or not.

Attention of the Madras High Court was drawn to the decision of
Andhra Pradesh High Court in Fairmacs Trading Company v. The
State of Andhra Pradesh (supra). The Madras High Court did not
examine the question in detail in the view it took.
G
In so far as the High Courts of Andhra Pradesh and Madras in
the said two decisions held that sales took place within the State, we
are in agreement.

H On the aspect of territorial waters, we hav~ set out hereinbefore
MADRASMARINE&CO. v. STATE OF MADRAS [MUKHARJI,J.J 251

-\ the contention of the respondents. But inasmuch as we hold that sales A
took place within State of Tamil Nadu where appropriation took place
it is not necessary to rest our decision in these matters on this question.

Mr. Desai drew our attention to the observations of Chief Justice
Lord Parker in the case of R. v. Kent Justices Ex Parle LYE and others, B
[1967] 1 'All England Report 560 at 564-65. But in this case it is not

I
necessary to consider that aspect in the view we have taken.

In any event, the sale took place when appropriation was made
and appropriation was made within the State of Tamil Nadu even if the
'. goods were not delivered. See in this connection the observations of
Lord, Goddard, G.J. in Furby v. Hoey. [1947] 1 All England Report c
236. There the respondent, an excise officer, filled in and sent to the
appellant at his licensed premises a form of order purporting to order a
l . variety of liquor, stating that delivery instructions would follow. Sub-
sequently, after licensing hours and at an unlicensed club, the respon-
dent filled up a form of delivery for one bottle of gin, which was taken D
by a messenger to the appellant's premises, and the gin was brought
back to and paid for by the respondent at the club. The appellant was
convicted at quarter sessions of selling by retail a bottle of gin at the
club without having taken out a licence, contrary to section 50(c) of
the Finance (1909-10) Act, 1910 of U.K. It was held that appropria-
tion, which completed the contract, took place at the licensed premises E
of the appellant and not at the club, and, accordingly, though guilty of
the offence of selling liquor out of permitted hours, the appellant was
not guilty of selling liquor on unlicensed premises as charged. In our
opinion that is the correct position and appropriation was made within
) the State of Tamil Nadu.
F
In our opinion as the goods were within the State of Tamil Nadu
in case of ascertained goods at the time when the contract of sale was
made and in case of unascertained goods at the time of their appropria-
tion to the contract by the seller,-sale must be deemed to be within
the State of Tamil Nadu.
G
In our opinion, therefore, Shri M.M. Abdul Khader, learned
/
counsel for the respondents was right that under section 2(n) of the
( Act read with explanation 3, these sales were within the State.

It may be mentioned that there was an amendment in 1976 of the
Central Sales Tax Act, 1956 by Act 3 of 1976. By that provision, the H
252 SUPREME COURT REPORTS (1986] 3 S.C.R.

A following was inserted in section 2 of the Central Sales Tax Act, 1956:

"(ab) "crossing the customs frontiers of India" meant cros-
sing the limits of the area of a customs station in which
imported goods or export goods are ordinarily kept before

I
clearance by customs authorities.
B
Explanation-For the purposes of this clause, "customs
station" and "customs authorities", shall have the same
meanings as in the Customs Act, 1962." ,

Mr. Desai sought to urge that this was declaratory and was valid
c for all the relevant years. Whether a law is a declaratory or not, de-
pends upon the Act and the language used. There was nothing in the
Act or object of the Act which stated that it was further to amend the
Central Sales Tax Act, 1956 that it was.declaratory and not prospective
in nature. Our attention was drawn to certain decisions, whether an
Act is retrospective and declaratory in operation or prospective would
D
depend upon the purpose of the Act, the object of the Act and the
language used. See in this connection the observation in The Central
Bank of India v. Their Workmen, (1960] 1 SCR 200; Keshavlal Jet-
halal Shah v. Mohan/al Bhagwandas & Anr., (1968] 3 SCR 623 and
Chanan Singh & Another v. Jai Kaur., (1970] 1 SCR 803 at 804-807.
But that amendent is not relevant in the view we have taken.
E
The short question, therefore, that arises in all these matters is
whether sale of the goods in question took place within the territory of
Tami!Nadu. In these cases sale took place by appropriation of goods.
Such appropriation took place in bonded warehouse. Such bonded \
warehouses were within the territory of State of Tamil Nadu. There-
F
fore, under sub-section (2),. sub-clauses (a) and (b) of section 4 of the
Central Sales-Tax Act, 1956, the sale of goods in question shall be
deemed to have taken plac:e inside the State because the contract of
sale of ascertained goods was made within the territory of Tamil Nadu
and furthermore in case of unascertained goods appropriation had
taken place in that State in terms of clause {b) of sub-section (2) of
G
section 4 of the Central Sales Tax Act, 1956. There is no question of
sale taking place in course of export or import under section 5 in this
case. From that point of view the amendment introduced by Act 103
of 1976 by incorporating in clause (ab) of section 2 of the Central Sales
Tax Act, 1956 does not affect the position. In this connection refer-
H ence may be made from the obse.rvations of this Court in Burmah
MADRASMARINE&CO. v. STATE OF MADRAS [MUKHARJI,J.[ 253

Shell Oil Storage Ltd., (supra) where it has heen held that customs A
barrier does not set a terminal limit to the territory of the State for
sales-tax purposes. Sale, therefore, beyond the customs barrier is still
a sale within the State. The amendment introduced in section 2 by the
Act 103 of 1976 does not affect the position because the custom station
is within the State of Tamil Nadu. That question might have been B
relevant if we were considering the case of sale by the transfer of
documents of title to the goods as contemplated by section 5 of the
Central Sales-Tax Act. In the premises we are unable to accept the
contentions urged on behalf· of the appellants in the Civil Appeals and
\.
also the contentions urged in the Writ Petition.

In the view we have taken, it is not necessary to express our c
opinion on the arguments whether introduction of clause (ab) of sec-
tion 2 of Central Sales Tax Act by Act 103 of 1976 is prospective or
not. We have, however, noted the submissions. That question, in the
light of our aforesaid views, is not material for the present con·
troversy. D

In the premises Civil Appeal No. 642 of 1974, Civil Appeal Nos.
1798-1800 of 1981 and Writ Petition No. 196 of 1974 are all dismissed
with costs.

So far as Special Leave Petitions Nos. 19243-44 of 1985 are con- E
cemed, the same are also dismissed. In these cases, however, the
parties will pay and bear their own costs.

M.L.A. Appeals and Petitions dismissed.