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Judgment
Rajagopala Ayyangar, J.—This is a Revision Petition filed by the Assessees against the order of the Sales Tax Appellate Tribunal.
The Assessees are dealers, among others, in pepper, having their head office at Bombay and a Branch at Kozhikode. In respect of their
turnover for the assessment year 1950-51, they submitted returns in form A-3, disclosing sales to the extent of Rs. 3,94,788-11-0, to the Deputy
Commercial Tax Officer, Kozhikode, who was the assessing officer. Out of this figure they claimed exemption in respect of a turnover of Rs.
4,504-1-9. They also produced their ledger, day-book. journals, etc., to the assessing officer who checked up their accounts and substantially
accepted their return and assessed them on a net turnover of Rs. 3,93,486-13-6, by his order, dated 15th December 1951. Subsequently the
Commercial Tax Officer, Malabar North, called for and examined the record of the assessment order passed by the Deputy Commercial Tax
Officer u/s 13(1)(i), of the Madras General Sales Tax Act, and finding that certain sales effected by the Assessees which had been disclosed in
their accounts had been incorrectly treated as not liable to inclusion in their turnover, issued notice to the Assessee on 28th February 1953, why
the assessment should not be rectified. After verifying the figures from the accounts which were called for, he added a sum of Rs. 5,07,753-9-0, to
the assessable turnover, and a demand for tax on this basis followed.
The Assessees took this order in appeal before the Sales Tax Tribunal, where they raised two points for its consideration. The first was that the
Commercial Tax Officer had no jurisdiction to revise the assessment in the manner in which he had done and the second that, on the merits, the
turnover of the sales which were included in their assessment by the Commercial Tax Officer was exempt from inclusion under Article 286(1)(b) of
the Constitution, as being sales in the course of export. The Appellate Tribunal rejected both the contentions and confirmed the order passed by
the Commercial Tax Officer. Hence the revision.
Mr. Nambiar, learned Counsel for the Petitioners (Assessees), raised the same two contentions before us as had been put forward before the
Tribunal.
The first point relates to the jurisdiction of the Commercial Tax Officer u/s 12(1) of the Act which is in these terms:
(1) The Commercial Tax Officer may--
(i) suo motu, or
(ii) in cases in which an appeal does not lie to him u/s 11, on application, call for and examine the record of any order passed or proceeding
recorded under the provisions of this Act by any Officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of
such order, or as to the regularity of such proceeding, and may pass such orders with respect thereto as he thinks fit.
The argument urged on behalf of the Petitioners is that on a proper construction of this provision, the Commercial Tax Officer could not convert
himself into an assessing authority and re-assess what is virtually an escaped turnover. Having regard to the facts of the present case, it is not
necessary to define exhaustively the scope of the revisional power u/s 12(1) of the Act or to consider whether it could enable the Commercial Tax
Officer to assess an escaped turnover. We are making this reservation particularly in view of the fact that this question is awaiting consideration at
the hands of a Full Bench in certain appeals which are pending. In the present case, the sales whose turnover was included in the Petitioners''
turnover by the Commercial Tax Officer were all in the books of account produced by the Assessees before the Assessing Officer. The
Assessees, however, had contended, when the matter was before him, that these sales were entitled to the constitutional exemption under Article
286(1)(b) of the Constitution and this had been accepted by him, without, however, formally so recording it in the assessment order. It was the
legality and propriety of this exemption that was considered by the revising authority u/s 12, and it is not, therefore, a case of an escaped turnover
at all, but a case where the propriety of an exemption which had been granted by the assessing authority was considered by the Commercial Tax
Officer. If the question were viewed in this light--and this is the only manner in which it could be approached--we do not understand Mr. Nambiar
to contest the jurisdiction of the Commercial Tax Officer. We are, therefore, of the opinion that in the present case the complaint that the
Commercial Tax Officer really purported to exercise the powers of an assessing authority is not made out. We, therefore, have no hesitation in
rejecting this objection to the assessment of the Petitioners.
The second point relates to the merits of the Petitioners'' case in regard to the inclusion of this turnover of rupees 5,07,753-9-0. Before
adverting to the contentions raised it will be convenient to refer to the admitted facts in relation to the sales occasioning this turnover. The added
turnover represents the sale-price of 616 bags of black garbled pepper sold by the Assessees under three contracts.
The first contract which is numbered as 80 was with Messrs. Mulji Rattanshi & Co. of Bombay and was for five tons. It was entered into by the
head office of the Assessees at Bombay on 4th December 1950. The price was 1,120 sh. per cwt. c. & f. London, the shipment to be during
January 1951. The terms as regards payment were that it was to be in Indian currency with exchange at one shilling 6/16 d.; 95 per cent cash
against shipping documents and the balance 5 per cent to be adjusted after weighment of the goods in London. There was a special note that the
shipping documents were to be in two lots each for 2 1/2 tons. This contract was signed in Bombay by the Assessees as sellers and Mulji
Rattanshi & Co., as buyers. This pepper was packed in 80 bags and marked as M.R.G.--the initials of the buyers. The goods in relation to this
contract were shipped in the vessel Clan Maclonnan of the Clan Line Steamers, Limited, from Cochin Port. Two bills of lading Nos. 42 and 43
were taken each for 2-1/2 tons, dated 25th January 1951, (40 bags) in the name of Messrs. Mulji Rattanshi and the goods were made deliverable
to their order. The goods were loaded into the steamer on 25th January 1951, and were made deliverable in London, freight to be paid at
destination. The Bombay office of the Assessees having received these bills of lading, prepared a pro forma invoice and despatched on 1st
February 1951, the two documents to the buyers. In the invoice it was stated that the goods had been shipped from Cochin to London by the
Assessees on account and risk of the buyers. As the freight was payable at destination a deduction was made in the price for this item and the
invoice made a claim for ninety-five per cent of the agreed price which came to Rs. 69,857-7-0. A cheque for the sum was issued by Mulji
Rattanshi on 2nd February 1951, and this was cleared by the Assessees on the 3rd. The balance of five per cent in respect of this contract was
received by the Assessees on 29th May 1951, after weighment, etc., in London.
The second contract of sale was with the Mills Export Import Co. also a firm carrying on business in Bombay. This was dated 29th December
1950, and the formal document recorded the Mills Export Import Co. as having purchased from the Assessee for the former''s clients in U.S.S.R.,
25 tons of black garbled pepper, new crop. The shipment of the goods was to be in the first half of February by vessel to be named by the buyers.
The price was fixed at Rs. 640 per cwt. f.o.b. Cochin, excluding export duty and less 2 per cent. To the bills of lading were to be attached
certificates as to weight and quality issued by the Indian Chamber of Commerce. The payment for these goods was to be by a letter of credit to be
opened in favour of the buyers and payable against documents in Bombay. The buyers were to hand over the credit to the sellers after receipt. This
contract was signed by the Assessees'' office in Bombay as well as by the buyers. The twenty-five tons were packed in four hundred bags and
marked M.E.I.C.O. They were surveyed by the Travancore Chamber of Commerce. The representative of the buyers, one Mr. Huss, was
apparently present at the time of the survey and handed over to the Assessees the freight to be paid to the shipping company. The goods were
thereafter taken to Cochin Port and loaded on board the vessel M.S. Kieldrecht which sailed to Port Said for transhipment to Odessa which was
the destination of the goods. The bill of lading, dated 23rd February 1951, was taken in this case also in the name of the buyers as consignor and
consignee and the goods were delivered to their order. As soon as the Assessees received the bills of lading from their representatives from
Malabar they prepared a pro forma invoice for the four hundred bags shipped from Cochin to Odessa by their representative Gandhi Sons, Ltd.,
on account and risk of Messrs. Mills Export Import Company, Bombay, and sent this along with the relevant bills of lading and certificates. The
price was paid by the buyers on 7th March 1951.
The third and the last contract was dated 25th January 1951, and was also with a firm in Bombay, viz., Messrs. Virchand Panachand & Co.,
Ltd., Bombay. It covered a sale of 8 1/2 tons of pepper. The shipment was to be during February 1951. The price was at sh. 1,200 per cwt. for
4-1/2 tons and sh. 1,000 per cwt. for 4-1/2 tons, cost and freight Tunis. The payment was to be cash against documents in Indian currency and as
usual it was signed by the buyers and sellers at Bombay. The goods were made up into two lots of 68 bags each and were marked V.P.S., being
the initials of the buyers. They were loaded on board the vessel ""President Harding"" at Cochin, and two bills of lading were taken on 9th February
1951, in the name of the buyers and deliverable to their order at Tunis via Naples. The bills of lading together with a pro forma invoice were
tendered to the buyers on 14th February 1951 at Bombay, and payment was received by the sellers on 15th February 1951.
It is the total of the sale price received under these three contracts amounting to Rs. 5,07,753-9-0, which, it is contended, is not liable to tax
by reason of Article 286(1)(b) of the Constitution which runs thus:
(1) No law of a State shall impose, or authorize the imposition of a tax on the sale or purchase of goods where such sale or purchase takes
place--
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
The argument of the learned Counsel for the Petitioners was that these three sales were ""in the course of export"" either as export sales or sales
which occasioned export as defined by the Supreme Court in the first Travancore Case or within the class of sales held to fall within the article by
the second Travancore Case inasmuch as the goods which were the subject of sale were actually exported outside the country; and as 1. the
property in the goods would, on the terms of the contracts, which provided for payment against shipping documents, pass to the buyers at the
earliest point only on the presentation of the shipping documents by which time the goods were already on the high-seas on their way to their
foreign destination; or 2. in any event by reason of the contracts of sale being on c. & f. or f.o.b. terms the title to the goods would remain with the
sellers at least till the goods were put on board the ships and, therefore, till such time as they entered the export stream; or 3. because the transfer
of property in the goods under the contracts took place by delivery of the bills of lading, which covered that transport abroad.
On the other hand, it was urged by the learned Assistant Government Pleader for the State that the sales in question were internal sales by the
Assessees who are local merchants to buyers with their head office at Bombay and possibly with local representatives within this State; that the
export was effected only by the buyers and not by the sellers and after the purchase by the former was complete, with the result that so far as the
Assessee''s sales are concerned they have no export element in them and so were outside the constitutional exemption as interpreted by the
Supreme Court in the second Travancore Case, viz. State of Travancore-cochin and Others Vs. Shanmugha Vilas Cashew Nut Factory and
Others, In this context, reliance was placed on the definition of ''Sale'' introduced into the Madras General Sales Tax Act in 1948 by explanation
(2) to Section 2(h) of the enactment which reads:
Explanation (2).--Notwithstanding anything to the contrary in the India Sale of Goods Act, 1930, the sale of purchase of any goods shall be
deemed, for the purposes of this Act, to have taken place in this State, wherever the contract of sale or purchase might have been made;
(a) if the goods were actually in this State at the time when the contract of sale or purchase in respect thereof was made,
The argument was that the liability to sales tax in respect of a transaction which would fall within the explanation to Section 2(h) of the General
Sales Tax Act would be operative except in so far as it is over-ridden by the constitutional exemption in favour of sales in the course of export.
We are in agreement that the approach to the question should be as suggested by learned Counsel for the State, namely, that explanation 2 to
Section 2(h) would determine the locus of the sale for the purpose of liability to sales-tax except to the extent such sales are taken out of the
purview of tax liability by the Constitution.
The first question that falls for consideration is whether the sales by the Assessees are export sales or those which occasioned the export as
explained by the Supreme Court in the first Travancore Case, viz. State of Travancore-Cochin and Others Vs. The Bombay Co. Ltd., We are
definitely of the opinion that they were not. The transaction dealt with by the Supreme Court related to sales of coir, lemon-grass oil and tea and
consisted of the export sales of those respective commodities to foreign buyers on either c.i.f. or f.o.b. terms. Their Lordships held that the sales
occasioned the export in each case and fell within the scope of the exemption under Article 286(1)(b), having been put through by employing the
machinery of export. The transaction was described as commencing from the agreement of sale with a foreign buyer and ending with the delivery of
the goods to a common carrier for transport out of the country by land or sea. The learned Chief Justice added:
Such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale and resultant export form parts of a single
transaction.... Assuming without deciding that the property in the goods passed to the foreign buyers and the sales were thus completed within the
State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must nevertheless, be regarded as having taken
place in the course of export and are exempt under Article 286(1)(b).
What was characterised by the Supreme Court as an export sale was one in which the Assessees figured as exporters-privity having been
established between them and the foreign buyer, either through direct negotiation or dealing, or through the local representatives of the latter. That
certainly does not obtain here. The Assessees were in no sense the exporters of these goods. The position appears to be that the three merchants
in Bombay who entered into their respective contracts with the Assessees were themselves the purchasers whether their purchases were on their
own behalf or on behalf of undisclosed foreign principals, between the latter of whom and the Assessees there was no privity. Undoubtedly an
export took place here. But in that transaction the Assessees were not the sellers who exported or whose sales occasioned the export. A sale will
occasion an export or there will be an export sale as understood by the Supreme Court only where the sale is to a foreign buyer with whom the
local seller has privity and when as a direct result of such sale the goods are transported across the frontier.
We have next to consider whether the sale was otherwise in the course of export as understood in the second Travancore Case. The actual
decision related to the question whether purchase of goods by a dealer who bought them with a view to exporting them or to implement contracts
for export already entered into, was a sale or purchase ''in the course of export'' within Article 286(1)(b) and the Court by a majority answered it
in the negative. The argument advanced by the Counsel for the State here is that in the present case also, the export was by the Bombay buyers
after their purchases were complete and that in consequence the sales by the Assessees were not in the course of export. A close examination of
the facts however clearly establishes that these three sales of the Assessees are sales in the course of export falling within the constitutional
exemption. The crucial question to be considered in this connection is whether the sellers continued to be the owners of the goods up to or beyond
the time when the goods, so to speak, entered the export stream. In the majority judgment of the Court the position as regards transactions which
fall within Article 286(1)(b) was thus explained:
What is exempted under the clause is the sale or the 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....
As Clause (1)(b) is concerned only with exempting certain sales or purchases from taxation by the States in this country, it is sufficient to determine
where the course of export begins or where the course of import ends. In this connection it is useful to remember that the power to make laws with
respect to duties of customs including export duties and also with respect to import and export across customs frontiers and the definition of
customs frontiers is vested exclusively in the Central Legislature and detailed provisions have been made in the Indian Sea Customs Act, 1878, for
the levy of customs duties by the officers of the Central Government who are stationed along the customs frontiers as defined by the Central
Government where, after appraising the goods exported or imported, the duties chargeable, if any, are computed and levied, and it is not until this
process is completed, that the goods can be shipped for transportation or cleared by the consignee or his representatives as the case may be. It
would seem, therefore, logical to hold that the course of the export out of, or of the import into, the territory of India does not commence or
terminate until the goods cross the customs frontier.
In the light of the law as thus expounded, we have to consider whether the Assessees have been able to establish that they remained the owners of
the goods until after the goods had crossed the customs barrier, for, if the agreement of sale entered into by them took effect and became a
completed sale, only thereafter, as the goods started on the course of export, at that stage the sale by them would be one ""in the course of export
to which Article 286(1)(b) would apply. The following features of these contracts have to be considered: contracts 1 and 3 which were for
delivery in London and Tunis respectively were on c. & f. terms, while contract No. 3, namely, wherein the goods were shipped to Odessa the
price was on f.o.b. terms. We shall consider these two sets of contracts separately. There are two stipulations in the c. & f. contracts to be
noticed. Beyond the stipulation about the prices, there was also a condition regarding shipment and payment against documents. The learned
Assistant Government Pleader relied on two other matters in these transactions, (i) that freight was deducted from the invoice though the price was
fixed as inclusive of the freight and (ii) the note in the invoices that the goods were to be on account and risk of the buyers. We shall advert to these
in their proper places.
There cannot now be much controversy as regards the incidents of a c.i.f. or c. & f. contract. Referring to them Lord Wright said in Smyth &
Co. v. Bailey & Co. (1940) 3 All. E.R. 60 (H.L.):
The initials indicate that the price is to include cost, insurance and freight. It is a type of contract which is more widely and more frequently in use
than any other contract used for purposes of seaborne commerce. An enormous number of transactions, in value amounting to untold sums, are
carried out every year under c.i.f. contracts. The essential characteristics of this contract have often been described. The seller has to ship or
acquire after that shipment the contract goods, as to which, if unascertained, he is generally required to give a notice of appropriation. On or after
shipment he has to obtain proper bills of lading and proper policies of insurance. He fulfils his contract by transferring the bills of lading and the
policies to the buyer. As a general rule, he does so only against payment of the price, less the freight which the buyer has to pay. In the invoice
which accompanies the tender of the documents on the ""prompt""--that is the date fixed for payment--the freight is deducted, for this reason. In this
course of business, the general property in the goods remains in the seller until he transfers the bills of lading.
Incidentally it may be mentioned that this extract answers one of the points raised by the learned Assistant Government Pleader regarding the
deduction of freight in the invoice prepared by the Assessees. If the contract entered into by the Assessee is a c. & f. contract--and this is not
disputed by the State--in the absence of any express stipulation, the property in the goods would remain with the seller until the bills of lading are
tendered to the buyer.
It is, however, contended on behalf of the State that the property in the goods passed to the buyers before the goods crossed the customs
office at the Cochin port. There is no dispute that at the time of the agreement of sale, the contracted goods were unascertained and, therefore, u/s
18 of the Sale of Goods Act the property in the goods would not be transferred to the buyers unless and until the goods were ascertained. It is
urged that there was an ascertainment and an appropriation of the goods to the contract, immediately the sellers packed the goods in gunny bags
and marked them with the initials of the buyer for being consigned under the contract. For this purpose reliance is placed on Section 23(1) of the
Sale of Goods Act which is in these terms:
(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable
state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller,
the property in the goods thereupon passes to the buyer. Such assent may be express or implied and may be given either before or after the
appropriation is made.
There can of course be no dispute that, in the present case, whatever appropriation there was by reason of packing the goods in the gunny bags
and marking them with the buyers'' initials, must be taken to have been by the sellers with the assent of the buyers for, as packing and marking
were to be done by the sellers, the assent of the buyers might be implied and, therefore, this condition would be satisfied. But the question is: was
this appropriation unconditional? In this context Section 23 has to be read with the provisions enacted in Section 25 of the Act which runs thus:
(1) Where there is a contract for sale of specific goods--or where goods are subsequently appropriated to the contract, the seller may, by the
terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled. In such a case notwithstanding
the delivery of the goods to a buyer, or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not
pass to the buyer until the conditions imposed by the seller are fulfilled.
(2) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the seller or his agent, the seller is prima facie
deemed to reserve the right of disposal.
(3) Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading to the buyer together, to secure
acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honour the bill of exchange and if he
wrongfully retains the bill of lading, the property in the goods does not pass to him.
Did the sellers in the present case by the terms of the contract or appropriation reserve the right of the disposal in the goods until certain conditions
were fulfilled? In dealing with this a point made on behalf of the State might be noticed, viz., that the bills of lading were taken in the name of the
buyers making the goods deliverable to their order. This feature would undoubtedly render Sub-section 2 of Section 25 unavailable to the
Assessee, but there is abundant authority for the view that the taking of a bill of lading in the name of a buyer does not ipso jure negative a
conditional appropriation or the reservation of a right of disposal. If authority is needed reference may be made to the decision in Moakes v.
Nicolson (1865) 19 C.B. (N.S.) 290, and The Kronprinsessan Margareta, The Parana, etc. (1921) 1 A.C. 486, 514. In the later case the bills of
lading were taken in the consignee''s name and these were sent with an invoice and a sight draft for its amount through collecting agents of the
consignors to be presented to the bank. The question was whether the property in the goods passed to the neutral sellers on shipment, or whether
this occurred only on payment of the draft. LORD SUMNER delivering the opinion of the Privy Council said:
In these circumstances what can be inferred as to the passing of the general property? What is there to show an intention to pass that property for
anything less than payment, and what motive is there for such an intention? The Appellants, Messrs. Lundgren & Rollven, have to show that it
passed to them and passed, too before the beginning of the voyage. If it did, then the consignors no longer owned the goods and had nothing to
show against them except a draft of their own, which could not be enforced, and a bill of lading, which would not entitle them to delivery of the
goods, though its retention might seriously inconvenience the new owners, the consignees. Rights to stop in transitu, or to exercise an unpaid
vendor''s lien need hardly be discussed, for, on a question of intention in fact as to which there is a good deal of evidence, it would be artificial to
assume that the consignors'' minds were actually determined to the contrary by consideration of legal remedies, of which it is not shown that they
had any knowledge, let the legal presumption be what it will....
...Cases, in which it has been held that taking the bill of lading in the shipper''s own name negative any unconditional appropriation to the buyer by
the delivery of the goods on shipboard and indicates one conditional on the documents being taken up, can throw only an indirect light on the
question here involved. Certainly no case was found, in which it was held that taking the bill of lading in the buyer''s name, while withholding
delivery of it until presentation and taking up of the documents, would not be, as an appropriation, equally conditional.
These considerations apart, this argument even if accepted, would not very much help the Government case. At best it would support a
contention that the property in the goods passed when the goods were loaded on board the vessel and the bill of lading was taken. But by that time
the goods, if they were liable to export duty, would have paid those duties and been cleared out of the customs and entered the. export stream
and, therefore, would be ""in the course of export"". We are unable to uphold the contention of the learned Assistant Government Pleader that on
the terms of this c. & f. contract there was an unconditional appropriation of the goods to the contract sufficient to pass property in them to the
buyers on the goods being packed and marked with the buyers'' initials in the warehouse of the sellers at Kozhikode. Dealing with a notice of
appropriation which had been given by a seller to a buyer under a c.i.f. contract and its effect on passing property, Lord Wright stated in Smyth &
Co. v. Bailey & Co. (1940) 3 All. E.R. 60 (H.L.) already referred to at page 65:
I have already quoted the opinion of the Court of Appeal that the result of the appropriation was that the property in the 15,444 quarters passed to
the buyers under the Sale of Goods Act, 1893.... The notice of appropriation under an ordinary c.i.f. contract is not intended to pass, and does not
pass, the property. Where as here, the sale is of unascertained goods by description, there are, at that stage, no goods to which the contract can
attach. The seller is free to appropriate to the contract any goods which answer the contract description. This he does by the notice of
appropriation which specifies and defines the goods to which the contract attaches. These thereupon he is bound to deliver and the buyer is bound
to accept, subject to the terms of the contract. That, however, does not involve the passing of the property. The property cannot pass under a
contract of sale until the goods are ascertained...but once they are ascertained, the property passes at the time when the parties intend it shall. As
the parties seldom express any such intention, or perhaps even think of it, the intention will generally be a matter of inference from the terms of the
contract, the conduct of the parties, and the circumstances of the case.
Then Section 18 (corresponding to Sections 20 to 24 of the Indian Sale of Goods Act) gives some general rules which are to apply ""unless a
different intention appears"". Of these rules, the Court of Appeal rely on Rule 5(1) (corresponding to Section 23 of the Indian Sale of Goods Act).
The assent is generally inferred from the terms of the contract or the practices of the trade. Sub-rule 2 deals with the delivery of the goods to the
carrier for transmission to the buyer without reserving the rights of disposal and provides that in such a case there is deemed to be an unconditional
appropriation. This latter sub-rule, which only deals with delivery to the carrier and not with actual notice of appropriation, is disregarded by the
Court of Appeal. In such event, the carrier receives and holds the goods for the buyer, so that in law they are delivered to the buyer.... However,
the Court, I venture to think, should not have disregarded the word ''unconditionally'' in Sub-rule 1. I do not construe Sub-rule 1 as limited to a
case where there is an express term that the notice of appropriation is unconditional, or on the other hand, to a case where the notice of
appropriation is in terms conditional.... In this case the facts known to both parties would import that the appropriation was conditional. The bills of
lading were held by the Appellants. The contract provided for cash or (at sellers'' option) an acceptance of sellers'' draft against documents. That
condition for the transfer of the document had not been fulfilled. The bills of lading were the symbols of the goods, and the Appellants, by retaining
them, retained as against the Respondents'' title and control over the goods. All the Respondents had at that stage was a contractual right to obtain
control, and thereby become owners upon taking up the documents. It is impossible, in my opinion, to hold that the notice of appropriation was,
even apart from the express reservation, unconditional.
In the present case there was no notice of appropriation as such but only an appropriation in fact. Even if this appropriation was with the assent of
the buyer, it was certainly not unconditional because the seller had further duties in connection with the goods which included loading them on
board the ship and obtaining proper bills of lading for conveyance of the goods to the contracted destination and the seller in his turn was entitled
to payment in exchange for these shipping documents. In these circumstances, we are unable to hold that on the terms of this contract the property
in the goods passed to the buyer when the goods were packed and marked in the godowns of the seller.
When did the property pass thereafter? These goods were after being packed and marked transferred by rail from Calicut where they were at
the time of the agreement of sale to Cochin. If at that stage, the railway receipts had been taken in the name or to the order of the buyers, the
property in the goods might have passed to the buyer under the terms of Section 23(2) of the Sale of Goods Act. But this could not obviously
happen for two reasons. Firstly, it was part of the duty of the sellers to transport the goods up to the steamers waiting to receive them at the
Cochin harbour. This part of their duty they could not discharge if the railway receipts were taken in the name of the buyers. Secondly, there was a
term in the contracts under which they were entitled to be paid the price before the documents were handed over. In these circumstances, the
delivery to the carrier during the course of the transport from Calicut to Cochin was not a delivery to an agent of the buyers but the goods were
conveyed as the goods of the sellers who still remained their owners.
When the goods arrived at the Railway station at Cochin and were taken delivery of by the sellers through their representatives and cleared
through the customs, the goods still remained their property. They were then placed on board the ships and bills of lading were taken in the name
of the buyers as consignor. This would be the earliest point of time when any contention could be raised that the property in the goods passed to
the buyers. The bills of lading though taken in the name of the buyers were retained by the sellers and were deliverable only'' against payment. Two
views are possible as to the inference to be drawn from the goods being consigned in the name of the buyers. One is that the seller reserves the jus
disponendi in himself till the documents are presented to the buyer and the payment is made. That is the case which is provided by Section 25(3) of
the Sale of Goods Act. The other is that the property passes immediately and the seller retains possession of the bills only for the purpose of
claiming a lien on the goods to secure payment of the price, he having parted with the property in them. That the first of the above alternatives is the
normal rule would appear to be favoured by the judgment of the Supreme Court in The The Commissioner of Income Tax, Madras Vs. Mysore
Chromite Limited, Vide also the passage from the judgment of Lord Sumner in the Parana already extracted.
The learned Assistant Government Pleader invited our attention to the decision of a single Judge of the Calcutta High Court in Juggernath
Augurwallah Vs. E.A. Smith and Co. and Another, as deciding that in cases of this sort the property in the goods passes immediately after
appropriation. That case was concerned with the title of the pledgee of goods from a buyer who had purchased unascertained goods for shipment
abroad. Clause 13 of the agreement of sale provided for payment in these terms:
Cash on delivery of mate''s dock receipts or as provided for in Clauses 8, 9 and 11. Should the said receipts or warrants be retained by the buyers
for examination, they shall remain the property of the sellers and be held by the buyers in trust for and at the absolute disposal of the sellers, until
payment has been made in cash in terms of this contract, and if payment be made by cheque, until such cheque has been cashed.
The jute which was the subject-matter of the contract was packed in bales and having been marked with the buyer''s marks were to be placed
alongside the steamer and mate''s receipts obtained. These were handed over to the buyers who applied to the master of the vessel and obtained
the relative bills of lading which they negotiated with a bank and appropriated the money to themselves. The question was whether the bank was
entitled to the goods as against the sellers who had not been paid the price. The whole question in that case turned upon whether by Clause 13 of
the agreement the sellers intended to retain merely a special property in the goods in order to secure the price or had retained the right of disposal
with the result that no property in the goods passed till they were paid. Sale, J., held that only a special property was retained the property in the
goods having passed to the buyer by reason of an unconditional appropriation of the goods to the contract with the assent of the buyer. The
appropriation is referred to by the learned Judge in these terms at page 554:
In the present case it is shown that 1,000 bales of jute bearing the contract mark were appropriated to the contract by the Plaintiffs, that they were
sent alongside the Uganda and shipped in due course at the request of the Defendant-firm and that the mate''s receipts granted in respect of the
goods show that the goods so shipped were marked with the private mark of the Defendant-firm in red ink as required by their shipping
instructions. These facts in my opinion afford abundant prima facie evidence that the goods in question were appropriated to the contract by the
Plaintiffs, and that such appropriation was assented to by the Defendant-firm.
There was an appeal against this judgment which came up before a Special Bench whose judgment was reported in Juggernath Augurwallah v.
E.A. Smith (1906) ILR 34 Cal. 173 (S.B.). The passage from the judgment of Sale, J., which we have extracted above, was quoted with approval
by Maclean, C.J., and was made the basis of the affirmance. This decision, therefore, cannot help the Government in their contention that the
property in the goods passed to the buyer before they reached the customs frontier at Cochin. Further in passing, we might mention that u/s 21 of
the Sale of Goods Act, if the seller has something to do for the goods for the purpose of putting them into a deliverable state the property in them
does not pass until this is done. Under the contracts in the present case, as it was the duty of the sellers to load them on board the ships and take
proper bills of lading covering their transport to the named destinations, until this duty was accomplished, the title in them would not pass unless
there was any indication elsewhere in the contract pointing to a different intention.
The second contract for the delivery of the goods at Odessa and which is on f.o.b. terms stands on a very similar footing and even in that case
the property in the goods would pass at the earliest only when the goods are put on board. We might mention that the Supreme Court in The The
Commissioner of Income Tax, Madras Vs. Mysore Chromite Limited, , already referred to deal with cases of f.o.b. contracts also and their
decision holding that the property in the goods passed only in London when the documents were tendered and payment made against them would
appear to be decisive against the Government''s contention of the property passing at any stage earlier than the loading of the goods.
Only the point remains to be dealt with and that is the reference in the invoice that the goods have been shipped on account and at the risk of
the buyers. It will be seen that this refers to the situation after the shipping and therefore to the extent to which it states that the risk attachesshipment, it contradicts the Government''s case of the passing of the property at any earlier stage.
We, therefore, hold that the property in the goods did not pass to the buyer until the relevant bills of lading were presented to the buyers or in
any event at least not until the goods were put on board the vessels at Cochin harbour. In this view as admittedly the goods were booked and had
started on their journey to a foreign destination at the moment when the title in the goods passed to the buyer, there was ""a sale in the course of
export"" entitling the Assessees to the constitutional exemption under Article 286(1)(b) of the Constitution.
It is unnecessary to consider the further contention raised on behalf of the Petitioners that as in the present case the transfer of property was
effected only by the delivery of the bills of lading when the goods represented by them were already on the high seas, the transaction was clearly a
sale in the course of export specifically referred to by the Supreme Court in the second Travancore case.
In the result, the Petitioners'' contention that the turnover totalling Rs. 5,07,753-9-0, being the sale price involved in the three contracts dealt
with above was entitled to the constitutional exemption under Article 286(1)(b) of the Constitution was well founded and the inclusion of this in
their turnover was erroneous. The order of the Sales Tax Appellate Tribunal including this turnover in the assessment of the Assessees is set aside.
The petition is accordingly allowed with costs.