Law Commission Of India Report No. 2
Parliamentary Legislation Relating to Sales Tax
Forwarded to the Union Minister of Law and Justice, Ministry
of Law and Justice, Government of India by M.C. Chagla, Chairman, Law Commission
of India, on July 2, 1956.
|
Chairman,
My
Dear Minister,
Law Commission, New Delhi, July 2, 1956. 1. I have great pleasure in forwarding herewith the Second Report of the Law Commission dealing with the principles to be embodied in Parliamentary legislation relating to Sales-tax. 2. On the 23rd March, 1956 the Ministry of Law referred to the Commission the question of the principles that should be formulated by Parliamentary legislation for determining when a sale of goods takes place (a) outside a particular State, (b) in the course of import or export, or (c) in the course of inter-State trade or commerce. 3. The reference was considered at a meeting of the Statute Revision section of the Commission held on the 14th April, 1956 and a Committee consisting of Sri G.S. Pathak and Sri G.N. Joshi was appointed to make a preliminary study of the question. The subject was again discussed at the next meeting of the section held on the 11th March, 1956. Thereafter a note prepared by the Committee was circulated to all Members of the Commission and their views invited thereon. The views solicited and the note prepared by the Committee were fully and finally discussed at a meeting of the Statute Revision section held on the 9th and 10th June, 1956. Certain conclusions were reached at that meeting and it was left to the Chairman to prepare the Report in the light of the discussion. 4. In view of the request of the Ministry that the Report might reach them early so that the preparation of the necessary Parliamentary legislation might be expedited, the Report is being submitted though it has not yet been formally signed by the Members. The Report has, however, been circulated to all the Members and the concurrence of all the Members excepting that of Sri S.M. Sikri who is out of the country has been obtained. The Report will be signed by the Members at the ensuing meeting of the Commission to be held on the 21st July, 1956. Dr. N.C. Sen Gupta will sign the Report subject to a separate note, a copy of which has been annexed to the Report. 5. The Commission wishes to acknowledge the services rendered by its Joint Secretaries Sri K. Srinivasan and Sri D. Basu in connection with the preparation of the Report. Yours sincerely, M.C. Setalvad. Sri C.C. Biswas, Minister of Law & Minority Affairs, New Delhi. |
Parliamentary Legislation Relating to Sales Tax
I. Preliminary
1. The Law Commission was invited to
offer its suggestions for formulating principles for determining when a sale of
goods takes place?
(i) outside a State;
(ii) in the course of the import of the goods into, or export
of the goods out of, the territory of India;
(iii) in the course of inter-State trade or
commerce.
2. At the date of the reference to the Commission, the
Constitution (Tenth Amendment) Bill had been introduced in Parliament and under
it Parliament was to be empowered to formulate by law principles for determining
when a sale or purchase of goods takes place in any of the ways mentioned above.
The Bill has since been passed by both Houses of Parliament.
3. Broadly speaking, the proposed Constitutional Amendment seeks
to curtail the power of States to levy taxes on the sale or purchase of goods
other than newspapers by providing that that power is to be subject to the power
of the Union to levy taxes on the sale or purchase of goods other than
newspapers where such sale or. purchase takes place in the coarse of inter-State
trade or commerce. The taxes levied by the Union in exercise of this added power
are to be assigned to the States. The Amendment seeks to empower Parliament by
law to formulate principles not only for determining when a sale or purchase of
goods takes place in the course of inter-State trade or commerce but also for
determining when a sale or purchase takes place in. the course of import into or
export out of the territory of India or outside a particular State.
4. The proposed Constitutional Amendment closely follows the
recommendations of the Taxation Enquiry Commission in this respect. Their main
purpose in recommending that Parliament should have power to tax inter-State
transactions and that it be empowered by law to determine the principles above
mentioned was to ensure that the tax, if any, on these transactions should not
exceed limits which Parliament in the interest of the country as a whole
considers reasonable and that the principles laid down not having the rigidity
of Constitutional provisions may be varied in accordance with the economic needs
of the country from time to time. (Report of the Taxation Enquiry Commission,
Vol. III, pp. 48-60, paras 7-22).
II. Sales Or Purchases In The Course of Import or
Export
5. It is convenient to take first the question of the
appropriate principles to determine when a sale or purchase takes place in the
course of import or export. The formulation of these principles presents the
least difficulty.
6. In the Tranvancore-Cochin case, 1952 SCR 1112 and 1954
SCR 53, the Supreme Court considered Article 286(1)(b) and held that the
clause covered two of case: (i) sales and purchases which themselves occasioned
the import or export, (ii) sales or purchases effected by a transfer of shipping
documents when the goods are beyond the customs frontiers of India.
7. The interpretation put by the Supreme Court on the clause was
considered by the Taxation Enquiry Commission who stated that the position
arising from the interpretation put by the Supreme Court was "perfectly
satisfactory so far as foreign trade is concerned." (T.E.C. Report, p. 48, para
7). The Law Commission had also before it the views of the Ministry of Finance
on this question. The Ministry was of the view that the decision given by the
Supreme Court had been accepted by almost all the States and no difficulties
were reported to have arisen as a result of the Supreme Court Judgment.
8. Reference may here be made to the view expressed by DAS J. in
his dissenting judgment in the second Travancore-Cochin Case (1954 SCR
53) that a sale or purchase in the course of import or export includes
the first sale after import except by a retailer and the last purchase preceding
the export. This view was based partly on an interpretation which laid stress on
the word "course" in the expression "in the course of import or export" used in
the Constitution. It also arose from a desire not to impede the import or export
trade of the country by subjecting sales or purchases linked with the importing
sale or exporting purchase to the burden of the sales-tax. In so far as the
latter consideration is concerned the views of the Taxation Enquiry Commission
and the Finance Ministry would seem to show that the apprehension that the
import or export trade of the country would be impeded if the majority
interpretation of the clause were accepted is not well founded. In so far as the
view is based on the interpretation of the word "course", in our opinion that
approach, if logically pursued, will not stop with the sale following the import
or the purchase preceding the export. The stream of export may legitimately be
said to commence even at the stage of the production of raw materials or of the
manufacture of finished goods intended for export. In this connection the
following observations of MCKENNA J. in Heisler v. Thomas Collery
Co. made in dealing with the question of inter-State commerce are
pertinent: [(1922) 260 US 245].—
"If the possibility or, indeed certainty, of exportation of a
product or article from a State, determines it to be in inter-State commerce
before the commencement of its movement from the State, it would seem to follow
that it is in such commerce from the instant of its growth or production; and in
the case of coals, as they lie on the ground."
We do not, therefore, see any
justification for recommending the adoption of this view.
9. The Ministry of Commerce and Industry has mentioned the
desirability of including the last purchase preceding the export as a
transaction in the course of export on the ground that the exemption of such
transactions from tax will stimulate exports. It was not, however, suggested
that a similar exemption should be granted to the first sale following the
import. It appears to us to be somewhat illogical that the last purchase
preceding the export should be exempt whereas the first sale following the
import should not be exempted. We are, therefore, unable to accept this
suggestion.
10. Under this head, we, therefore, recommend the acceptance of
the principles laid down by the Supreme Court. We would express them in the
following manner:—
A sale or purchase of goods shall be deemed to take place in the course
of export of the goods out of the territory of India, only if the sale or
purchase either occasions such export or is effected by a transfer of documents
of title to the goods after the goods have crossed the customs frontiers of
India.
A sale or purchase of goods shall be deemed to take place in the course
of import of the goods into the territory of India, only if the sale or purchase
either occasions such import or is effected by a transfer of documents of title
to the goods before the goods have crossed the customs frontiers of India.
III. Inter-State Sales or Purchases
11. In
considering the principles for determining when a sale or purchase takes place
in the course of inter-State trade or commerce, two important aspects have to be
borne in mind. First, such a sale or purchase is not to be exempt from tax as in
the case of a sale or purchase in the course of import or export. It is to be
taxed by the Union. Secondly, the proceeds of such a tax are under the amended
Article 269 to be assigned to the States. These sales have to bear the burden of
the sales-tax but the burden is to be strictly limited by the Union in the
interest of trade and commerce throughout the territory of India which has,
according to the policy underlying the Constitution, to be free and
unrestricted.
12. No doubt the expression "in the course of inter-State trade or
commerce" has a very wide connotation. In India we are, however, not concerned
with the regulation of commerce generally among several States as under the
commerce clause in the American Constitution. What we have to determine is what
is a sale or purchase in the course of inter-State trade or commerce. The
problem, therefore, is to ascertain what transactions of sale or purchase can
fairly be said to arise in the course of inter-State trade or commerce. For this
purpose we have to fix upon some characteristics of these transactions which can
well be said to stamp them with an inter-State character. In the large mass of
American decisions under the commerce clause the one element which is stated to
be an indispensable incident of commerce between the States is the movement of
the goods which are the subject-matter of the sale or purchase from one State
into another. We may refer in this connection to the definition of "inter-State
commerce" given by Rottschafer in his "Constitutional Law" (1939 Edn., p. 299):—
"The activities of buying and selling constitute inter-State
commerce if the contracts therefor contemplate the movement of goods in
inter-State commerce".
Later he adds (p. 235):
"The decisive factor that renders making a contract an act of
inter-State commerce is that it contemplates or necessarily involves the
movement of goods in inter State Commerce and this test applies whether it be a
contract to buy or one to sell".
13. It will be noticed that in the
American view even a contemplated movement of goods which in fact may not have
taken place would invest the transaction of sale or purchase with an inter-State
character. Such a wide view based on the intention of the parties to the
contract may, we think, well lead to uncertainty and difficulties in
administration and conflicting legal views. We would, therefore, recommend a
simpler and a more certain test to determine whether a transaction of sale or
purchase is an inter-State transaction. Only a transaction which has in fact
occasioned the movement of goods from one State into another should be regarded
as an inter-State transaction. Such a test would be easy to apply by the
authorities administering the law as what will have to be ascertained will be
the physical movement of the goods from one State into another in consequence of
the transaction. Such a test has the added advantage of being similar to and
parallel with the test which we have proposed for determining when transactions
take place in the course of import into or export out of the territory of India.
As a sale or purchase which has occasioned import or export is one in the course
of import or export so is a sale which has occasioned movement of the goods from
one State into another a sale in the course of inter-State trade or commerce.
14. Such a test will avoid the necessity of entering into the
difficult question as to when inter-State trade or commerce begins and when it
ends, a subject on which there is a mass of decisions of the American courts.
15. A sale or purchase should itself have occasioned the movement
of the goods from one State into another in order that it may have an
inter-State character. If a purchaser in State A completes a purchase of goods
in that State the transaction will be an inter-State transaction even though he
may have the intention after the purchase of sending the goods to State B and
does in fact do so. The sale made to him or the purchase made by him has not
occasioned the movement of the goods from one State into another. Similarly if a
purchaser from State A goes to State B and purchases goods in State B the
transaction again will be of an inter-State character though the purchaser may
have purchased the goods with a view to send them to State A and does in fact do
so. The sale to him or purchase by him has again not occasioned the movement of
the goods from State B into State A. When, however, in consequence of a sale or
purchase goods are delivered to a carrier or other bailee for transmission to
another State the transaction would clearly be of an inter-State nature.
16. The question whether on the analogy of the principles adopted
in connection with sales or purchases in the course of import or export a sale
effected by the transfer of documents during the movement of goods from one
State to another should be regarded as an inter-State sale or purchase has
received our careful consideration. We are of the view that such sales or
purchases should be regarded as inter-State transactions. It was suggested that
if the rate of inter-State tax happened to be lower than the rate of the tax
levied by the State on intra-State transactions the adoption of this principle
might lead to attempts by dealers to evade the higher tax of the State by giving
intra-State transactions the appearance of inter-State transactions by the
creation of fictitious records showing the movement of the goods from one State
into another. We are not inclined to attach much importance to this suggestion
as in any case the sale or purchase will not escape taxation altogether and it
is unlikely that dealers would resort to such attempts in order to save the
difference between the inter-State and the intra-State tax. Moreover, if this
principle is not applied considerable administrative and other difficulties will
arise. We are, therefore, of the view that sales and purchases effected by a
transfer of documents during the movement of goods from one State to another
should be regarded as inter-State transactions.
17. For the limited purpose of the principle mentioned in the
preceding paragraph it will become necessary to provide when the movement of the
goods is to be regarded as having commenced and terminated in cases where goods
are delivered to a carrier or other bailee for transmission to another State.
For this purpose we propose to frame a principle based on the provisions of
section 51 of the Sale of Goods Act.
18. The principles for determining when a sale or purchase takes
place in the course of inter-State trade or commerce may be framed in the
following manner:—
"A sale or purchase of goods shall be deemed to take place in
the course of inter-State trade or commerce, only if the sale or purchase—
(a) occasions the movement of the goods from one State to
another, or
(b) is effected by a transfer of documents of title to the
goods during their movement from one State to
another.
Explanation.—Where goods are delivered to a carrier or other
bailee for transmission, the movement of the goods shall, for the purposes of
sub-clause (b), be deemed to commence at the time of such delivery and terminate
at the time when delivery is taken from such carrier or bailee."
IV. Sales or Purchases Outside A State
19. The laying
down of principles for determining when a sale or purchase takes place in the
course of inter-State trade or commerce does not relieve us of the necessity of
laying down principles for determining when a sale or purchase takes place
outside a State. The Taxation Enquiry Commission has pointed out that all
transactions of sale or purchase not made in the course of import into or export
out of the territory of India should suffer sales-tax which is increasingly
becoming one of the main sources of the revenues of States. At the same time
provisions have to be framed to prevent the same transaction of sale or purchase
being taxed by more than one State. The main purpose of Article 286(1)(a) is to
prevent the multiple taxation of a single transaction. A test which can be
applied with little difficulty in order to determine whether a transaction of
sale or purchase is without or within a State can alone prevent such overlapping
taxation.
20. As stated by the Supreme Court, the general law of the sale of
goods while it lays down when a sale takes place nowhere provides where a
sale is deemed to take place. The problem of giving a situs to a sale is not
free from difficulty. A transaction of sale has several ingredients. The
essential ingredients are:
(a) the conclusion of the contract of sale,
(b) the appropriation of the goods to the contract,
(c) the passing of the property in the goods,
(d) the payment of the price, and
(d) the delivery of the goods.
One or more of these
ingredients have been used in the 'legislation enacted by the States for fixing
the situs of a sale within a particular State. The question for consideration is
which out of these ingredients affords a certain and easily workable basis for
fixing the situs of a sale.
21. The Explanation to Article 286(1)(a) which is now proposed to
be omitted attempted to fix as the situs of a sale the State in which goods were
actually delivered for consumption. That attempt led to numerous difficulties.
Controversies arose as to what constituted actual delivery and consumption. In
effect that provision laid down that the tax should go with consumption and that
the exporting State should not be entitled to levy any part of it. As pointed
out by the Taxation Enquiry Commission the Constitutional provision as
interpreted. placed the exporting States and States with a backward economy in a
disadvantageous position. (T.E.C. Report, p. 48, para. 8). In selecting the
appropriate ingredient with reference to which the situs of a sale may be
determined these considerations will have to be borne in mind.
22. We are of the view that the location of the goods will be a
very suitable test to apply in determining the situs of a sale. The physical
existence of the goods at a place at a particular time is easily capable of
ascertainment and such a test will avoid legal controversies. The difficulty,
however, is in fixing the point of time at which the location of the goods
should be taken as determining the situs of the sale. Is it to be the time of
the making of the contract or the appropriation of the goods to the contract or
the passing of the property in the goods or the delivery of the goods? We have
given very careful consideration to the various questions which would arise in
the event of one or the other of these points of time being taken with reference
to the location of the goods as indicative of the situs of a sale. We have come
to the conclusion that in the case of all sales of specific or ascertained goods
their location at the time of the making of the contract of sale should
determine their situs for the purpose of Article 286(1)(a). In regard to
unascertained or future goods two views were considered by us. It was suggested
that in regard to such sales the location of the goods at the time when the
goods first became ascertained should be taken as the situs of the sale. The
other suggestion was that the location of the goods at the time of their
appropriation to the contract of sale should be regarded as the situs of the
sale. We rejected the former view as the ascertainment of goods with reference
to contracts for the sale of unascertained or future goods is not a distinct
legal concept. Ascertainment is but a part of the process of appropriation which
is a well-accepted legal concept and which results, generally speaking, in the
passing of property in the goods. We are, therefore, of the view that in the
case of sales of unascertained or future goods their location at the time of
their appropriation to the contract of sale should be the test for determining
the situs of the sale.
23. In some cases of the sale of unascertained or future goods it
may happen that the seller or the buyer may make an appropriation of the goods
without the assent of the other party and put them into the course of transit.
It may in such cases happen that the location of the goods when the assent of
the buyer or seller is given to the appropriation may be different from their
location at the time when the seller or the buyer made the appropriation. We do
not know whether such cases would arise frequently in practice. But in order to
provide for them we have in framing the principle used language which makes it
clear that the location of the goods at the time of the appropriation by the
seller or the buyer irrespective of their location at the time when the assent
of the other party is given to the appropriation should be the decisive factor
in determining the situs of the sale.
24. We have thought it necessary also to provide for cases where a
single contract of sale comprises goods located in different States. In order to
obviate difficulties in determining the situs of the sale by reference to the
location of the goods in such cases we have suggested that such contracts of
sale or purchase should be regarded as separate contracts in respect of the
goods situated at different places.
25. Article 286(1)(a) of the Constitution prohibits a State from
taxing a sale outside the State. The principles we have suggested will indicate
the State within which the sale has taken place. It will, therefore, have
further to be provided that as soon as a sale is deemed to have taken place
within a State it shall be deemed to have taken place outside all other States.
It will be recalled that the absence of such a provisions in Article 286(1)(a)
read with the Explanation proposed to be deleted caused a great deal of
controversy and resulted in varying interpretations being put on that Article
read with the Explanation.
26. The principles we enunciate under this head are as follows:—
"1. A sale or purchase of goods shall be deemed to take place
where the goods are—
(a) in the case of specific or ascertained goods, at the time
the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time
of their appropriation to the contract of sale, by the seller or by the buyer
whether the assent of the other party is prior or subsequent to such
appropriation.
Explanation.—Where there is a single contract of sale
or purchase of goods situated at more places than one, the above provision shall
apply as if there were separate contracts in respect of the goods at each of
such places.
2. When a sale or purchase of goods is determined in
accordance with sub-clause (1) to be within a State, such sale or purchase shall
be deemed to have taken place outside all other States."
V. Conclusion
27. We may point out that we have not
before us the draft of the proposed Parliamentary legislation and the principles
indicated by us in the foregoing paragraphs do not purport to be a draft of the
sections of the proposed Bill.
M.C. Chagla, Chairman
K.N. Wanchoo, Member
G.N. Das, Member
P. Satyanarayana Rao, Member
*N.C. Sen Gupta, Member
V.K.T. Chari, Member
D. Narasa Raju, Member
G.S. Pathak, Member
G.N. Joshi, Member
*. Dr. Sen Gupta has signed the report, subject to the note
appended below.
K. Srinivasan,
Durga Das Basu,
Joint Secretaries,
Bombay;
Dated: 21st July, 1956 M.C. Setalvad
Separate Note On Inter-State Sales Tax
I regret that I have
to differ from some of the conclusions of the majority of my colleagues. I wish
to make it clear also that I do not concur in all their arguments for the other
conclusions from which I do not disagree.
The laws regarding sales "in the course of import or export" and "in the
course of Inter-State trade" have been sufficiently complicated by the four
decisions of the Supreme Court where judgments proceed to discuss a multitude of
matters. What is wanted now is a simpler and more clear-cut definition of the
principles for deciding the matter. In considering the principles we should not
be too much influenced by the fear that some transactions may escape taxation,
if a particular view is taken. That may or may not be,—though I should add that
so far as export and import are concerned, there are very good reasons for
thinking that there would be no case of escaping taxation altogether. Export and
import are in most cases subject to another tax, the customs duty; and if by
chance the goods exported or imported happen to escape the imposition of sales
tax, that would not mean that the goods will necessarily go free of tax
altogether. I am mentioning this as the majority report refers to this
apprehension in the course of its reasons.
The Chief consideration in laying down the principles of taxation ought
to be the interest of the trade and the consumers generally. Every taxation of
goods adds to the burden that the consumer has to bear. With the rising prices
and the many factors contributing to inflation, it would be far from wrong to
desire that the burden should not be unnecessarily increased and that the trader
should not be required to submit, not only to the payment of tax but also the
harassment inevitable in connection with the assessment of the tax, more than is
necessary.
A further and no less important aspect of the question is the bearing of
the States' powers of taxation on the larger policy regarding foreign trade.
Foreign trade is regulated by the Union, with reference to the current needs of
the country as a whole, in part by manipulating the customs duties. There are
occasions, due, for instance, to the overstocking of a particular commodity in
India, or to the need for earning foreign exchange, when export of a commodity
should be promoted by removing or reducing export duties and conversely, import
of commodities in short supply may have to be promoted by manipulating import
duties. The powers of States to tax sales for such commodities by a too narrow
limitation of sales in the course of "export or import" may easily hamper the
freedom of the Union to influence prices by necessary manipulation of tariffs
and may enable the States to frustrate the Union's policy. The power of States
which they still retain after the Constitutional amendment to tax inter-State
sales should not be so extended over commodities of foreign trade as to narrow
the power of the Union to regulate prices for export and import from time to
time as may happen when States are enabled to frustrate or nullify any act of
the Union in the wider interests of the country, e.g. for reducing prices, by
regulations for internal taxation on sales of the commodities which may wholly
out-balance the effect of tariff changes on prices.
What is wanted is a simpler and more perfectly intelligible set of rules
which will have regard to the interests not only of the finances of the State
but also in a much larger measure to the interests of the trade and the
consumers and the interest of the Union in respect of foreign trade. This will
have to be specifically considered at the time of legislating under the new
powers given to the Parliament by the Constitution. But we should bear in mind
these principles in laying down the general principles also.
In the light of these remarks I should have the report modified in the
following respects:
I. With regard to the sale in the course of export or import, the
decision of the Travancore-Cochin case is purported to be followed
with a rider which, in my opinion, makes the rule largely infructuous to prevent
State taxation of sales in the course of export or import. I fully endorse the
opinion of the 'Ministry of Commerce & Industry that the last purchase
preceding the export should also be considered to be a sale or purchase in the
course of export or import, which, incidentally appears to have been the view
put forward by the Attorney General in the first Travancore-Cochin
case. His argument is thus summarised in the judgment of the Chief Justice in
AIR 1952 SC (367):
"In addition to the sales and purchases of the kind described
above, the exemption covers the last purchase by the exporter and the first sale
by the importer, if any, so directly and proximately connected with the export
sale or import purchase as to form part of the same transaction. This view was
sponsored by the Attorney-General."
This interpretation accords more with the
commonsense view of the expression "in the course of export or import."
The words "in the course of" must be given a proper meaning and would
extend to transactions intimately connected with the export or import. There
will be very few cases indeed in which a sale is made by a person who has the
goods in stock and forthwith books it for export when alone the sale may be said
to have 'occasioned' the export or import in terms of the opinion of the
majority. In most of the commercial transactions a contract with a foreign
agency for export or import of goods is made and on the strength of that, the
exporter purchases goods from others and sells or the importer contracts to
sell. Among other parties, the Government of India, some time ago used to export
large quantities of jute goods and it is still exporting other commodities
without ever having a stock. When there is an agreement with a foreign State
like the U.S.A. or Argentina for the export of that quantity, the Government
comes and places the orders with the Jute Mills and they deliver the goods at
the Ship's side and look to the Government of India for payment and it does not
"Occasion" the export, but it is the purchase immediately prior to the export
which is made by the Government. The majority report objects that if this is
exempted, it will be illogical not to exclude the whole stream of transactions
preceding the export and an American Judgment is cited in support. But in
legislating, the legislature is not bound to be logical. It can put its own
limited construction upon the words used and it is no criticism of a legislation
that if logical, it ought to extend to other items. If on a consideration of
grounds of policy and other matters, the application is limited to less than
what might be logically deduced, there will be no harm done. In my opinion, the
same principle ought to apply to the first sale after import, if, as a matter of
fact, the sale was made in pursuance to a contract prior to importation. It
seems to me, therefore, that the draft in paragraph 10 of the definition of a
sale or purchase in the course of export and import is too narrow. If this
definition is given, there will be very few transactions in which the State
imposition of sales tax would be excluded.
II. With regard to sales in the course of Inter-State trade or commerce,
the meaning of the words, "In the course of Inter-State trade or commerce"
appear to me to be unduly restricted. Undoubtedly if a sale is effected, which
directly occasions the movement of goods or is effected by a transfer of
documents of title showing the movement from one State to another, it would be a
sale for Inter-State trade. This definition, however, again makes the words "in
the course of" practically infructuous. No attempt should be made to limit "the
course" of trader to the only two possible alternatives. There are other ways in
which a sale may be effected Inter-State. For instance, a trader in Assam sends
jute or tea to a warehouse in Calcutta in expectation of prospective sale.
Thereafter the seller enters into a transaction of sale of the goods in Assam
when, the goods are located in the Calcutta warehouse and gives a firm delivery
order to the purchaser and the purchaser takes delivery from the warehouse in
Calcutta. In this case it is undoubtedly a case of Inter-State sale between
Bengal and Assam, but it would not come under either of the clauses (a) and (b),
as drafted, because the movement has not been occasioned by the sale but has
preceded it and the transfer of documents has not taken place during the
movement from one State to another but after it. The definition proposed would
thus be, in my opinion, too narrow. I would prefer an interpretation as in the
passages quoted from Rottschafer in paragraph 12,—with the proviso that the
movement of goods should have taken place in pursuance to the contract. That
would leave it to the court, with reference to the facts of a particular case to
determine whether the sale contemplated and in fact was followed by the movement
of goods from one State to another.
III. With regard to the question of the situs of sale also I find it
difficult to agree fully in the conclusion that a sale should be deemed to take
place where the goods are at the time the contract of sale is made or in the
case of unascertained goods when the goods are appropriated to the contract.
There will be difficulty in applying this test in some cases, for instance in
the case where goods have been shipped by boat from a station in Assam to
Calcutta to be warehoused there and a sale is effected before the boat arrives
in Calcutta. In such a case it would be difficult to locate the place where the
goods are at the date of the contract, assuming it to be specified goods. The
difficulty is intensified by the fact that the boat which carries the jute
passes through a foreign territory, that is, Pakistan and it may well be that at
the date of the contract, the goods are in Pakistan. I think a simpler
definition would be to say that a sale takes place outside a State when either
the contract for sale or the delivery of the goods takes place outside the
State. That would be a simple and easy test to apply, and it would violate no
principle whatsoever, now that Article 286(2) is out of the way. I therefore
sign the report,—subject to these comments.
N.C. Sen Gupta.
Courtesy:- Legal Point
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