in accordance with the judgment of the majority the appeals
were dismissed. judgment
civil appellate jurisdiction civil appeals number. 697 to 706
of 1973 and 2063 to 2082 of 1974.
appeals by special leave from the judgment order dated the
17th september 1973 of the orissa high companyrt in s. j. c.
number. 25 to 44 of 1971.
govind das p. h. parekh and mrs. s. bhandare for the
appellants  in c.as. number. 697-706/73

sen o. c. mathur and d. n. mishra for the appellants
 in c.as. 2063-2082/74

l. sanghi and bishamber lal for intervener  misri lal
jain

s. nariman additional solicitor general of india f.

desai

h. parekh mrs. s. bhandare and manju jatley for the
applicant intervener  m. m. t. c.

t. desai m. c. bhandare and b. parthasarthy for the
respondents  in all the appeals
the judgment of the companyrt was delivered by ray c. j. h. r.
khanna j. gave a dissenting opinion. ray c. j.-these appeals by special leave raise the question
whether the agreements between the appellants and the state
trading companyporation  hereinafter referred to as the
corporation  were in companyrse of export and therefore immune
from liability to the central sales tax act. the appellant entered into four companytracts for sale of
mineral ore. two of these companytracts were with the foreign
buyer m s associated metal and minerals companyporation new
york. the other two companytracts were with the state trading
corporation. it is companymon ground that the companyporation
entered into companytracts with foreign buyers for sale of the
identical goods purchased by the companyporation from the appel-
lant. the present appeal relates to the two companytracts between the
appellant and the companyporation. the high companyrt came to the
conclusion that the appellants two companytracts with the
corporation are exigible to tax under the central sales tax
act 1956.
section 5 1  of the central sales tax act 1956 hereinafter
referred to as the act companytains the following relevant
provision -
a sale or purchase of goods shall be deemed
to take place in the companyrse of the 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. companynsel for the appellant companytended as follows. the
contract in each case between the appellant and the
corporation is inextricably bound up with the export. the
sale between the appellant and the companyporation and the
export by the companyporation to foreign buyer companystituted one
integrated transaction. second the companyporation has been
interposed by the statute for a limited purpose between the
appellant and the foreign buyer. export cannumber be made
except by the companyporation. the inextricable link is number
broken by the companyporation. the companyporation companyld number have
diverted the goods to a buyer in india without violating
export and import companytrol order. therefore the sale is in
the companyrse of export. third the companytract between the
appellant and the companyporation being on f.o.b. basis the
property in the goods passed only on shipment when the goods
are in the stream of export. there is thus numbersale in the
taxable territory. fourth even if it is held that the
appellant did number have any companytract with the foreign buyer
and that privity is essential the rigid rule of privity of
contract should be relaxed in companysideration of equity and
justice and a realistic approach should be adopted. the
nature of entering into companytracts through the channel of the
corporation raises in reality a presumption of the
corporation being an agent of the appellant in the
integrated transaction. companynsel on behalf of the appellant relied on some terms of
contract in support of the companytention that the companytract
between the appellant and the companyporation and the companytract
between the companyporation with the foreign buyer formed one
integrated transaction. the clauses in the companytract between
the appellant and the companyporation relied upon by the
appellant are terms as to price shipment sampling
analysis weighing payment and a special clause. the price
is expressed in u. s. dollars per long ton f.o.b. ocean
liner vessel calcutta. the term for shipment is that the
material will be ready in calcutta harbour for shipment per
steamer as leneverett or substitute schedule to load during
december 1960. the clause as to sampling and analysis is
final sampling and moisture determination will be made at
the time of unloading at the port of discharge by far east
superintendence companypany or u. s. companysultants and their
certificate will be final and binding on both buyer and
seller. the clause as to weighing says that the final
weights as ascertained by far east superintendence company limited
or u. s. companysultants at the port of discharge is final and
binding on both parties. the terms as to payment are these. 90 per cent against
shipping documents as described in buyer companyresponding sale
contract. buyer will assign the relevant foreign letter of
credit which is to be opened in their name by their foreign
buyer messrs. associated metals and minerals companyporation
on receipt from the sellers of a bank draft for difference
between buyers f.o.b. purchase value and f.o.b sale value
i.e. 1.00  rs. 4.75  per try long ton for a bank guarantee
from a scheduled bank guaranteeing that sellers will pay
buyers f.o.b. purchase value as shown in the companytract and
buyers f.o.b. sale value as shown in the foreign letter of
credit and the buyers will endorse the bills of lading and
deliver the same to sellers to negotiate against the above
mentioned letter of credit. balance after destinational
weight and analysis on the basis of documents mentioned in
the companyporations companyresponding sale companytract with buyer. if the balance 10 per cent is insufficient to companyer short
fall in weight and analysis at destination or any penalty
imposed by the companyporations foreign buyer the additional
amount shall be payable by sellers to buyers on demand. the special clause relied on by the appellant is as follows

unless otherwise agreed upon the
sellers agree that the companytract shall be
deemed as cancelled if for any reasons
whatsoever m s associated metals and minerals
corporation cancel their companyresponding
purchase companytract with the buyers for supply
of chrome ore.

the terms and companyditions of the buyers
corresponding sale companytract with m s
associated metals minerals companyporation will
apply to this companytract also except to the ex-
tent specified in this purchase companytract. a true companyy of buyers sale companytract with
m s associated metals minerals companyporation
is attached. on behalf of the appellant it is said that the companymodity
could number be exported directly by the appellant in view of
the restrictions imposed by law. the appellant entered into
negotiations with foreign purchasers and settled all the
conditions of the companytract. the companyporation thereafter
entered into an fob companytract with the appellant and with the
foreign buyer on identical terms. the companyporation is
interested only in the companymission of one dollar per long ton
from the appellant. all necessary steps including payment
of customs duty for the shipment and export have been done
by the appellant. the companytract between the appellant and
the companyporation is on fob basis and the property in goods
passes only on shipment when the goods are in the companyrse of
export. the appellant relied on the decisions in state of
travancore-cochin ors. v. the bombay company limited  1952

c.r. 1112 and state of travancore-cochin ors. v.
shanmugha cashew nut factory ors.  1954  s.c.r. 53 in
support of two propositions extracted from those decisions. first a sale by export involves a series of integrated
activities companymencing 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 companyntry by land or
sea. such a sale cannumber be dissociated from the export
without which it cannumber be effectuated and the sale and
resultant export from parts of a single transaction. of
these two integrated activities which together companystitute an
export sale whichever first occurs can well be regarded as
taking place in the companyrse of the other. even in cases
where the property in the goods passed to the foreign buyers
and the sales were thus companypleted within the state before
the goods companymenced their journey from the state the sales
must be regarded as having taken place in the companyrse of the
export and therefore exempt under article 286 1   b . second the word companyrse denumberes movement from one point to
anumberher and the expression in
the companyrse of number only implies a period of time during
which the movement is in progress but also postulates a
connected relation. a sale in the companyrse of export out of
the companyntry should be understood as meaning a sale taking
place number only during the activities directed to the end of
exportation of the goods out of the companyntry but also as part
of or companynected with such activities. the two travancore-cochin decisions relied on by the
appellant are on interpretation of the word in the companyrse
of the export of the goods out of the territory of india
occurring in article 286 1   b  of the companystitution article
286  1  states that numberlaw of a state shall impose or
authorise 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 companyrse of the import of the goods
out of territory of india. prior to the companystitution sixth
amendment act 1956 there was an explanation for the purpose
of sub-clause  a  of article 286  1 . there was no
definition of the expression in the companyrse of import or
in the companyrse of export before the companystitution sixth
amendment act 1956. by the companystitution sixth amendment
act 1956 parliament was given power to formulate principles
for determining when a sale or purchase of goods takes place
in any of the ways mentioned in clause  1  of article 286.
section 5 of the central sales tax act has given a
legislative meaning to the expression in the companyrse of
export and in the companyrse of import. in the first travancore-cochin case  supra  the respondents
claimed exemption from assessment in respect of sales
affected by them to foreign buyers on cif or fob terms on
the ground that such sales took place in the companyrse of the
export of the goods out of the territory of india within the
meaning of article 286 1   b  of the companystitution. this
court held that the sales which occasioned the export in
each case fell within the scope of the exemption under
article 286 1   b . these sales were found to be a series
of integrated activities companymencing from the agreement of
sale with the foreign buyer and ending with the delivery of
he goods to a companymon carrier for transport out of the
country by land or sea. these sales companyld number be
dissociated from the export without which these companyld number be
effectuated. the sale and the resultant export from parts
of the single transaction. any such integrated activities
which together companystitute an. export sale whichever occurs
first can well be regarded as taking in the companyrse of the
other. on these reasoning this companyrt held in the first
travancore-cochin case  supra  that assuming that the sales
to the foreign buyers were companyplete within the state before
the goods companymenced their journey the sales must
nevertheless be regarded as having taken place in the companyrse
of the export. it is numbericeable in the first travancore-cochin case
 supra  that the companytracts were directly between the
respondents and their foreign buyers. there was no
intermediary between the indian seller and the foreign
buyer. the sale and the export become integrated in one
transaction. in the second travancore-cochin case  supra  the respondents
imported raw cashew nuts from aboard and neighbouring
districts in the state of madras. the respondents companyverted
the same by certain process into edible kernels and exported
the kernels to foreign companyntries. the respondents claimed
exemption article 286 1   b  in respect of purchase of
cashew nuts. the three propositions laid down in the second
travancore companyhin case  supra  are these. first sales by
export and purchases by import fall within the exemption
under article 286 1   b . second purchases in the state by
the exporter for the purpose of export as well as sales in
the state by the importer after the goods have crossed the
customs barrier are number within the exemption. third sales
in the state by the exporter or importer by transfer of
shipping documents while the goods are beyond the customs
barrier are within the exemption assuming that the state
power of taxation extends to such transactions. the second travancore-cochin case  supra  was on the
question whether two categories of sale or purchase would
fall within the scope of exemption under article 286 1   b . the first category was the last purchase of goods made by
the exporter for the purpose of exporting them to implement
orders already received from a foreign buyer or expected to
be received subsequently in the companyrse of business and the
first sale by the importer to fulfil orders pursuant to
which the goods were imported or orders expected to be
received after the import. the second category companyprised of
sales or purchases of goods effected within the state by
transfer of shipping documents while the goods are in the
course of transit. as to the first mentioned category this
court in the second travancore-cochin case  supra  said that
the exemption under article 286 1   b  was for sale or
purchase of goods taking place in the companyrse of the import
of the goods into or export of the goods out of the
territory of india. 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 companyntry respectively. the
word companyrse denumberes movement from one point to anumberher and
the expression in the companyrse number only implies a period of
time during which the movement is in progress but
postulates also a companynected relation. on this reasoning
this companyrt held that a sale in the companyrse of export means a
sale taking place number only during the activities directed to
the end of exportation of the goods. out of the companyntry but
also as part of or companynected with such activities. the
purchase for the purpose of export was held in that decision
number too be companynected or integrated activities-. in the second travancore-cochin case  supra  the import from
africa fell into two categories. the first companysisted of
purchases made through intermediaries called the bombay
party who acted as agents for the respondents charging
commission. the bombay party arranged for purchases on
behalf of the respondents and obtained delivery or the
shipping documents on payment at bombay. in the second
category
the bombay party indented the goods on their own account and
sold the goods as principals to the respondents and other
customers. the shipping documents were made out in the name
of the bombay party as companysignees. this companyrt held that in
respect of the purchases under the first category the bombay
party acted marely as agents of the respondents and
therefore there was privity between the respondent and the
african sellers. with regard to the second category the
bombay party were the purchasers and they sold the goods as
principals to the respondents and there was numberprivity
between the respondents and the african sellers. the principal decisions of this companyrt on the interpretation
of section 5  1  of the act are bengorm nilgiri plantations
company companynumberr ors. v. sales tax officer special circle
ernakulam ors. 1964 7 s. c. r. 706 companyfee board
bangalore v. joint companymercial tax officer madras  1970  3

c. r. 147 and the recent decision in m s. binani bros.

ltd. v. union of india ors.  1974  1 s.c.c. 459.
in the nilgiri plantations case  supra  the appellants were
sellers of tea and their purchasers were local agents of
foreign buyers. the sale were by public auction. this
court held that a transaction of sale which is a preliminary
to export of the companymodity sold may be regarded as a sale
for export but is number necessarily to be regarded as one in
the companyrse of export unless the sale occasions export. it
was said that to occasion export there must exists such a
bond between the companytract of sale and the actual exportation
that each link is inextricably companynected with the one
immediately preceding it. without such a bond a transaction
of sale cannumber be called a sale in the companyrse of export of
goods out of the territory of india. there may be a variety
of transactions if the sale of companymodity is followed by
export. foreign purchasers may purchase through their
agents within the territory of india. such a transaction is
number in the companyrse of export because the seller does number
export the goods and it is number his companycern as to how the
purchaser deals with the goods. there may be also a
transaction under a companytract of sale with a foreign buyer
under which the goods may under the companytract be delivered by
the seller to a companymon carrier for transporting them to the
purchaser. such a sale may be dissociated from the export. a sale in the companyrse of export predicates a companynection
between the sale and export. numbersingle test can be laid as
decisive for determining that question. each case must
depend upon its facts. but it does number mean that
distinction between transactions which may be called sales
for export and sales in the companyrse of export is number real. where the sale is effected by the seller and the seller is
number companynected with the export which actually takes place it
is a sale for export. where the export is the result of
sale the export being inextricably linked up with sale so
that the bond cannumber be dissociated without a breach of the
obligations arising by statute companytract or mutual
understanding between the parties arising from the nature of
the transaction the sale is in the companyrse of export. in the
nilgiri plantations case  supra  this
court found that the sales by the appellants were intended
to be companyplete without the export and as such it companyld number
be said that the sales occasioned export. the sales were
for export and number in the companyrse of export. in the companyfee board case  supra  the companyfee board framed
rules for sale of companyfee to registered exporters. only
dealers who registered themselves as exporters of companyfee
with the companyfee board and who held permits from the chief
coffee marketing officer in that behalf were permitted to
participate at the auction. after the bid the price would
be paid in accordance with the companyditions. one of the
conditions called export guarantee provided that it was an
essential companydition of the auction that the companyfee sold
thereat shall be exported to the destination stipulated in
the catelogue of lots or to any other foreign companyntry
outside india as may be approved by the chief companyfee
marketing officer and that it shall number under any
circumstances be diverted to anumberher destination sold or
be disposed or otherwise released in india. anumberher
condition provided that if the buyer fails or neglect to
export the companyfee within the prescribed time he would be
liable to pay a penally. anumberher companydition provided that
if the buyer made any default to export the companyfee it would
be lawful for the chief companyfee marketing officer without
reference to the buyer to seize the unexported companyfee and
deal with the same as if it was part and parcel of the
coffee held by the board in their pool stock. the companyfee board companytended that the auctions were in the
course of export because the sales themselves occasioned
the export of companyfee. the revenue companytended that the sales
were number bound up with the export. this companyrt held that the
phrase sale in the companyrse of export authorised number only a
sale and an actual export but that the sale must be a part
and parcel of the export. the word occasion in the
context of sale or purchase was held to mean to cause export
or to be the immediate cause of export. the introduction of
an intermediary between the seller and the importing buyer
was held to break the link. there was one sale to the
intermediary and anumberher to the importer. the first sale
was number in the companyrse of export because the export began
from the intermediary and ended with the importer. the ruling of this companyrt in the companyfee board case  supra  is
that there must be a single sale which itself causes the
export and that there is numberroom for two or more sales in
the companyrse of export. though the sales by the companyfee board
were sales for export they were number sales in the companyrse of
export. they were two independent sales in the export
programme. the first sale was a sale between the companyfee
board as seller to the export promoter. then there was the
sale by the export promoter to a foreign buyer. it was the
second sale which was in the companyrse of export since the
second sale caused the movement of goods between an exporter
and an importer. in the companyfee board case  supra  the
rules companypelling export meant companypelling persons who bought
on their own to export in their own
turn by entering into anumberher agreement for sale. an
essential companydition as to export of companyfee purchased at the
auction was held number to amount to turn the transaction into
a sale in the companyrse of export. the reason given was that
if the registered exporter who was the bidder at the auction
did number export he would companymit a default of companyditions number
30 and 31 and be liable to penalty and seizure of the
coffee. in the companyfee board case  supra  the phrase sale in the
course of export was held to companyprise of three essentials. first there must be a sale. second goods must actually be
exported. third the sale must be a part and parcel of the
export. the propositions laid down in the companyfee board case
 supra  are these the sale which is to be regarded as
exempt is a sale which causes the export to take place or is
the immediate cause of the export. to establish export a
person exporting and a person importing are necessary
elements and the companyrse of export is between them. introduction of a third party dealing independently with the
seller on the one hand and with the importer on the other
breaks the link between the two for then there are two sales
one to the intermediary and the other to the importer. the
first sale is number in the companyrse of export because the export
commences with the intermediary. the tests are that there
must be a single sale which itself causes the export or is
in the progress or process or export. there is numberroom for
two or more sales in the companyrse of export. the only sale
which can be said to cause the export is the sale which
itself results in the movement of the goods from the
exporter to the importer. the companyfee board case  supra  discussed all the earlier
decisions some of which were on the meaning of the phrase
in the companyrse of export occurring in article 286 1  b . in the companyfee board case  supra  at page 161 of the report
it is said that the same meaning must obviously be given to
the phrase in the companyrse of export or to the phrase
occasions the export. one of the decisions discussed was

g. khosla company v. deputy companymissioner of companymercial
taxes  1966  3 s.c.r. 352. in k. g. khosla company case
 supra  khosla and companypany entered into companytract of sale
with the director general of supplies and disposals for
supply of axle bodies manufactured by the principal of the
khosla company in belgium. the goods were to be inspected by
the director general of supplies and disposals in belgium. under the companytract of sale the goods were liable to be
rejected after a further inspection by the buyer director
general of supplies and disposals in india. the goods were
imported into our companyntry and supplied to the buyer at
peramber and mysore. the companytract between khosla and
company and director general of supplies and disposals was
held by this companyrt to be in the companyrse of import. the term
as to rejection of goods as a result of inspection in india
indicated that there was numbercompleted sale in belgium under
the companytract. in the recent decision in binani brothers case  supra  the
petitioner was a supplier to the director general of
supplies and
disposals. the petitioner obtained import licences to
supply numberferrous metals. the government agreed to pay to
the petitioner sales tax under the central sales tax act or
west bengal sales tax act whichever was applicable in terms
of the companytract. after the decision of this companyrt in k. g.
khosla company case  supra  the revenue authorities issued an
order directing that sales tax should number be allowed in
respect of supply of stores which have been imported against
import licences for supplies under companytracts placed by the
director general of supplies and disposals. on the basis of
that direction the government deducted in respect of sales
tax certain sums of money which were pending payment and
also threatened to recover a large sum of money which had
been paid as sales tax in respect of supplies already made. this companyrt discussed the travancore companyhin cases  supra
and the nilgiri plantations companypany case  supra  and the
coffee board case  supra . mathew j. speaking for the
court said that there was numberobligation under the companytract
on the part of the director general of supplies and
disposals to procure import licences for the petitioner. it
war the obligation of the petitioner to obtain import
licence. even if the companytracts envisaged the import of
goods and their supply to the director general of supplies
and disposals from out of the goods imported it did number
follow that the movement of the goods in the companyrse of
import was occasioned by the companytracts of sales between the
petitioner and the director general of supplies and
disposals. khosla company case  supra  was discussed and this
court said that there was numbercompleted sale in belgium
because under the companytract the director general of supplies
and disposals reserved the final right of inspection and
rejection of goods on their arrival in india. the crucial
test which was laid down in the nilgiri plantations case
 supra  as well as companyfee board case  supra  is whether
there were independent transactions or only one transaction
which occasioned the movement of the goods in the
course of export. the companytention on behalf of the appellant that the companytract
between the appellant and the companyporation and the companytract
between the companyporation and the foreign buyer formed
integrated activities in the companyrse of export is unsound. the crucial words in the section are that a sale or purchase
of goods shall be deemed to take place in the companyrse of the
export of the goods only if the sale or purchase occasions
such export. the various decisions to which reference has
been made illustrate the ascertainment of the preeminent
question as to which is the sale or purchase which occasions
the export. the companyfee board case as well as the case of
binani bros.  supra  clearly indicates that the distinction
between sales for export and sales in the companyrse of export
is never to be lost sight of. the features which point with
unerring accuracy to the companytract between the appellant and
the companyporation on the one hand and the companytract between
corporation and the foreign buyer on the other as two
separate and independent companytracts or sale within the ruling
in the companyfee board case  supra  and the binani brothers
case are these. the companyporation entered on the scene and
entered into a direct companytract with the foreign buyer to
export the goods. the companyporation alone agreed to sell the
goods
-to the foreign buyer. the companyporation was the exporter of
the goods there was numberprivity of companytract between the
appellant and the foreign buyer. the privity of companytract is
between the companyporation and the foreign buyer. the
immediate cause of the movement of goods and export was
the companytract between the foreign buyer who was the importer
and the companyporation who was the exporter and shipper of the
goods. all relevant documents were in the name of the
corporation whose companytract of sale was the occasion of the
export. the expression occasions in section 5 of the act
means the immediate and direct cause. but for the companytract
between the companyporation and the foreign buyer there was no
occasion for export. therefore the export was occasioned
by the companytract of sale between the companyporation and the
foreign buyer and number by the companytract of sale between the
corporation and the appellant. the appellant sold the goods directly to the companyporation. the circumstance that the appellant did so to facilitate
the performance of the companytract between the companyporation and
the foreign buyer on terms which were similar did number make
the companytract between the appellant and the companyporation the
immediate cause of the export. the companyporation in regard to
its companytract with the foreign buyer entered into a companytract
with the appellant to procure the goods. such companytracts
for procurement of goods for export are described in company-
mercial parlance as back to back companytracts. in export trade
it is number unnatural to find a string of companytracts for
export of goods. it is only the companytract which occasions
the export of goods which will be entitled to exemption. the appellant was under numbercontractual obligation to the
foreign buyer either directly or indirectly. the rights of
the appellants were against the companyporation. similarly the
obligations of the appellant were to the companyporation. the
foreign buyer companyld number claim any right against the
appellant number did the appellant have any obligation to the
foreign buyer. all acts done by the appellant were in
performance of the appellants obligation under the companytract
with the companyporation and number in performance of the
obligations of the companyporation to the foreign buyer. the expression sale in section 5 of the act has the same
meaning as in sale of goods act. string companytracts or chain
contracts are separate transactions even when there is
similarity relating to quantity quality of goods shipment
sampling and analysis. weighment and force majeure etc. or
other similar terms. a companytract of sale is a companytract
whereby the seller transfers or agrees to transfer the pro-
perty in goods to the buyer for the money companysideration
called the price. there were two separate companytracts. the
price was different in the two companytracts. this difference
also dissociates the two companytracts from each other. the
high companyrt was right in holding that the sales of the
appellant to the companyporation were exigible to tax because
the appellants sales to the companyporation were number sales in
the companyrse of export. it has number been held by this companyrt in
glass chatons users association v. union of india  1962
1 s.c.r. 862 dave son of bhimji gohil v. joint chief
controller of imports exports
 1963  2 s.c.r. 73 and m s. daruka company v. the union of
india ors.  1973  2 s.c.c. 617 that the system of
canalisation of exports or imports to the state trading
corporation is companystitutionally valid. the broad reasons
for the system of canalisation are companytrol of foreign
exchange and prevention of abuse of foreign exchange. companynsel for minerals and metals trading company which became the
successor to the companyporation did number companytend that the
corporation is an agency. agency is created by actual
authority given by principal to the agent or principals
ratification of companytract entered into by the agent on his
behalf but without his authority. agency arises by an
ostensible authority companyferred by the principal on the agent
or by an implication of law in cases of necessity. on
behalf of the appellant it was said that the companyporation is
an agent of necessity because the companyporation is a special
agency to carry out certain public policies. the appellant
contends that it is the exporter and the foreign buyer is
the importer and the companytract is said to be processed
through the agency of the companyporation. agency of necessity
arises where the persons authorised to act as an agent for
anumberher without any regard to the companysent of the principal
act in certain circumstances and the law creates an agency
of necessity. a wife becomes an agent of necessity. in
other cases agency of necessity is often applied where after
the parties have created a companytractual relationship the
law in view of some emergency companyfers upon one party
authority to act for anumberher or allows an agent to exceed
the authority which has been companyferred upon him. in the
present case there is numberprincipal and agent relationship
between the appellant and the companyporation and in the absence
of such relationship the agency of necessity does number arise. other instances of agency of necessity are where the master
of a ship is entitled in the case of accident to enter into
a companytract which binds the owner of the cargo
numberwithstanding that it transcends his express authority if
it is bonafide made in the best interests of the owners company-
cerned. the same power is possessed by a land carrier in
respect of perishable goods. in the present case the
relationship between the appellant and the companyporation is
between two principals and there is numberaspect whatever of
principal and agency. further this question of agency was
never raised before the sales tax authorities. companynsel for the appellant companytended that the companytracts
between the appellant and the companyporation were f. o. b.
contracts and the property passed only on shipment when the
goods were in the companyrse of export. it was also said that
the goods sold by the appellant to the companyporation companyld number
be diverted by the companyporation and therefore the
transaction was in the companyrse of export. reliance was
placed on the decisions of this companyrt in b. k. wadeyar v.
m s daulatram rameshwarlal  1961  1 s.c.r. 924 state of
bihar v. tata engineering locomotive company limited  1971  2

c.r. 849 national tractors hubli v. companymissioner of
commercial taxes bangalore  1971  3 s. c. c. 143.
in wadeyars case  supra  sales were direct between daulat-
ram rameshwarlal and the foreign buyer. under the companytracts
daulatram rameshwerlal companytinued to be owners of the goods
till the goods
crossed the customs barriers. the revenue companytended that
property passed to the foreign buyer before shipment for
three reasons. first the bill of lading was taken in the
name of the foreign buyer. second the export was under the
contract to be under the buyers export licence. behind the
export clause companytained a provision that it shall be deemed
to be a companydition on licence that the goods for the export
of which licence is granted shall be the property of the
licensee at the time of the export. this companyrt said that
the term in the companytract for payment against presentation of
documents meant that the bills of lading were retained by
the sellers and the buyer would pay on presentation of the
bills of lading. the retention of the bill of lading by the
seller would indicate an intention of the parties that the
property in the goods would number pass till after payment. with regard to the export licence it was said that the
presumption in f.o.b. companytract is that it is the duty of the
buyer to obtain export licence though in the circumstances
of a particular case this duty may fall on the seller. the
clause in the export companytrol order was companystrued to mean
that the words at the time of the export do number mean the
time when the goods crossed the customs barrier. finally it
was said that export as defined in the import and export
control act 1947 means taking out of india by land sea or
air and therefore export cannumber be held to have
commenced till at least the ship carrying the goods has left
the port. further wadeyars case is before the act. in the national tractors case  supra  the assessee purchased
iron ore from mine owners and sold them to the state trading
corporation for export to foreign companyntries. ore was
transported by rail from the mines-from hospet to hubli and
from there by road to karwar port where it was loaded into
ships for transportation to foreign companyntries. under the relevant provision of the mysore sales tax act
tax was payable on iron ore at the point of last purchase
within the state. the sales tax authorities held that the
last purchaser was the state trading companyporation and
therefore the assessee was number liable to pay tax. the high
court held that the assessee is liable to tax because the
transactions with the state trading companyporation were in the
course of export. this companyrt held that in the light of
presumption which arises in the case of f.o.b. companytracts
the property did number pass to the state trading companyporation
until the goods were actually put on board the ship and
therefore the assessee was the last purchaser within the
state and was liable to tax. the decision in the national
tractors case  supra  was on the question as to who was the
last purchaser in the state. it was number the companytention of
the assessee that the sale to the companyporation was in the
course of export. in the tata engineering locomotive company limited case  supra
the assessee was carrying on the business of manufacturing
and selling trucks bus chassis and spare parts to their
appointed dealers. agreement entered into between the
assessee and dealers showed that each dealer was assigned a
territory in which alone the dealer companyld sell. the dealers
had to place indents pay the price of goods to be pur-
10 sc/75--13
chased and obtained delivery orders from the bombay office
of the assessee. in pursuance of the delivery orders the
trucks etcetera were delivered in bihar to be taken to the
territories assigned to them for sale there. if the dealers
failed to abide by the term requiring them to move the goods
outside the state of bihar they would have companymitted breach
of their companytracts. the question was whether the turnumberer
relating to the sales made by the assessee to its dealers
for sale by them in their respective territories outside the
state of bihar was exempt from liability to pay sales tax
under the bihar sales tax act on the ground that the sales
took place in the companyrse of inter-state trade or companymerce. it was held that where under the terms of a companytract of
sale the buyer is required as a necessary incident of the
contract to remove the goods from the state in which he
purchased the goods to anumberher state and when the goods are
so removed the sale must be companysidered as a sale in the
course of inter-state trade or companymerce. in the tata
engineering locomotive company  11  case  supra  the ratio was
that under the companytracts of sale the purchasers were
required to remove the goods from the state of bihar to
other states. in the present case the movement of goods in
the companyrse of export began when the companyporation shipped the
goods under the export companytract between the companyporation and
the foreign buyer. in the present case the mention of f.o.b. price in the
contracts between the appellant and the companyporation does number
render the companytracts f.o.b. companytracts with the foreign
buyer. the companyporation entered into independent companytracts
with the foreign buyers on f.o.b. basis. the appellants
were required under the companytracts between the appellant and
the companyporation to bring the goods to the shop named by the
corporation. the shipment of the goods by the companyporation
to the foreign buyer is the f.o.b. companytract to which the
appellants are number the parties. the companyrse of export in the
export stream is possible in direct companytracts between the
indian seller and the foreign buyer. the companyporation
purchased goods from the appellants in order to fulfil the
contract with the foreign buyer. the only scope of the
deeming provision in the act is to find out the companytract of
sale which is the direct cause or which occasions the
export. the expression in the companyrse implies number only a period of
time during which the movement is in progress but postulates
a companynected relation. sale in the companyrse of export out of
the territory of india means sale taking place number only
during the activities directed to the end of exportation of
the goods out of the companyntry but also as part of or
connected with such activities. in burmah shell oil storage
distributing company v. companymercial tax officer  1961  1 s.c.r. 902 it was said that the word export did number mean a mere
taking out of the companyntry but that the goods may be sent to
a destination at which they companyld be said to be imported. the directions given by the companyporation to the appellant to
place the goods on board the ship are pursuant to the
contract of sale between the appellant and the companyporation. these directions are number in the companyrse of export because
the export sale is an independent one between the
corporation and the foreign buyer. the taking of the goods
from the appellants place
to the ship is companypletely separate from the transit pursuant
to the export sale. the fact that the exports can be made only through the
state trading companyporation does-number have the effect of making
the appellants the exporters where there is direct companytract
between the companyporation and the foreign buyer. restriction
on export that export can be made only through the state
trading companyporation is a reasonable restriction and has been
upheld by this companyrt in several decisions to which
reference has been made earlier. for these reasons we are of opinion that the high companyrt was
correct in its companyclusion that the companytracts between the
appellant and the companyporation were number entitled to claim
exemption within the meaning of section 5 1  of the act. civil appeals number 697-706 of 1973 are dismissed. parties
will pay and bear their own companyts. in civil appeals number 2063-2082 of 1974 the appellants
entered into similar companytracts with the companyporation. the
corporation entered into similar companytracts with the foreign
buyers. the appellants were assessed to tax under the act. the appellants made an application to the tribunal to refer
the question to the high companyrt as to whether the sales by
the appellants to the companyporation were in the companyrse of
export. the tribunal dismissed the application of the
appellants. the appellants applied to the high companyrt for
orders that the tribunal be called upon to file statement of
case. the high companyrt dismissed the applications. the high
court relied on the decision which is the subject matter of
civil appeals number 697-706 of 1973. in view of our
conclusion in civil appeals number 697-706 of 1973 that the
appellants are number entitled to claim exemption civil appeals
number 2063-2082 of 1974 are dismissed. in view of the fact that the high companyrt directed the parties
to pay and bear their own companyts similar order is made in
all these appeals. khanna j.-this judgment would dispose of civil appeals number. 697 to 706 of 1973 which have been filed by special leave by
md. serajuddin against the judgment of the orissa high
court whereby the high companyrt answered the following question
in respect of the two of the sales in favour of the revenue
and against the assessee-appellant
whether on the facts and in the circumstances
of the case the sales tax tribunal is right
in holding that the sales effected under the
following four companytracts. were sales in the
course of export number exigible to tax under the
central sales tax act 1956 ? apart from the two sales with which we are companycerned in the
present appeals the question also companyered two other sales
but in expect
of them the answer of the high companyrt was in favour of the
assessee appellant. so far as that part of the judgment of
the high companyrt is companycerned its companyrectness has number been
assailed by the revenue. the assessee-appellant is a registered dealer of cuttack iii
circle under the central sales tax act. the appellant
carries on the business of mining and exporting mineral ores
to foreign companyntries. the appellant entered into four
contracts for sale of chrome companycentrates. two of those
contracts were number 19615 dated may 29 1959 and number 20579
dated december 7 1959 with messrs associated metals
minerals new york and messrs jan de footer rotterdam
 holland  respectively. in 1960 the sale of mineral ores
for export was canalised through the state trading
corporation  hereinafter described as stc . the appellants
entered into two companytracts number 6/60 dated october 26 1960
and number 2161 dated april 14 1961 for sale of those chrome
concentrates with stc. stc in its turn entered into
contract with foreign buyers. the appellant was assessed to
tax for the quarters ending september 30 1959 to december
31 1961 by the sales tax officer who made these
assessments to the best of his judgment as the appellant
failed to produce his account books or other documents in
support of-. the returns. on appeal the assistant
commissioner reduced the assessments for nine out of the 10
quarters and enhanced the assessment for the quarter ending
march 31 1961. on second appeal the sales tax tribunal
remanded the case for fresh assessment after holding that
tile sales effected by the appellant under the above
mentioned four companytracts were sales in the companyrse of export
and were thus exempt from payment of sales tax under
article 286 1  of the companystitution. the state of orissa
filed applications before the tribunal for referring the
above question of law to the high companyrt. those applications
were rejected by the tribunal. thereupon the state
approached the high companyrt. the high companyrt then called upon
the tribunal to state a case and refer the question
reproduced above to it. the high companyrt in the judgment under appeal has held that
the two companytracts dated may 29 1959 and december 7 1959
with the foreign buyers occasioned export of the minerals
out of the territory of india and as such those sales were
number exigible to tax under the central sales tax act. as
mentioned earlier we are numberlonger companycerned with those two
sales. as regards the other two sales effected under the
contracts dated october 26 1960 and april 14 1961 with
stc the high companyrt answered the question against the
assessee-appellant and held that those two sales were number
exempt from sales tax under article 286 1  b  of the
constitution read with section 5 2  of the central sales tax
act. in appeal before us mr. gobind das on behalf of the
appellant has assailed the judgment of the high companyrt and
has companytended that the sales in question were effected in
the companyrse of export and as such were exempt from the
payment of sales tax. as against that mr. desai has
canvassed for the companyrectness of the view taken by the high
court. in order to appreciate the companytentions which have been
advanced on behalf of the parties it may be relevant to set
out the material terms of agreement dated october 26 1960
which was entered into between the appellant and stc. according to the agreement the appellant had agreed to sell
and stc had agreed to buy indian chrome ore on the terms and
conditions mentioned therein. after setting out the
quantity of the material and the analysis specification the
agreement mentioned the price to be

s. 36.00  u.s. dollars thirty six  per
long ton dry weight basis 54 cr o3 and 3.5/1
cr fe ratio with a premium of 1.00 for
increase of 1 cr2o3 companytent but numberpremium
above 553 cr2o3 fractions prorata and with
a penalty of 1.00 for each 0.1 below 3.5/1
cr fe ratio fractions prorata fob ocean
liner vessel calcutta. according to clause 5 the appellant represented that the
material would be ready in calcutta harbour for shipment per
steamer as leneverett or substitute scheduled to load
during december 1960. clause 6 dealt with sampling and
analysis and according to it the material will be sampled
at the time of loading into ocean going vessel by r. v.
briggs company or mitra s. k. pt. limited and the final sampling
would be made at the time of unloading at the port of
discharge of far east superintendence companypany or u.s.
consultants. the seller was to supply a weight certificate
issued by the calcutta port trust authorities which was to
form the basis for provisional payment. the final weights
were to be ascertained by the u.s. companysultants at the port
of discharge and they were to be final and binding on the
parties. clauses 8 and ii of the agreement read as follows

payment 90 payment against shipping
documents as described in buyers companyresponding
sale companytract. buyers will assign the
relevant foreign letter of credit which is to
be opened in their name by their foreign
buyer messrs. associated metals and minerals
corporation on receipt from the sellers of a
bank draft for difference between buyers fob
purchase value and fob sale value that is
1.00  rs. 4.75 np  per dry long ton for a bank
guarantee from a scheduled bank guaranteeing
that sellers will pay buyers immediately upon
shipment shipments the difference between
buyers fob purchase value as shown in this
contract and buyers fob sale value as shown in
foreign letter credit that is dollar one  rs. 4.75 np  per dry long ton by bank draft for
each shipment and the buyers will endorse the
bills of lading and deliver the same to
sellers to negotiate against the above
mentioned letter of credit. balance after
destinational weight and analysis on the basis
of documents mentioned in stcs companyresponding
sale companytract with buyers. if the balance 10
is insufficient to companyer shortfall in weight
and analysis at destination or any penalty
imposed by stcs foreign buyers the
additional amount shall be payable by sellers
to buyers on demand. special clause  i  unless otherwise
agreed upon the sellers agree that the
contract shall be deemed as cancelled if for
any reason whatsoever m s. associated metals
minerals companyporation cancel their companyres-
ponding purchase companytract with the buyers for
supply of chrome ore.

the terms and companyditions of the buyers
corresponding sale companytract with m s
associated metals minerals companyporation will
apply to this companytract also except to the
extent specified in this purchase companytract. a true companyy of buyers sale companytract with
m s associated metals minerals companyporation
is attached. on numberember 4 1960 m s. p. friedlaender company of calcutta
addressed companymunication to the appellant stating that the
above mentioned companypany bad been asked by the joint
divisional manager of stc to let them have details of the
above sale mentioning specifications. delivery payment
weight and analysis to be duly approved by the appellant to
enable stc to draw up the necessary companytract. m s. p.
friedlaender company also reproduced the particulars
concerning- the transaction. the appellant was asked to
sign a companyy of the letter to enable m s p. friedlaender
co. to forward the same to stc as the appellants approval
of the transaction. the letter gave the same particulars of
the quantity specifications price sampling and assaying
weighting and shipment which had been mentioned in the
agreement between the appellant and stc. as regards the
payment it was stated as under
buyer to open an irrevocable letter of credit in us dollars
payable as follows
90 against usual shiping documents balance after final
weighment and analysis at destination. the letter was signed on behalf of the appellant by m. k.
rahman in token of its acceptance. in the meantime on october 26 1960 the chase manhattan bank
new york sent a letter of credit to stc for thirty seven
thousand u.s. dollars in the account of associated metals
and minerals companyporation. it was stated that it was in
connection with the provisional companymercial invoice for one
thousand long ton indian chrome companycentrates originating
from the appellant. in the letter of credit it was stated
that it might be assigned by stc in favour of the appellant. on december 30 1960 the appellant sent the different
documents to the shipment of the goods along with the
original letter of credit assigned in his favour to the
united companymercial bank. accompanying the letter was also
the invoice sent by the appellant in respect of the above
material. i need number set out the terms of the other agreement dated
april 14 1961 between the appellant and stc as it is the
common case of the
parties that the relevant terms of that agreement are number
materially different from the above mentioned agreement. article 286 1   b  provides
286.  1  numberlaw of a state shall impose or
authorise the imposition of a tax on the sale
or purchase of goods where sale or purchase
takes place-
 b  in the companyrse of import of the goods
into or export of the goods out of the
territory of india. there was numberdefinition of the expression in the companyrse of
the import of the goods into or export of the goods out of
the territory of india before the sixth amendment of the
constitution. by that amendment. parliament was given
power to formulate the principles for companystruing the
expression. the parliament accordingly provided in section
5 of the central sales tax act 1956 as under
5.  1  a sale or purchase of goods shall be
deemed to take place in the companyrse of the
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 companyrse of the
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. in sale of travancore-cochin ors. v. the bombay company
ltd. 1  patanjali sastri cj. speaking for the companyrt observed
a sale by export thus involves a series of
integrated activities companymencing 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. such a sale cannumber be
dissociated from the export without which it
cannumber be effectuated and the sale and re-
sultant export form parts of a single
transaction. in the case of state of travancore-cochin ors. v.
shanmugha vilas cashew nut factory ors.  2  it was held by
this companyrt that purchases in the state made by the exporters
for the purpose of export arc number within the exemption
granted by article 286 1   b  of the companystitution. patanjali sastri cj. speaking for the majority observed
the word companyrse etymologically denumberes
movement from one point to anumberher and the
expression in the companyrse
 1  1952 scr 1112.  2  1954 scr 53.
of number only implies a period of time during
which the movement is in progress but
postulates also a companynected
relation a sale in the
course of export out of the companyntry should
similarly be understood in the companytext of
clause 1 b  as meaning a sale taking place number
only during the activities directed to the end
of exportation of the goods out of the companyntry
but also as part of or companynected with such
activities. the learned chief justice further observed that the phrase
integrated activities which had been used in an earlier
decision to denumbere a sale which occasions the export cannumber
be dissociated from the export without which it cannumber be
effectuated and the sale and the resultant export form
parts of a single transaction. it was in that sense that
the two activities-the sale and the export-were said to be
integrated. but a purchase for the purpose of export like
production or manufacture for export being only an act
preparatory to export companyld number be regarded as an act done
in the companyrse of the export of the goods out of the
territory of india. a sale in the companyrse of export predicates a companynection
between the sale and export the two activities being so
integrated that the companynection between the two cannumber be
voluntarily interrupted without a breach of the companytract or
the companypulsion arising from the nature of the transaction. in this sense to companystitute a sale in the companyrse of export
it may be said that there must be an intention on the part
of both the buyer and the seller to export there must be
obligation to export and there must be an actual export. the obligation may arise by reason of statute companytract
between the parties or from mutual understanding or
agreement between them or even from the nature of the
transaction which links the sale to export. a transaction
of sale which is a preliminary to export of the companymodity
sold may be regarded as a sale for export but is number
necessarily to be regarded as one in the companyrse of export
unless the sale occasions export. and to occasion export
there must exist such a bond between the companytract of sale
and the actual exportation that each link is inextricably
connected with the one immediately preceding it. without
such a bond a transaction of sale cannumber be called a sale
in the companyrse of export of goods out of the territory of
india  see ben gorm nilgiri plantations company v. sales tax
officer special circle ernakulam  ors.  1  the appellants
in that case were carrying on the business of growing and
manufacturing tea in their estates. they sold tea to the
local agents of the foreign buyers. the sales were by
public auction at fort companyhin through brokers in accordance
with the provisions of the tea act 1953. the purchases by
the local agents of the foreign buyers were with a view to
export the goods to their principals abroad and the goods
were in fact exported out of india. it was held that the
sales by the appellants to the agents of the foreign buyers
did number companyic within the purview of article 286 1   b  of
the companystitution. dealing with the companytention that the
sellers had knumberledge that the
 1  1964 7 scr 706.
goods purchased from them were with the intention of
exporting shall j. speaking for the majority observed
but there is numberhing in the transaction from
which springs a bond between the sale and the
intended export linking them up as part of the
same transaction. knumberledge that the goods
purchased are intended to be exported does number
make the sale and export parts of the same
transaction number does the sale of the quota
with the sale of the goods lead to that
result. there is numberstatutory obligation upon
the purchaser to export the chests of tea
purchased by him with the export rights. the
export quota merely enables the purchaser to
obtain export licence which he may or may number
obtain. there is numberhing in law or in the
contract between the parties or even in the
nature of the transaction which prohibits
diversion of the goods for internal
consumption. the sellers have numberconcern with
the actual export of the goods once the goods
are sold. they have numbercontrol over the
goods. there is therefore numberdirect
connection between the sale and export of the
goods which would make them parts of an
integrated transaction of sale in the companyrse
of export. in k. g. khosla company v. deputy companymissioner of companymercial
taxes 1  the appellant entered into a companytract with the
director-general of civil supplies for the supply of axle-
bodies manufactured by its principals in belgium. the goods
were inspected on behalf of the buyers in belgium but under
the companytract they were liable to rejection after further
inspection in india. in pursuance of the companytract the
appellant supplies axle-bodies to the southern railway at
perambur and mysore. it was held that the movement of the
goods from belgium to india was in pursuance of the companytract
between the appellant and the director-general of supplies
and disposals and that there was numberpossibility of those
goods being diverted by the appellant for any other purpose. the sale was accordingly held to be in the companyrse of import
and as such exempt from taxation. in companyfee board bangalore v. joint companymercial tax officer
madras anr.  2  this companyrt dealt with a case relating to
the export of companyfee. export of companyfee outside india was
controlled under the companyfee act 1942 by the companyfee board. companyfee especially screened and selected was sold to
registered exporters at export auctions. permits were
given to such registered exporters to participate at the
auction. the companyfee board prepared a set of rules which
incorporated the terms and companyditions of sale of companyfee in
the companyrse of export. under companydition 26 of the rules a
registered dealer was to give an export guarantee under
which export would be made only to stipulated or approved
destinations. the buyer at an export auction was free to
export the companyfee either by himself or through a forwarding
agent without selling the goods to the forwarding agent. immediately after the export evidence of the shipping bad to
be produced before the
 1  1966 3 scr 352.  2  1970 3 scr 147.
chief marketing officer. in case of default according to
conditions 30 and 31 the permit holder was liable to fine
and the unexported companyfee wits liable to be seized. the
coffee board claimed that sales of companyfee to registered
exporters had been made in the companyrse of export. it was
held by the majority that the sales by the companyfee board were
sales for export and number in the companyrse of export. hidayatullah c.i. speaking for the majority in that case
observed
the phrase sale it the companyrse of export
comprises in itself three essentials  i  that
there must be a sale  ii  that goods must
actually be exported and  iii  the sale must
be a part and parcel of the export. therefore
either the sale must take place when the goods
are already in the process of being exported
which is established by their having already
crossed the customs frontiers or the sale
must occasion the export. the word occasion
is used as a verb and means to cause or to
be the immediate cause of. read in this way
the sale which is to be regarded as exempt is
a sale which causes the export to take place
or is the immediate cause of the export. the
export results from the sale and is bound up
with it. the word companyrse in the expression
in the companyrse of means progress or process
of or shortly during. the phrase expanded
with this meaning reads in the progress or
process of export or during export. therefore the export from india to a foreign
destination must be established and the sale
must be a link in the same export for which
the sale is held. to establish export a
person exporting and a person importing are
necessary elements and the companyrse of export is
between them. introduction of a third party
dealing independently with the seller on the
one hand and with the importer on the other
breaks the link between the two for them there
are two sales one to intermediary and the
other to the importer. the first sale is number
in the companyrse of export for the export begins
from the intermediary and ends with the
importer. therefore the tests are that there must be a
single sale which itself causes the export or
is in the progress or process of export. there is numberroom for two or more sales in the
course of export. the only sale which can be
said to cause the export is the sale which
itself results in the movement of the goods
from the exporter to the importer. the decision in the case of companyfee board  supra  was relied
upon by this companyrt in the case of m s. binani bros. v
union of india 1 . the petitioner in that case purchased
goods from foreign sellers and supplied the same to the
directorate general of supplies disposals  dgsd . question arose whether the sale by the petitioner to dgsd
took place in the companyrse of export. the question was
answered in the negative and it was observed that there was
numberreason in principle to distinguish this case from the
decision in the companyfee boards case.  1  1974 1 s.c.c. 459.
before dealing with the question as to whether the sales in
question took place in the companyrse of export i may mention
that the sale of mineral ores for export was canalised
through stc in pursuance of an order made under the imports
and exports  companytrol  act 1947  act 18 of 1947 . section 3
of that act empowered the central government to prohibit
restrict or otherwise companytrol imports or exports. under the
powers companyferred by that section the central government
issued the exports companytrol order 1958. clause 3 of that
order provided that numberperson shall export any goods of the
description specified in schedule i except under and in
accordance with a licence granted by the central government
or by any officer specified in schedule it. chrome ore and
concentrates were specified in the first schedule. clause 6
of that order inter alia provided that the central
government or the chief companytroller of imports and exports
may refuse to grant a licence or direct any other licensing
authority to grant a licence if the licensing authority
decides to canalise exports through special or specialised
agencies or channels. it was if pursuance of the above
power that the export of chrome companycentrates was canalised
through stc. subsequently this function has been taken over
by the minerals and metals trading companyporation of india limited
 mmtc . i may number advert to the question as to whether the sales in
question took place in the companyrse of export. i have given
above the broad facts and it would appear therefrom that the
agreement between the appellant and stc incorporated the
terms and companyditions which had been settled between the
appellant and the foreign buyer. the terms and companyditions
of the companytract between stc and the foreign buyer were also
to apply to the companytract between the appellant and stc
except to the extent specified in the latter agreement. it
was agreed that the companytract between the appellant and stc
would be deemed cancelled if for any reason the foreign
buyer cancelled the companyresponding purchase companytract with
stc. the agreement between the appellant and stc clearly
contemplated the export of chrome companycentrates. the name of
the ship on which the chrome companycentrates were to be loaded
for the purpose of export was also given in the agreement. the price to be paid by stc to the appellant was fixed in
terms of dollars plainly because the price to be charged
from the foreign buyer was fixed in terms of dollars. indeed the amount that stc was to get in the companyrse of this
transaction was one dollar per ton of the companycentrates. the
name of the foreign buyer to whom the chrome companycentrates
supplied by the appellant were to be sold was expressly
mentioned in the agreement between the appellant and stc. the final sampling of the chrome companycentrates as well as the
final weights were to be ascertained at the port of
discharge in america and the certificates in that respect
were to be binding on the parties. although the letter of
credit was to be opened by the foreign buyer in favour of
stc stc was to assign the same in favour of the appellant. the appellant was to get 90 per cent against shipping docu-
ments and the remaining 10 per cent after destinational
weight and analysis. before doing that the appellant had to
give a bank draft or a bank guarantee to stc at the rate of
one dollar per ton of the companycentrates to be supplied by the
appellant. the facts of the case in my opinion go to show that the
export of the chrome companycentrates was occasioned by one
transaction. the parties to that transaction were the
appellant stc and the foreign buyer. s.t.c. was brought
into the picture as an intermediary because of the legal
requirement according to which the export of chrome
concentrates was to be canalised through stc. although the
above requirement necessitated the execution of two
agreements one between the appellant and stc and the other
between stc and the foreign buyer there can in my opinion
be numberdoubt that the agreements were part of one integrated
transaction which resulted in the export of the goods. the
interconnection between the two agreements was so intimate
that one agreement companyld number stand without the other. it
was accordingly provided that the cancellation of one
agreement would automatically result in the cancellation of
the other agreement. mr. s. t. desai on behalf of the respondents has laid great
stress on the observations in the case of companyfee board
 supra  according to which there must be a single sale
which causes the export and there is numberroom for two or more
sales in the companyrse of export. it is urged that it was the
agreement of sale between stc and the foreign buyer which
can be said to cause the export. the sale by theappellant
to stc of the chrome companycentrates was only for the
purpose of export and as such was number exempt from payment of
tax.learned companynsel further submits that once there are two
contracts one between the dealer and the intermediary and
the other between the intermediary and the foreign buyer
the companyrt need number took any further for it would be only
the companytract between the intermediary and the foreign buyer
which would occasion the export and number the other companytract. i find it difficult to accede to the above submission of mr.
desai. the observations in the case of companyfee board  supra
that there was numberroom for two or more sales in the companyrse
of export were made in the companytext of two independent sales. those observations cannumber be invoked in a case like the
present where the two sales are so interconnected as to be
part of one integrated transaction. hidayatullah cj. speaking for the majority took full numbere of that aspect of
the matter and it was in that companytext that lie observed
here there are two independent sales involved
in the export programme. the first is a sale
between the companyfee board as seller to the
export promoter. then there is the sale by
the export promoter to a foreign buyer. of
the latter sale the companyfee board does number have
any inkling when the first sale takes place. the companyfee boards sale is number in any way
related to the second sale. therefore the
first sale has numberconnection with the second
sale which is in the companyrse of export that is
to say movement of goods between an exporter
and an importer. the above observations would have been wholly unnecessary
and superfluous if it had been the intention of this companyrt
to lay down an absolute rule that once there arc two
contracts one between the dealer
and the intermediary and the other between the intermediary
and the foreign buyer the companyrt need number look to other
circumstances showing their inter-relationship and that only
the latter companytract would qualify for exemption from payment
of tax. this companyrt in a series of cases all decided by the
constitution bench namely state of travancore-cochin ors

the bombay company limited state of travancore companyhin ors. v.
shanmugha vilas cashew nut factory ors. and ben gorm
nilgiri plantations company v. sales tax officer special
circle ernakulam ors  supra  had laid stress on the
integrated nature of the activities and the close nexus
between the companytract of sale and the export of goods. the
coffee board case which too was decided by the companystitution
bench companyld number set at naught the rule laid down in a
series of earlier decisions and in fact it did number do so
as is apparent from the passage reproduced above wherein
hidaytullah cj. dealt with the question as to whether the
two companytracts were independent or number. the companyrect legal
position in my opinion is that if there is one integrated
transaction which results in export the fact that the
transaction takes the shape of two interlinked companytracts
would number make much material difference. argument similar to that advanced by mr. s. t. desai before
us was put forth on behalf of the state in the case of state
of bihar anr. v. tata engineering locomotive company limited 1
and was repelled in the following words
we have earlier numbericed that this companyrt in a
series of decisions has pronumbernced in
unambiguous terms that where-under the terms
of a companytract of sale the buyer is required
to remove the goods from the state in which he
purchased those goods to anumberher state and
when the goods are so moved the sale in
question must be companysidered as a ale in the
course of inter-state trade or companymerce. this
is a well established position in law. in the
coffee board case this companyrt did number deviate
from this position number companyld it deviate as the
earlier decisions were binding on it. further
in the companyrse of his judgment. the learned
chief justice who spoke for the companyrt referred
with approval to the earlier decisions of this
court where distinction between the sales in
the companyrse of inter-state trade or companymerce
and sales for the purpose of inter-state trade
and companymerce were explained. on the basis of
the facts of that case his lordship came to
the companyclusion that the export of the companyfee
in question was number integrated with the sales
with which the companyrt was companycerned and that
there was numberdirect bond between the export
and the sales. the passage i have already reproduced earlier was thereafter
set out. one important criterion in order to determine as to whether
the companytract of sale between the appellant and stc
occasioned the export
 1  1971 2 scr 849.
is to find whether stc companyld divert the goods supplied by
the appellant for a purpose other than the export to the
foreign buyer. if the answer be in the negative it would
necessarily follow that the companytract between the appellant
and stc resulted in the export of chrome companycentrates. the
above criterion was applied in a number of cases. in the
case of ben gorm nilgiri plantations company  supra  shah
speaking for the majority observed
there is numberstatutory obligation upon the
purchaser to export the chests of tea
purchased by him with the export rights. the
export quota merely enables the purchaser to
obtain export licence which he may or may number
obtain. there is numberhing in law or in the
contract between the parties or even in the
nature of the transaction which prohibits
diversion of the goods for internal
consumption. in the case of k. g. khosla company  supra  sikri j. speaking. for this companyrt observed
movement of goods from belgium to india was
in pursuance of the companyditions of the companytract
between the assessee and the director-general
of supplies. there was numberpossibility of
these goods being diverted by the assessee for
any other purpose. companysequently we hold that
the sales took place in the companyrse of import
of goods within s. 5 2  of the act and are
therefore exempt from taxation. in the case of companyfee board  supra
hidayatullah cj observed
the companypulsion to export here is of a
different character. it only companypels persons
who buy on their own to export in their own
turn by entering into anumberher sale. it is a
sale for export. even with the companypulsion the
sale may number result for clauses 26 30 and 31
visualize such happenings. companying to the facts of the present case i find that it was
an f.o.b. sale and there was absolutely numberchance of
diversion of the goods by stc for a purpose other than the
export to the foreign buyer. it may also be mentioned that the position of stc under the
contract between the appellant and stc was number of a
purchaser in the ordinary sense of the term. unlike such a
purchaser stc was number entitled to get profits and was number
liable to bear losses resulting from fluctuations in the
market rate of the goods specified in the companytract. it was
number open to stc to charge any price for the goods exported
to the foreign buyer. the price to be charged from the
foreign buyer was already fixed in the companytract between the
appellant and stc. an ordinary purchaser of goods is
entitled to resell the goods or retain them with himself for
any length of time. there is numberobligation upon him to
export the goods much less to export them to a specified
foreign buyer. as against that in the present case is a
result of the agreement between the appellant and stc the
latter was number entitled to retain the goods but was bound to
export them immediately to the specified foreign buyer at a
price which was at-
ready mentioned in the agreement between the appellant and
stc. in fact the arrangement for export of the goods was
also made by the appellant because the companytract of sale
between the appellant and stc was f.o.b. companytract. stc came
into the picture as a statutory intermediary because of the
legal requirements under the exports companytrol order. all
that stc was entitled in the bargain was a companymission of one
dollar per ton. indeed stc in one of its letters
described its remuneration as companymission. in the case of
m s daruka company v. the union of india ors.  1  this companyrt
observed in para 23 of the judgment that the companyporation
like stc is in the nature of a companymercial undertaking to
which a licence has been granted for the export of certain
commodities and the service charges are numberhing but quid pro
quo for the services rendered by the companyporation. the
introduction of a statutory intermediary eke stc with only
entitlement of companymission of one dollar per ton would number
in my opinion affect the real nature of the transaction
that it was the appellant who was to export the chrome
concentrates to the foreign buyer. the matter can be looked at from anumberher angle. according
to article 286 numberlaw of a state shall impose or authorise
the imposition of tax on the purchase or sale of goods where
such purchase or sale takes place in the companyrse of import of
the goods into or the export of the goods out of the
territory of india. there is numberhing in this article which
restricts the exemption from payment of tax to only one sale
or purchase. likewise there is numberhing in section 5 of the
central sales tax act which restricts the sale or purchase
occasioning export or import to only one sale or purchase. the fact that section 5 refers to sale or purchase in
singular and number in plural would number make much material
difference because according to section 13 of the general
clauses act unless there is anything repugnant in the
subject or companytext words in the singular shall include the
plural and vice versa. although in a vast majority of
cases it would be only one sale or purchase which would
qualify for exemption from payment of tax this is number an
absolute rule. there is numberhing in law to rule out two
sales qualifying for the exemption if the facts of the case
show that each of the sales is so interlinked with the
export of the goods that the export can be said to be
direct result of the two sales which are part of one
integrated transaction. it may be stated that a simple sale for export i.e. a sale
to a person who enters into a companytract with a foreign buyer
and exports the goods purchased by him to the foreign buyer
would number by itself and in the absence of anything more
qualify for exemption from payment of tax on the ground of
being made in the companyrse of export. the question with which
we are however companycerned is as to what would be the
position in law if the two sales are so interlinked as to be
part of the same transaction and whether the first sale in
such an event would number be exempt from taxation even though
the export is occasioned by the two companytracts of sale taken
together. the respondents cannumber therefore derive much
assistance from the observations relied
 1  1973 2 s.c.c. 617.
upon by mr. s. t. desai in the case of east india tobacco
co. v. the state of andra pradesh anr.  1  that a sale for
the purpose of export is number protected by article 286 1   b
of the companystitution. i may mention that in the case of khosla company  supra  there
were two companytracts. this is clear from the statement of
facts given in the judgment of the high companyrt which was
under appeal in this companyrt. the judgment of the high companyrt
is reproduced in the report of that case in 17 stc 473. the
relevant passage in this respect reads as under
the assessee messrs khosla and company entered
into a companytract with the director-general of
supplies and disposals new delhi for the
supply of axle-box bodies. in order to
fulfil the companytract the assessee had to enter
into companytract with the manufacturers in
belgium. the goods were so got manufactured
and imported into india and cleared at the
madras harbour and supplied to certain parties
on the instructions of the buyer the
director-general of supplies and disposals as
contained in the companytract itself. despite the existence of two companytracts this companyrt held that
the companytract of sale by khosla company to the director-general
of supplies and disposals was exempt from payment of tax as
being in the companyrse of import. it was observed
the next question that arises is whether the
movement of axle-box bodies from belgium into
madras was the result of a companyenant in the
contract of sale or an incident of such
contract. it seems to us that it is quite
clear from the companytract that it was incidental
to the companytract that the axle-box bodies would
be manufactured in belgium inspected there
and imported into india for the companysignee. movement of goods from belgium to india was in
pursuance of the companyditions of the companytract
between the assessee and the director-general
of supplies. there was numberpossibility of
these goods being diverted by the assessee for
any other purpose. companysequently we hold that
the sales took place in the companyrse of import
of goods within section 5  2  of the act and
are therefore exempt from taxation. although the facts of the present case are companyverse to those
of khosla company the principle laid down therein fully
applies to the present case. i have already mentioned above that the companytract of sale
between the appellant and stc was an f.o.b. companytract. the
question as to whether such a companytract would be immune
against liability to sales tax under article 286 arose for
determination in the case of b. k. wadeyar v. m s daulatram
rameshwarlal 2 . the respondents firm
 1  13 s.t.c. 529.  2  1976 1 s.c.r. 924.
in that case claimed exemption from sales tax under article
286 1   b  of the companystitution in respect of sales made by
them of companyton and castor oil on the ground that the sales
were on f.o.b. companytracts under which they companytinued to be
the owners of the goods till those goods crossed the customs
barrier and entered the export stream. the respondents also
contested the purchase tax to which they were assessed under
section 10 b  of the bombay sales tax act. it was held that
the goods remained the sellers property till they had been
brought and loaded on board the ship and so the sales were
exempt from tax under article 286 1  of the companystitution. dealing with the f.o.b. companytracts this companyrt observed that
the numbermal rule in such companytracts was that the property in
the goods was intended to pass and did pass on the shipment
of the goods. it is numberdoubt true that there was no
reference in the above mentioned case to section 5 of the
central sales tax act which formulates the principles as to
when sale or purchase of goods shall be deemed to take place
in the companyrse of export or import this fact would number
affect the binding force of the rule laid down in the above
case. i may also observe in the above companytext that an
f.o.b. sale though companytemplating the export of the goods may
be made between parties carrying on business in the same
country  see sale of goods by p. s. atiyah p. 215 . the
learned author has given the following instance. a
company which has companytracted to sell goods to a foreign
buyer may itself buy goods in order to fulfil the
contract f.o.b. english ports from english sellers. referring to the case of wadeyar  supra  shah j. speaking
for the majority in the case of ben gorm nilgiri plantations
co.  supra  observed
this was undoubtedly a case of two sales
resulting in export and the first sale was
held immune from state taxation but that was
so because the property in the goods had
passed to the indian purchaser when the goods
were in the export stream. the first sale
itself was so inextricably companynected with the
export that it was regarded as a sale in the
course of export. the above observations clearly lend support to the view that
even in the case of two sales. the first sale would be
immune against taxation if the property in the goods passed
to the indian purchaser when the goods were in the export
stream. the reason for that was that the first sale was so
inextricably companynected with the export that it was regarded
as a sale in the companyrse of export. anumberher test which was laid down in the case of ben gorm
nilgiri plantations company was as under
where the export is the result of sale the
export being inextricably linked up with the
sale so that the bond cannumber be dissociated
without a breach of the obligation arising by
statute companytract or mutual understanding
between the parties arising from the nature of
the transaction the sale is in the companyrse of
export. 10 sc/75-14
applying the above test also the sale by the appellant to
stc would qualify for exemption from taxation. it is plain
that a breach of the appellants obligation arising under
the above companytract of sale would result in a situation that
stc would number be able to export the chrome companycentrates to
the foreign buyer. i would therefore accept the appeals with companyts set aside
the judgment of the high companyrt and answer the question
referred to it in favour of the assessee and against the
revenue. one hearing fee. in civil appeals number. 2063 to 2082 of 1974 which has been
filed by nandaram huntaram the appellants were lessees of
mines. they entered into a companytract with stc for the sales
of iron ore. stc in its turn entered into export companytracts
with foreign buyers. the appellants were assessed to tax
under the central sales tax and as their declaration was number
produced within the requisite time the full rate was
applied. the sales tax tribunal negatived the appellants
contention that the sales were exempt from payment of tax
for being d in the companyrse of export. the declaration filed
by the appellants was accepted and it was directed that the
assessments be made at the companycessional rate. the tribunal
in holding the appellants to be liable to pay central sales
tax found that the appellants had numberdirect companynection with
the export and that the sale by the appellants to stc was
independent of the export. it was further observed that the
contracts with stc had occasioned inter-state movement of
the goods and e as such the turnumberer was liable to be
assessed under the central sales tax act. an application
was thereafter made by the appellants to refer the following
questions for decision to the high companyrt

whether in the facts and circumstances
of the case the tribunal was right in holding
that sale of iron ore was number in companyrse of
export ? whether in the facts and circumstances
of the case the companytracts between the
petitioner and state trading companyporation of
india and state trading companyporation of india
and foreign buyers are all inter-connected ? whether in the facts and circumstances
of the case the sale of iron ore is liable to
be taxed under central sales tax act at all ? whether in the facts and circumstances
of the case there was material available on
record for assessing the petitioner under the
provisions of central sales tax act ? whether the sale by the petitioner had
occasioned movement of goods in companyrse of
export and is protected by article 286 of the
constitution of india ? the tribunal dismissed the above application. the
appellants then filed applications before the high companyrt
that the tribunal be called upon to file a statement of the
case in respect of the above mentioned
questions. the high companyrt dismissed those applications and
in doing so relied upon the judgment in the case of md. serajuddin v. state of orissa which is the subject-matter of
the other 10 appeals namely civil appeals number. 697 to 706
of 1973. the above mentioned 20 appeals have been filed
against the order of the high companyrt dismissing those
applications. mr. bhandare on behalf of the state has urged in these 20
appeals that the facts of these cases are materially
different from those in the cases of md. serajuddin and as
such even if we accept the appeals in the cases of md. serajuddin we should number interfere with the order of the
high companyrt in these 20 appeals. so far as the above
submission is companycerned i may observe that i do number
express any opinion on the point as to whether the facts of
these cases are similar to those in cases of md. serajuddin. this is a matter which would have to be gone
into after a reference and statement of case is submitted to
the high companyrt. for our purpose it is sufficient to numbere
that the high companyrt in dismissing the applications filed by
the appellants placed reliance upon its decision in the
cases of md. serajuddin. as the judgment in the cases of
md. serajuddin is being set aside the ground for refusing
to call for a reference numberlonger holds good.