Sujata V. Manohar, J.
1. The applicants, M/s. Batliboi & Company Pvt. Ltd., had entered into a contract with M/s. Kirloskar Brothers Ltd. to sell to them a double column vertical turning and boring mill, Model SK-40A complete with standard equipment and electrical equipment, manufactured in Czechoslovakia. The applicants have an import licence for import of machinery. Prior to their contract with M/s. Kirloskar Brothers Ltd., the applicants had placed an order with the Czech manufacturers of the machine for the import of the machine in question. The applicants had also filled in a tender with the defence department under which, inter alia, they were required to supply this machine to the defence department. Thereafter by their letter dated 1st April, 1972, the applicants made an offer to M/s. Kirloskar Brothers Ltd. (hereinafter referred to as 'Kirloskars') offering to sell to them the same machine. In the letter of 1st April, 1972, addressed by the applicants to Kirloskars the applicants set out a telex which was sent by them to Kirloskars. In the telex they had mentioned that the machine was under offer to the defence department until the end of June, 1972, and that they could sell the machine to M/s. Kirloskar Brothers Ltd., provided the defence department released the same. In the offer which was set out in the said letter the applicants set out the term relating to delivery as follows :
'Ready at works in Czechoslovakia, subject to prior sale, to be imported against our own import licence. ........'
2. Thereafter by their letter dated 3rd April, 1972, addressed to the applicants, Kirloskars placed an order with the applicants for the purchase of this machine. This order stipulated for erection and commissioning of the machine by the applicants with the help of erection engineers from the works in Czechoslovakia. By another letter of 5th April, 1972, addressed by Kirloskars to the applicants, Kirloskars added a further stipulation in the purchase order to the effect that the property in the machine offered by the applicants shall stand transferred to Kirloskars as soon as the machine is ready-packed in crates for shipment from Czechoslovakia. The addition of this stipulation was confirmed by the applicants. Thereafter in May, 1972, the machine was shipped by the Czech manufacturers to Bombay. The machine arrived in Bombay on or about 11th July, 1972. The applicants cleared this shipment and thereafter some time in the months of July/August, 1972, the machine was sent by the applicants to Kirloskars at Kirloskarwadi by rail. The railway receipts in connection with the goods so sent are dated 17/19th July, 1972, 26/27th July, 1972, and 5/12th August, 1972. In respect of this sale of the machine effected by the applicants to Kirloskars the applicants sent their bill dated 14th August, 1972, to Kirloskars.
3. The applicants thereafter made an application under section 52 of the Bombay Sales Tax Act, 1959, for the purpose of determining whether the transaction between the applicants and Kirloskars was a sale within the State of Maharashtra as defined under section 2(28) of the Bombay Sales Tax Act, 1959, and whether any sales tax was payable under the Bombay Sales Tax Act, 1959, by the applicants in respect of this transaction. The Deputy Commissioner, on this application, concluded that the sale in question had taken place in the State of Maharashtra. It was, therefore, a sale as defined under section 2(28) of the Bombay Sales Tax Act, 1959, and hence sales tax was payable by the applicants on this transaction. Being aggrieved by the order of the Deputy Commissioner, the applicants preferred an appeal before the Tribunal. This appeal was dismissed by the Tribunal. Thereafter at the instance of the applicants, a reference has been made to the High Court. The question which has been referred to us for determination is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the transaction covered by the applicant's bill dated 14th August, 1972, was a sale as defined in section 2(28) of the Bombay Sales Tax Act, 1959, and was subject to tax ?'
2. In this connection the first submission which is made by Mr. H. K. Shah, who appears for the applicants, is that this is a sale in the course of import and hence it is not liable to tax under the provisions of the Bombay Sales Tax Act, 1959. Section 5 of the Central Sales Tax Act, 1956, lays down the principles for determining when a sale or purchase of goods can be said to take place in the course of import or export. The relevant provision for the present case is laid down in section 5, sub-section (2), of the Central Sales Tax Act, 1956, which provides as follows :
'5. (1) ..................
(2) A sale or purchase of goods shall be deemed to take place in the course 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.'
3. In the present case, admittedly, it is not necessary to consider the latter part of section 5, sub-section (2), because in the present case, the documents of title to the goods were not transferred by the applicants to the name of Kirloskars at any time. The delivery of the goods was taken by the applicants when the goods arrived from Czechoslovakia. It was only after the goods were cleared by the applicants from the customs, that they were sent by the applicants by rail to Kirloskars under railway receipts which were in the name of Kirloskars.
4. The only argument that was advanced before us by Mr. Shah was that the import of this machine was occasioned by the sale in question and hence the sale in question is a sale in the course of import. This argument cannot be accepted. Whether the sale of any goods occasions their import or not depends necessarily on the facts of each case. In the case of Binani Bros. (P.) Ltd. v. Union of India : [1974]2SCR619 , the Supreme Court, after reviewing all earlier decisions, held that the movement of the goods in the course of import must take place in pursuance of the contract of sale in question. If the import of the goods is not in pursuance of the contract in question but in pursuance of some other contract, then section 5, sub-section (2), of the Central Sales Tax Act, 1956, would not apply to such a contract of sale. In the present case, the contract in question has not occasioned the import of the machine in question. The applicants had already placed an order for the import of this machine with the Czech manufacturers. From the documents on record it is clear that this machine, which was being imported by the applicants, had been offered by the applicants to the Defence Ministry, although no contract had been arrived at between the applicants and the Defence Ministry for the supply of this machine. The applicants had, however, kept their offer with the Defence Ministry open till 30th June, 1972. Thereafter in order to be sure of a purchaser for this machine, the applicants entered into a contract with Kirloskars in April, 1972, for the sale of this machine to Kirloskars. In the offer which was made by the applicants to Kirloskars it was clearly mentioned that this machine, would be sold by them to Kirloskars only if this machine was released by the Defence Ministry. They had also stated that their offer to the Defence Ministry was open until the end of June, 1972. Accordingly, in the offer to Kirloskars the applicants had stipulated that delivery of the machine was 'subject to prior sale'. At the time of the hearing before the Sales Tax Tribunal the applicants initially submitted that the phrase 'subject to prior sale' in their letter of 1st April, 1972, referred to this offer which they had made to the Defence Ministry. But at the adjourned hearing before the Tribunal they subsequently argued that the phrase 'subject to prior sale' referred to their contract with the Czech manufacturers and that what they meant to convey was that in the event of the Czech manufacturers selling this machine to somebody else, they would not be able to supply the machine to Kirloskars within the time agreed upon. They relied upon a letter dated 9th October, 1974, written by them to their chartered accountants. This second explanation clearly appears to be an afterthought and the Tribunal rightly rejected this second explanation offered by the applicants. In these circumstances, it is quite clear that the import of this machine by the applicants was independent of the sale in question. The applicants had an import licence for the import of machinery. Under this licence they had placed an order for the import of the machine in question. They initially offered this machine to the defence department and thereafter sold it to Kirloskars. The sale to Kirloskars had not, therefore, occasioned the import of the machine in question from Czechoslovakia. Mr. Shah relied upon a term in the contract of sale relating to the erection of the machine by Czechoslovakian technicians as showing that the machine was imported pursuant to the contract of sale. The chronological sequence of events in the present case, however, clearly shows that an order for the import of the machine had been placed by the applicants prior to the contract of sale. The import of the machine was de hors the sale. Hence it cannot be said that the sale in question is a sale which has occasioned the import of the machine in question.
5. Mr. Shah, who appears for the applicants, has relied upon three decisions in support of his contention that the sale in question is a sale which has occasioned the import of the machine. The first authority cited by him is of Bengal Corporation Private Ltd. v. State of Madras [1965] 16 S.T.C. 62. The facts in that case were very different from the facts in the present case. In that case the applicants had entered into a contract for the supply of M. S. sheets to Integral Coach Factory, Madras. This contract stipulated that the sheets in question would be imported from the continent, that the sheets should be manufactured by the process as stipulated in the specifications, that cast number must be stamped on each piece or in metal tags attached to each bundle, that the goods would be inspected by the purchaser on the continent and Inspection Test Certificate would accompany each consignment; the seller had also to supply to the Iron and Steel Controller advance information of all expected shipments of steel indicating the name of the vessel, the port of arrival and the categories and quantities of steel. In these circumstances, particularly because of the stipulation that the material would be inspected by the purchaser before it was actually shipped, the court came to the conclusion that the import of the goods in question was occasioned on account of the agreement of sale in question and hence the transaction was covered by section 5, sub-section (2), of the Central Sales Tax Act, 1956.
6. The next case relied upon by the applicants was the case of Siemens India Ltd. v. Commercial Tax Officer, Bhowanipore Charge [1978] 41 S.T.C. 75. Here also there was a similar contract for sale entered into between the applicants and the Indian Railways. The goods were to be manufactured in a foreign country as per specifications given in the contract between the applicants and the Indian Railways. The goods were also to be inspected by a representative of the railways at the works site of the foreign supplier situated in West Germany and it was thereafter that the goods were to be shipped from West Germany to India. In the light of these circumstances, the court held that the contract of sale in question had occasioned the import of the goods. Similarly in the last case cited before us, namely, Deputy Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam v. India Sea Foods, Cochin [1973] 32 S.T.C. 454, the contract of sale required the goods to be imported and the goods were imported pursuant to this contract of sale. Hence the court came to the conclusion that the sale in question had occasioned the import. The facts of the present case are totally different. The sale in question is really an alternative arrangement which the applicants had made for the disposal of the machine. The applicants had placed an order for the import of the machine prior to the sale which they effected in favour of Kirloskars. It cannot, therefore, be said that the import of the machine from Czechoslovakia is occasioned by the sale in favour of Kirloskars. There is no integral link between the two transactions and hence the authorities which have been cited by the applicants cannot help the applicants. This is not a sale which has occasioned the import of the goods in question.
7. The applicants have also submitted that this is not a sale within the State of Maharashtra because it is a sale outside India. Hence no sales tax can be levied under the provisions of the Bombay Sales Tax Act, 1959. In order to establish that this is a sale outside India they rely upon the tests laid down in section 4(2) of the Central Sales Tax Act, 1956. Now there are three categories of sales on which a State in India cannot levy sales tax : (1) sales in the course of inter-State trade or commerce, (2) sales outside the State, and (3) sales in the course of import or export. Under article 286 of the Constitution a State cannot impose a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. Under article 269 of the Constitution the Government of India alone is entitled to levy and collect taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. Accordingly the power to levy taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce, is placed in List I of the Seventh Schedule at entry 92A. Under article 269(3) Parliament is empowered to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. Similarly under article 286(2), Parliament is empowered to formulate principles for determining when a sale or purchase of goods takes place outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. In the exercise of these powers under articles 269(3) and 286(2), sections 3, 4 and 5 of the Central Sales Tax Act, 1956, have been enacted to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside the State or in the course of import or export. In all these categories of cases the State Government has no power to levy sales tax. We are not concerned in the present case with section 3 of the Central Sales Tax Act, 1956, which lays down the principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. Section 4 lays down the principles for determining when a sale or purchase of goods takes place outside a State. Section 4 is as follows :
'4. (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State -
(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 assent of the other party is prior or subsequent to such appropriation.
Explanation .............'
Thus, under section 4(1), when a sale or purchase of goods takes place inside a State, such sale or purchase shall be deemed to have taken place outside all other States. From this provision it is clear that section 4 deals with sales or purchases of goods within India and it lays down the principles for determining when a sale or purchase can be said to be in any given State in the country itself. A sale which is inside one State is deemed to be outside all other States. Section 4 has no application to sales or purchases which have taken place outside the country altogether. Sales which are not in any State in India but are outside the country altogether are not governed by section 4 of the Central Sales Tax Act, 1956. Reliance on section 4, therefore, cannot be placed by the applicants when they contend that the sale is outside the country altogether. The entire submission of the applicants in the present case is based upon the tests which are laid down in section 4, sub-section (2), of the Central Sales Tax Act, 1956, for determining when a sale has taken place in one State and not in any other State within the country. These tests cannot apply in the case of a sale which is said to have taken place outside the country. The arguments advanced by the applicants are to the effect that by applying the tests laid down in section 4, sub-section (2), it could be seen that the sale in question has taken place outside the country and hence it is a sale outside the State and therefore it is not taxable. This argument is totally fallacious because the tests which are laid down in section 4, sub-section (2), are only applicable in a case where a sale has taken place within the country and they help to ascertain which State in the country is entitled the levy sales tax on such a sale. Needless to add, the term 'State' in section 4 refers to States within the country and not to any nation. Under section 3(58) of the General Clauses Act, 1897, a State is defined as follows :
''State' -
(a) as respects any period before the commencement of the Constitution (Seventh Amendment) Act, 1956, shall mean a Part A State, a Part B State or a Part C State; and
(b) as respects any period after such commencement, shall mean a State specified in the First Schedule to the Constitution and shall include a Union territory.'
It is clear, therefore, that reference to the State in section 4, sub-sections (1) and (2), of the Central Sales Tax Act, 1956, refers to States within the territory of India and not to a foreign State. Section 4, therefore, cannot be resorted to for determining whether a sale has taken place inside the country or outside the country.
8. Since the applicants, however, have advanced elaborate arguments on the basis of the tests laid down in section 4 of the Central Sales Tax Act, 1956, this contention may be briefly examined, though, in our opinion, the entire argument in this connection is based on a fallacy.
9. Under section 2(28) of the Bombay Sales Tax Act, 1959, a sale is defined to mean a sale of goods within the State and it includes, inter alia, a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956. Under section 4(2) of the Central Sales Tax Act a sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State (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 assent of the other party is prior or subsequent to such appropriation.
10. Under the tests laid down by section 4 of the Central Sales Tax Act, 1956, the goods must be inside the State, in the case of unascertained or future goods, at the time of their appropriation to the contract of sale. In the present case, at the time of the contract of sale in April, 1972, the machine in question had not been acquired by the applicants from the manufactures. It was, therefore, a contract for the sale of future goods. The particular machine to be delivered to Kirloskars had also not been identified by the applicants or Kirloskars at the time of the contract of sale. It was, therefore, a contract for the sale of unascertained goods. So the relevant point which is required to be considered is the time and place of appropriation of the machine to the contract. According to the applicants, appropriation took place in Czechoslovakia, when the machine was packed and made ready for shipment. The applicants rely upon the stipulation in their letter of 5th April, 1972, under which it was agreed between the parties that the property in the goods would pass to Kirloskars when the machinery was ready-packed in crates for shipment from Czechoslovakia. In view of this stipulation, the applicants submit that the property in the goods passed to them in Czechoslovakia. The appropriation of the machinery to the contract took place in Czechoslovakia and hence the sale must be deemed to have taken place in Czechoslovakia. and outside the State of Maharashtra. In the alternative they submit that the property in the goods passed to the buyers at the end of June, 1972, while the goods were on the high seas. In either case appropriation took place outside Maharashtra. This contention of the applicants cannot be accepted at all.
11. The second alternative can be rejected outright. Up to the end of June, 1972, the applicants were obliged to keep their offer to the defence department open. They were therefore in no position to transfer the property in the machinery to their buyers. After June, 1972 (assuming that the applicants had themselves acquired the ownership of the machinery from their Czech manufacturers), the applicants were in a position to transfer the ownership in the machinery to their buyers. But there is nothing which would indicate that they had in fact done anything to transfer the ownership in the goods to their buyers after June, 1972, and while the goods were still on the high seas. There is thus no substance in the contention that the property in the goods passed to the buyers while the goods were on the high seas.
12. Likewise there is no substance in the contention that the property in the goods passed to the buyers in Czechoslovakia. In the first place, before the applicants can transfer the property in the goods to Kirloskars they must themselves be the owners of the goods in question. The applicants cannot the property in the goods of somebody else to Kirloskars. The applicants are thus required to establish in the first place that the property in the machinery had already passed to them when the machine was crated and was ready for shipment from Czechoslovakia. From the documents which are on record it is not clear what was the nature of the agreement between the applicants and their Czech manufacturers regarding the sale of the machine by the manufacturers to the applicants. Under section 23, sub-section (1), of the Sale of Goods Act, in the case of a contract for the sale of unascertained goods or future goods, the property in the goods passes when the goods are unconditionally appropriated to the contract. Under sub-section (2) of section 23 such appropriation takes place where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier for the purpose of transmission to the buyer, and does not reserve the right of disposal. There is no material in the present case on record which would go to show that at the time when the goods were ready-packed for shipment by the Czech manufacturers the Czech manufacturers had not reserved the right of disposal over these goods. The terms and conditions on which the goods were sold and shipped by the Czech manufacturers to the applicants are matters which are within the exclusive knowledge of the applicants. They did not produce any documents or lead any evidence before the sales tax authorities in order to show that the Czech manufacturers had not reserved the right of disposal in respect of these goods at the time when the goods were ready for shipment and that the property in these goods had passed to the applicants at the time when the goods were crated and ready for shipment. There is, therefore, no evidence on record to show that the property in the goods had passed to the applicants at the time when the goods were crated and ready for shipment in Czechoslovakia. If this is so and the property in the goods had not passed to the applicants, they could not have in turn transferred the goods to Kirloskars in Czechoslovakia. The stipulation in the contract relating to such transfer cannot therefore help the parties if there is no material on record to show that such stipulation could have been and was in fact given effect to at the time in question. In any case, all the circumstances in the present case go to show that such a stipulation did not represent the true intention of the parties. Admittedly the stipulation was inserted in the contract subsequently under legal advice. It appears to have been inserted in order to take the transaction outside the provisions of the Bombay Sales Tax Act, 1959. The conduct of the parties also goes to show that the property in the goods had not passed to Kirloskars in Czechoslovakia. In the first place, the applicants had kept their offer for the sale of this machine to the Defence Ministry open till the end of June, 1972. The goods were shipped in May, 1972, that is to say, while the offer of the applicants to the Defence Ministry was open. They could not have therefore intended to transfer the goods to Kirloskars at the time when the goods were ready for shipment. There is no evidence to show in whose name the shipping documents were made out. But in any case these shipping documents were admittedly not in the name of Kirloskars. Delivery of the goods was also not taken by Kirloskars when the goods arrived in Bombay from Czechoslovakia. It was only after the goods were cleared from the customs by the applicants that they sent the goods by rail to Kirloskars. The conduct of the parties shows that they had not intended the property in the goods to pass to the buyers in Czechoslovakia. The applicants considered the machinery as of their ownership at least till the time that they sent the machinery by rail from Bombay to Kirloskarwadi. Thus the earliest occasion when the property could be said to have been transferred by the applicants to Kirloskars would be when the goods were sent from Bombay to Kirloskarwadi by the applicants. There is, therefore, no substance in the contention of the applicants that the goods were appropriated to the contract either in Czechoslovakia or on the high seas. The earliest point of time when the goods were appropriated to the contract was when the goods were sent by railway from Bombay to Kirloskarwadi by the applicants. The appropriation, therefore, of these goods has taken place in the State of Maharashtra. Therefore, even if the tests laid down in section 4(2) were to apply to the present case, the sale would be within the State of Maharashtra.
13. In the present case, all the events which go to constitute a sale have taken place within the State of Maharashtra. The agreement of sale has taken place in the State of Maharashtra; delivery of the goods has been effected in the State of Maharashtra and the payment of price has also been made in the State of Maharashtra. For the reasons given earlier, appropriation of the goods to the contract has also taken place in the State of Maharashtra and the property in the goods has passed from the seller to the buyer in the State of Maharashtra. The sale is therefore a sale within the State of Maharashtra and the applicants are required to pay sales tax on it under the provisions of the Bombay Sales Tax Act, 1959.
14. For the reasons set out above, we answer the question in the affirmative, that is to say, in favour of the department and against the applicants.
15. The applicants to pay to the respondents the costs of the reference fixed at Rs. 300. Fees of Rs. 100 deposited by the applicants to be appropriated towards the costs of the reference.
16. Reference answered in the affirmative.