Ramanujam, J.
1. Two items of turnover are in dispute in this case. The first item is a sum of Rs. 76,581 being the sales of refreshments effected in the canteen maintained by the assessee for the benefit of the workers during the assessment year 1965-66. The second item relates to a sum of Rs. 3,04,000 being the sales of cotton yarn in the same assessment year which, according to the assessee, are sales in the course of export.
2. As regards the first item, the assessing authority as well as the Appellate Assistant Commissioner held that as the definition of the term 'business' in the Madras General Sales Tax Act, 1959, had been enlarged by Madras Act 15 of 1964 so as to bring in all transactions of sale in connection with or incidental or ancillary to one's trade, commerce, manufacture, adventure or concern, the canteen sales are liable to be taxed under the Act. The Tribunal however, took the view, following the decision in Thirumagal Mills' case [1967] 20 S.T.C. 287, that the canteen sales are not in the course of the assessee's business of running the cotton mills and, therefore, they are not liable to be taxed. But subsequent to the decision of the Tribunal, the Supreme Court in State of Tamil Nadu v. Burmah Shell Co. Ltd [1973] 31 S.T.C. 426 , had held that the principle of the decision in Thirumagal Mills' case [1967] 20 S.T.C. 287, will not apply to transactions after the amendment of the definition of 'business' in Section 2(d) in 1964 and that after the amendment the transactions of sale which are incidental and ancillary to the assessee's trade or commerce can be brought to charge even if there was no profit-motive. In view of the said decision of the Supreme Court, the canteen sales covered by the first item should be held to be taxable.
3. As regards the second item, the assessee's claim was that the sales covered by that item were sales in the course of export and as such exempt from tax. But the assessing authority as well as the Appellate Assistant Commissioner held that the transactions were intra-State sales and as such liable to tax. The Tribunal, however, held that the turnover in question represented sales in the course of export and in that view set aside the assessment on the said turnover. The Tribunal has found that the said item of turnover represented eight transactions of sale of cotton yarn during the year with one Keshavalal Talakchand, Mint Street, Madras, that the contracts of sale showed that the goods were intended for export to Ceylon, that the sale was on f. o. b. terms, that the sale cannot be completed except by exporting the goods, that the assessee itself put the goods free on board, and that the bill of lading shows the assessee as the consignor and the buyer or his nominee in Ceylon as consignee. It was also found that the goods were released under AR-4 forms without payment of Central excise duty and they had been earmarked for export. It is on these facts the Tribunal took the view that the sales were in the course of export.
4. Before us it is urged on behalf of the revenue that the view of the Tribunal that the sales were in the course of export is not tenable, that in view of the fact that both the seller and the buyer are dealers at Madras, that there being no privity of contract between the assessee and the foreign buyer, it should be taken that even if the goods have been put on board the ship by the assessee in pursuance of the contract of sale with the local buyer, the sales should be taken to have been completed locally and that the further consignment of the goods by the assessee should be taken to be on behalf of the buyer. It is pointed out by the revenue that on similar facts this court has taken the view in Erattamuthu Nadar v. Joint Commercial Tax Officer [1971] 28 S.T.C. 649, that the transactions will be intra-State sales and not export sales. In that case, the National Agricultural Marketing Federation which had the exclusive right to export dried chillies to Ceylon entered into contracts with various co-operative establishments in Colombo for the sale of chillies. Thereafter, it entered into separate contracts with local dealers for purchase of chillies. Such contracts entered into by the federation with the local dealers provided inter alia that the latter should despatch the goods to the importer in Colombo for and on behalf of the federation on or before the stipulated date from the port of Tuticorin. The question was whether the sales of chillies by the local dealers to the federation should be regarded as export sales or sales which occasioned the export. A Division Bench of this Court held that the actual export was by the federation, that the local dealer (assessee) had nothing to do with the export, that a stipulation in the contract between the local dealer and the federation that the assessee should put the goods on board the ship was only to fulfil the terms of the export sale between the federation and the foreign importer and that will not make the sale between the local dealer and the federation an export sale or a sale which has occasioned the export. It is the contention of the revenue that the said decision squarely applies to the facts of this case.
5. But we find that the facts in this case are not on all fours with the facts in the said case. In that case, the federation had entered into contracts with the foreign importer for the supply of dried chillies and thereafter it entered into contracts with various local buyers for the purpose of export. Further, the contract between the local dealer and the federation provided specifically that the goods should be exported by the local dealers for and on behalf of the federation. It is in view of these facts the court took the view that the export of the goods by the local dealer was not in pursuance of any contract which he has entered into with the foreign buyer but that the export operations were undertaken by the local dealer in pursuance of a term of the contract between himself and the federation and not in pursuance of any contract which it had entered into with the foreign importer. One other important circumstance pointed out in that case was that the full payment for the goods had been effected before the goods were put on board, i. e., long before the goods reached the export stream, and by such payment the property in the goods had passed from the local dealer to the federation. But, in this case, we find that the contract which the assessee had entered into with the local buyer Keshavalal Talakchand provided that the goods are to be packed specially for export, that the same were to be put on board at Madras or Tuticorin and the payment should be against delivery of documents. The bills of lading in respect of the eight transactions show the assessee to be a consignor and the goods are made deliverable at Colombo to the order of the Bank of Baroda. That shows that the goods have been exported as the goods of the assessee. Though the bills of lading show Keshavalal Talakchand as the exporter, it is not in dispute that it is the assessee who had put the goods on board the ship. In addition, the goods have been released under AR-4 forms without payment of Central excise duty and they have been earmarked for the purpose of export and they cannot be diverted to the local market or sold locally. Thus, it is seen that the contract between the assessee and Keshavalal Talakchand does not make the assessee an agent for the purpose of export. But, on the other hand, it is the obligation of the seller to put the goods on board the ship on the instructions of the buyer and receive payment for the goods as against delivery of bill of lading and other documents. The property in the goods sold passes only on delivery of the documents, that is, long after the goods have joined the export stream. In these circumstances, it could be said that the sale by the assessee and the export of the goods are so inter-connected as to justify the inference that the sale and the export were integrally connected. Though the assessee was not concerned with the export contracts entered into by the buyer with the Ceylon importers, the actual exportation of the goods by the assessee was in pursuance of its contracts of sale which would be incomplete without the export.
6. In Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 S.T.C. 753 the Supreme Court held that a sale in the course of export predicates a connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction, that to constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export, there must be an obligation to export, and there must be an actual export, and that the obligation to export may arise by reason of statute, contract between the parties or from mutual understanding or agreement between thtm or even from the nature of transaction which links the sale to export. The Supreme Court also observed that to occasion an export there must exist such a bond between the contract of sale and the actual exportation, that such link is to be inextricably connected with the one immediately preceding it. The Supreme Court then considered two extreme situations. Where the foreign purchaser either by himself or through his agent purchases goods locally and exports the same, such a transaction is not in the course of export for the seller does not export the goods and it is not his concern as to how the purchaser deals with the goods. But, on the other hand, under a contract of sale with a foreign buyer the goods may be delivered by the seller to a common carrier for transporting them to the buyer, such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. The Supreme Court then expressed:
But in-between lie a variety of transactions in which the question whether the sale is one for export or is one in the course of export, i. e., it is a transaction which has occasioned the export, may have to be determined on a correct appraisal of all the facts. No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But that is not to say that the distinction between transactions which may be called sales for export and sales in the course of export is not real. In general where the sale is effected by the seller, and he is not connected 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 the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of export.
7. In this case, the contract between the assessee and the local buyer provides that the goods are to be delivered to the common carrier for the purpose of export, and the payment has to be made as against the delivery of the bill of lading. Therefore, applying the test laid down by the Supreme Court in the above case, it must be held that the export in this case is the result of the sale by the assessee and that it cannot be dissociated from the sale without a breach of the obligation of the seller arising by the terms of the contract.
8. In National Carbon Co. v. Commissioner of Sales Tax [1969] 23 S.T.C. 388, the following general principles have been culled out from the above decision of the Supreme Court by a Full Bench of the Allahabad High Court: (1) In order that a sale may qualify for exemption under Article 286(1)(b) of the Constitution as being a sale in the course of export, the sale must occasion the export. In other words, the exportation of the goods must be a part of the contract of sale or must be a necessary incidence thereof. (2) A sale can be said to occasion an export only (a) if there is a common intention of both the seller and the buyer to export, (b) there is an obligation to export and (c) there is an actual export. (3) The obligation to export may arise from statute, from contract or from the nature of the transaction. In other words, the obligation may be implicit or explicit. (4) The bond between the sale and the export should be such as cannot be broken without a breach of the obligation.
9. In Coffee Board v. Joint Commercial Tax Officer [1970] 25 S.T.C. 528 , the Supreme Court reiterated its decision in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 S.T.C. 753 In this case, the Supreme Court observed:
The phrase 'sale in the course 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 'course' in the expression 'in the course 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.
10. In State of West Bengal v. North Adjai Coal Co. Ltd. [1971] 27 S.T.C 268 , the assessee, carrying on business of a colliery, supplied coal for consumption in East Pakistan. The supplies were made through common carrier to the East Pakistan Government at the instance of the Government of India. In respect of those supplies bills were drawn by the assessee in the name of the Government of India. But the price of the coal was realised by the Government of India from the Government of East Pakistan and paid to the assessee. The question arose whether such supplies of coal are in the course of export. It was urged on behalf of the revenue that there was no contract of sale between the assessee and the East Pakistan Government and that there was only a contract between the assessee and the Government of India and, therefore, the supply of coal made by the assessee to the East Pakistan Government cannot be said to be a sale in the course of export. While rejecting that contention the Supreme Court expressed:
It is difficult to appreciate the argument. The questions in dispute were whether there was a sale, and if so, whether the sale was exempt from liability to pay tax. Without deciding whether there was a sale by the respondent to the Government of India or to the Government of Pakistan, it is sufficient for the purpose of this case to observe that the sale if any was by virtue of Section 5(2) (a) (v) exempt from liability to sales tax under the Bengal Finance (Sales Tax) Act, for it was a sale in the course of export.
11. In National Tractors v. Commissioner of Commercial Taxes [1971] 27 S,T.C. 271, a dealer purchased iron ore from mine-owners and sold it to the State Trading Corporation for export on f. o. b. basis. Under the agreement between the dealer and the corporation the ore was to be transported by rail or to be loaded into ships for transportation to foreign countries. All expenses for transportation up to the stage of loading into the ships were to be borne by the dealer. But in all the documents the ore was shown as consigned by the corporation to itself. The wagons were also arranged by the corporation. All the shipping documents including the export licence were made out in the name of the corporation. The question arose as to whether the sale by the dealer to the corporation was in the course of export. On these facts, the Supreme Court held that in f. o. b. contracts the normal presumption is that the property in the goods passes when they are put on board the ship, unless of course, special circumstances pointing to the passing of property at some other point of time are clearly made out and that though the shipping documents and the export licence stood in the name of the corporation, the property cannot be said to have passed from the dealer to the corporation before the goods were loaded in the ships and that, in any event, these circumstances are quite equivocal and never so firm as to displace the normal presumption attaching to f. o. b. contracts to the effect that the title in the goods covered by such contracts passes to the buyer only when the goods are put on board the ships. It was, therefore, held in that case that notwithstanding the fact that the goods moved from the dealer's place of business to the port and loaded into the ships as the goods of the corporation, the sale by the dealer to the corporation should be taken to be in the course of export as the property in the goods passed to the corporation only after the goods had been loaded on board the ships. The case before us is an a fortiori one in that in the shipping documents the assessee has been shown as the consignor and the goods are deliverable to its order.
12. It is therefore clear on the facts of this case that the principle of the decision in Erattamuthu Nadar v. Joint Commercial Tax Officer [1971] 28 S.T.C. 649, cannot be invoked and the transactions in question have to be held to be sales in the course of export. The order of the Tribunal on this aspect has, therefore, to be upheld.
13. The result is, the tax case is partly allowed so far as it relates to canteen sales. There will, however, be no order as to costs. It is, however, made clear that it is open to the assessee to claim exemption in relation to canteen sales on the basis of G.O. No. 2238 Revenue dated 1st September, 1964.