judgement:
ivil Appeal Nos.1685 and 1686(NT) of 1974 From the Judgment and Order dated 21st February, 1974 of the Karnataka High Court in Tax Reference Nos. 67 and 68 of 1972.
M.K. Banerjee, Additional Solicitor General, Ms A. Subhashini and B.B.Ahuja for the Appellant G. Sarangan and Mukul Mudgal for the Respondent.
The Judgment of the Court was delivered by PATHAK, J.
These appeals are directed against the judgment of the Karnataka High Court disposing of two Income tax References.
The question in each Reference, which was answered by the High Court in favour of the assessee and against the Revenue, is whether in computing the profits for the purpose of deduction under section 80E of the Income Tax Act, 1961, the loss incurred by the assessee in the manufacture of alloy steels could not be set off against the profits of the manufacture of automobile ancillaries.
The assessee is a public limited company engaged in the 169 manufacture of automobile spares.
The products manufactured by it are covered by the list in the Fifth Schedule to the Income Tax Act.
During the previous year relevant to the assessment year 1966 67, the assessee commenced another activity, the manufacture of alloy steels, which was also an industry included in the Fifth Schedule.
The assessee sustained a loss in the alloy steel industry during the previous years relevant to the assessment years 1966 67 and 1967 68.
It claimed a loss in the sum of Rs. 15,30,688 for the assessment year 1966 67.
For the assessment year 1966 67, the assessee disclosed profits from the industry of automobile ancillaries in the following detail: 1.
Manufacture of Springs at Mangalore Rs. 7,54,107 2.
Manufacture of Springs at Nagpur Rs. 9,61,808 3.
Manufacture of Hubs and Brake Drums Rs. 41,214 Rs 17,57,129 The assessee claimed relief under section 80E at 8 per cent of this amount in the sum of Rs.1,40,574.
In the same manner, the assessee claimed relief under section 80E in the sum of Rs.1,52,483 for the assessment year 1967 68.
The Income Tax Officer declined to grant the relief claimed by the assessee in the two assessment years.
He noticed that the assessee had not taken into account the losses incurred in the alloy steel industry, and he held that the assessee would be entitled to deduction under section 80E on the profits from the manufacture of automobile parts only after setting off the loss in alloy steel manufacture.
After making certain adjustments in the computation of the total income, the Income Tax Officer gave relief under section 80E in the sum of Rs.24,896 for the assessment year 1966 67 and Rs.1,20,986 for the assessment year 1967 68, computing the deduction at 8 per cent on the amount of profits from the manufacture of automobile parts as reduced by the losses from the alloy steel manufacture.
An appeal by the assessee was dismissed by the Appellate Assistant Commissioner of Income tax.
But on second appeal, the Income Tax Appellate Tribunal accepted the contention of the assessee that a deduction was permissible at 8 per cent on the entire profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture.
It directed the Income Tax Officer to recompute the relief under section 80E.
At the instance of the Revenue, the Appellate Tribunal referred 170 the case for each of the two assessment years 1966 67 and 1967 68 to the Karnataka High Court for its opinion on the following question of law: "Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that in computing the profits for the purpose of deduction under section 80E of the Income Tax Act, 1961 the loss incurred in the manufacture of alloy steels should not be set off against the profits of the manufacture of automobile ancillaries?" The High Court answered the question in the affirmative.
To appreciate the merits of the controversy in these appeals it would be as well to set forth at this point the relevant provisions of section 80E of the Income Tax Act as they stood at the time: 80E. "Deduction in respect of profits and gains from specified industries in the case of certain companies (1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles and things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such profits and gains of an amount equal to eight per cent thereof, in computing the total income of the company.
" It is not disputed that the assessee is a company to which section 80E applies.
The question is whether for the purpose of granting relief under s.80E the loss suffered by the assessee in the manufacture of alloy steels can be set off against the profits arising from the manufacture of automobile ancillaries.
It is apparent that section 80E provides for the grant of a rebate when computing the total income of a company carrying on the business of generating or distributing elect 171 ricity or other form of power or of constructing, manufacturing or producing any one or more of the articles and things specified in the list in the Fifth Schedule.
Popularly, the list is known as the list of Priority Industries.
A perusal of the entries in the list makes it clear that they are concerned with articles and things which are regarded of primary importance in the industrial and economic development of the country.
Some of them form part of the industrial and economic base of the country while others enter into the industrial and economic infrastructure considered necessary or desirable for its development.
A certain priority has been assigned to the construction, manufacture or production of those articles and things.
They find place in section 80E along with the business of generation or distribution of electricity or other form of power.
Nobody can dispute that electrical energy or other form of energy is crucial to industrial and economic development.
The nature of articles and things included in the list in the Fifth Schedule possesses the same character.
Alloy steels are undoubtedly covered by Entry (1) "Iron and steel (metal), ferro alloys and special steels", while automobile ancillaries appear clearly by that description in Entry 20 of the list.
Both represent separate priority industries.
It is obvious from the object underlying the enactment of section 80E and the terms in which it provides relief that the intention of Parliament in enacting the provision was to encourage the setting up of industries concerned with the generation or distribution of electrical and other energy and the construction, manufacture or production of articles or things specified in the list in the Fifth Schedule.
The intention goes further.
By making a provision for a rebate year after year on the industry making profits and gains during the year, the intention also was to provide an incentive for promoting efficiency in the industry.
It is clear that the benefit was directed to the setting up and also the efficient working of the priority industries.
How is the benefit to be worked out? First, it must be a company to which section 80E applies, that is to say a company which satisfies the requirements of sub section
(2) of section 80E.
Second, the total income, as computed in accordance with the Income tax Act 1961 without taking into regard the provisions of section 80E, should include profits and gains attributable to the business or the industry mentioned in the section.
Third, from the profits and gains attributable to such business or industry a deduction has to be allowed of an amount equal to eight per cent of such profits and gains and effect must be given to this deduction when computing the total income of the company.
172 The assessee in this case carries on two industries, both of which find place in the list in the Fifth Schedule and can, therefore, be described as priority industries.
It is urged by the learned Additional Soliciter General, appearing for the Revenue, that on a true application of section 80E the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steel, and reference has been made to a number of cases to which we shall presently refer.
After giving the matter careful consideration we do not find it possible to accept the contention.
It seems to us that the object in enacting section 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry.
The deduction of eight per cent is intended to be an index of recognition, that a priority industry has been set up and is functioning efficiently.
It was never intended that the merit earned by such industry should be lost or ' diminished because of a loss suffered by some other industry.
It makes no difference that the other industry is also a priority industry.
The coexistence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other.
The legislative intention was to give to the meritorious its full reward.
To construe section 80E to mean that you must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, in our opinion, to undermine the object of the section.
An example will illustrate this.
An industry entitled to the benefit of section 80E could have its profits wholly wiped out on adjustment against a heavy loss suffered by another industry, and thus be totally denied the relief which should have been its due by virtue of its profits.
In our opinion, each industry must be considered on its own working only when adjudging its title to the deduction under section 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee.
To determine the benefit under section 80E on the basis of the net result of all the industries owned by the assessee would be, moreover, to shift the focus from the industry to the assessee.
We hold that in the application of section 80E the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.
We shall now turn to the cases cited before us.
In the view which has found favour with us it is apparent that the Madras High Court erred in holding in Commissioner of Income tax, Tamil Nadu III vs English Electric Company Ltd., , that in granting relief under section 80E the adjustment of certain losses in other trading 173 transactions was permissible in determining the quantum of profits and gains attributable to the priority industry claiming relief under that provision.
The High Court did not correctly appreciate the law laid down by this Court in Cambay Electric Supply Industrial Co. Ltd., vs Commissioner of Income tax, Gujarat II.
, That was a case where this Court held that, for the purpose of granting relief under section 80E to an industry, account must be taken when computing the profits and gains attributable to that industry of the balancing charge worked out under sub section
(2) of section 41 as well as items of unabsorbed depreciation and any depreciation development rebate carried forward from earlier years.
It appears from the facts of that case that the balancing charge as well as the unabsorbed depreciation and unabsorbed development rebate related to the particular industry itself.
The only business carried on by the assessee there was generation and distribution of electricity at Cambay.
The balancing charge arose because during the relevant accounting period the assessee had sold some of its machinery and buildings.
The unabsorbed depreciation and development rebate also appear to relate to the same business.
There is no indication that any of them related to a business or industry distinct from that whose profits and gains formed the subject of computation under section 80E. Our attention has been invited by the Revenue to Distributors (Baroda) P. Ltd.v.
Union of India and Others, ; That is a case in which the Constitution Bench of this Court was called upon to consider the scope of section 80M of the Income tax Act.
We do not see how that case is in any way relevant to the case before us.
The point before the Court appears to have been whether the income by way of dividends from a domestic company, which fell to be included in the gross total income of the assessee, should be the amount computed in accordance with the provisions of the Act or the full amount received from the paying company.
We may refer at this point to Commissioner of Income tax, West Bengal II vs Belliss and Morcon (I.) Ltd., a decision of the Calcutta High Court to which one of us (Sabyasachi Mukharji J.) was a party.
That decision supports the view taken by us in so far as it lays down that in applying section 80 I of the Income tax Act (which replaced section 80E) it is not permissible to compute the profits of the priority industry, respecting which the relief is claimed, by taking into account the depreciation loss from other industries.
No doubt the depreciation loss arose in that case from non priority industries, but in view of what we have said earlier that should make no difference whatever.
We think it unnecessary to refer to other cases on the point.
We think it sufficient to indicate that a distinction must be drawn between a case where the loss or un 174 absorbed depreciation pertain to the same industry whose profits and gains are the subject of relief under section 80E and a case where the loss or unabsorbed depreciation relate to industries other than the one whose profits and gains constitute the subject of relief.
While concluding we may point out that the Mysore High Court seems, in our opinion, to be perfectly right in holding in Commissioner of Income tax, Mysore vs Balanoor Tea and Rubber Co. Ltd., that the loss from the plastic business carried on by the assessee could not be deducted from the profits and gains attributable to the tea industry for the purpose of computing the quantum of the profits and gains attributable to the tea industry under section 80E.
In the result, we affirm the answer returned by the High Court to the question raised in the Income tax References.
The appeals are dismissed with costs.
A.P.J. Appeals dismissed.

summary/full:
The assessee company is engaged in the manufacture of autombile spares.
During the previous year relevant to the assessment year 1966 67, the assessee also commenced the manufacturing of alloy steels.
Both the industries are included in the Fifth Schedule to the Income Tax Act, 1961.
The assessee sustained a loss in the alloys steel industry during the previous years relevant to the assessment years 1966 67 and 1967 68.
It claimed a loss in the sum of Rs.15,30,688 for the assessment year 1966 67.
For the assessment year 1966 67, the assessee disclosed profits to the tune of Rs.17,57,129 from the industry of automobile ancillaries.
The assessee claimed relief under section 80E at 8% of this amount in the sum of Rs.1,40,574.
Similarly the assessee claimed relief in the sum of Rs.1,52,483 for the assessment year 1967 68.
The Income Tax Officer declined to grant the relief claimed and held that the assessee would be entitled to deduction under section 80E on the profits from the manufacture of automobile parts only after setting off the loss in alloy steel manufacture.
The Appellate Assistant Commissioner dismissed the appeal of the assessee.
But on second appeal, the Tribunal accepted the contention of the assessee that a deduction was permissible at 8% on the entire profits of the automobile parts industry included in the total income without deducting therefrom the losses in the alloy steel manufacture and directed the Income tax Officer to recompute the relief under s.80E.
In the Reference, on the question whether in computing the profits for the purpose of deduction under section 80E of the Income tax Act, 1961, the loss incurred in the manufacture of alloy steels should not be set off against the profits of the manufacture of automobile ancillaries, the High Court answered in favour of the assessee and against the revenue.
167 In the Appeal to this Court, on behalf of the Revenue it was contended that on a true application of section 80E the profit in the industry of automobile ancillaries must be reduced by the loss suffered in the manufacture of alloy steels.
Dismissing the appeal, ^ HELD: 1.
In the application of section 80E of the Income tax Act, 1961 the profits and gains earned by an industry mentioned in that section cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.
[172G] 2.
Each industry must be considered on its own working only when adjudging its title to the deduction under section 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee.
To determine the benefit under section 80E on the basis of the net result of all the industries owned by the assessee would be, to shift the focus from the industry to the assessee.
[172E F] Commissioner of Income tax, Tamil Nadu III vs English Electric Company Ltd., [1981]131 ITR 277 overruled.
Cambay Electric Supply Industrial Co.Ltd.
vs Commisioner of Income tax, Gujrat II, followed.
Distributors (Baroda) P. Ltd. vs Union of India & Ors., ; inapplicable.
Commissioner of Income tax, West Bengal II vs Belliss and Morcon (1) Ltd., ; and Commissioner of Income tax, Mysore vs Balanoor Tea and Rubber Co. Ltd., approved.
The object underlying the enactment of section 80E was to encourage the setting up of industries concerned with the generation or distribution of electrical and other energy and the construction, manufacture or production of articles or things specified in the list in the Fifth Schedule.
By making a provision for a rebate year after year on the industry making profits and gains during the year, the intention also was to provide an incentive for promoting efficiency in the industry.
The benefit was directed to the setting up and also the efficient working of the priority industries.
[171E F] 168 4.
The object in enacting section 80E is properly served only by confining the application of the provisions of that section to the profits and gains of a single industry.
The deduction of 8% is intended to be an index of recognition that a priority industry has been set up and is functioning efficiently.
It was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by some other industry.
It makes no difference that the other industry is also a priority industry.
The co existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other.
The legislative intention was to give to the meritorious its full reward.
To construe section 80E to mean that one must determine the net result of all the priority industries and then apply the benefit of the deduction to the figure so obtained will be, to undermine the object of the section.
[172B E] In the instant case, both the industries carried on by the assessee find place in the list in the Fifth Schedule and represent separate priority industries.
[172A]


judgement:
Civil Appeal No. 1700 (NT) of 1974.
From the Judgment and Order dated 23.9.1972 of the Allahabad High Court in Writ No. 2956 of 1972.
S.K. Dhingra for the Appellant.
M.K. Banerjee, Additional Solicitor General, Miss A. Subhashini and B.B. Ahuja for the Respondent.
The appellant is a private limited company carrying on the business of the manufacture and sale of locks used in suit cases.
It filed a return of its income for the assessment year 1963 64 and was assessed to income tax by an assessment order dated March 12, 1968.
No claim was made by the assessee for rebate under section 84 of the Income Tax Act, 1961.
There was an appeal by the assessee to the Appellate Assistant Commissioner of Income Tax but no claim was made for rebate at that stage either.
Subsequently on August 20, 1969 the appellant made an application under section 154 of the Income Tax Act praying for rectification of the assessment order by the grant of relief under section 84 of the Act.
The application was rejected by the Income Tax Officer.
A revision application moved by the appellant before the Commissioner of Income tax was also rejected on March 6, 1972.
Against the order of the Commissioner the appellant now filed a writ petition in the High Court of Allahabad.
The High Court dismissed the writ petition on September 23, 1972.
And now this appeal by special leave.
Section 84 of the Income Tax Act, as it stood at the relevent time, provided that income tax would not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking to which the section applied as did not exceed 6 per cent per annum on the capital employed in such undertaking computed in the prescribed manner.
The section applied to an industrial undertaking which satisfied certain conditions detailed in the section.
It may be observed that section 84 was deleted with effect from April 1, 1968 and now finds place as section 80J in the Act.
226 The appellant contends that the Income tax authorities were obliged to exercise the jurisdiction conferred by section 154 of the Act and grant relief to the appellant under section 84.
Section 154 empowers the Income Tax Officer to rectify any mistake apparent from the record and for that purpose to amend an assessment order passed by him.
It is urged that the income tax authorities and the High Court erred in holding that no mistake was apparent from the record merely because no claim to relief under section 84 had been made by the appellant before the Income Tax officer during the assessment proceedings.
It is contended that an obligation was imposed on the Income Tax Officer by the statute to grant such relief and it could not be refused merely because the appellant had omitted to claim the relief.
While we believe the appellant is right in his contention, we do not think that the mere existence of such an obligation on the Income Tax Officer is sufficient.
Before the Income Tax Officer can grant relief there must be clear data on the assessment record sufficient to enable him to consider whether the relief should be granted.
In the absence of such material, no fault can be found with the Income Tax Officer for not making an order under section 84 favouring the assessee.
It will be noticed from the provisions of section 84 that several conditions must be satisfied before the grant of relief can be considered.
The industrial undertaking should not have been formed by the splitting of, or the reconstruction of, a business already in existence.
It should not have been formed by the transfer to a new business of a building, machinery or plant previously used for any purpose.
It should manufacture or produce articles in any part of India, which manufacture or production should have begun at any time within 23 years next following April 1, 1948 or such other further period as the Central Government may specify.
An industrial undertaking manufacturing or producing articles should be found to employ 10 or more workers in a manufacturing process carried on with the aid of power or to employ 20 or more persons in a manufacturing process carried on without the aid of power.
These are some of the conditions which need to be fulfilled before relief under section 84 can be granted.
It is apparent that precise factual material must be contained in the record in order to enable the Income Tax Officer to discharge his obligation to grant relief under section 84.
It has not been shown to us that the record before the Income Tax Officer contained all that information.
Our attention was drawn to Subhash Chandra Sarvesh Kumar vs Commissioner of Income tax and Another, where the Allahabad High Court quashed an order of the Commissioner of 227 Income tax rejecting revision applications for the grant of relief under section 80J and section 80HH of the Income Tax Act, on the ground that the Commissioner should have considered whether there was material on the record to sustain the claim of the assessee to relief, and the fact that claim was not made formally in the return or during the pendency of the assessment proceedings before the Income Tax Officer should not have prevented the Commissioner from considering whether the assessee was entitled to relief.
That was a case where the assessee complained in the writ petition that it lay within the jurisdiction of the Commissioner to entertain the claim of the assessee even though the claim had not been made before the Income Tax officer.
The present is a case, however, where the appellant sought to invoke the jurisdiction of the Income Tax Officer to rectify the assessment order.
That can only be justified on the ground of a mistake apparent from the record.
If the record does not contain any material, it cannot be said that the Income Tax Officer has committed a mistake in omitting to grant relief under section 84.
We are conscious that the jurisdiction under section 154 of the Income Tax Act is, as pointed out by this court in Income tax Officer, Alwaye vs Asok Textiles Ltd., , wider than that provided under rule 1 of Order XLVII of the Code of Civil Procedure.
Rule 1 of Order XLVII of the Code confines the jurisdiction of the Court to the rectification of "an error apparent on the face of the record" while section 154 of the Income Tax Act, 1961 (which corresponds to section 35 of the Income Tax Act 1922) uses wider language and empowers the Income tax authorities to rectify any mistake "apparent from the record".
Nonetheless there must be material to support the claim to relief under section 84, and unless such material can be referred to no grievance can be made if the Income Tax Officer refuses to rectify the assessment and refuses relief under section 84.
Learned counsel for the appellant says that the material is contained in the record of the assessment made on the appellant under the .
He contends that the record of the Super Profits Tax assessment must be regarded as an integral part of the record of the income tax assessment and, therefore, it must be inferred that the material necessary for granting relief under section 84 in the income tax assessment lay before the Income Tax Officer.
The was enacted to impose a special tax on certain companies.
The tax is charged on the excess of the chargeable profits of a company over the standard deduction and the "chargeable profits", according to the definition in sub section
(5) of section 2 of 228 that Act, means the total income of an assessee computed under the Income Tax Act, 1961 adjusted in accordance with the provisions of the First Schedule.
In many respects, the borrows its provisions from the Income Tax Act, and the scheme for assessment, appeals, revision and rectification in the follows closely the pattern set forth in the Income Tax Act.
As has been noted the computation of chargeable profits turns on the computation of the total income determined under the Income Tax Act.
Where any order of rectification is made under section 154 or under section 155 of the Income Tax Act recomputing the total income of an assessee, a consequential recomputation of the chargeable profits is provided for by section 15 of the .
Moreover, the Super Profits Tax payable by a company for the assessment year is deductible from the total income of the company for that assessment year in computing the distributable income of a company for the purposes of section 104 and section 105 of the Income Tax Act.
There is undeniably a close relationship between the and the Income tax Act and any change in the assessment made under the Income Tax Act has its consequential impact on the assessment made under the .
It is apparent therefore, that the record of an income tax assessment can be regarded as part of the record of a Super Profits Tax assessment.
The converse can also be true that is made abundantly clear by sub section
(2) of section 20 of the which provides that all the information contained in any statement or return made or furnished under the provisions of the or obtained or collected for the purposes of that Act may be used for the purposes of the Income Tax Act.
To the extent that information contained in the Super Profits Tax record is employed for the purpose of the Income Tax proceeding, it cannot be doubted that the Super Profits Tax record becomes part of the Income Tax record.
It is apparent that if the record of the Super Profits Tax assessment contains material pertaining to the claim under section 84 of the Income Tax Act, such material can be considered by the Income Tax Officer for the purpose of granting relief under section 84 in the Income Tax assessment.
In that sense and to that degree learned counsel for the assessee is perfectly right in contending that the record of the Super Profits Tax assessment becomes part of the record of the Income Tax assessment.
That does not suffice, however, to entitle the assessee to relief.
As has been mentioned earlier, there are a number of conditions which must be satisfied before relief can be granted under section 84.
All that data was evidently not contained in the Super Profits Tax assessment record at the time when the Income Tax assessment was completed.
The 229 Additional Commissioner of Income Tax, while dismissing the revision petition of the assessee against the order of the Income Tax Officer refusing to rectify the Income Tax assessment under section 154, went through the Income Tax record and the Super Profits Tax record of the assessee and found that no attempt had been made at any stage by the assessee to place facts on the record indicating that the undertaking belonging to the assessee was a new one and was entitled to relief under section 84.
He noted that in the return relating to the the assessee had made a claim for relief under section 84, but he pointed out that the claim had not yet been examined.
It has also not been shown to us that all the material required for satisfying the conditions requisite for the grant of relief under section 84 existed on the Super Profits Tax record at the time when the income tax assessment was completed.
When that is the position, it can hardly be said that in omitting to grant relief under section 84 when making the assessment order the Income Tax Officer committed a mistake apparent from the record.
We must remember that we are dealing with a challenge to an order refusing rectification and not to an order directly assailing the assessment.
In the result, the appeal fails and is dismissed with costs.
P.S.S. Appeal dismissed.

dataset_name: IN-Abs

summary/full:
Section 84 (now redesignated as section 80J) of the Income tax Act, 1961 as it stood at the relevant time, provided that income tax would not be payable by an assessee on so much of the profits and gains derived from an industrial undertaking to which the section applied as did not exceed six per cent per annum on the capital employed in such undertaking computed in the prescribed manner.
Several conditions laid down therein had to be satisfied before the grant of relief could be considered.
Section 154 empowers the Income tax Officer to rectify any mistake apparent from the record and for that purpose to amend an assessment order.
The appellant who did not make a claim for rebate under section 84 either during the assessment proceedings or at the appeal stage subsequently made an application to the Income tax Officer under section 154 praying for rectification of the assessment order by grant of relief under section 84, which was rejected.
The revision sought before the Commissioner also failed.
The writ petition filed before the High Court having been dismissed, the appeal by special leave was preferred.
It was contended: (1) that an obligation was imposed on the Income tax officer by the statute to grant relief which could not be refused merely because the appellant had omitted to claim the same, and (2) that the record of the super profits tax assessment containing the material, which lay before the 224 Income tax Officer, must be regarded as an integral part of the record of the income tax assessment for granting relief under section 84.
Dismissing the appeal, the Court, ^ HELD: Rectification could only be justified on the ground of a mistake apparent from the record.
If the record did not contain any material, it could not be said that the Income tax Officer had committed a mistake in omitting to grant relief under section 84.
[227C D] Although the jurisdiction under section 154 to rectify any mistake apparent from the record is wider than that provided under r. 1 of Order XLVII of the Code of Civil Procedure to rectify an error apparent on the face of the record, nonetheless there must be material to support the claim to relief under section 84, and unless such material can be referred to, no grievance can be made if the Income tax Officer refuses to rectify the assessment and refuses relief under section 84.[227D F] There is a close relationship between the Super Profits Tax Act and the Income Tax Act, and any change in the assessment made under the latter has its consequential impact on the assessment made under the former.
The converse is equally true, especially in view of section 20(2) of the Super Profits Tax Act which provides that all the information contained in any statement or return made or furnished under the provisions of that Act or obtained or collected for the purpose of that Act may be used for the purpose of the Income Tax Act.
Therefore, if the record of the super profits tax assessment contains material pertaining to the claim under section 84 of the Income tax Act, such material can be considered by the Income tax Officer for the purpose of granting relief under section 84 in the income tax assessment.[228D G] In the instant case, the appellant has failed to show that all the material required for satisfying the conditions requisite for the grant of relief under section 84 existed on the super profits tax record at the time when the income tax assessment was completed.
Therefore, it cannot be said that in omitting to grant relief under section 84 when making the assessment order, the Income tax Officer committed a mistake apparent from the record.[229C D] Subhash Chandra Sarvesh Kumar vs Commissioner of Income tax and Another, and Income tax Officer, Alwaye vs Asok Textiles Ltd., , referred to. 225


judgement:
ivil Appeal No. 642 (NT) of 1974.
From the Judgment and Order dated 25.4.1973 of the Madras High Court in T.C. No. 243 of 1969.
240 S.T. Desai, Inbarajan and A.T.M. Sampath for the Appellant.
M.M. Abdul Khader, V.C. Nagarajan and A.V. Rangam for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
We are concerned with Civil Appeal No.642(NT) of 1974, Civil Appeal Nos.
1798 1800 of 1981 and the Writ Petition No. 196 of 1974 along with Special Leave Petitions Nos.
12943 44 of 1985.
All these will have to be disposed of on the main question stated hereinafter and these raise a common question, facts in all these matters are more or less identical except that certain assumptions of facts have been made in Special Leave Petitions Nos.
12943 44 of 1985 because in these there were no investigation of facts by the revenue authorities.
The question involved in all these, is, whether the sales in question were within the State of Tamil Nadu and as such subject to tax under the Tamil Nadu General Sales Tax Act, 1959, hereinafter called the 'Act '.
The dealers who are the petitioners in the writ petitions and are the appellants in the appeals and the petitioners in Special Leave Petitions are dealers in stores and were doing business as ship chandlers in the relevant years.
The appellants/petitioners used to supply the goods imported as stores to foreign going vessels and other diplomatic personnel.
The appellants/petitioners imported these goods from foreign countries.
At the time of import they complied with the statutory provisions of the and other enactments relating to import of goods.
They had given an undertaking to the concerned authorities to supply the imported goods to foreign going vessels and/or to diplomatic personnel and to receive the goods in custom bonded ware house.
Under section 59 of the the importer of any dutiable goods which had been entered for warehousing and assessed to duty under section 17 or section 18 should execute a bond binding himself for a sum equal to twice the amount of the duty assessed on such goods (a) to observe all the provisions of the Act and the rules (b) to pay on or before a date specified in a notice of demand all duties, rent and charges claimable on account of such goods under the Act, and (c) to discharge all penalties incurred for violation of the provisions of the and relevant statutes.
For the above 241 purpose, the Assistant Collector of Customs might permit an importer to enter into a general bond for such amount as the Assistant Collector of Customs might approve in respect of the warehousing of goods to be imported by him within a specified period.
Sections 60, 61 and 62 of the provide for ancillary purposes.
In substance these provide for control by the proper officer of the goods warehoused.
It is not necessary for the determination of the issue involved to deal with other relevant provision of the .
The appellants/petitioners after receipt of the goods kept these in a bonded ware house under the relevant provisions.
The ware house was under dual control of the Customs Department and the importers like the appellants/petitioners so that it could not be opened by one without the presence of the other.
On receipt of order from the captain of the ship requiring ship stores the petitioners supplied the goods on board after observing certain formalities imposed by the , the rules and regulations thereunder.
These were the broad features of the way the appellants/petitioners operated.
We will, however, deal with the facts as found in Civil Appeal No. 642 of 1974.
The case of the appellants/petitioners was that all these goods were intended for re export only and were at all relevant time in a bonded warehouse.
The delivery was on board the ship to foreign going ship.
The goods were consumed only on the high seas.
The property in the goods had passed only after the goods had crossed the custom frontiers.
The contention was that the property in the goods did not pass in the territory of Tamil Nadu.
The sales were therefore (i) in the course of export because goods were to be on board the ship and were exported outside the country and could not be consumed before they reached the high seas; (ii) the sale of the goods took place in the territorial waters of India and not within the State of Tamil Nadu, "Indian Customs Water" is defined in the under section 2(28) as follows: "Indian customs waters" means the waters extending into the sea up to the limit of continguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal river." 242 Under article 297 of the Constitution, all lands, minerals and other things of value underlying the ocean within the territorial waters or the continental shelf of India shall vest in the Union and are held for the purposes of the Union.
It is the contention of the appellants/petitioners that sales there fore took place outside the State as territorial waters vested in the Union Government and not in the State of Tamil Nadu.
The turnover in question was not exigible according to the appellant/petitioners, to sales tax under the provisions of the Act.
It is this plea which the petitioners/appellants sought to raise as an additional ground before the High Court in the appeal out of which Civil Appeal No. 642 of 1974 arose.
But it was not permitted by the High Court.
The Taxing Authorities ' plea on the other hand was that the various goods sold to foreign bound vessels were within the State of Tamil Nadu when the concerned officer of the foreign bond vessels placed indents for the supply of goods.
Further, the appellants ' godowns and bonded warehouses were within the State of Tamil Nadu.
When orders were received the appellants/petitioners supplied the required quantity from the stock either in the godown or in the bonded warehouses and delivered these or set these apart in fulfilment of the orders placed by the concerned officer of the foreign bond ship.
It is the case of the respondents that at that time only appropriation was made towards the contract of sale and such appropriation took place within the State of Tamil Nadu.
It is the further case of the respondents that it was on such appropriation that the sale took place.
In the premises it was submitted on behalf of the respondents that the contention of the appellants/petitioners, that the transactions of sale were completed only when the masters of the vessels acknowledged delivery of the goods on board the vessels was not correct.
It was further urged that it was not correct to contend that the appellants/petitioners should be treated as actual exporters.
The place of delivery would not alter appropriation which had already taken place.
In support of this contention, reliance was placed on the decision of this Court in the case of Burmah Shell Oil Storage and Distributing Co. of India Ltd., and Another vs Commerical Tax Officer and Others.
, 11 S.T.C. 764.
It is necessary in this background, to examine the facts involved in Civil Appeal No. 642 of 1974.
There, the main question involved 243 was whether Rs.3,51,438.08 which was the taxable turnover determined by the assessing authority was subject to the tax under the said Act.
The appellant objected to the assessment on such turnover on the ground that the goods relating to such turnover were imported from abroad, stored in the customs warehouse and were not brought to the country across the customs frontiers.
The lower appellate authority allowed some deduction in the determination of the taxable turnover in respect of sales to local diplomatic corps and determined the figure at Rs.3,51,045.68.
The Appellate Assistant Commissioner confirmed the assessment on the basis that sales were effected within the State of Tamil Nadu and as such dismissed the appeal.
There was an appeal before the Tribunal.
The Appellate Assistant Commissioner relied on the decision of the Madras High Court in the case of Deputy Commissioner of Commerical Taxes vs Caltex India Ltd Madras, 13 S.T.C. 163.
The Tribunal accepted the contentions of the dealer and held that the sales did not take place within the State of Tamil Nadu.
It was pointed out that there was significant change in the from Sea Customs Act, 1978, and the Tribunal held that import of goods in question had not become complete and as the goods were sold to the ocean going vessels, the sales in question could not be deemed to be within the State of Madras.
On revision the High Court relying on the decision of this Court in The State of Madras vs Davar and Co., 24 S.T.C. 481 held that the sales took place in the State of Madras and assessment to tax was valid.
Civil Appeal No. 642 of 1974 arises from the said decision.
Civil Appeals Nos.
1798 1800 of 1981 followed the said decision and are based on the said reasons.
These appeals are for the assessment years 1968 69 and 1970 71.
It may be mentioned that Civil Appeal No. 642 of 1974 was concerned with the assessment to tax for the year 1964 65.
The writ petition challenges the assessment made for the assessment year 1972 73 where the taxing authorities and the appellate authorities under the Act followed the said decision which is under appeal in Civil Appeal No. 642 of 1974.
Special Leave Petition Nos.
12943 44 of 1985 challenge the assessments for 1978 79 and 1979 80 where the High Court took the view upholding the revenue 's contention that sales were taxable relying on the decision in the case of Madras High Court of Fairmacs Trading Company vs The State of Tamil Nadu, 141 S.T.C. 157.
244 As mentioned hereinbefore, before the High Court in Civil Appeal No. 642 of 1974, the grounds urged in the writ petition were sought to be urged as additional grounds but were not permitted as these had not been taken before the taxing authorities.
On behalf of the appellants/petitioners, Mr. S.T. Desai, learned counsel, submitted that the legislative competence of the State of Tamil Nadu as regards levying of the sales tax was confined to the territories of the State as specified in item No. 7 of the First Schedule to the Constitution.
That legislative competence did not extend to any territorial waters simply because these were abutting the land mass of the State of Tamil Nadu.
It was further urged that the Sovereignty over the limits of territorial waters extended and always extended to the entire territorial waters of India.
The limits and extent of the said territorial waters had not been altered by any notification of the Central Government.
The territorial waters extended to a distance of 12 nautical miles from the sea shore adjacent to the land mass of the State.
See in this connection The Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976.
It was further urged that there was no definition at all of 'Customs Frontiers ' in the .
The definition inserted in the Act in section 2(ab) by the Amending Act 103 of 1976 must be read as declaratory or explanatory and no questions of prospective operations would arise according to counsel for the appellants/petitioners.
He submitted that that definition would also be applicable to sales prior to 1976.
This Court dealt with the history of the definition now appearing in the relevant sections of the in the case of Tata Iron and Steel Co. Limited, Bombay vs S.R. Sarkar and Others, 11 S.T.C. 655.
In that case this Court was dealing with the relevant provisions in a petition under Artical 32 of the Constitution challenging the demand of the Sales Tax Officer of State of West Bengal under the in respect of certain sales of steel goods.
The petitioner company in that case had its registered office in Bombay and its head sales office in Calcutta in the State of West Bengal and factories in Jamshedpur in the State of Bihar.
The company was registered as a 'dealer ' under the Bihar Sales Tax Act and was also registered as 'dealer ' in the State of West Bengal under the .
For the period of asessment 1st July, 1957 to 31st March, 1958, the company submitted its return of taxable sales 245 to the Commercial Tax Officer, Lyons Range, Calcutta.
The assessment order was passed.
It is not necessary to deal exhaustively with the history of the present sections 4 and 5 of the which has been dealt with by this Court.
Interpreting the relevant provisions of the , it was observed that the Act by section 3 indicates as to when a sale or purchase of goods is said to take place in the course of inter State sale or trade or commerce.
Section 4 also indicates as to when a sale or purchase takes place outside the State.
The majority of the judges of this Court held on the facts found as follows: "In our view, therefore, within clause (b) of section 3 are included sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto: clause (a) of section 3 covers sales, other than those included in clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State.
" Sarkar and Das Gupta JJ.
in a separate judgment held that the documents of title of goods sold could pass the property in them only if the parties had agreed that that would be the result.
In interpreting whether in the course of import or export, sales took place, the same principle would be applicable.
The correct position, so far as the facts of the present case are concerned, in our opinion, has been laid in the decision of Burmah Shell Oil Storage and Distributing Co.
Of India Ltd. and Another vs Commercial Tax Officer and Others (supra).
This Court observed at page 765 as follows: "While all exports involved a taking out of the country, all goods taken out of the country cannot be said to be exported.
The test is that the goods must have a foreign destination where they can be said to be imported.
It matters not that there is no valuable consideration from the receiver at the destination end.
If the goods are exported and there is sale or purchase in the course of that export and the sale or purchase occasions the export to a 246 foreign destination, the exemption is earned.
Purchases made by philanthropists of goods in the course of export to foreign countries to alleviate distress there, may still be exempted, even though the sending of the goods was not a commerical venture but a charitable one.
The crucial fact is the sending of the goods to a foreign destination where they would be received as imports.
" The appellant in that case dealt in petroleum and petroleum products and carried on business at Calcutta.
They had maintained supply depots at Dum Dum Airport from which aviation spirit was sold and delivered to aircraft proceeding abroad for their consumption.
The question was whether these supplies to the aircraft which proceeded to foreign countries were liable to sales tax under the Bengal Motor Spirit Sales Taxation Act, 1941.
The contention of the appellants in that case was that such sales were made in the course of export of such aviation spirit out of the territory of India that they took place outside the State of West Bengal, that inasmuch as aviation spirit was delivered for consumption outside West Bengal, the sales could not fall within the Explanation to clause (1) (a) of article 286 as it then stood.
It was held by this Court that in order to exclude the taxation by the State of West Bengal, the appellants had to prove that there was some other State where the goods could be said to have been delivered as a direct result of the sale for the purpose of consumption in that other State and that as they failed to do so, the aviation spirit loaded on board an aircraft for consumption though taken out of India, was not exported since it had no destination, where it could be said to be imported and so long as it did not satisfy that test, it could not be said that the sale was in the course of export.
It was further held that aviation spirit was sold for the use of aircraft and the sale was not even for the purpose of export and all the elements of sale including delivery and payment of price took place within the State of West Bengal and the sales were complete within the territory of that State.
The customs barrier did not set a terminal limit to the territory of West Bengal for sales tax purpose.
The sale beyond the customs barrier was still a sale in fact in the State of West Bengal.
The ratio of this decision would be applicable to the facts and circumstances of this case.
It was rightly urged that the appropriation of goods took place in the State of Tamil Nadu when the goods were segregated in the bonded warehouse to be delivered to the foreign going vessels.
It was not a case of export as there was no destination 247 for the goods to a foreign country.
The sale was for the purpose of consumption on board the ship.
It was not as if only on delivery on board the vessel that the sale took place.
The mere fact that shipping bill was prepared for sending it for custom formalities which were designed to effectively control smuggling activities could not determine the nature of the transaction for the purpose of sales tax nor does the circumstances that delivery was to the captain on board the ship within the territorial waters make it a sale outside the State of Tamil Nadu.
In the case of The State of Kerala and Others vs The Cochin Coal Company Ltd., 12 S.T.C. 1, it was held that concept of export in article 286(1)(b) of the Constitution postulated the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port.
Goods might be consumed within the meaning of the Explanation to article 286(1)(a) either by destruction or by way of use depending on the nature of the goods.
In that case the respondent company dealers in coal had their office at Fort Cochin which was formerly within the State of Madras.
The company had imported and kept stocks of 'bunker coal ' at certain places which at the relevant period was also within the State of Madras.
Part of the activities of the said company consisted in the supply of 'bunker coal ' from their depots in Candle Island for steamers arriving at the port of Cochin in the State of Travancore Cochin for the outward voyage of the steamers from the Cochin port.
In respect of these sales of coal, tax was claimed by the Travancore Cochin State for the years 1951 52 and 1952 53 but the respondent claimed exemption under article 286(1)(b) or (2) of the Constitution and also under a Notification dated 5th February, 1954 and published in the official Gazette of 16th February, 1954.
It was held that the sales of coal by the respondent were sales in the course of inter State trade and fell within the ban of article 286(2), but the levy of tax on such sales had been validated by the Sales Tax Laws Validation Act, 1956.
It was further held that the sales were not sales 'in the course of export ' within the meaning of article 286(1)(b) and were therefore not exempt under that article but they fell within the Explanation to article 286(1)(a) inasmuch as the coal was delivered in the State of Travancore Cochin and the steamers were the actual consumers who were at liberty to consume the coal whenever they desired; that the Notification dated 5th February, 1954 was and must be deemed to be one issued in exercise of the power 248 conferred on the State Government by section 6(1) of the Travancore Cochin General Sales Tax Act, 1125 and as the transactions clearly fell within the Notification, the respondent would be entitled to the benefit of the tax exemption conferred by the Notification.
The High Court in Civil Appeal No. 642 of 1971 has based its decision on the decision of this Court in State of Madras v Davar and Co. (supra).
In that case the assessee, a dealer in timber, had imported two consignments of timber from Burma and sold it to buyers in India.
The ship carrying the first consignment arrived at the Madras Harbour on 17th October, 1957.
The assessee obtained moneys from the buyers on 24th October, 1957, retired the documents of title from the bank and handed over the documents on the same day to the buyers to enable them to clear the goods.
All charges and expenses by way of import duty, clearance charges etc., were paid to the buyers on behalf of the assessee.
The second consignment reached Madras by ship on 17th December, 1957 and the assessee obtained on 23rd December, 1957, from the buyers the value of the consignment after handing over to the buyers the necessary shipping documents.
The assessee claimed that these sales were in the course of import and these were not liable to tax under the Madras General Sales Tax Act, 1959, as these were covered by article 286(1)(b) of the Constitution.
It was held that the expression 'customs frontiers ' in section 5(2) of the , did not mean 'customs barrier '.
It had to be construed in accordance with Notification No. S.R.O. 1683 dated 6th August, 1955, issued by the Central Government under section 3 A of the read with the Proclamation of the President of India dated 22nd March, 1956. 'Customs frontiers ' meant the boundaries of the territory, including territorial waters, of India.
The sales in this case were effected by transfer of documents of title long after the goods had crossed the customs frontiers of India; the ships carrying the goods in question were all in the respective harbours within the State of Madras when the sales were effected by the assessee by transfer of documents of title to the buyers.
The sales were therefore not effected in the course of import.
This Court, in construing the customs frontiers, referred to the extent of territorial waters, declaration of the President dated 22nd March, 1956, the contents of which were set out in that decision which need not be repeated here.
We have noted the further contentions which were only raised in the writ applications and not raised in Davar 's case.
In our opinion these further contentions have been elaborately discussed in the two 249 decisions, one of the Andhra Pradesh High Court and another of the Madras High Court, which we shall presently notice but it may be pointed out that there is a difference between the two High Courts on the interpretation whether section 4(2)(a) or 4(2)(b) of the would apply or not.
It may be noted that it was observed by Sarkar and Das Gupta JJ.
in Tata Iron and Steel Co. Limited, Bombay vs S.R. Sarkar and others, (supra) that clauses (a) & (b) of section 3 were mutually exclusive and sale could not fall under both the clauses.
We are not here directly concerned with the question whether clauses 4(2)(a) and 4(2)(b) of the are mutually exclusive or not.
We are concerned with the question whether either of these was applicable.
In the case before the Andhra Pradesh High Court in Fairmacs Trading Company vs The State of Andhra Pradesh, 36 S.T.C. 260, the petitioner imported ship stores from foreign countries, kept these in bonded warehouses of the customs department without the levy of customs duty and later on sold and delivered to ships ' masters for consumption abroad the ship after crossing the port boundaries.
On the question whether the sales were outside the State or in the course of export and therefore not liable to tax under the Andhra Pradesh General Sales Tax Act, 1957, it was observed by the Andhra Pradesh High Court that the goods were specific and ascertained and were within the State when the contract of sale took place and therefore the requirements of section 4(2)(a) of the were fully satisfied and the sales must be said to have taken place inside the State; but as the goods sold were meant for consumption during voyage and they had no destination in any foreign country where they could be received as imports, the sales were not sales in the course of exports.
It was further held that mere movement of goods out of the country following a sale would not render the sale, one in the course of export within article 286(1)(b) of the Constitution of India.
Before a sale can be said to be a sale in the course of export, the existence of two termini between which the goods are intended to move or to be transported is necessary.
The Madras High Court in the case of Fairmacs Trading Company vs The State of Tamil Nadu (supra) was dealing with an assessee, who was a dealer in ship 's stores and was also doing business as ship chandlers and who imported goods from abroad for the purpose of supplying them either to foreign going vessels or to diplomatic personnel.
These goods were received and kept in the customs bonded 250 ware house and were cleared under the supervision of the customs authorities whenever these were sold by the assessee.
In respect of supplies of specific goods made to certain ships located in the Madras Harbour, pursuant to orders placed by the Master of the ship or other officers working in the ship, the transportation of the goods to the ship was effected in such a manner as to ensure that the bonded goods, which had not paid any duty, did not enter the local market.
The delivery receipt sent along with the goods by the assessee was signed by an officer of the ship in token of having received the goods in good condition.
The question that arose for consideration was whether the sale took place within the State of Tamil Nadu and liable to be taxed under the Tamil Nadu General Sales Tax Act, 1959.
It was held (i) that there was nothing to show in the communications from the ship that the goods had necessarily to be supplied only in the ship.
It was open to the officers working in the ship to come and take delivery of the goods in which event the sale would be a local sale.
Therefore, assuming that the territorial waters did not form part of the State of Tamil Nadu, as there was nothing in the contemplation of the contracting parties that the goods were to be moved from one State to another, it was held that it was not possible to take the view that the sales were inter State sales; and (ii) that the assessee was not selling specific or ascertained goods, because the goods formed part of a larger stock within the bonded warehouse and had, therefore to be separated and appropriated to the contract as and when orders were placed by the officers of the ship by description.
Therefore, the sales were local sales in view of the specific provision of section 4(2)(b) of the , read with section 2(n), explanation (3) of the Act (Tamil Nadu General Sales Tax Act, 1959), and were accordingly taxable under the Act.
The Court did not find it necessary to consider the question whether the territory covered by the territorial waters formed part of the State of Tamil Nadu or not.
Attention of the Madras High Court was drawn to the decision of Andhra Pradesh High Court in Fairmacs Trading Company vs The State of Andhra Pradesh (supra).
The Madras High Court did not examine the question in detail in the view it took.
In so far as the High Courts of Andhra Pradesh and Madras in the said two decisions held that sales took place within the State, we are in agreement.
On the aspect of territorial waters, we have set out hereinbefore 251 the contention of the respondents.
But inasmuch as we hold that sales took place within State of Tamil Nadu where appropriation took place it is not necessary to rest our decision in these matters on this question.
Mr. Desai drew our attention to the observations of Chief Justice Lord Parker in the case of R. vs Kent Justices Ex Parte LYE and others, [1967] 1 All England Report 560 at 564 65.
But in this case it is not necessary to consider that aspect in the view we have taken.
In any event, the sale took place when appropriation was made and appropriation was made within the State of Tamil Nadu even if the goods were not delivered.
See in this connection the observations of Lord, Goddard, G.J. in Furby vs Hoey.
[1947] 1 All England Report 236.
There the respondent, an excise officer, filled in and sent to the appellant at his licensed premises a form of order purporting to order a variety of liquor, stating that delivery instructions would follow.
Subsequently, after licensing hours and at an unlicensed club, the respondent filled up a form of delivery for one bottle of gin, which was taken by a messenger to the appellant 's premises, and the gin was brought back to and paid for by the respondent at the club.
The appellant was convicted at quarter sessions of selling by retail a bottle of gin at the club without having taken out a licence, contrary to section 50(c) of the Finance of U.K.
It was held that appropriation, which completed the contract, took place at the licensed premises of the appellant and not at the club, and, accordingly, though guilty of the offence of selling liquor out of permitted hours, the appellant was not guilty of selling liquor on unlicensed premises as charged.
In our opinion that is the correct position and appropriation was made within the State of Tamil Nadu.
In our opinion as the goods were within the State of Tamil Nadu in case of ascertained goods at the time when the contract of sale was made and in case of unascertained goods at the time of their appropriation to the contract by the seller, sale must be deemed to be within the State of Tamil Nadu.
In our opinion, therefore, Shri M.M. Abdul Khader, learned counsel for the respondents was right that under section 2(n) of the Act read with explanation 3, these sales were within the State.
It may be mentioned that there was an amendment in 1976 of the by Act 3 of 1976.
By that provision, the 252 following was inserted in section 2 of the : "(ab) "crossing the customs frontiers of India" meant crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.
Explanation For the purposes of this clause, "customs station" and "customs authorities", shall have the same meanings as in the ." Mr. Desai sought to urge that this was declaratory and was valid for all the relevant years.
Whether a law is a declaratory or not, depends upon the Act and the language used.
There was nothing in the Act or object of the Act which stated that it was further to amend the that it was declaratory and not prospective in nature.
Our attention was drawn to certain decisions, whether an Act is retrospective and declaratory in operation or prospective would depend upon the purpose of the Act, the object of the Act and the language used.
See in this connection the observation in The Central Bank of India vs Their Workmen; , ; Keshavlal Jethalal Shah vs Mohanlal Bhagwandas & Anr., ; and Chanan Singh & Another vs Jai Kaur., [19701 1 SCR 803 at 804 807.
But that amendent is not relevant in the view we have taken.
The short question, therefore, that arises in all these matters is whether sale of the goods in question took place within the territory of Tamil Nadu.
In these cases sale took place by appropriation of goods.
Such appropriation took place in bonded warehouse.
Such bonded warehouses were within the territory of State of Tamil Nadu.
Therefore, under sub section (2), sub clauses (a) and (b) of section 4 of the Central Sales Tax Act, 1956, the sale of goods in question shall be deemed to have taken place inside the State because the contract of sale of ascertained goods was made within the territory of Tamil Nadu and furthermore in case of unascertained goods appropriation had taken place in that State in terms of clause (b) of sub section (2) of section 4 of the .
There is no question of sale taking place in course of export or import under section 5 in this case.
From that point of view the amendment introduced by Act 103 of 1976 by incorporating in clause (ab) of section 2 of the does not affect the position.
In this connection reference may be made from the observations of this Court in Burmah 253 Shell oil Storage Ltd., (supra) where it has been held that customs A barrier does not set a terminal limit to the territory of the State for sales tax purposes.
Sale, therefore, beyond the customs barrier is still a sale within the State.
The amendment introduced in section 2 by the Act 103 of 1976 does not affect the position because the custom station is within the State of Tamil Nadu.
That question might have been relevant if we were considering the case of sale by the transfer of documents of title to the goods as contemplated by section 5 of the Central Sales Tax Act.
In the premises we are unable to accept the contentions urged on behalf of the appellants in the Civil Appeals and also the contentions urged in the Writ Petition.
In the view we have taken, it is not necessary to express our opinion on the arguments whether introduction of clause (ab) of section Z of by Act 103 of 1976 is prospective or not.
We have, however, noted the submissions.
That question, in the light of our aforesaid views, is not material for the present controversy.
In the premises Civil Appeal No. 642 of 1974, Civil Appeal Nos.
1798 1800 of 1981 and Writ Petition No. 196 of 1974 are all dismissed with costs.
So far as Special Leave Petitions Nos.
19243 44 of 1985 are concerned, the same are also dismissed.
In these cases, however, the parties will pay and bear their own costs.
M.L.A. Appeals and Petitions dismissed.

summary/full:
The appellant company in Civil Appeal No.642 of 1974 was doing the business as ship chandler.
It imported the goods from foreign countries and after receipt of the goods, kept them in a bonded warehouse under the relevant provisions of the .
The ware house was under dual control of the Customs Department and the importers like the appellant so that it could not be opened by one without the presence of the other.
On receipt of order from the Captain of the Ship requiring ship stores, the appellant supplied the goods on board after observing certain formalities imposed by the , the rules and regulations made thereunder.
For the Assessment year 1964 65 a question arose whether Rs.3,51,438.08 which was the taxable turnover, determined by the assessing authority, was subject to the tax under the Tamil Nadu General Sales Tax Act, 1959.
The appellant objected to the assessment on such turnover on the ground that the goods relating to such turnover were imported from abroad, stored in the customs ware house and were not brought to the country across the customs frontiers.
The Sales Tax Officer assessed the turnover and the Appellate Assistant Commissioner confirmed the assessment on the basis that sales were effected 237 within the State of Tamil Nadu.
However, the Tribunal, in appeal by the appellant, held that the sales did not take place within the State of Tamil Nadu since the import of goods in question had not become complete and as the goods were sold to the foreign going vessels, the sales in question could not be deemed to be within the State of Madras.
On revision, the High Court relying on the decision of the Supreme Court in the State of Madras vs Davar and Co., 24 STC 481, held that the sales took place in the State of Madras and assessment to tax was valid.
The facts in all the other connected appeals, writ petitions and the special leave petitions being identical, a similar question of law also arose in them.
In appeal to the Supreme Court by the appellant/petitioners, it was contended on their behalf: (i) that the property in the goods, did not pass in the territory of Tamil Nadu and the sales were therefore, in the course of export because goods were to be on board the ship and were exported outside the country and could not be consumed before they reached the high seas; (ii) that the sale of goods took place in the territorial water of India and not within the State of Tamil Nadu; (iii) that the legislative competence of the State of Tamil Nadu as regards levying of the sales tax was confined to the territories of the State as specified in item No. 7 of the First Schedule to the Constitution.
That legislative competence did not extend to any territorial waters simply because these were abutting the land mass of the State of Tamil Nadu; (iv) that the Sovereignty over the limits of territorial waters extended and always extended to the entire territorial waters of India.
The limits and extent of the said territorial waters had not been altered by any notification of the Central Government.
The territorial waters extended to a distance of 12 nautical miles from the sea shore adjacent to the land mass of the State; and (v) that there was no definition at all of "Customs Frontiers" in the .
The definition inserted in the Act in section 2(ab) by the Amending Act 103 of 1976 must be read as declaratory or explanatory and no questions of prospective operations would arise.
On the other hand, it was argued on behalf of the respondent State that the appellant 's godowns and bonded ware houses were within the State of Tamil Nadu.
When orders were received, the appellants/petitioners supplied the required quantity from the stock either in the godown or in the bonded ware houses and delivered these or set these apart in fulfilment of the orders placed by the concerned officer of the foreign bond ship and that at that time only appropriation was made towards the contract of sale and such appropriation took place within the State of Tamil Nadu.
It was, therefore, on such ap 238 propriation that the sale took place; and (ii) that it was not correct to say that the transactions of sale were completed only when the masters of the vessels acknowledged delivery of the goods on board the vessels.
Dismissing the Appeals and the Petitions, ^ Held: 1.1 The concept of export in Article 286(1)(b) of the Constitution postulates the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port.
Goods might be consumed within the meaning of the Explanation to Article 286(1) (a) either by destruction or by way of use depending on the nature of the goods.
Therefore, the sales were not sales "in the course of export" within the meaning of Article 286(1) (b) and were not exempt under that Article but they fell within the Explanation to Article 286(1) (a).
[247C D; G] 1.2 Mere movement of goods out of the country following a sale would not render the sale, one in the course of export within Article 286(1) (b) of the Constitution of India.
Before a sale can be said to be a sale in the course of export, the existence of two termini between which the goods are intended to move or to be transported is necessary.
[249F G] In the instant case the appropriation of goods took place in the State of Tamil Nadu when the goods were segregated in the bonded ware house to be delivered to the foreign going vessels.
Therefore, under sub section
(2), sub cl.
(a) and (b) of section 4 of the , the sale of goods in question shall be deemed to have taken place inside the State because the contract of sale of ascertained goods was made within the territory of Tamil Nadu and furthermore in case of unascertained goods approrpriation had taken palce in that State in terms of cl.
(b) of sub section
(2) of section 4 of the .
There is no question of sale taking place in course of export or import under section 5.
From that point of view, the amendment introduced by Act 103 of 1976 by incorporating in cl.
(ab) of section 2 of the does not affect the position.
It was not a case of export as there was no destination for the goods to a foreign country.
The sale was for the purpose of consumption on board the ship.
It was not as if only on delivery on board, the vessel that the sale took place.
The mere fact that shipping bill was prepared for sending it for custom formalities which were designed to effectively control smuggling activities could not 239 determine the nature of the transaction for the purpose of sales tax nor does the circumstances that delivery was to the captain on board the ship within the territorial waters make it a sale outside the State of Tamil Nadu.[252E H; 247A B] Burmah Shell Oil Storage and Distributing Co. of India Ltd., and Anr.
vs Commercial Tax Officer & Ors., 11 STC 764; Deputy Commissioner of Commercial Taxes vs Caltex India Ltd., Madras, 13 STC 163; The State of Madras vs Davar & Co., 24 STC 481; Fairmacs Trading Co. vs The State of Tamil Nadu, 41 STC 157; Tata Iron and Steel Co. Ltd. Bombay vs S.R. Sarkar & Ors., 11 STC 655; and The State of Kerala & Ors.
vs The Cochin Coal Co., Ltd., 12 STC 1 relied upon.
Fairmacs Trading Co. vs The State of Tamil Nadu, 41 STC 157 and Fairmacs Trading Co. vs The State of Andhra Pradesh, 36 STC 260 approved.
Customs barrier does not set a terminal limit to the territory of the State for sales tax purposes.
Sale, therefore, beyond the customs barrier is still a sale within the State.
The amendment introduced in s.2 by the Act 103 of 1976 does not affect the position because the custom station is within the State of Tamil Nadu.
[253A B] 4.
In the facts and circumstances of the case, it is not necessary to express any opinion on the arguments whether introduction of cl.(ab) of s.2 of the by Act 103 of 1976 is prospective or not.
[253C D] Deputy Commissioner of Commercial Taxes vs Caltx India Ltd., Madras, 13 STC 163; Tata Iron and Steel Co. Ltd. Bombay vs S.R. Sarkar & Ors., 11 STC 655; Furby vs Hoey [1947] 1 All England Report 236; The Central Bank of India vs Their Workmen ; ; and Chanan Singh & Anr.
vs Jai Kaur; , at 804 807 referred to.
Kent Justices Ex Parte LYE & Ors., [1967] 1 All England Report 560 at 564 65 held inapplicable.