SWAMIKKANNU, J.


These two revisions are presented to revise the order of the Tamil Nadu Tax Appellate Tribunal (Main Branch), Madras and passed in T.A. Nos. 764 of 1977 and 164 of 1978 dated 23rd April, 1978, holding that the auction sale of each lot of goods has to be construed strictly in accordance with section 64(2) of the Sale of Goods Act, that the sale was complete at the time of the fall of the hammer, that subsequent issue of C form and letter requiring despatch to Bombay cannot divert the property from the buyer and revest it with the seller, that such concluded sales being in Madras, the transactions are liable to tax under the Tamil Nadu General Sales Tax Act, that the lower authorities are correct in the stand they have taken, that the auctions in the year 1976-77 were also governed by the same rules and that accordingly the sales in that year also liable to tax under the Tamil Nadu General Sales Tax Act.


In respect of the year 1975-76, the revision petitioner reported a total turnover of Rs. 31, 26, 979.78 and taxable turnover of Rs. 23, 40, 489.91 under the Tamil Nadu General Sales Tax Act. The Joint Commercial Tax Officer, Rattan Bazaar Circle, who verified the accounts found the total turnover reported to agree with the book figures. However, he did not accept the claim of inter-State sales on a turnover of Rs. 7, 86, 491.00. He thus determined the taxable turnover at Rs. 31, 26, 980.00. It is this disallowance of the claim of inter-State sales that has given rise for the appeal before the Appellate Assistant Commissioner which was not successful and ultimately this appeal under section 36 of the Act before the Tribunal.


In respect of the year 1976-77, the revision petitioner herein reported a total turnover of Rs. 80, 13, 922.00, and taxable turnover of Rs. 31, 82, 601.00 was disallowed by the assessing officer and the taxable turnover was determined at Rs. 76, 55, 390.00. The revision petitioner filed first appeal before the Appellate Assistant Commissioner (Commercial Taxes) II, Madras and as it was not successful, the revision petitioner went on second appeal before the Tribunal. The disputed turnover was, however, shown as Rs. 34, 41, 134.00 in the first appeal and Rs. 31, 82, 661.00 in the assessment stage is Rs. 31, 82, 601.00.The revision petitioner conducted auction sales of diamonds and industrial diamonds in Madras. Some of the bidders in these auctions were dealers of Bombay. After successfully bidding in the auctions and paying the necessary deposit amount, they had given letters to the Presiding Officer of the auction, to despatch the diamonds to Bombay so that they could remit the balance amount to the Bombay office of the revision petitioner and take delivery there. They also furnished C form to the revision petitioner either on the same day of the auction or a few days later. The revision petitioner classified such transactions as inter-State sales and claimed exemption on those sales in the Tamil Nadu general sales tax assessment. But relying on one of the clauses in the rules governing the auctions that on the fall of the hammer, the highest bidder shall be deemed to be the purchaser, the assessing officer concluded that all the sales were local sales within the Madras State and disallowed the claims of exemptions. The Appellate Assistant Commissioner besides agreeing with the reason given by the assessing officer relied on one more rule in the auction rules according to which after the payments of deposit amount of 25 per cent by the buyer, the diamonds would be put in a cover which would be sealed by the Presiding Officer in the presence of the bidder noting the name of the bidder and the buyer also has the option of affixing his own seal. He thus held that the sales were only within the Madras State and were not inter-State sales.


The factual position examined by the authorities in the hearing before the Appellate Assistant Commissioner evidenced that the parties issued a letter requiring movement and delivery of the diamond lots at Bombay. The goods were sent by the revision petitioner to their nominees at Bombay by insured registered postal parcel, and were cleared by the revision petitioner and held at Bombay for considerable time. Monies were later settled by Bombay buyers at which point the invoice of sale was handed over along with delivery challan. According to the revision petitioner, all the ingredients of the sale took place at Bombay when the goods were delivered and property passed. The revision petitioner reserved right to question even the very assessability under the Central Sales Tax Act, 1956, considering that the sale itself took place only in Maharashtra State. The parties to the contract have already endeavored to bring about inter-State sales for which the buyers have issued C declarations. The revision petitioner collected Central sales tax. Thus the intention of the seller and the buyer was clear from the above transaction. The revision petitioner submits that the authorities had no material to arrive at a conclusion contrary to the basic intent of the parties.At the time of hearing, the learned counsel for the revision petitioner explained before the authorities the procedure relating to the auctions conducted by the persons at Madras. He filed copies of the rules governing the auctions for sale of gems and diamonds and the special modification for rule 11 made temporarily in respect of the 55th diamond auction at Madras commencing from 19th January, 1976. According to the revision petitioner, though by virtue of section 64 of the Sales of Goods Act, in the case of sale by an auction, the sale will be complete when the auctioneer announces the completion by the fall of the hammer, the rights, duties or liabilities arising under a contract of sale by implication of the law may be negatived or varied by express agreement or by course dealing between the parties. In the instant case, he pointed out that by making a provision in rule 11, the revision petitioner acquired a right of canceling the sale if the sale price is not paid in full. Similarly, the revision petitioner made a provision that the property in the goods will be deemed to pass to the purchaser only after he had paid the outstanding dues in full and physical delivery of the diamond was effected to him and until such delivery is made, the property in the diamonds will continue to vest in the corporation. He thus pointed out that by the application of section 19 of the Sale of Goods Act, the property in the goods will be transferred to the buyer at such time as the parties intend it to be transferred and when this provision is read along with auction rules, property can be said to have been transferred only after the full payment of the price is paid and when the goods are delivered to the buyer at Bombay. Thus according to the revision petitioner, the appropriation of the goods was at Madras and the final delivery and sale was at Bombay and accordingly there was an inter-State sale from Tamil Nadu to Maharashtra State. It is also contended that in spite of an undertaking given by the buyers that the loss or damage in transit from Madras to Bombay would be borne by the buyers and the corporation will not be liable to replace the goods so lost or damaged, the property in the goods remained with the sellers; the provisions of section 26 of the Sale of Goods Act would show that by specific agreement the risk alone can be transferred to the buyer while property is retained by the seller himself. It is pointed out on behalf of the revision petitioner that the condition regarding vesting of property in the auction rule will prevail over the undertaking given by the buyers, in spite of risk. The next contention of the revision petitioner is that by producing the carbon copies of the invoices that the first part of the invoice in each case was drawn up at Madras on the date of auction itself and the second half of invoice was completed at Bombay after realising the value and allowing the appropriate cash rebate varying with reference to the promptness of payment and that is another indication of the sale being completed in Bombay. By a special letter given, the buyers produced the C forms and according to the decision in Glenrock Wood and Allied Enterprises v. State of Tamil Nadu 1975 (4) CTR 255, 1975 (36) STC 316 (Mad.), the issue of C forms is one of the indications of the intention of the parties to sell and to buy on inter-State basis.Mr. Bakthavatsalam, learned Additional Government Pleader, on behalf of the Revenue contended, inter alia, that according to rule 7 of the auction rules, on the fall of the hammer the highest bidder will be deemed to be the purchaser and he should pay in cash or by a demand draft a deposit of 25 per cent of the purchase value. Again according to rule 10, the diamonds are put into a packet and sealed by the Presiding Officer and the buyer is also entitled to affix his own seal on such packets. These factors would show that the sale was already completed and the parties had merely postponed the payment of the value and the delivery of goods which would not affect the earlier transfer of property in the goods. As regards rule 11(iii) though there is a provision that the property in the diamonds should be deemed to pass to the purchaser after he paid the outstanding dues in full, the fact of allowing the buyer to affix the seal on the packet of the diamonds intended to him would amount to a modification of the procedure in rule 11(iii). According to the learned Additional Government Pleader, once the deposit amount of 25 per cent of the value is paid, the property is passed to the purchaser by appropriation of goods which happens within the State of Tamil Nadu. He further pointed out that according to rule 11(1)(a), 14 days time is allowed to the buyers for the payment of the value and taking delivery of the goods. That is another indication to show that until the 14 days time expires, the intention of the parties was to sell the goods and realise the value within this State only. Learned Additional Government Pleader also points out that under sub-rules (b) and (c) of rule 11 interest is charged from the buyers and this would mean that the value of the goods was already fixed and the property in the goods passed to the customer and constructive delivery was also completed. The goods were held by the revision petitioner only in the capacity of an unpaid seller, and after realisation of the sale value along with interest due for payment, there was only a redelivery of the goods which were once notionally delivered to the buyers. The issue of C form on the date of auction itself would show that the sale was complete on the date of auction on which date the goods were in this State and had not commenced movement from this State to the State of Maharashtra. Thus according to the learned Additional Government Pleader, the sales were only within the State.Learned counsel for the revision petitioner, Mr. C. Natarajan, would further contend in his reply that the buyer was allowed to affix seal on the packet of diamonds only for the purpose of identification of the packet and not to indicate that he had already becomes the owner of the goods, because the provision in the auction rules was to the effect that property would be passed only after the payment is made and physical delivery is effected.


As regards the retention of goods for 14 days by the revision petitioner for delivery without payment of interest, he explained that though it was possible for the buyers to take delivery within the Madras State by paying the value (without any interest), in the instant cases, the intention of the parties was quite different as the buyers had given letters that the goods be despatched to the Bombay State and that they had issued C form for that purpose and would be agreeable to the rate of tax at 4 per cent. As regards interest, he pointed out that that was only an incidental charge which was agreed to by the parties and that by itself would not mean that the transaction was already concluded on the date of auction. As regards constructive delivery, the learned counsel explained that under the Sale of Goods Act, constructive delivery would take place only if something is done by the seller to signify a delivery, for example by the issue of a delivery note. Learned counsel for the revision petitioner pointed out that in the instant cases there was no issue of delivery note or any other document signifying such constructive delivery and in fact the delivery note was issued only after the full payment was received and when the actual delivery was given to the buyers. According to the learned counsel for the revision petitioner there is absolutely no material on record to spell out completed sales within the State of Tamil Nadu attracting the levy of tax under the Tamil Nadu General Sales Tax Act.The points for consideration in these two revision petitions are :


(1) Whether the Tribunal had committed an error in holding that the transactions are not inter-State dealings and as such they come within the purview of the provisions of the Tamil Nadu General Sales Tax Act; and


(2) Whether the revision petitioner herein is liable to pay tax by virtue of the provisions of the Tamil Nadu General Sales Tax Act.


We have carefully considered the arguments advanced on either side and also perused the records in this case. The revision petitioner is the National Mineral Development Corporation Limited, a Government of India undertaking, has a diamond mining project with two diamond mines, in Panna, Madhya Pradesh. The diamonds won from these mines are periodically sold in rough (uncut) form in auctions in various in the country. The date and venue of the auctions are notified to the public through advertisements in leading newspapers. The notices are also sent to the Diamond Merchants' Associations in various cities for circulation to its members. On the day of the commencement of the auction, the merchants desirous of participating in the auction, register themselves at the auction centre and obtain admit cards on payment of a refundable sum of Rs. 2, 000 each. The diamond lots put up for auction are displayed at the auction centre for inspection by the registered merchants. Before the commencement on inspection, the participating persons are issued the rules governing the auction and the catalogues listing the items put up for inspection and sale. Upon completion of inspection of the lots put on display, the said lots are taken up for auction. The registered merchants present are invited to offer bids. After a bid is accepted by the Presiding Officer and is knocked down, the successful purchaser is required to sign the bid register in token of his agreement to purchase the concerned item and to pay security deposit of 25 per cent of the sale value of the concerned items for which a receipt is issued to him. The lot for which the sum representing 25 per cent of the value of the bid has been paid by the successful bidder, is sealed in an envelope and signed by the Presiding Officer in the presence of the bidder. The bidder also puts his own seal on the packet, if he desires to do so. The invoice is prepared forthwith indicating the item number, the weight of the item, the price accepted and the total value and also the security deposit amount paid by the successful bidder. From the 55th auction held in January, 1976 onwards, the delivery of the diamond lots sold is made either at Madras or at Bombay on the basis of the stipulation made by the bidder concerned as to whether the bid and purchase are subject to delivery at Bombay on payment of Central sales tax, instead of at Madras. Delivery at Bombay is arranged only in cases where the purchaser confirms in writing that the purchases made by him are subject to delivery at Bombay. Deliveries at Madras during the course of the auction are made by the corporation's representative on collection from the purchaser of the outstanding amounts due, i.e., the sale value plus NMDC service charges plus interest on the outstanding balance, if any due, plus Tamil Nadu general sales tax and surcharge at the applicable rates minus security deposit which would have been paid on the item being knocked down in his favour. For deliveries after the close of the auction, the diamond lots, in sealed covers, are entrusted to the corporation's bankers who deliver them to the concerned merchants on collection of the outstanding amounts due, within the prescribed delivery period. For deliveries at Bombay, the diamond lots are sent by the corporation by insured post parcels or as precious cargo by air, to its Bombay office for being placed in the bank lockers there. The lots, in sealed covers are made over to the purchasers within the prescribed delivery period, on the purchasers (a) depositing the outstanding amounts due i.e., sale value plus NMDC service charges plus interest on the outstanding balance, if any due, plus Central sales tax at the applicable rate, minus security deposit already paid and (b) submitting C form. On delivery of the diamond lots in sealed covers to the purchasers, the original copy of the invoice with all the entries made therein regarding sales tax, etc., and final receipt for the total amounts paid for the item (a) in question are handed over to the purchaser along with the goods.On these facts, let us now start discussing the questions that we have framed in these two revision petitions.


According to section 64(2) of the Sale of Goods Act, the sale is completed when the auctioneer announces its completion on the fall of the hammer or the other customary manner. The agreement to sell and the passing of the property in the goods sold take place simultaneously. So far as our country, India is concerned, the law regulating the auction sale has been codified in section 64 of the Sale of Goods Act. Sub-section (1) shows that there is a contract of sale even in the case of auction sales. Sale by auction, being a sale of specified goods, is complete when the offer is accepted and the auctioneer announces its completion by the fall of the hammer. That is the settled law.


Before actually looking into the facts in this case in the light of the arguments, let us incorporate the provisions of sections 3 and 4 of the Central Sales Tax Act, and the relevant clauses in the auction rules.


"3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase -


(a) occasions the movement of goods from one State to another; or


(b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1. - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.


Explanation 2. - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.


4. When is a sale or purchase of goods said to take place outside a State. - (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.


(2) A sale or purchase of goods shall be deemed to take place inside a State if the goods are within the State -


(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and


(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.


Explanation. - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places." *


The contention of the revision petitioner herein is that by the rule governing the auction for sale of off-colour and industrial diamonds, especially by rule 7, on the fall of the hammer the highest bidder shall be deemed to be the purchaser and he shall pay in cash or through a demand draft on State Bank of India, Panna (M.P.), a deposit (for which a receipt will be granted to him) equivalent to 25 per cent of the purchase value.


Rule 10 of the abovesaid rules contemplates that the diamond, or the packet of diamonds, for which the sum representing 25 per cent of the value of the bid has been paid by the successful bidder will be sealed in a cover by the Presiding Officer in the presence of the bidder. The bidder shall also put his own seal on the packet. The packet so sealed will be numbered and the number will be mentioned in the money receipt to be granted to the successful bidder for the particular purchase.Rule 11. (i) For diamond tool manufacturers who are registered with DGTD and/or the Directors/Development Commissioners, Small Scale Industries of the various State Governments.


An auction purchaser shall have the option of making full payment of the bid value together with taxes under rule 12 of the auction rules in the following manner :


(a) at the place of auction within 14 days of the close of the auction either in cash or by demand draft drawn on State Bank of India, Panna (M.P.) in favour of NMDC Ltd.,


(b) within a period exceeding 14 days but not exceeding 60 days from the close of the auction, together with interest on monthly rests on the balance of outstanding at the rate of 16 per cent per annum, reckoned from the 11th day of the close of the auction (i.e., interest will be remitted for 10 days),


(c) within a period exceeding 60 days but not exceeding 150 days from the close of the auction, together with interest monthly rests on the balance outstanding, at the rate of 17 per cent per annum, reckoned from the 11th day to the 150th day of the close of the auction, and at the rate of 18 per cent per annum on monthly rests reckoned from the close of the auction.


(ii) For all other buyers, not falling in category (i) specified above, the following payment and delivery terms will apply.


An auction purchaser shall have option of making full payment of the bid value together with taxes under rule 12 of these rules in the following manner :


(a) At the place of auction within 14 days of the close of the auction either in cash or by demand draft drawn on State Bank of India, Panna (M.P.) in favour of NMDC Ltd. No interest will be chargeable for this period.


(b) 1. Within a period exceeding 14 days but not exceeding 60 days from the close of the auction, together with interest on monthly rests thereon at the rate of 16 per cent per annum, reckoned from the 11th day of the close of the auction (i.e., interest will be remitted for 10 days) or


2. Within a period exceeding 60 days but not exceeding 180 days from the close of auction, together with interest on monthly rests at the rate of 18 per cent per annum reckoned from the close of the auction.


(iii) Failure to deposit the sale price in full, together with taxes due thereon under rule 12 of these rules, shall entail forfeiture of the deposit made under these rules.


(iv) On payment of the above sums in the manner aforesaid, the diamond/packet of diamonds purchased by the bidder will be delivered to him by a representative of the corporation. The delivery of the sealed packet to the purchaser will conclude the transaction and no objection as to the number, quality and character of the diamonds shall be entertained and no liability in this behalf shall be accepted by the corporation. The corporation will arrange the delivery of diamonds at the place of the auction for a period of 15 days from the close of auction. Thereafter, the purchaser should remit by demand draft on the State Bank of India, Panna (M.P.) drawn in favour of the National Mineral Development Corporation Limited, the balance of the purchase price together with the taxes legally payable as also interest calculated upto the date of obtaining the bank draft. On receipt of the demand draft, delivery of the diamonds/packets of diamonds shall be arranged through a nominated bank at the place of auction. The property in the diamonds shall be deemed to pass to the purchaser only after he has paid the outstanding dues in full and physical delivery of the diamond is effected to him and, until such delivery is made the property in the diamonds shall continue to vest in the corporation.


For all categories of buyers, the maximum period within which the delivery of the diamonds has to be taken by the purchaser, is six months (180 days) reckoned from the close of the auction. No request for extension of the delivery period beyond this shall ordinarily be entertained.On this rule 11 stress is very much made on behalf of both the sides, particularly to the provision under rule 11(2)(iv). In this regard it is contended by Mr. Bakthavatsalam, learned Additional Government Pleader, on behalf of the respondents herein that for the 55th diamond auction at Madras commencing from 19th January, 1976, rule 11 of the auction rules had been temporarily replaced by following another procedure and that this temporary replacement of the rule cannot be taken as an important criteria to determine the sale in the present transaction as inter-State sale or intra-State sale.


In this regard Mr. Natarajan, learned counsel for the revision petitioners, would point out that in the temporarily replaced provision of rule 11, it is only the original rule 11-A(1) that has been modified to a certain extent and that there is no specific modification in the auction rules. In the temporarily replaced rule 11 it is seen that there are provisions relating to the delivery of diamond within 30 days of the close of the 55th auction.


Deliveries between


Purchase by a single purchaser 1 to 15 days 16 to 30 days at the 55th auction. cash rebate of cash rebate of


(i) Of a value upto Rs. 50, 000 3 per cent 2 per cent


(ii) Of a value between Rs. 50, 001 and Rs. 1, 00, 000 4 per cent 3 per cent


(iii) Of a value of Rs. 1, 00, 001 and above 5 per cent 4 per cent


Note : 1. For purposes of determining the value of purchases by a "single buyer" for calculation of the cash rebate, purchases bid for in the name entered on a particular admit card will be totalled and taken as the purchases by that buyer; pooling of purchases on different admit cards will not be allowed for this purpose. There are also provisions relating to delivery of diamonds from the 31st to the 60th days of the close of the 55th auction and from the 61st day onwards of the close of the 55th auction. The rule relating to the delivery of diamonds from the 61st day onwards of the close of the 55th auction shows that no extension of time beyond 90 days of the close of the auction will ordinarily be allowed, for taking deliveries. In any case, the grant of such extension is solely at the discretion of the corporation and cannot be insisted upon by an auction purchaser as a matter of right. In the event of such extension being granted beyond 90 days, no such rebate will be admissible; also, interest on monthly rests on the balance outstanding will be charged at 18 per cent per annum, reckoned from the 31st day of the close of the auction till the date of extension of delivery time is sought, is deposited along with such application seeking extension.It is contended behalf of the revision petitioner that the buyers have expressed their intention to treat the transaction as inter-State sale by issuing a C form and by furnishing a letter on the same day. We find from the records that the C forms and letters requesting delivery at Bombay and indemnifying the sellers against loss or damage in transit, were furnished a few days after the auction sales. In some cases, however, C forms were furnished on the date of auction sale. The Tribunal has pointed out a few instances during the course of discussing the facts in the instant case which run as follows :


In. No. Date of Value Date of Date of auction C form letters sale


2317 21-1-76 19, 808.20 21-1-1976 28-1-1976


2319 21-1-76 4, 546.80 21-1-1976 27-1-1976


2345 24-1-76 12, 800.00 29-1-1976 30-1-1976


2346 24-1-76 3, 341.80 10-2-1976 28-1-1976


2365 29-1-76 2, 662.00 29-1-1976 2-2-1976


2368 31-1976 12, 229.00 31-1-1976 2-2-1976


Mr. C. Natarajan, learned counsel for the revision petitioners, also points out that is a forfeiture clause in the rule governing the auction for sale of off-colour and industrial diamonds. Clause 2, rule (iii) read as follows :


"Failure to deposit the sale price in full, together with taxes due thereon under rule 12 of these rules, shall entail forfeiture of the deposit made under the rules." *


It is pointed out that as per rule 11 of the auction rules, which stood temporarily replaced by the procedure in respect of the 55th diamond auction at Madras commencing from 19th January, 1976 also, there is a clause which has a bearing on the question whether a transaction involved in the auction sale constitutes inter-State sale or intra-State sale. Rule 11, as it stood temporarily replaced by clause 2 provides as follows :


"No extension of time beyond 90 days of the close of the auction will ordinarily be allowed for taking deliveries. In any case, that grant of such extension is solely at the discretion of the corporation and cannot be insisted upon by an auction purchaser as a matter of right. In the event of such extension being granted beyond 90 days, no cash rebate will be admissible; also, interest on monthly rests on the balance outstanding will be charged at 18 per cent per annum, reckoned from the 31st day of the close of the auction till the date of extension of delivery time is sought, is deposited along with such application seeking extension." *


Rule 11 of the auction rules, as it stood temporarily replaced, contains the provision relating to delivery of diamond and it reads as follows :


"Rule 11-A. (1) Deliveries may be taken at Madras within 30 days of the close of the auction by payment either in cash or demand draft on the Indian Bank, Esplanade Branch, Madras 600 001 in favour of National Mineral Development Corporation Ltd. No interest shall be charged for this period. The auction purchaser will, in addition, be eligible for a cash rebate on the sales price of the lots of diamonds purchased by him as set out below, in respect of delivery is taken by him (a) within 15 days of the close of the auction and (b) within 30 days of the close of the auction respectively." *


The Tribunal, in its order under revision, has observed in paragraph 8 that rule 11 which was relied on by the learned counsel was specially modified temporarily in respect of auctions held at Madras commencing from 19th January, 1976, that the amended rule deals only with cash rebate admissible for payments and delivery upto 30 days and that the provision which remained in the original rule in respect of reservation of property by the seller until realisation of full value and effecting physical delivery, is significantly absent in the amended rule. On the basis of the above conclusion regarding the auction rule, as amended, the Tribunal held that the revision petitioners herein could not take advantage of the provision in section 62 of the Sale of Goods Act. In such circumstances, the normal rule in section 64(2) will come into play and that rule 8 of the auction rules also provides that if the buyer does not pay the deposit of 25 per cent, the corporation may cancel the bid without prejudice to any other rights of an unpaid seller. Again rule 13 debars the buyer from raising any dispute with regard to the number, quality, value and other characteristics and defects and that all these provisions fortify the view that the sale had concluded on the fall of the hammer.We have already set out in detail the rules governing the auction sales as per the provisions of section 64 of the Sale of Goods Act. In this regard, the ratio in Hanutmal Bhutoria v. Dominion of India 1961 AIR(Cal) 54 is pointed out by Mr. Natarajan, learned counsel for the revision petitioners. In the said decision, it was laid down thus :


"The explanation to section 148, Contract Act makes it clear that a seller can become a bailee if he contracts to hold the goods as a bailee. In the absence of such a contract, he cannot be regarded as a bailee.


The second proviso to section 26, Sale of Goods Act applies to a case where the seller or the buyer holds the goods in the capacity of bailee either under a contract of bailment or circumstances which give rise to the relationship of bailor and bailee. The second proviso means that the operation of the provisions of section 26 is excluded when the buyer or the seller happens to hold the goods in the character of a bailee. There is no automatic bailment created by operation of law.


Where the condition of auction sale provided that the lots would be at the risk and expense of the purchaser from the moment the sale is declared and that cash in full was to be paid on the fall of the hammer and delivery was to be taken within fifteen days :


Held that the conditions of sale were inconsistent with the position of there being any relationship of bailor and bailee between the seller and the purchaser after the sale was effected. The seller had no liability from the moment of the sale except perhaps the duty of affording facilities to the purchaser for taking delivery of the goods within a period of fifteen days from the date of sale." *


Mr. C. Natarajan points out in this regard paragraph 2 of the letter addressed to the Presiding Officer, 55th Diamond Auction, NMDC Limited, Madras, with respect to the 55th diamond auction conducted by the addressee at Madras from 19th January, 1976, which run as follows :


"The above lots have been purchased by us on condition of delivery at Bombay, for which our sales tax liability will be limited to 4 per cent under the General Sales Tax Rules and for which we have furnished C form as required." *


It is pointed out on behalf of the Revenue by Mr. Bakthavatsalam the decision in Dennant v. Skinner and Collom 1948 (2) KB 164, wherein an auction sale of motor vehicles was held by Dennant and the vehicle was sold to a man calling George Albert King who was the highest bidder. There was a misrepresentation by the purchaser as to his identity, the auction seller accepted in payment a cheque accompanied by the purchaser's certificate which reads as under :


"..... I certify that my cheque No. UUB. 287164 value pound 1190 will be met on presentation at my bank and furthermore I agree that the ownership of the vehicles will not pass to me until such time as the proceeds of my cheques have been credited to South London Motor Auction account at Lloyds Bank Ltd."


" It later turned out that the cheque was dishonoured. In the meantime, the auction purchaser had sold the vehicle to Mr. Collom who in turn resold it to Mr. Skinner, an innocent third party. The auction seller brought out a suit for possession of the vehicle. One of the grounds taken was that the property in the vehicle had not passed by virtue of the certificate issued by the purchaser. Hallott, J., held that the condition in the certificate was one obtained after the fall of the hammer, that in an auction sale property normally passed on the fall of the hammer and there was no special condition in the auction rules to exclude the application of the prima facie rule characterising auction sale."At pages 171-172 His Lordship observed :" I come now to consider the second point on which I understand is this : that the property in the circumstances of this case did not pass until the price was paid by the cheque being in order or cash substituted for it. The circumstances in regard to that I have already stated, and it remains only to consider the law. In the first place, as I have said, I think that a contract of sale is concluded at an auction sale on that fall of the hammer. The Sale of Goods Act, 1893 section 18 provides :


'Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.'


Accordingly, upon the fall of the hammer the property of this car passed to King unless that prima facie rule is excluded from applying because of a different intention appearing or because there was some condition in the contract which prevented the rule from applying. However, there was a third aspect of the matter and that arises out of the document which I have already read. Now, the document in its terms contemplates that the ownership of the vehicle has not passed to the bidder, but as I have already said, in my judgment, it had passed upon the fall of the hammer, and if subsequently the bidder executed the document acknowledging that ownership of the vehicle would not pass to him, that could not have any effect on what had already taken place." *


In the instant case, it is relevant to note that what we are concerned in the transaction is, whether the sale of goods has to be construed as one having taken place in the course of inter-State trade or commerce and as such the transaction in question occasioned the movement of goods from one State to another and not to import much importance to the transaction, the property in the goods had passed or not since the entire transaction has to be looked at by us only from the point of view of the concept of intra-State transaction as per the provisions of sections 3 and 4 or the Central Sales Tax Act which we have extracted above.The decision reported in Consolidated Coffee Ltd. v. Coffee Board 1980 AIR(SC) 1468, 1980 (3) SCR 625, 1980 (3) SCC 358, 1980 (46) STC 164, 1980 TAXLR 1723, 1980 TLR 1723, 1980 SCC(Tax) 279 (SC) is relied on for the proposition. In the above decision, their Lordships of the Supreme Court have observed thus :


"Dealing next with the three stages at which the property in the coffee sold at the export auctions conducted by the Coffee Board is said to pass to the highest bidder (registered exporter) three questions arise that need our close examination. Does it pass at the fall of the hammer when his bid is entered in the register of bids under his signature under section 64(2) of the Sale of Goods Act, 1930, as contended for by the counsel for the States of Karnataka, Tamil Nadu and Kerala ? Does it pass after the coffee sold is weighed and set apart for delivery and price is paid therefor by the auction purchaser in view of clause 19 (particularly the overriding provision contained therein) and other clauses of the auction conditions (this being the alternative plea of the petitioners) ? or does it pass only after the coffee sold is shipped or is sent to the customs station for shipment because till then the Coffee Board has a right of disposal under clauses 26 and 31 read with section 25 of the Sale of Goods Act (this being the principal plea of the petitioners) ? It will be desirable to set out the concerned provisions in order to appreciate properly the rival submissions of the counsel based thereon. According to the counsel for the three States, section 64 is a special provision in the Sale of Goods Act which deals with auction sales and under sub-section (2) thereof, the sale is complete no sooner the auctioneer makes an announcement in that behalf either by fall of the hammer or in other customary manner and, therefore, the property in the goods sold thereat passes at the fall of the hammer or immediately after the announcement of completion is made in any other customary manner and since in the instant case the Coffee Board conducts export auctions of coffee in lots which are specified in catalogues supplied to the auction purchasers beforehand, the property in the coffee sold thereat must be regarded as having passed to the buyer at the fall of the hammer when the successful bid is entered in the register of bids under the signature of the bidder as per clauses 10 and 11 of the auction conditions. As regards clause 19, a twofold argument was urged : in the first place it was contended that section 64 is not subject to any contract to the contrary and, therefore, section 64(2) must prevail under which the property will pass at the fall of the hammer or at the close of the sale in the customary manner; secondly, clause 19 containing the overriding provision may bind the parties to the contract but will not have the effect of creating an estoppel against a third party like a State Government or its sales tax authorities from contending or showing that the property at such auctions passes at the fall of the hammer and if under the other terms of the auction it is clear that the property has passed or does pass to the auction purchaser at the fall of the hammer a mere declaration of the intention on the part of the contracting parties deferring or postponing the passing of the property will not affect the question and in that behalf reliance was placed upon the observations of Lord Chancellor Herschell in McEntire v. Crossley Bros. Ltd. [1895-1896] All ER (Reprint) 829 at 832, where the observations run thus :'Upon an agreement to sell, it depends upon the intention of the parties whether the property passes or does not pass. Here the parties have in terms expressed their intention and said that the property shall not pass until the full purchase money is paid. I know no reason to prevent that being a perfectly lawful agreement. If that was really the intention of the parties, I know of no rule or principle of law which prevents it from being given effect to. I quite agree that if, although the parties have inserted a provision to that effect, they have shown in other parts of the agreement, by the language which they have used, or the provisions which they have made, that they intended the property to pass, one must look at the transaction as a whole, and it might be necessary to hold that the property has passed, although the parties have said that their intention was that it should not, because they have provided that it shall. No doubt any provisions which were inconsistent with the intention that the property should not pass would be given effect to in preference to a mere expression of intention in words.'" *


In the instant case before us, it is relevant to note that the formalities of an auction did take place at Madras. Whether the sale had been completed here at Madras or at Bombay in the light of the provisions of the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, we do find that the contention raised on behalf of the revision petitioners herein cannot be held to be wholly unsustainable.


The decision in State of Gujarat v. Bombay Metal Alloys and Manufacturing Co. P. Ltd. 1983 (54) STC 45 (Guj) is relied on for the proposition that the mere fact that the contract of sale itself does not provide for or occasion a movement of goods would not be an impediment in the way of holding that section 3(a) of the Central Sales Tax Act, 1956.


"3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase -


(a) occasions the movement of goods from one State to another; or


(b) is effected by a transfer of documents of title to the goods during their movement from one State to another."


Section 4(2) reads as follows :


" A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State." *


Sections 4(2) enables us to fix the situs of the transaction and it is needless to state that the provision of section 4 is subject to the provisions of section 3. A careful reading of both the sections together clearly makes us to come to the above conclusion. The Tribunal in the instant case before us has held that the falling of the hammer is significant to indicate that the property in the ascertained goods, namely, the diamond in the instant case, has passed to the purchaser and, therefore, the transaction is intra-State transaction and was subject to the liability of payment of sales tax under the provisions of the Tamil Nadu General Sales Tax Act, 1959. When the transaction, as a whole, is scrutinised by us we are inclined to differ from the view that was taken by the Tribunal.


In this regard, we would once again like to reiterate the principle which has guided us to come to the conclusion differing from the view taken by the Tribunal. The decision in Oil India Ltd. v. Superintendent of Taxes 1975 AIR(SC) 887, 1975 (35) STC 445, 1975 (1) SCC 733, 1975 (3) SCR 797, 1975 UJ 289, 1975 TaxLR 1513, 1975 SCC(Tax) 167, 1975 (4879) CTR 62 (SC) lays down that the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale and, therefore, the sales to the refinery at Barauni were sales in the course of inter-State trade. The Bihar Government had no jurisdiction to tax the sales under the sales tax law of that State and the petitioner was entitled to the refund of tax collected from it by the Bihar Government. In the above case, the Supreme Court has held that no matter in which State the property in the goods passes, a sale which occasions 'movement of goods from one State to another is a sale in the course of inter-State trade.


". The inter-State movement must be the result of a convenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the convenant regarding inter-State movement must be specified in the contract itself. It would be enough if the movement was in pursuance of and incidental to the contract of sale. We are following the ratio decidendi in the decision reported in Oil India Ltd. v. Superintendent of Taxes 1975 AIR(SC) 887, 1975 (35) STC 445, 1975 (1) SCC 733, 1975 (3) SCR 797, 1975 UJ 289, 1975 TaxLR 1513, 1975 SCC(Tax) 167, 1975 (4879) CTR 62 (SC) faithfully to the facts of the instant case before us. The auction in this case did start on 19th January, 1976, and this fact is not in dispute.In Tata Iron and Steel Co. Ltd. v. S. R. Sarkar 1961 AIR(SC) 65, 1960 (11) STC 655, 1961 (1) SCR 379, the Supreme Court has held that under the explanation to section 2(a), in cases of sales falling within section 3(a), the place of business is the place from which movement has commenced and in cases of sales falling within section 3(b), it is the place where the sale is effected. But there is in the explanation, no material for ascertaining the place where the sale is effected. Clause (2) of the explanation does not seek to locate the place where the sale is effected, in cases falling within clause (b) of section 3, at the place where the transfer of documents of title to the to the goods was effected. In this regard also, we have to bear in mind rule 11 replacement of the same for the transaction in question subsequently. In doing so, we do find that there is substance in what had been submitted on behalf off the revision petitioners herein. In the above decision, at page 666, their Lordships of the Supreme Court have observed :" *


A sale being by the definition, transfer of property, becomes taxable under section 3(a) if the movement of goods from one State to another is under a convenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another. In respect of an inter-State sale, the tax is leviable only once and that indicates that the two clauses of section 3 are mutually exclusive. A sale taxable as falling within clause (a) of section 3, will be excluded from the purview of clause (b) of section 3; otherwise certain sales may be liable to tax under both the clauses and two States may, in respect of a single sale, claim to levy the tax contrary to the plain intendment of sections 6 and 9 of the Act ........ Cases of this Court, viz., State of Travancore-Cochin v. Bombay Co. Ltd. 1952 AIR(SC) 366, 1952 (3) STC 434, 1952 SCJ 527, 1952 (1) SCR 1112, 1953 (1) MLJ 1; 1952 AIR(SC) 366, 1952 (3) STC 434, 1952 SCJ 527, 1952 (1) SCR 1112, 1953 (1) MLJ 1 and STC 434 and State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory 1953 AIR(SC) 333, 1953 (4) STC 205, 1953 SCJ 471, 1954 (1) SCR 53, 1953 (2) MLJ 123 : 1953 AIR(SC) 333, 1953 (4) STC 205, 1953 SCJ 471, 1954 (1) SCR 53, 1953 (2) MLJ 123 relied upon by counsel for the State of West Bengal have no bearing on the interpretation of section 3, clauses (a) and (b). In those cases, the meaning of the expressions, 'in the course of import and export' and 'in the course of inter-State trade or commerce' used in article 286 fell to be determined. The Constitution does not define these expressions. The Parliament has in the Central Sales Tax Act, 1956, sought to define by section 3 when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce and by section 4(1) to define when a sale or purchase of goods is said to take place outside a State and by section 5, when a sale or purchase is said to take place in the course of import or export. In interpreting these definition clauses, it would be inappropriate to requisition in aid the observations made in ascertaining the true nature and incidents without the assistance of any definition clause of 'sales outside the State' and 'sales in the course of import or export' and 'sales in the course of inter-State trade or commerce' used in article 286.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 convenant or incident of the contract of sale, and property in the goods passes in either State.

"Arguments were advanced by either side with respect to the submission of C forms in the instant case before us. With respect to this aspect, the decision in State of Madras v. Bramhappa Tavanappanavar (Mysore) Private Ltd., Madras-21 1974 (33) STC 601 (Mad.) is referred to wherein it was observed :" *


The assessee claimed that certain sales were inter-State but it did not produce the relevant contracts of sale to prove that the transactions were inter-State sales. The invoice and other correspondence produced by the assessee indicated that the goods had been transported by ship from Madras to Calcutta, and the assessee had collected the sale price by sending the bill of lading and other documents through banks for collection. The assessee had also got the C forms from the out-of-State buyers. The Tribunal held that the movement of the goods to the out-of-State destination could only be as an incident of the contract of sale and, therefore, the sales were inter-State in character. On a revision : Held, that the Tribunal had come to the right conclusion on the facts.


"In the said decision it was held that the assessees have also got C forms from out-of-State buyers. The out-of-State buyers would never have issued C forms to the assessees unless there was actual contract to purchase the goods from the assessees. In the instant case before us, the Tribunal has factually recorded its finding regarding the source of the transaction involved in paragraph 7 of the order under revision thus :" *


We have carefully considered the argument as also the records. The undisputed facts involved in the case are the National Mineral Development Corporation Limited, a Government of India undertaking, has a diamond mining project with two diamond mines in Panna, Madhya Pradesh. The diamonds won from these mines are periodically sold in rough (uncut) form in auctions in various centres in the country. The date and venue of the auctions are notified to the public through advertisements in the leading newspapers. The notices are also sent to the Diamond Merchants' Associations in various cities for circulation to its members. On the day of the commencement of the auction, the merchants desirous of participating in the auction, register themselves at the auction centre and obtain cards on payment of a refundable sum of Rs. 2, 000 each. The diamond lots put up for auction are displayed at the auction centre for inspection by the registered merchants. Before the commencement of inspection, the participating persons are issued the rules governing the auction and the catalogues listing the items put up for inspection and sale. Upon completion of inspection of the lots put on display, the said lots are taken up for auction. The registered merchants present are invited to offer bids. After a bid is accepted by the Presiding Officer and is knocked down, the successful purchaser is required to sign the bid register in token of his agreement to purchase the concerned item and to pay security deposit of 25 per cent of the sale value of the concerned item for which a receipt is issued to him. The lot for which the sum representing 25 per cent of the value of the bid has been paid by the successful bidder, is sealed in an envelope and signed by the Presiding Officer in the presence of the bidder. The bidder also puts his own seal on the packet, if he desires to do so. The invoice is prepared forthwith indicating the item number, the weight of the item, the price accepted and the total value and also the security deposit amount paid by the successful bidder. From the 55th auction held in January, 1976 onwards, the delivery of the diamond lots sold is made either at Madras or at Bombay on the basis of the stipulation made by the bidder concerned as to whether the bid and purchase are subject to delivery at Bombay on payment of Central sales tax, instead of at Madras. Delivery at Bombay is arranged only in cases where the purchaser confirms in writing that the purchases made by him are subject to delivery at Bombay. Deliveries at Madras during the course of the auction are made by the corporation's representative on collection from the purchaser of the outstanding amounts due, i.e., the sale value plus NMDC service charges plus interest on the outstanding balance, if any due, plus Tamil Nadu general sales tax and surcharge at the applicable rates minus security deposit which would have been paid on the item being knocked down in his favour. For deliveries after the close of the auction, the diamond lots, in sealed covers, are entrusted to the corporation's bankers who deliver them to the concerned merchants on collection of the outstanding amounts due, within the prescribed delivery period. For deliveries at Bombay, the diamond lots are sent by the corporation by insured post parcels or as precious cargo by air, to its Bombay office for being placed in the bank lockers there. The lots, in sealed covers are made over to the purchasers, within the prescribed delivery period, on the purchasers (a) depositing the outstanding amounts due, i.e., sale value plus NMDC service charges plus interest on the outstanding balance, if any due, plus Central sales tax at the applicable rate, minus security deposit already paid and (b) submitting form. On delivery of the diamond lots in sealed covers to the purchasers, the original copy of the invoice with all the entries made therein regarding sales tax, etc., and final receipt for the total amounts paid for the item (a) in question are handed over to the purchaser along with the goods. On these facts, the question now for consideration is, whether the sale in each case is complete in Madras attracting levy of Tamil Nadu general sales tax or whether it is an inter-State sale liable to Central sales tax.

"It is relevant in this contention to note that in the assessment order dated 4th December, 1976 by the Joint Commercial Tax Officer, Rattan Bazaar Circle, Madras-1, he has observed thus in paragraph 3." *


It is seen therefrom that after the purchases, the buyer has given detailed instructions about the despatch of goods to Bombay by V.P.P. The buyer (as per para 4 of the letter) has indemnified the National Mineral Development Corporation against any loss or damage in transit, and the buyer has been separately charged 0.75 per cent of the purchase value towards the services done by the National Mineral Development Corporation in despatching the diamonds in convenient packets so that the value does not exceed Rs. 10, 000 in each packet.

"For the sake of completion, we have referred to the above observation of the assessing authority since it has got bearing on the arguments advanced by either side in the transactions involved.


The Appellate Assistant Commissioner (CT) II, Madras City in his order dated 20th June, 1977, has observed :" *


More than that to rule 11(iii) the corporation will arrange the delivery of the diamonds at the place of the auction for a period of 15 days from the close of the auction. This is specific and clear that the purchase by the successful bidder was concluded and completed on the date of auction itself. Any other service rendered by the corporation in the arrangements of delivery of the diamonds and for recovery of the balance of the value is only an activity not connected with the sale.

"The rules governing the auction for sale of off-colour and industrial diamonds contemplated under rule 10 is that the bidder shall also put his own seal on the packet and the packet so sealed will be numbered and the number will be mentioned in the money receipt to be granted to the successful bidder for the particular purchase. In this regard, Mr. Bakthavatsalam, learned Additional Government Pleader, points out rule 11(2)(iv) :" *


On payment of the above sums in the manner aforesaid, the diamond/packet of diamonds purchased by the bidder will be delivered to him by a representative of the corporation. The delivery of the sealed packet to the purchaser will conclude the transaction and no objection as to the number, quality and character of the diamonds shall be entertained and no liability in this behalf will be accepted by the corporation. The corporation will arrange the delivery of diamonds at the place of the auction for a period of 15 days from the close of auction. Thereafter, the purchaser should remit by demand draft on the State Bank of India, Panna (M.P.) drawn in favour of the National Mineral Development Corporation Limited, the balance of the purchase price together with the taxes legally payable as also interest calculated upto the date of obtaining the bank draft. On receipt of the demand draft, delivery of the diamond(s)/packet(s) of diamonds shall be arranged through a nominated bank at the place of auction. The property in the diamonds shall be deemed to pass to the purchaser only after he has paid the outstanding dues in full any physical delivery of the diamond is effected to him, and until such delivery is made the property in the diamonds shall continue to vest in the corporation. For all categories of buyers, the maximum period within which the delivery of the diamonds has to be taken by the purchaser, is six month (180 days) reckoned from the close of the auction. No request for extension of the delivery period beyond this shall ordinarily be entertained.

"It is also brought to our notice that this rule 11 was submitted for the 55th diamond auction held at Madras which commenced from January, 1976. In the instant case before us, we find that the petitioners-National Mineral Development Corporation Limited, are Government of India undertaking owning a diamond mining project with two diamond mines in Panna (M.P.). The diamonds cut from these mines are periodically sold in rough (uncut) form in auctions in various centres in the country. The date and venue of the auctions are notified to the public through advertisements in leading newspapers. On the day of commencement of the auction, merchants desirous of participating in the auction, register themselves at the auction centre and obtain admit cards on payment of a refundable sum of Rs. 2, 000 each. The diamond lots put up for auction are displayed at the auction centre for inspection by the registered merchants. Before the commencement of inspection, the participating persons are issued the rules governing the auction and the catalogues listing the items put up for inspection and sale. Upon completion of inspection of the lots put on display, the said lots are taken up for auction. The registered merchants and is knocked down, the successful purchaser is required to sign the bid register in token of his agreement to purchase the concerned item and to pay security deposit of 25 per cent of the sale value of the concerned item for which a receipt is issued to him. The lot for which the sum representing 25 per cent of the value of the bid has been paid by the successful bidder, is sealed in an envelope and signed by the Presiding by the successful bidder, is sealed in an envelope and signed by the Presiding Officer in the presence of the bidder.In A. V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum 1964 AIR(SC) 569, 1963 (14) STC 363, 1964 (1) SCJ 373, 1963 (S2) SCR 608, 1963 KerLT 1064 (SC) where it was held that the scope of the explanation to article 286(1)(a) of the Constitution of India was considered. When the provision of the said article is inapplicable, it is the "passing of the property within the State" that is intended to be fastened on for the purpose of determining whether a sale is "inside" or "outside" the State. Therefore subject to the operation of the "explanation", the State in which the property in the goods passes would be the only State which would have the power to levy a tax on the sale. Under the Sale of Goods Act, 1930, in an auction sale of specific goods the title in the goods passes and the sale is complete as soon as the hammer falls. Teas were stored in the godowns at Willingdon Island in the Travancore-Cochin State and samples of the teas were taken in Fort Cochin in the State of Madras. There, by the samples, the teas were sold by public auction in lots. Some were purchased in their entirety and others in parts. After consideration money was paid at Fort Cochin, delivery orders were given to the buyers addressed to the godown keepers at Willingdon Island and actual delivery was taken there. The teas were then sent out from Willingdon Island for consumption either in other parts of India or were exported out of India. On the question whether the sales of teas "in full lots" were liable to sales tax under the Travancore-Cochin General Sales Tax Act, 1125, it was held by the Supreme Court :" *


(1) that the property in the goods passed at Fort Cochin but the fiction created by the explanation to article 286(1)(a) was inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State;(2) that therefore both the categories of sales (teas taken to other parts of India and those exported out of India) were not inside the State of Travancore-Cochin but were outside that State and were not liable to be taxed under the Travancore-Cochin General Sales Tax Act, 1125.

"Mr. Bakthavatsalam, the learned Additional Government Pleader, has taken us through the observation of their Lordships of the Supreme Court at pages 367 to 369 which runs as follows :" *


In the present case as soon as the hammer fell the title in the goods passed to the buyer as the goods were specific goods, i.e., goods which were auctioned in full lots and this event took place at Fort Cochin which was in the State of Madras. But in the case of unascertained goods the title in the goods does not pass to the buyer unless and until the goods are ascertained. It was for this reason that a distinction was drawn by the Sales Tax Appellate Tribunal between goods which were sold in full lots and those which were sold in portions. In regard to the former it was held that the title passed as soon as the hammer fell but not so in regard to the latter and therefore the sale of 'full lots' was held to have taken place outside the State of Travancore-Cochin and of portions of lots inside that State. The case was consequently remanded to the Sales Tax Officer for determining the amount of the tax.


The High Court in revision held that the words in article 286(1)(a) 'outside the State' do not mean transfer of ownership according to the Sale of Goods Act, but it was lex situs which determines the taxability of the transaction and the correct position is that the ownership in the goods is transferred according to the law of the place where the goods are situate. Therefore the sale in the present case was in the State of Travancore-Cochin and there is nothing in the explanation to article 286(1)(a) which provides to the contrary.It has been found and it has not disputed that the title to the goods in the present case passed at Fort Cochin. The purchase money was paid there and the purchaser obtained from the auctioneer delivery notes directing the godown keepers at Willingdon Island to deliver the goods and only the actual physical delivery of the goods took place at Willingdon Island. In the circumstances the question is whether the sale was 'outside sale' or 'inside sale' as the expressions have been compendiously used in various judgments to indicate sales taking place within a State or without it. The explanation to indicate sales taking place within a State or without it. The explanation to article 286(1)(a) which has been set out above explains what a sale outside the State is. According to that explanation a fiction is created as between two States, one where the goods are delivered for consumption in that State and the other where the title in the goods passed and the former is treated as the situs of the taxable event to the exclusion of the latter. Therefore where the explanation applies the difficulty about the situs is resolved but in a case like the present one the difficulty still remains because the explanation does not operate in the sense that the rival States claiming to tax the same taxable event are not the States of delivery for consumption in that State and those where the title in the goods passes. In somewhat similar circumstances this court in India Copper Corporation Ltd. v. State of Bihar 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276 : 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276 , 64 held by a majority decision that the opening words of article 286(1) which speak of a sale or purchase taking place and the non obstante clause in the explanation, which refers to the general law relating to the sale of goods, indicated that it was the 'passing of property within the State' that was intended to be fastened on for the purpose of determining, whether the sale in question was 'inside' or 'outside' the State and therefore subject to the operation of the 'explanation', that State in which property passed would be the only State which would have the power to levy a tax on the sale. At page 286 it was observed :'The conclusion reached therefore is that where the property in the goods passed within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of article 286(1)(a), unless the explanation operates.' The majority decision in India Copper Corporation Ltd. v. State of Bihar 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276 , 286; 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276(SC), 64 concludes the points in favour of the appellants. On the facts of this case it was found by the Sales Tax Appellate Tribunal that in regard to the sales of tea in 'full lots' the property passed at Fort Cochin and this view has not been challenged in this court. Therefore, on the majority decision in India Copper Corporation Ltd. v. State of Bihar 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276 , 286; 1961 AIR(SC) 347, 1961 (12) STC 56, 1961 (1) SCJ 457, 1961 (2) SCR 276 (SC), 64, the only State which would have the power to levy a tax on such sale would be the State of Madras and so far as Travancore-Cochin was concerned, the sale would be an outside sale.


In the present case, therefore, the sale was an 'outside sale' and cannot be said to be an 'inside sale' qua Travancore-Cochin because the title passed at Fort Cochin which is in the State of Madras. Apart from that, money was paid there and the delivery order was also received there even through the actual physical delivery of goods was made at Willingdon Island in the State of Travancore-Cochin. The fiction created by the explanation to article 286(1)(a) is inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State.


There then remains the question of goods were exported out of India from Willingdon Island. In the case of those goods also it cannot be said that there was a sale inside the State of Travancore-Cochin because the same considerations will apply to those sales as to the sales already discussed i.e., goods the title to which passed at Fort Cochin were delivered at Willingdon Island and were delivered for consumption in parts of India other than Travancore-Cochin.In our view therefore the High Court was in error and the appeal should therefore be allowed and the judgment and order of the High Court of Kerala set aside. The appellant will have its costs in this court and in the High Court.

"We have been taken through the observations of their Lordships of the Supreme Court in Consolidated Coffee Ltd. v. Coffee Board 1980 AIR(SC) 1468, 1980 (3) SCR 625, 1980 (3) SCC 358, 1980 (46) STC 164, 1980 TAXLR 1723, 1980 TLR 1723, 1980 SCC(Tax) 279 at page 165, which we have already incorporated in this judgment. In the instant case before us it is not dispute that the goods in question viz., the diamonds are ascertained goods and that the seal is also ascertained goods. Can the affixing of the seal by the person purchasing rely on the same to absolve them from paying the sales tax under the provisions of the Central Sales Tax Act is the question that we have to consider carefully in the instant case before us, Section 20 of the Sale of Goods Act reads as follows :" *


Specific goods in a deliverable state. - Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both is postponed.

"In the instant case before us, though the auction took place in the State of Tamil Nadu, yet the delivery, viz., the diamonds in the instant case have to be given only at Bombay as per the agreement since it is only 25 per cent of the consideration that is actually paid soon after the fall of the hammer in the transaction of auction. A payment that has to be made at Bombay by the purchaser has nothing to do with the sale which was completed at Madras by the fall of hammer in favour of the revision petitioners. In this regard the decision in Dennant v. Skinner and Collom 1948 (2) AllER 29 is referred to. At page 190 of Consolidated Coffee Ltd. v. Coffee Board 1980 AIR(SC) 1468, 1980 (3) SCR 625, 1980 (3) SCC 358, 1980 (46) STC 164, 1980 TAXLR 1723, 1980 TLR 1723, 1980 SCC(Tax) 279 their Lordships of the Supreme Court referred to this decision reported in Dennant v. Skinner and Collom 1948 (2) AllER 29. The decision in A. V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum 1964 AIR(SC) 569, 1963 (14) STC 363, 1964 (1) SCJ 373, 1963 (S2) SCR 608, 1963 KerLT 1064 (SC) is also referred to by their Lordships in the decision in Consolidated Coffee Ltd. v. Coffee Board 1980 AIR(SC) 1468, 1980 (3) SCR 625, 1980 (3) SCC 358, 1980 (46) STC 164, 1980 TAXLR 1723, 1980 TLR 1723, 1980 SCC(Tax) 279 (SC). The scope of section 20 of the Sale of Goods Act has been comprehensively enlightened by their Lordships of the Supreme Court. We have already referred to the decision in State of Gujarat v. Bombay Metal Alloys & Manufacturing Co. Private Ltd. 1983 (54) STC 45 (Guj) for the proposition that the purpose of goods by the assessee in the said case in public auction at Gujarat was in the course of inter-State trade and it was not exigible to purchase tax under section 15 of the Gujarat Act.Mr. Bakthavatsalam, learned Additional Government Pleader, in his arguments further pointed out that in Balabhagas Hulaschand v. State of Orissa 1976 (5) CTR 175, 1976 AIR(SC) 1016, 1976 (2) SCR 939, 1976 (2) SCC 44, 1976 TaxLR 1538, 1976 (37) STC 207, 1976 CTR(SC) 175, 1976 UPTC 230, 1976 SCC(Tax) 164 at page 212 their Lordships of the Supreme Court have observed as follows :" *


It would thus be seen that word 'sale' has been given a very wide connotation by the Parliament so as to include within its fold not only sales of goods which are usually known in common parlance but also transactions, which legally cannot be called sales, for instance, a transfer of goods on the hire-purchase system. It seems to us that the Parliament wanted to give the widest amplitude to the word 'sale' and, that is why, while in section 3 the words 'sale of goods' have been used, in section 4(2), clauses (a) and (b), which deal with the situs of the sale, the words 'contract of sale' have been used in the same sense. In other words, the word 'sale' defined in clause (g) of section 2 and used in section 3 and other sections is wide enough to include not only a concluded contract of sale but also a contract or agreement of sale provided the agreement of sale stipulates that there was a transfer of property or movement of goods.


In Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash 1954 AIR(SC) 459, 1955 SCR 1133, 1954 (5) STC 193, 1954 SCJ 573, 1955 (1) SCR 243 at 196 (SC) quoting Benjamin on Sale (8th Edition), Venkatarama Ayyar, J., who spoke for the court, observed as follows :


'The distinction between a sale and an agreement to sell under section 1 of the English Act is thus by Benjamin on Sale, Eighth Edition, 1950 :


"In order to constitute a sale there must be -


(1) An agreement to sell, by which alone the property does not pass; and


(2) an actual sale, by which the property passes.It will be observed that the definition of a contract of sale above-cited includes a mere agreement to sell as well as the actual sale." *


This distinction between sales and agreements to sell based upon the passing of the property in the goods is of great importance in determining the rights of parties under a contract.'


It would thus appear that this court clearly held that an agreement to sell by which the property did not actually pass was also an element of sale. Of course in that case the court had to decide a different point, namely, whether it was within the competence of a State Legislature to tax not a sale but even an agreement to sell, where an actual sale had not taken place. This court held that the State Legislature was not competent to make such a levy under any statute passed by it.


Section 3 of the Central Sales Tax Act, 1956, runs thus :


'3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase, -


(a) occasions the movement of goods from one State to another; or


(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.'


Section 3 consists of two clauses. But in the instant case we are not concerned with clause (b) but only with clause (a). Analysing clause (a) of section 3 of the Central Sales Tax Act it would appear that before section 3 can apply, the following facts must be established :


(i) that there is a sale or purchase of goods; and


(ii) that the sale occasions the movement of goods from one State to another.


If these two conditions are satisfied the sale becomes an inter-State sale on which tax could be levied under the Central Sales Tax Act.The serious question that arises for consideration in this case is whether or not the term 'sale of goods' as used in section 3 includes an agreement to sell. It has already been pointed out that an agreement to sell is undoubtedly an element of sale. In fact a sale consists of three logical steps - (i) that there is an offer; (ii) that there is an agreement to sell when the offer is accepted; and (iii) that in pursuance of the said agreement a concluded sale takes place. When the statute uses the words 'sales or purchase of goods', it automatically attracts the definition of sale of goods as given in section 4 of the Sale of Goods Act, 1930, which is a statute passed by the same Parliament and is to some extent in pari materia to the Central Sales Tax Act so far as transaction of sale is concerned. Sections 4 of the Sale of Goods Act runs thus :


'4. (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.


(2) A contract of sale may be absolute or conditional.


(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.


(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.'


Section 4(1), therefore, clearly provides that a contract of sale of goods includes also an agreement to transfer property in goods to the buyer for a price. The inevitable conclusion that follows from the combined effect of the interpretation of section 3 of the Central Sales Tax Act and section 4 of the Sale of Goods Act is that an argument to sell is also an essential ingredient of sale provided it contains a stipulation for transfer of goods from the seller to the buyer. This being the position if there is a movement of goods from one State to another, not in pursuance of the sale itself, but in pursuance of an agreement to sell, which later merges into a sale, the movement of goods would be deemed to have been occasioned by the sale itself wherever it takes place. In this view of the matter, the question as to whether agreement to sell was a forwarded contract or a contract in respect of unascertainable or future goods would make no difference for the simple reason that when once a sale takes place, or for that matter when the goods start moving from one State to another in pursuance of the agreement to sell they cease to be future goods because they are in existence and they become also ascertainable. The argument of the learned counsel for the appellant is based on a clear fallacy because it seeks to draw an artificial distinction between a contract of sale of ascertainable goods and a contract of sale of unascertainable or future goods. This argument fails to take note of the fact that when the movement of the goods start they shed the character of either unascertained goods or future goods. Hence for the purpose of application of section 3(a) of the Central Sales Tax Act, the question whether the contract is a forward contract or not makes no material difference.


"Mr. C. Natarajan, learned counsel for the revision petitioners, in the course of his reply has reiterated what he had submitted already and has further pointed out the provisions of section 20, section 62 and section 64 of the Sale of Goods Act with a special reference to clause 11 in the instant contract of sale between the parties and submitted that the revision petitioners herein can insist on payment and file a suit as an unpaid vendor in case of non-payment of consideration but the condition favourable to the purchaser is that the revision petitioners herein have to wait for performance for about ninety days and that on failure to deposit the earnest as per the condition No. 7 entails forfeiture of the amount paid as security deposit. It is further pointed out by Mr. C. Natarajan, learned counsel for the revision petitioners herein, that the "security deposit" gives an incite to the terms of the contract incorporated in the rules governing the auction for sale of off-coloured and industrial diamonds. Rules 7, 8 and 9 of the said rules which were framed by the National Mineral Development Corporation Limited, a Government of India undertaking, who are the revision petitioners herein, payment against delivery is agreed upon between the parties. In this regard the following passage which occurs at pages 148 and 149 of Benjamin on Sale (1974 edition) is extracted :" *


Postponement of delivery or payment : Under English law, as distinct from the civil law, the property in a specific chattel may pass under a contract of sale without delivery (Badische Anilin Und Fabrik v. Hickson 1906 AC 419, 424). This principle seems to have been formulated in the common law as early as the fifteenth century [See Fifoot, History and Sources of the Common Law : Tort and Contract (1949), p. 228. Contrast Cochrane v. More (1890) 25 QBD 57, 71 (comparatively modern)]. Further, by 1893 it was well established that the passing of property was not conditional on payment or tender of the price [Tarling v. Baxter (1827) 6 B & C 360. Cf. Noy's Maxims, 87-89]. Under section 28 of the Act, unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions; and under section 39(1) a seller has in certain circumstances a right to withhold delivery and to retain possession of the goods until payment by virtue of an unpaid seller's lien. But passing of the property and the right to possession are two different things (Dennant v. Skinner and Collom 1948 (2) KB 164, 172). Thus if postponement of the purchase price and the delivery of the goods can properly be described as a postponement of the completion of the purchase, the property will pass on the entering into the contract, although in that sense the completion of the purchase is deferred [Re Anchor Line (Henderson Bros.) Ltd. 1937 (1) Ch 1, 9]. It is important, however, to bear in mind that the governing principle is that contained in section 17, and it has been said that 'in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment [Ward (R.V.) Ltd. v. Bignall [1967] 1 QB 534, 545]. See also Minister for Supply and Development v. Servicemen's Co-op. Joinery Manufacturers' Ltd. 1951 (82) CLR 621, 635, 640'.Unconditional contract. Considerable difficulty attaches to the meaning of the words 'unconditional contract' contained in rule 1 of section 18 [See Gower, 13 MLR 362, 364 (1950); Smith, 14 MLR 173 (1951); Stoljar, 16 MLR 174 (1953); Atiyah, The Sale of Goods, 4th ed. p. 144]. Most of the difficulty has arisen out of the fact that, before 1967, a literal application of section 11(1)(c) of the Act (now amended by section 4(1) of the Misrepresentation Act, 1967) would take away the buyer's right to reject for breach of condition once the property in the goods had passed. The more natural interpretation is that 'unconditional' mean not subject to any condition suspensive of the passing of the property [Sale of Goods Act, 1893, section 1(2)]. It is submitted that this interpretation is the correct one. An alternative interpretation, however, is that the words connote a contract which contains no condition unfulfilled by the seller, in the sense of an essential stipulation the breach of which may give rise to a right to treat the contract as repudiated [See Taylor v. Combined Buyers Ltd. (1924) NZLR 627. Ammachdoun Motors Ltd. v. Gray Motors Ltd. (1963) NZLR 5, 8]. In Varley v. Whipp [1900] 1 QB 513. See also Olett v. Jordan 1918 (2) KB 41, 45 (on section 18, rule 5) an auction was brought by the seller for the price of a particular reaping machine which he had described to the buyer as 'new the previous year, and only used to cut fifty or sixty acres'. The machine was old, and there was thus a breach of the condition implied by section 13 of the 1893 Act. The buyer rejected the machine when delivered to him and it was held that he was not liable for the price. Channell, J., said that section 18, rule 1, of the Act did not apply since 'this was not an unconditional contract for the sale of specific goods', although there was no suspensive condition in the contract of sale. This case might appear to support the alternative interpretation given above and to establish that, where an essential stipulation is broken by the seller, the property in specific goods passes to the buyer only if and when he accepts the goods (See Leaf v. International Galleries 1950 (1) AllER 693, 1950 (2) KB 86

, 89-90). It is to be noted, however, that Varley v. Whipp [1900] 1 QB 513, 517 concerned a sale of goods by description. Channell, J., appears to have regarded the description as an identification of the goods contracted to be sold, for the says ([1900] 1 QB 513, 517) : 'If a man says he will sell the black horse in the last stall in his stable, and the stall is empty, or there is no horse in it, but only a cow, no property could pass. But if he says he will sell a four-year old horse in the last stall, and there is a horse in the stall, but it is not a four-year old, the property would only be a collateral warranty.' It is therefore not unreasonable to suppose that he intended to lay down a different proposition, viz., that where goods are sold by description, and the description identifies the goods [Cf. Parsons v. Sexton (1847) 4 CB 899], no property will pass in any goods other than those which correspond with the description (See Vigers Brothers v. Sanderson Brothers [1901] 1 QB 608). The difficulty lies in reconciling the concepts of 'specific goods' and a 'sale of goods by description' [See Stoljar, 16 MLR 174 (1953)]. If such is the case, the inapplicability of section 18, rule 1, did not result merely from the fact that the contract contained a condition unfulfilled by the seller. It was inapplicable because the goods which the seller delivered in pretended fulfilment of the contract were not those identified by the terms of the contract of sale.

"In this regard condition (7) of the rules is pointed out by Mr. C. Natarajan, learned counsel for the revision petitioners, which runs as follows :" *


(7) On the fall of the hammer the highest bidder shall be deemed to be the purchaser and he shall pay in cash or through a demand draft on State Bank of India, Panna (M.P.), a deposit (for which a receipt will be granted to him) equivalent to 25 per cent of the purchase value. It will, however, be open to the bidder to deposit the full amount of the bid in the manner aforesaid along with the additional sums due under rule 12 of these rules and to take delivery of the diamond/packet of diamonds, immediately on being declared the purchaser, as aforesaid. On the fall of the hammer, no irregularity in holding the auction shall entitle the highest bidder to rescind his bid or purchase of diamond or the packet of diamonds and no objection of any nature whatsoever shall invalidate the acceptance of the highest bid.


"It is not out of the way, if we mention the position of law regarding the inter-State sale as available in American law. It was a controversial question whether the grant of power to Congress under the commerce clause was exclusive or whether the States had a concurrent power over commerce. Federal regulation of inter-State commerce was very meagre in the beginning and the critical issue was the scope of State power as against the commerce clause. Marshall, C.J., in Gibbons v. Ogden (1824) 9 Wheaton 1; 6 L ED 23 was inclined to the view that the federal commerce power was exclusive. Under the lead of Chief Justice Taney, who succeeded Marshall, C.J., in 1836, the Supreme Court recognised that the States possessed a limited concurrent authority over inter-State commerce.


A State cannot levy a direct tax burden inter-State commerce [Vide State Freight Tax case (1873) 15 Wallace 232, McCarroll v. Dixie Greyhound Lines 1940 (309) US 176 and Ingels v. Morf 1937 (300) US 90]. In Western Live Stock Co. v. Bureau of Revenue 1938 (303) US 250 a shift of judicial approach is discernible. It was there held that a privilege tax upon the gross receipts of those engaged in certain specified business was valid though the business may be of an inter-State character. Such a tax should be scrutinised to see whether it is one which may be imposed by another State on the same activity or transaction and thus carries the risk of a cumulative or multiple tax burden. In the absence of such a risk the tax would be unobjectionable. Stone, J., observed that it was not the purpose of the commerce clause to relieve those engaged in inter-State commerce from their just share of State tax burden even though it increase the cost of doing the business. This decision paved the way for the recognition of the validity of the use and sales taxes.In McGoldric v. Berwind-White Co. 1940 (309) US 33, it was held that a New York City sales tax on coal shipped into the city in inter-State commerce and there sold was not unconstitutional. As the tax did not discriminate against inter-State commerce, it was held to be legal." *


Non-discriminatory taxation of the instrumentalities of inter-State commerce is not prohibited.

"Where the sale is completed outside the State, it is not open to the State to impose a sales tax in regard to it. This is because the State would then be projecting "its powers beyond its boundaries to tax an inter-State transaction". In the United States, in order to escape from the burden of sales tax, firms may tend to do business in inter-State commerce. To meet such cases the "use tax" was devised by the States. The State commonly levied a 2 or 3 per cent tax for the privilege of "use" on goods imported into the State, and exempt from the sales tax. That the use as distinct from the out-of-State sale could be taxed, was laid down in Nelson v. Sears Roebuck & Co. 1941 (312) US 359.


It is also not out of the way if we mention the "export and import" clause which contains the "original package doctrine". Article 1, section 10(2) of the American Constitution is in these terms : 'No State shall without the consent of the Congress, lay any imposts and duties on imports or exports, except what may be absolutely necessary for executing its inspection laws" *


. The scope of this clause was considered by Marshall, C.J., in Brown v. State of Maryland 1827 (12) US 419; 6 L Ed 678. In that case, a statute of Maryland, provided that all importers of foreign articles should obtain a license on payment of a prescribed fee before they sold the goods and the applicant was convicted under the Act for selling imported goods without taking out a licence. The tax was held to be opposed to section 10(2) as it was in substance a tax on imports. It was contended that as soon as the goods entered the State they ceased to be imports and were therefore liable to be taxed by the State like other goods within its jurisdiction. Marshall, C.J., declared that whenever imported goods became "mixed up with the mass of property in country", they became subject to State's taxing power, but that as long a the goods remained the property of the importer and "in the original form or package" any State tax upon them constituted an unconstitutional interference with the Federal taxing power. He observed :


"While we admit that there must be a point of time when the prohibition ceases and the power of the State of tax commences, we cannot admit that this point of time is the instant that the articles enter the country. It is sufficient for the present to say generally that when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has perhaps lost its distinctive character as an import and has become subject to the taxing power of the State; but while remaining the property of the importer in his warehouse in the original form or package in which it was imported, a tax upon it is too plainly a duty on import to escape the prohibition of the Constitution. The right to import includes the right to sell it in the original bags before it loses its distinctive character as an import. So, the first sale within the State in the original packages should be exempt from taxation

by the State." * In the instant case, it is common ground that the diamonds have been the subject-matter of the auction by the fall of the hammer and the said packets containing diamonds are sealed by the auctioneers as well as by the person who has been successful in his bid and as such, can this aspect alone give all the characteristics of a completed sale, thereby making the transaction liable to be taxed by the Tamil Nadu General Sales Tax Act, is the question which confronts us. In meeting the said question, we have no hesitation to hold that a contract had been entered into between the parties herein, namely, the auctioneer and the successful bidder, that 25 per cent of the auction amount for which the successful bid had been struck, has to be paid at Madras and that the balance be paid at Bombay. The said 25 per cent of the bid amount is also considered as a deposit. As a matter of fact, the word use for this 25 per cent of the amount that is being actually expected to be paid by the successful bidder soon after the auction is over, is called "security deposit".Coming back to the original package doctrine, we find that in McGoldric v. Berwind-White Co. 1940 (309) US 33; 84 L Ed 565 (Vide also Woodroff v. Parham 75 US 123; 19 L Ed 383, Hinson v. Lott 75 US 148; 19 L Ed 387; but see McLeod v. Dilworth 1944 (322) US 327.) it was held that a New York City sales tax on coal shipped into the city in inter-State commerce and there sold was not unconstitutional. Stone, J., observed therein : "This court has uniformly sustained a tax imposed by the State of the buyer upon a sale of goods, in several instance in the original package effected by delivery to the purchaser upon arrival at destination after an inter-State journey, both when the local seller had purchased the goods extra-State the purpose of resale and when the extra-State seller had shipped them into the taxing-State for sale there." * This decision establishes the principle that the doctrine of original packages has no application to inter-State commerce. This doctrine of original package has no application to India. In Province of Madras v. Boddu Paidanna & Sons 1942 (1) STC 104 (FC); 1942 MWN 574; 1942 (2) MLJ 327 (FC), Sir Maurice Gwyer, C.J., observed : "I should much regret if any contribution of mine to the elucidation of the problems which come before this court were thought to have included the introduction of some kind of 'original package' doctrine and all the refinements and complications which that doctrine has brought in its train in the courts of America." * That doctrine of original package is not to be applied in this country. In the instant case, we have no hesitation to observe that the package of diamonds and the sealing thereof and its subsequent journey from Madras to Bombay and the further formalities do not contribute vary much for the determination of the transaction, as to whether it conforms to the requirements of inter-State commerce or not.Under article 286, clause (1) of the Constitution, two classes of sales are exempted from the imposition of sales tax. The first is a sale which has taken place outside the State. The second is a sale that has taken place "in the course of" the import of the goods into or the export of the goods out of the territory of India. The significance of the words "in the course of" was considered in Bombay Co. v. State 1952 (3) STC 91, 1952 KLT 59, 1952 AIR(TC) 83 (TC); 1952 (3) STC 91, 1952 KLT 59, 1952 AIR(TC) 83. In that case, cashewnuts were purchased locally in Travancore-Cochin for the purpose of exporting them to foreign countries after submitting them to a special treatment in the factory of the purchaser. It was held by the Travancore-Cochin High Court that the purchase was only an integral part to the process of exporting and that the sales in question, though they had been completed before the export actually commenced, fell within the purview of article 286(1)(b) of the Constitution and were beyond the reach of the taxing power of the State. On the scope and meaning of article 286(1)(b), Kunhiraman, J., observed as follows : "The words 'in the course of' make the scope of this clause very wide. It is not restricted to the point of time at which goods are imported into or exported from India. The series of transactions which necessarily precede export or import of goods will come within the purview of this clause. Therefore, while in the course of that series of transactions the sale has taken place, such a sale is exempted from the levy of sales tax. The sale may have taken place within the boundaries of the State. Even then, sales tax cannot be levied if the sale had taken place while the goods were in the course of import into India or in the course of export out of India. We are stressing this point because both parties in what we may describe as the cashewnut cases entered into a lengthy discussion as to the exact point of time when the sale became completed and as to the exact place where the goods were when the sale became a completed transaction." * On appeal, to the Supreme Court, the above decision of the Kerala High Court was affirmed. Patanjali Sastri, I. (as he then was), observed thus : "We are clearly of opinion that the sales here in question, which occasioned the export in each case, fall within the scope of the exemption under article 286(1)(b), Such sales must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say, by employing the machinery of export. A sale by export thus involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated, and the sale and resultant export form parts of a single transaction. Of these two integrated activities, which together constitution an export sale, whichever first occurs can well be regarded as taking palace in the course of the other. Assuming, without deciding, that the property in the goods in the present cases passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey as found by the sales tax authorities, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under article 286(1)(b). The clause, indeed, assumes that the sale has taken place within the limits of the State and exempts it if it takes place in the course of the export of the goods concerned ...... We accordingly hold that whatever else may or may not fall within article 286(1)(b), sales and purchases which themselves occasion the export of the goods, as the case may be, out of or into the territory of India, come within the exemption and that is enough to dispose of these appeals." * This Court in Govindarajulu Naidu & Co. v. State of Madras 1952 (3) STC 405, 1953 AIR(Mad) 116, 1952 (2) MLJ 614; 1952 MWN 878 came to the conclusion that "export" cannot be construed as including purchases prior to the transaction under which the goods are exported. In view of the decision of the Supreme Court, above referred to [State of Kerala v. Bombay Co. 1952 AIR(SC) 366, 1952 (3) STC 434, 1952 SCJ 527, 1952 (1) SCR 1112, 1953 (1) MLJ 1; (1952) 65 LW 1087], this view is not tenable. Sales and purchases which occasion the export and exempt from taxation by the State. In the instant case, we are very much concerned with the phrase "occasioning the transaction" as contemplated by section 3(a) of the Act. Viewing the transaction in question, bearing in mind this concept incorporated in the provision of section 3(a), we have no hesitation in holding that the transaction in question falls within the category of inter-State transaction and, as such, is liable to be taxed only under the provisions of the Central Sales Tax Act, and not under the Tamil Nadu General Sales Tax Act. We have set out supra comprehensively the facts of this case and as such, viewing the entire transaction and testing the same with the ratio decidendi in Consolidated Coffee Ltd. v. Coffee Board 1980 AIR(SC) 1468, 1980 (3) SCR 625, 1980 (3) SCC 358, 1980 (46) STC 164, 1980 TAXLR 1723, 1980 TLR 1723, 1980 SCC(Tax) 279 (SC) at page 186, we hold that the transaction in the instant case is an inter-State transaction. The Tribunal has not addressed itself to the issue whether the sale occasioned the movement of the goods from Tamil Nadu to Bombay, and had simply rested its conclusion on the finding that the property in the goods, namely, diamonds, passed in favour of the purchaser in Madras. Bearing in mind the decision in Balabhagas Hulaschand v. State of Orissa 1976 (5) CTR 175, 1976 AIR(SC) 1016, 1976 (2) SCR 939, 1976 (2) SCC 44, 1976 TaxLR 1538, 1976 (37) STC 207, 1976 CTR(SC) 175, 1976 UPTC 230, 1976 SCC(Tax) 164 (SC) at 211-212 and the decision in Union of India v. Khosla & Co. Ltd. 1979 (43) STC 457, 1979 (2) UJ 381, 1979 (2) SCC 242, 1979 AIR(SC) 1160, 1979 TaxLR 1817, 1979 UPTC 751, 3 SCR 453, 1979 SCC(Tax) 101 (SC), we are of the opinion that there is movement of the goods and it does not matter where the property passed, so far as the determination of the nature of the transaction, whether it is intra-State transaction or inter-State transaction, is concerned. The facts in this case clearly establish that the parties contemplated movement of the goods and buyers, in the instant case, are having no residence at Madras, nor do they have any place of business of their own at Madras. Therefore, the logical inference that can be arrived at is that there has been movement of the goods which was the life-string of the instance, culminating in the contact of sale. Factually, there has been movement of the goods by the revision petitioners to the trade location at Bombay. Under these circumstances, we hold that the Tribunal is not correct in having held the transaction as an intra-State one and as such, taxable under the provisions of the Tamil Nadu General Sales Tax Act. We set aside the order of the Tribunal. We hold that the transactions involved in the case are inter-State sales and as such, taxable under the provision of the Central Sales Tax Act. We allow both the revisions with costs. Counsel's fee is fixed at Rs. 500 (Rupees five hundred only) One set.