Sikri, J. - (1.) These two appeals by special leave are directed against the judgment of the Madras High Court in Tax Cases Nos. 100, 219, 220 and 225 (sic) of 1962, and involve the interpretation of S. 5 (2) of the Central Sales Tax Act (LXXIV of 1956) - hereinafter referred to as the Act. The relevant facts are these. The appellant K. G. Khosla and Co., hereinafter referred to as the assessee entered into a contract with the Director-General of Supplies and Disposal, New Delhi, for the supply of axle-box bodies. According to the contract the goods were to be manufactured in Belgium, and the D. G. I. S. D., London, or his representative, was to inspect the goods at the works of the manufactures. He was to issue an inspection certificate. Another inspection by the Deputy Director of Inspections. Ministry of W. H. and S. Madras, was provided for in the contract. It was his duty to issue inspection notes on Form No. WSB. 65 on receipt of a copy of the Inspection Certificate from the D. G. I. S. D., London and after verification and visual inspection The goods were to be manufactured according to specifications by M/s. La Brugeoies, ET, Nivelles, Belgium. The assessee was entitled to be paid 90 per cent after inspection and delivery of the stores to the consignee and the balance of 10 per cent was payable on final acceptance by the consignee. In the case of deliveries on F. O.R. basis, the assessee was entitled to 90 per cent payment after inspection on proof of despatch and balance 10 per cent after receipt of stores by the consignees in good condition. The date of delivery was "in 8 months ex-your principal's works from the date of receipt of order and the approved working drawings, i.e., delivery in India by 31st July, 1957, or earlier". The assessee was entirely responsible for the execution of the contract. Clause 17(1) of the Contract Act provides: "The Contractor is entirely responsible for the execution of the contract in all respects in accordance with the terms and conditions as specified in the A/T and the schedule annexed thereto. Any approval which the Inspector may have given in respect of the stores, materials or other particulars and the work or workmanship involved in the contract (whether with or without test carried out by the contractor's Inspector) shall not bind the purchaser and notwithstanding any approval or acceptance given by the Inspector, it shall be lawful for the consignee of the stores on behalf of the purchaser to reject the stores on arrival at the destination, if it is found that the stores supplied by the contractor are not in conformity with the terms and conditions of the Contract in all respects." Further, the assessee was responsible for the safe arrival of the goods at the destination. By an endorsement the D. G.I.S.D., London, was requested to issue pre-inspection delay reports regularly to all concerned, including the Railway Liaison Officer, C/o. D. G. S. and D., Shahjahan Road, New Delhi. He was also requested to endorse copies of the Inspection Certificates to the Director of Inspection, Ministry of W. H. and S. Bombay. It is further found by the Sales Tax Appellate Tribunal that "the Belgium manufacturers, after manufacture, consigned the goods to the appellants by ship under bills of lading in which the consignee was the appellants themselves. The goods were consigned to Madras Harbour, cleared by the appellants' own clearing agents and despatched for delivery to the buyers thereafter."
(2.) In pursuance of this contract, the assessee supplied axle-box bodies of the value of Rs. 1,74.029.50 to the Southern Railway at Perambur Works and of the value of Rs. 1,32,987.75 to Southern Railway, Mysore. The Joint Commercial Tax Officer held that the former sales were liable to tax under the Madras General Sales Tax Act and the latter under the Central Sales Tax Act. He rejected the contention of the assessee that the sales were in the course of import. He held that "there was no privity of contract between the foreign seller and the Government for the goods. The goods were shipped only as the goods of the seller and intended for them. They were cleared as their own and delivered after clearance. The transaction is therefore one of intra-state sales and not one in the course of import. The sale is completed only when the goods are delivered in this State and so it is not occasioning the import. It is also seen from the contract of sale that the terms of delivery are F. O. R., Madras. Again Cl. (1) of the contract says that any approval where the Inspector may have given in respect of stores materials or other particulars and the work or workmanship involved in the contract shall not bind the purchaser and notwithstanding any approval or acceptance given by the Inspector it shall be lawful for the consignee of the stores on behalf of the purchaser to reject the stores on arrival at the destination. It will he seen from the words underlined by me that the purchaser has reserved the right to reject the goods even though on inspection of the goods might have been made. So there is no force in the argument of the dealer that the goods were appropriated to the contract of sale".
(3.) The assessee filed two appeals but the appellate Assistant Commissioner, agreeing with the Joint Commercial Tax Officer, rejected the appeals. The Appellate Tribunal on appeal held that the property in the goods had not passed on to the buyers even while the goods were with the Belgium manufacturers and that the sale by the appellants had not occasioned the imports. The Tribunal, however, accepted the contention of the assessee that sales to the extent of Rs. 22,983.75 and Rs. 10,987.50 had taken place in the course of import as the goods had been appropriated to the con- tract while the goods were on the high seas.;