TMI Blog1987 (11) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... on that the Sales Tax Department might eventually raise this demand since they had gone on appeal to the Supreme Court against the decision of the Kerala High Court. The assessee also apprehends that there is a change in the statutory provisions in the Sales Tax Act by which the department might deny the assessee exemption. Whatever, it is, no demand has been raised during the year. This provision has been made only in anticipation of a contigency when the department might raise the demand. 3. The Income-tax Officer and the CIT (Appeals) had held that there is no liability to pay purchase tax. For this purpose, they have relied not only on the Kerala High Court decision but also on a decision of the Supreme Court in the case of Sterling Foods v. State of Karnataka [1986] 63 STC 239. In our opinion, the order of the CIT (A) on this point must be upheld. We have gone into the details of the assessee's contention while disposing of the appeal of another assessee Geo Sea Foods [IT Appeal No. 9 (Coch.) of 1987, dated 9-9-1987]. For the reasons stated in that order, we are of opinion that the assessee is not entitled to this deduction. 4. The next issue is whether the assessee is ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the deduction in respect of that turnover through export houses. He found that the turnover in export done by the assessee by itself is only Rs. 29,02,720. The total turnover on which the assessee claimed the deduction was Rs. 4,10,84,286. The balance i.e., Rs. 3,81,81,565 was exported through export houses. The question to be decided in this case is whether the assessee is entitled to deduction u/s 80HHC in respect of the exports through the export houses. 6. The assessee had been entering into agreements with certain export houses in respect of some of their exports. As an illustration we may refer to the agreement they had entered into with M/s. Mathur Imports and Exports Pvt. Ltd., a recognised export house. It is an admitted position that this may be taken as an illustration of all other agreements with export houses. Clause 2 of the preamble of the agreement states that the export houses had approached the assessee to export frozen marine products and the assessee had agreed to undertake such exports. Clause 3 of the preamble states that the assessee would export against export orders received by the export houses provided that the assessee approved all the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by clause 8 that in respect of the exports made by the assessees the export houses will be entitled to claim all the benefits accruing to Eligible Merchant Exporter under the terms of the Import Trade Control Policy. There is also a.clause in respect of the drawback benefits available from Customs and Central Excise authorities. The assessee will be eligible for these benefits and the export house will not claim them. Clause 12 is important and it is reproduced below : "12. The Merchant Exporter shall purchase the said marine produces in the course of export on board ship outside the customs frontiers of India at the C F price obtained by the Merchant Exporter against export orders. The title of the goods shall pass to the Merchant Exporter on board ship by delivery of the shipping documents for each consignment to Merchant Exporter. The Processors shall be responsible for all the sales tax or other taxes applicable on such sale." Clause 13 pertaining to the expenses on exports is also important and that is reproduced below: "The Processors agree that all expenses incurred or to be incurred in connection with the said export such as Bank charges, stamp duty charges, ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that the assessee has not exported these goods for the purpose of the section. It is pointed out that the export houses themselves have claimed this deduction in their assessments and this claim has been allowed. In the case of M/s Jagatjit Industries Ltd. that assessee had made the claim in respect of the very same exports on which the assessee is now basing the claim. The documents given in support of the claim are - (i) Copy of the outright purchase order placed by the non-resident in which the assessee before us is merely shown as the shipper or the manufacturer; (ii) A letter from the United Commercial Bank, Foreign Exchange Department, which states that the export house was the beneficiary of a letter of credit;. (iii) The bank certificate of exports given by the banks in Form No. 1 to the chief Controller of Imports and Exports shows the export houses as the party which had exported. It also certifies that the documentary export bill drawn by the export house was negotiated by the bank; and (iv) A certificate given by the United Commercial Bank that the export bills negotiated or sent for collection on account of the export house in respect of the second half of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C. There is a decided authority on this point. The Delhi High Court in the case of Fero Alloys Corpn. Ltd. v. R. C. Mishra, Director, Tax Credit [1978] 114 ITR 753, had considered a similar situation and had accepted the plea that the actual exporter should be considered as the exporter for the purpose of section 280ZC of the IT Act. 11. The department's contention can be summarised as follows : (i) The term 'export' implies an importer. The person from who the importer purchases the goods is the exporter. In this case the goods were purchased from the export house because of the sale of the property at high seas. (ii) As per the agreement the assessee is only to carry out the directions of the export house. If they had anything in the process of export they are merely against of the export house. (iii) As per Clause 3 the export orders are to be procured by the export house. (iv) The crucial test is who gets the convertible foreign exchange. As per agreement and as per actual fact the convertible foreign exchange is receivable by the export house. It is only at their instruction to their banks that the amount is transferred to the assessee. Therefore, what the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary ingredients for the export sale is purchase of the goods and processing it for export and selling it to an importer and the goods moving out of India to the importer. If these conditions are satisfied, the assessee could be said to be an exporter. 13. the movement of goods for export from India to the destination outside India starts with the purchase order placed by the importer. Now, we have seen that the purchase order could be procured both by the assessee as well as the export house. Clause 3 of the agreement which we have already referred to reads as follows : - " The Processors agree to undertake exports of the said Frozen Marine Products against export orders received by the Merchant exporter provided the Processors approve of the prices at which these orders have been booked. The Processors also agree to export the said Frozen Marine Products against export orders in the name of the Merchant Exporter. In respect of the export orders secured by the Processors, the Processors will ensure that the overseas buyers open sight letters of credits in the name of the Merchant Exporter or that the overseas buyers open transferable letters of credits." Thus it envisage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department's case is that the assessee is merely an agent. We are not able to accept this submission that the assessee in undertaking these steps for exporting the goods acts as the agent of the export house. Firstly the agreement between the assessee and the export house does not visualise an agency of the nature contemplated by the department. That is made clear by clause 4 of the agreement. This clause says that the assessee would complete all formalities with regard to the exports and to ship the products under bill of lading. This bill of lading will show the goods exported by the processors are on account of the export house. It accepts that the goods are exported by the processors but the bill of lading should show that it is on account of the export house. It is difficult from this clause to spell out an agency. Now, under section 182 of the Contract Act, an agent is a person employed to do any act for another or to represent another in dealings with third persons. If an agency had been created then it should follow that the purchases of the goods, processing and the shipment must be done by the assessee for and on behalf of the export house. Therefore, all risks and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of letter of credit can also be transferred. As a matter of fact, the assessee gets benefit of the letter of credit. It is effected in this following manner. After the goods are shipped the bill of lading and other shipping documents are sent to the export house. This is as per clause 5 of that agreement. Then the assessee makes out a bill or invoice in the name of the export house for the goods exported. The assessee does not bill the importer direct. He bills only the export house. But this bill on the export house is in foreign currency. This is according to the purchase order. How the bill itself says that the goods have been supplied to the importer and the bill is drawn on the export house for payment. Thereafter the assessee draws a bill of exchange on the export house and the export house merely endorses the letter of credit and directs the bank to.transfer the foreign exchange to the assessee's accounts. Thus, it would be seen that although initially the letter of credit is in the name of the export house, the ultimate beneficiary is already agreed to be the assessee. The invoice for shipment of goods to the importer has to be paid by the export house in forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made very clear that the importer will look to the assessee only for rectifying such defects. Therefore, this part also supports the assessee and not the export house. It would appear, therefore, to us that the assessee is the real exporter of these goods and he is the recipient of the convertible foreign exchange. So he is entitled to deduction u/s 80HHC. 22. In para 9 of this order, certain documents placed by the department had been referred to. It is pointed out by the department therein that in respect of these very exports the export house has been given the deduction u/s 80HHC. That may be so. What we have to see is who is entitled to the benefit. If may be that both are entitled to the benefits. In any case we cannot refrain from going into the issue merely because the ITO assessing the export house has allowed the deduction for the export house. The documents which had been referred to therein have already been considered by us in arriving at our decisions. A copy of the outright purchase order has been placed before us and we have already considered the effect of the purchase orders. The next document is a letter from the United Commercial Bank which states that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any goods. Whereas before the amendment, any assessee who exports goods would be eligible for the deduction, after the amendment only those assessees who are engaged in the business of export out of India would be eligible for the deduction. It may be noted that the requirement of 'engaged in business of export' is unqualified. The section does not even say "mainly engaged". There must be 100 per cent engagement in export business. That is, only export houses would become eligible for the deduction after the amendment. The circular is in respect of such benefits which would be passed on to the actual manufacturers. That circular has no application at all for the year under consideration. 25. Finally, we refer to the decision of the Delhi High Court referred to in the course of the arguments. This was a case of tax credit certificate u/s 280ZC. The assessees therein M/s. Ferro Alloys Corporation Ltd. were manufacturers of ferro-manganese which was exported by them. They had entered into contracts with a number of foreign buyers for the sale of these goods. These contracts, however, provided for their substitution by fresh contracts between a Government Trading Corporation and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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