TMI Blog2012 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been diverted to another third person, without violation/default of the contract between the appellant and the Canara Bank. Thus, it does not qualifies for exemption under Section 5(2). - Decided against the assessee. - ST.APPL. No.1/2006 - - - Dated:- 2-1-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. M P Devnath, Adv. For Respondent: Mr. H C Bhatia, Adv. SANJIV KHANNA,J: (ORAL) M/s Giesccke Devrient I.P.Ltd. have filed the present appeal under Section 81(1) of the Delhi Value Added Tax Act, 2004 impugning the order dated 17th August, 2006 passed by the Appellate Tribunal, Value Added Tax, New Delhi (Tribunal, for short) in appeal No.286/STT/04-05. 2. The present appeal was admitted for hearing vide order dated 29.8.2007 and the following substantial question of law was framed : Whether the sale offer for the purchase of One Bank Note Processing System BPS-204 between the Appellant and M/s. Canara Bank, Bangalore could not be said that the sale is in the course of import under Section 5(2) of the Central Sales Tax Act, 1956? 3. The appellant is a registered dealer and had imported Bank Note Processing System ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause ( 1 ) 7. The Section 5(2) of the CST Act clarifies the ambit and scope of words in course of import of goods into the territory of India used in Article 286(1). The Parliament in Section 5(2) of the CST Act has exercised the power conferred on it under Article 286(2) under which it can formulate principles for determining whether sale or purchase of goods takes place in any of the modes mentioned in Clause (1) of Article 286. 8. Section 5(2) of the CST Act has been a matter of considerable debate and has been lucidly explained/interpreted by the Supreme Court. We need not refer to various decisions as we find that these have been considered and explained in the case of Binani Bros. (P) Ltd. Vs. Union of India (SC) (1974) 33 STC 254. In the said case the imports of non-ferrous material, which were subject to control orders. Imported non-ferrous metals could be supplied/sold to DGS D and other authorities like STC etc. against contracts placed by DGS D. The import licences were issued on the recommendation of DGS D or other authorities like STC. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract, the DGS D reserved a further right of inspection of the goods on their arrival in India. (emphasis supplied) 10. In Binani Bros. (supra) the Supreme Court also referred to Coffee Board vs. Joint Commercial Tax Officer (1970) 25 STC 528 (SC), as in the case of exports, also there was similar provision in respect of sale in the course of exports. (We are not concerned with Section 5(3) and 5(4) of the CST Act in the present case). Referring to the said case and the law as elucidated, it was observed by the Supreme Court in Binani Bros. (P) Ltd. (supra) as under:- In Coffee Board v. Joint Commercial Tax Officer, hereinafter referred to as Coffee Board Case, the Coffee Board claimed that as certain sales of coffee to registered exporters in March and April, 1963 were sales made 'in the course of export', it could not be taxed under the Madras General Sales Tax Act, 1959. The rules framed by the Coffee Board provided that only dealers who had registered themselves as exporters of coffee with the Coffee Board or their agents and who held permits from the Chief Coffee Marketing Officer in that behalf would be permitted to participate in the auctions, and after the bidding comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the introduction of an intermediary between the seller and the importing buyer breaks the link, for, then there are two sales, one to the intermediary and the other to the importer, and that the first sale is not in the course of export, for the export begins from the intermediary and ends with the importer. According to the Court the test was that there must be a single sale which itself causes the export and that there is no room for two or more sales in the course of export. The Court, therefore, held that though the sales by the Coffee Board were sales for export, they were not sales in the course of export, that there were two independent sales involved in the export programme: the first sale by the Coffee Board to the export promoter, and the second sale by the export promoter to a foreign buyer which occasioned the movement of goods and that the latter sale alone could earn the exemption from sales tax as being a sale the in the course of export. (emphasis supplied) 11. It is clear from the aforesaid decision that to claim exemption/benefit under Section 5(2) following conditions have to be satisfied, namely that the import should have a direct nexus and should be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding, be sapped (sic snapped). 12. In the case of K. Gopinathan Nair Vs. State of Kerala (1997) 105 STC 580, the majority judgment examined the scope of Section 5(2) of the CST Act. In this case reference was made to K G Khosla and Company Pvt. Ltd. (supra), Coffee Board (supra), Binani Bros. Pvt. Ltd. (supra) and with reference to Mod. Serajuddin v. State of Orissa (1975) 36 STC 136 (SC) it was observed:- .the interpretation of the term 'in the course of export' as found in Section 5(1) of the Central Sales Tax Act. However, while interpreting the said phraseology the Constitution Bench also construed identical phraseology found in Section 5(2) dealing with 'in the Course of import'. In that case the appellant before this Court was assessee who was registered dealer under the Central Sales Tax Act, 1956, carrying on business of mining and exporting m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this connection, it was observed that there must be a single sale which itself causes the export and there is no room for two or more sales in the course of export. The sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. To establish export a person exporting and a person importing are necessary elements and the course of export is between them. Introduction of a third party dealing independently with the seller on the one hand and with the importer on the other breaks the link between the two for then there are two sales one to the intermediary and the other to the importer. The first sale is not in the course of export because the export commences with the intermediary. The tests are that there must be a single sale which itself causes the export or is in the progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer. So the test is whether there were independent transactions or only one transaction which occasioned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis supplied) 13. If we apply the aforesaid tests laid down by the Supreme Court, it has to be held that the conditions stipulated in Section 5(2) of the CST Act are not satisfied. Unlike the case of K G Khosla, the import in the present case was by the appellant in his own name. The appellant was the importer. The appellant no doubt had entered into an earlier contract with Canara Bank, Bangalore but for the purpose of said contract the appellant was not the agent of the supplier in Germany. The contract between the Canara Bank, Bangalore was on principal to principal basis. The obligation to comply with the purchase order was that of the appellant alone. Similarly, when the appellant entered into contract with the German company it was a contract on principal to principal basis. Canara Bank, Bangalore did not have privity of contract whatsoever with the German company. Any default of the contract in the first contract with Canara Bank, Bangalore would be liability and obligation of the appellant and not that of the German company. Thus, they were two independent transactions. The first transaction between the Canara Bank, Bangalore and the subsequent transaction between the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Binani Bros. (P). Ltd. (supra), K Gopinathan Nair (supra) etc. as the pipes imported were only to be used for erection and commissioning of the plant for NTPC and could not be transferred/sold to any third person. On the imported pipes the name of NTPC was embossed. We have noticed the factual position in the present case. The appellant was the importer. The appellant may have imported the equipment to sell the same to Canara Bank, Bangalore, but there was no legal or contractual obligation to sell the equipment only to Canara Bank, Bangalore. There was no bar or prohibition on the appellant not to sell the imported equipment to a third party, instead of supplying it to Canara Bank, Bangalore or in case Canara Bank, Bangalore refuse to take delivery, to sell it to any other person. 16. Decision in the case of Embee Corporation (supra) is also distinguishable. In the said case there was a condition that the imported product would be sold and utilized by a particular specified factory. Export from Germany was allowed by the German authorities on the said condition. On the bill of lading also the name of the factory i.e., the user was specifically mentioned and described as a c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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