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TMI Blog1976 (11) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... tems and rejected the claim for Rs. 1,50,06,766-75 on which tax was levied. 3. The reason given by the assessing officer for disallowing exemption are as follows : The Indian Institute of Technology, Madras entered into an agreement with the assessee for the purchase of IBM Computer System Type No. 370/155 with complete unit of Data Processing Machines and obtained an import licence dated 4th Dec., 1972 for Rs. 30,80,000 in their own name. The Indian Institute of Technology, Madras authorised the assessee to purchase the above goods from abroad and install them in their campus. On the basis of the said agreement dated 30th July, 1972, the IBM placed specified orders with the foreign supplier on 10th Nov., 1972. In pursuance of the orders placed by the assessee, the following sellers effected the sale of Computer System Data Processing Machines under Invoices: 1) Compagnie IBM, France Inv. No R. 8156 dt. 25-04-73 . . Inv. No. R. 0823 dt. 13-04-73 . . Inv. No. R. 7605 dt. 13-04-73 2) IBM Japan Ltd. Tokyo Inv. No. 7300327 dt. 27-03-73 The bills of lading and other documents were drawn in the name of the assessee. The purchase bills bear the marks "IBM W.T.C. Madras" indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e grounds that are stated in the appeal are as follows : The Indian Institute of Technology, Madras invited tenders in or about 1971 for the supply of a Computer System. The assessee submitted a tender in about February 1972. After further considerations and discussions, an agreement was entered into between the Indian Institute of Technology, Madras and the assessee on 30th July, 72 for one computer System, IBM System 370, Model 155 and certain other machines. The agreement envisaged either the Indian Institute of Technology or the assessee to obtain the import licence. The Indian Institute of Technology duly applied for the licence and obtained the same. Thereafter, the Indian Institute of Technology obtained a letter of authority in favour of the assessee after obtaining the import licence. Accordingly, the title to the goods had vested with the Indian Institute of Technology before they were imported into India and appropriation of the goods to the contract of sale had already taken place in the foreign countries. All the facts clearly attracted the decision of the Supreme Court in Kotak's case. The import licence and the letter of authority have clearly prohibited the disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal, the conditions prescribed in the tender from and annexures thereto of D.G.S. & D. are not very relevant, since it is only the concluded contract of sale, which is very material for the disposal of the appeal. 10. In the letter dated 12th March, 1975 which finds place at page 59 of the assessment file, the assessee has mentioned that the Indian Institute of Technology, Madras had placed an order under agreement dt. 30th July, 1972. We find the true copy of the agreement dt. 30th July, 1972 at page 69 of the assessment file. It is very important and relevant that the terms and conditions of the agreement are reproduced in this order. The terms and conditions are as follows: "(A) (i) IBM obtaining import licences (including import licences for raw materials and parts) requisite and adequate for its planned production Schedule in India under an industrial licence acceptable to IBM or (ii) IBM or purchaser as the case may be obtaining import licences for imports of complete machines from abroad and; (ii) The non-occurrence of any event beyond the reasonable control of IBM (including but not limited to strikes, lockouts, fire, wars, insurrection, riots Government embargoes, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a machine or the above mentioned charges when due shall give IBM the right, without liability, to repossess that machine with or without notice, and to avail itself of any legal remedy. During the period the machines are in transit or in possession of the Purchaser up to and including the date of installation, IBM and its insurers, if any, relieve the purchaser of responsibility for all risks of loss or damage to the machines except damage caused by nuclear reaction, nuclear radiation or radioactive contaradicactive contamination is the result of any activity or operation carried on by the purchaser. After the date of installation, risk of loss or damage shall be on the Purchaser. Delivery will be made in accordance with IBM's established delivery schedule at the time of acceptance of this Agreement by IBM, subject to conditions beyond IBM's control. The method of shipment must be consistent with the nature of the machines and the hazards of transportation. Machines purchased under this Agreement will be installed and placed in good working order by IBM without additional charge. The purchaser shall make available a suitable place of installation with all facilities as spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for three months) to be free from defects in material and workmanship. IBM's obligation is limited to furnishing on an exchange basis replacements for parts which have been promptly reported by the Purchaser as having been in its opinion, defective and are so found by IBM upon inspection. All replacement parts will be new or equivalent to new in performance when used in these machines. All replaced parts will become the property of IBM on an exchange basis. No service will be furnished pursuant to this parts warranty. III. ADDITIONAL FEATURES AND MODEL CONVERSIONS WARRANTY Commencing on the date of installation of an additional feature or model conversion increment which is field installable, the following Warranties as described above shall apply thereto : (i) a one year service and parts warranty if installed on a Warranty Category A machine, or (ii) a three month service and parts warranty if installed on a Warranty Category B machine, or (iii) a three-month parts warranty on a Category C machine. In addition to the foregoing, such an additional feature or model conversion increment on a Warranty Category B or C machines within one year of the date of installation of the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hly inspected, tested and checked after assembly for good serviceability and excellent working order or machines which have been previously installed with another IBM customer. A manual of operation and certain instruction in the operation of the machines will be furnished to the purchaser by IBM. IBM will, if requested, provide the purchaser with maintenance service for the machines, and repair or replacement parts as long as they are generally available on the basis of IBM's established prices and terms prevailing at the time. IBM will, upon request,. furnish to the purchaser at IBM's established prices and terms prevailing at the time, any machines attachments, features and engineering changes that IBM shall have available for sale and which may be suitable for use on, or in connection with, the machines. But IBM makes no representation that such machines, attachments, features or engineering changes which may be announced in the future, will be suitable for use on, or in connection with, these machines. IBM will also furnish to the purchaser, upon request, at IBM's established prices and terms prevailing at the time, cards, tapes and other supplies used in the operation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see the right, without liability, to re-possess the goods with or without notice. It is needless to say that any stipulation deferring the payment of price or default clause in non-payment of the price, will not in any way alter the sale in the course of import into one of local sale or a local sale into sale in the course of import. It is common in the commercial world, to purchase goods on credit also and that therefore because the purchase was on credit, it cannot be said that a sale is not in the course of import or export. In Bengal Corporation Private Ltd. vs. State of Madras(4) the following observations of the Madras High Court will make the position clear: "...... No argument was advanced based upon the further test formulated by Venkatarama Aiyar, J., in Bengal Immunity Co. Case. The reasoning at pages 203-204 shows that the argument advanced on behalf of the State was that even though the shipping documents were transferred to the Government on payment of the price, the property in the goods did not pass, in view of certain special conditions in the contract. It is only from this perspective that the matter was approached by the Supreme Court and Subba Rao, J., on an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Nov., 1972, which finds place at page 61 the assessment file. In the first place, the licence is declared to be non-transferable and the same has been issued to the Registrar, Indian Institute of Technology Madras. The IIT has been granted permission to import the machineries from all the countries abroad excluding certain specified countries. It is not disputed that the purchases were not made from the excluded countries. In the schedule, the items of goods that are mentioned in the Schedule to the Agreement have been mentioned with total C.I.F. value of Rs. 30,80,000. Clause (ii)(a) of the Licence provides that where an irrevocable letter of credit is opened by the holder of the licence to finance the import of any goods covered thereby, then the authorised dealer (assessee implied) in foreign exchange, through whom the credit is opened, shall be deemed to be a joint holder of this licence to the extent of the goods covered by the credit. Clause (ii)(c) provides that all items imported under the licence shall be used only in the licence-holder's factory at the address shown in the application, against which the licence is issued and no portion thereof will be utilised by the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urely as an agent of the licensee and the goods imported will be the property of the licence-holders both at the time of clearance through the customs and subsequent thereto. The licence-holder will have to ensure that the goods on importation will be delivered to him and shall not be disposed of otherwise. The licence shall not cause or permit the holder of the letter of authority to dispose of the goods. After the goods were shipped at the foreign port, the bill of lading and other documents were forwarded through bank to the assessee and those documents were received by the assessee after payment of their value. Upon information being given the mills made the payment in accordance with the contract and thereafter the goods were cleared and delivered to the mills by clearing agents. Thus the above facts are in Pari materia with the facts of the present case and on the ratio of the above ruling of the Supreme Court, it has to be held that the sale of computer equipment in favour of IIT, Madras is in the course of import, which is exempted from the levy of sales tax under s. 5(2) of the CST Act. The terms and conditions contained in the licence granted to the IIT, Madras are more o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has deducted educational allowance of 10 per cent or 20 per cent, as the case may be, as guaranteed in the agreement. The percentage of educational allowance under Annexure II to the agreement finds place at I-C(7) of the Book file. The supplemental, granting educational allowance by the assessee finds place at page 1-A (4) of the Book file. In the agreement, it is clearly mentioned that the Computer System for which order was placed by the IIT would be manufactured in the foreign countries, which are referred to in the letter dated 25th October, 1972 and which finds place at page XII (45) of the book file. From the above references it can be easily gathered that the intention of the assessee and the IIT was to treat the Computer System for which order was placed by the IIT with their assessee, as belonging to the IIT immediately after the goods were manufactured and shipped in the foreign countries. At page VII (39) we find the true copy of the letter of the assessee to the Deputy Director of the IIT, Madras dated 16th April 1973. It is mentioned in the above letter that the IBM 370/155 had been authorised for shipment from France by the Indian Flag Vessel "Indian Tradat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions as may be approved in this behalf by the Central Government and intended for use therein from the whole of the duty of customs leviable thereon subject to the following conditions, namely: (1) a duly authorised officer of the Directorate General of Technical Development certifies in each case that the goods in respect of which the exemption is claimed are such as are not manufactured in India and such certificate is produced at the time of clearance or within such period as the Assistant Collector of Customs may, on sufficient cause being shown, allow in each case, and (ii) the goods fall under Item 77(2) or Item 77(4) of the First Schedule to the Indian Tariff Act, 1934, or a duly authorised officer of the Ministry of Education or the Ministry administratively concerned with the institution certifies or the Collector of Customs otherwise satisfied in each case that the goods in respect of which the exemption is claimed are scientific or technical instruments, apparatus or equipment." It follows therefore, that the provision in the agreement that the title to the machines would remain with the IBM until the full purchase price etc. was paid had nothing to do with the passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and install in the campus of the IIT as per agreement, import licence and the letter of authority which facts and circumstances are significantly absent in 33 STC 254 and 26 STC 136. At page 150 of 36 STC the following observations have been made in the last paragraph. "Agency is created by actual authority given by the principal to the agent or principal's ratification of contract entered into by the agent on his behalf without his authority. Agency arises by an ostensible authority conferred by the principal on the agent or by an implication of law in cases of necessity. In the present case, there is no principal and agent relationship between the appellant and the Corporation and in the absence of such relationship the agency of necessity does not arise." It is therefore clear that there was no relationship of principal and agent between the seller and the assessee in the case of Mod. Surajuddin(2). On the other hand, in the present case, there is specific conferment of actual authority given by the IIT, the purchaser, to the agent viz. the assessee and the assessee has acted throughout only as the agent of the IIT for the purpose of importing IBM system into India. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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