TMI Blog1988 (7) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... en the State Trading Corporation of India Limited (which was the predecessor-in-interest of the assessee-corporation) and the foreign seller, International Minerals and Chemical Corporation, U.S.A. (hereinafter called "I.M.C."). The ship by which the goods arrived from U.S.A. reached Visakhapatnam on 2nd June, 1970. The Commercial Tax Officer rejected the claim of the assessee that the transactions were covered by section 5(2) of the Central Sales Tax Act (hereinafter called the "C.S.T. Act"). According to the said assessing authority, the shipping documents were despatched only on 2nd June, 1970 from the New Delhi Head Office of the assessee, inasmuch as the said documents of title were not transferred before the goods had crossed the customs barriers of India, it was held that the sales were covered by the Andhra Pradesh General Sales Tax Act (hereinafter called the "A.P.G.S.T. Act"). The Commercial Tax Officer treated the disputed turnover as representing the proceeds of local sales effected by the assessee in favour of Coromandel Fertilisers Limited. This view was upheld by the first appellate authority and also by the Tribunal. By section 38 of the A.P.G.S.T. Act, all transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell and does hereby sell to S.T.C. for delivery to Coromandel or other parties as provided under para 13, at the port of Visakhapatnam, 2,330 tonnes of dried Florida phosphate rock hereinafter described, and the State Trading Corporation does hereby purchase the said quantity of phosphate rock..........", during the period between 1st January, 1970 and 31st December, 1972. It is stated in para 13 of the agreement that inasmuch as, due to reasons beyond its control, the S.T.C. is unable to purchase the said quantity of 750,000 tonnes for use by Coromandel only, it was given opportunity to sell the commodity to other consumers throughout India, "in order to avoid breach of this contract and its consequent loss of bonus tonnage....." The shipping schedule is referred to in para 4. The weight of the stock loaded was to be certified at the Florida port where the samples were also required to be taken at the time of loading as per para 8. The contract was c.i.f. as specified in para 10. In para 12, it is stated that the S.T.C. is entitled to certain bonus tonnage. It is further stated in para 14 that 30 days prior to the estimated arrival of the vessel at the loading port, the S.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the successor of S.T.C.) in favour of Coromandel had taken place." The contention before us, however, once again is that the very purchase made by Coromandel from the M.M.T.C. had occasioned the import of the commodity into India. It was argued that M.M.T.C. was brought in as an agent because under restrictions imposed by the Government, all such imports have necessarily to be canalised by the M.M.T.C. (formerly by the S.T.C.). The learned counsel for the petitioner has referred to a large number of decisions of the Supreme Court and the High Courts for contending that the assessee-corporation was only an agent and that there was only one contract between the sellers and the ultimate purchasers, Coromandel. According to the learned counsel, there were no two contracts of sale in the present case but there was only one. On the other hand, the learned Government Pleader, Sri A. Venkataramana, has contended that the decision of the Tribunal to the effect that there was one sale by the foreign seller to M.M.T.C. and the second sale, in India by the M.M.T.C. to Coromandel, is correct. We have already referred to the provisions of section 38 of the A.P.G.S.T. Act and to section 5(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that Act formulate the principles to take place in the course of inter-State trade or commerce and when a sale or purchase of goods can be said to take place outside the State. Section 5 already set out above formulates the principles for determining when a sale or purchase of goods can be said to take place in the course of import or export. Article 286(1)(b) which relates to sales in the course of import or export has come up for consideration before the Supreme Court in several cases and has to be read in conjunction with section 5 of the C.S.T. Act. We shall deal with the judgments of the Supreme Court chronologically from 1952 onwards, with a view to trace the history of the various concepts developed by the Supreme Court for the purpose of article 286(1)(b) of the Constitution and section 5 of the C.S.T. Act. The earliest of the two cases arising from Travancore were decided before 1956. The first one is the case in State of Travancore-Cochin v. Bombay Company Ltd. [1952] 3 STC 434 (SC). In that case, the respondent claimed exemption from assessment under the Travancore-Cochin Sales Tax Law, in respect of sales effected by them on the ground, inter alia, that such sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Judges of the High Court........" The fourth view above referred to, which the High Court of Travancore-Cochin took in that case was that the words "in the course of" make the scope of this clause very wide and that it is not restricted to the point of time at which the goods are imported into or exported from India. The series of transactions which necessarily precede the export or import of goods will come within the purview of the clause. Where, in the course of that series of transactions, a sale has taken place, such a sale is also exempt from 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 export out of India. Having set out the four views mentioned above, their Lordships of the Supreme Court in the above case, observed that the sales in that case fell within 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 by employing the machinery of export. A sale by export involves a series of integrated act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th in this case by the Supreme Court were those where the Bombay party indented the goods on their own account and sold the goods as principal to the respondents and other customers; but the goods were shipped direct to Cochin or Quilon on c.i.f. terms. The shipping documents were made out in the name of Bombay Party as consignees and were delivered to them against payment through bankers at Bombay. The Bombay party cleared the goods through their own representatives at the port of destination and issued separate delivery orders to the respondents and other customers for the respective quantities ordered. The Supreme Court held that so far as this class of cases is concerned, the purchases by the respondents could only be described as purchases from the Bombay party of the goods, within the State and therefore they did not come within the exemption under article 286(1)(b). The above decision therefore contains (i) a case of single purchase through an agent and also (ii) a case of two separate sales, one by the foreign seller to the Indian buyer and by the Indian buyer to another Indian buyer. The former was held exempt while in the latter, the second sale was treated as a sale with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agents or intermediaries of foreign buyers then obtained licences from the Central Government for export of the tea chests under the export quota rights vested in them at the auction sale and then exported the same out of India. The question was whether the sale by the auctioneers to the agents or intermediaries of the foreign buyers was a sale in the course of export and was exempt from sales tax. It was held by the Supreme Court that the transaction of sale by the auctioneers to the agents and intermediaries of the foreign buyers did not occasion the export of the goods, even though the appellants knew that the buyers were acting on behalf of the foreign principals and that the buyers intended to export the goods. There was, between the sale and the export, no such bond as would justify the inference that the sale and the export formed parts of a single transaction or that the sale and export were integrally connected. The appellants were not concerned with the actual exportation of the goods and the sales were intended to be complete without the export and as such it could not be said that the sales occasioned the export. The sales were, therefore, for export and not in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eller has the knowledge that the goods are intended by the purchaser to be exported, such a transaction is not in the course of export, for the seller does not export the goods, and it is not his concern as to how the purchaser deals with the goods. Such a transaction is not one in the course of export. Again, in a contract of sale with a foreign buyer, goods may be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. But, in between, lie a variety of transactions in which various factors have to be taken into account. No single test can be laid as decisive. Each case must depend upon the facts. It was finally observed: "In general, where sale is effected by the seller, and he is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding between the parties arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despatched for delivery to the Southern Railway in Madras and Mysore. The Supreme Court held that the expression "occasions the movement of goods" in sections 3(a) and 5(2) of the Central Sales Tax Act had the same meaning, that before a sale could be said to have occasioned the import, it was not necessary that the sale should have preceded the import and that the movement of goods from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India for the consignee and was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of the goods being diverted by the assessee for any other purpose and, therefore, the sales took place in the course of import of goods and were exempt from local taxation. Again, Hidayatullah, C.J., had occasion to consider the question in great detail in Coffee Board v. joint Commercial Tax Officer [1970] 25 STC 528 (SC); AIR 1971 SC 870. The Coffee Board was a statutory body functioning under the Coffee Act, 1942, controlling the sale and export of coffee. The Board held auctions for screening and selection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtly "during". The phrase expanded with this meaning reads "in the progress or process of export" or "during export". Therefore, the export from India to a foreign destination must be established and the sale must be a link in the same export for which the sale is held. 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 for the export begins from the intermediary and ends with the importer. Therefore, 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. Sikri, J. (as he then was), however, dissented and stated that a wider meaning of the word "occa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r commerce within the meaning of article 286(2) of the Constitution of India and were, therefore, exempt from local sales tax in Bihar. It was held by the Supreme Court that the sales were sales in the course of inter-State trade and, therefore, exempt from local tax. The dealers were required to move the trucks, chassis, etc., purchased by them from the State of Bihar to places outside the State and they were so required by the terms of the contracts entered into by them with the company. They would have committed breach of their contracts and incurred penalty prescribed in their dealership agreements, if they had failed to abide by the terms requiring them to move the goods outside the State of Bihar. It was observed that where, under the terms of a contract of sale, the buyer was required to remove the goods from the State in which he purchased them to another State, and the goods were so removed, the sale in question must be considered as a sale in the course of inter-State trade or commerce. Sales would be considered as sales in the course of export or import or sales in the course of inter-State trade or commerce, it was observed, in the following circumstances (i) when the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. There, the petitioner-company with its registered office at Calcutta was an importer and a dealer in certain goods and was on the approved list of suppliers to the DirectorGeneral of Supplies and Disposals. The petitioner was also registered as a dealer under the Bengal Finance (Sales Tax) Act as well as under the C.S.T. Act. The import was subject to various control orders during 1957 to 1966. The Government of India was granting import licences to the petitioner in terms of the contract. The petitioner imported the goods for several years and the second respondent had agreed to pay the local as well as the Central sales tax. On the basis of the judgment in Khosla and Co.'s case [1966] 17 STC 473 (SC); AIR 1966 SC 1216 above referred to, the second respondent issued an order directing that sales tax should not be allowed in respect of supplies of stores specifically imported against licences issued. Acting thereupon, the fourth respondent deducted large sums from the bills pending payment to the petitioner and also threatened to recover another large sum already paid by the second respondent to the petitioner as sales tax. It was held that the sales by the petitioner to the Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation, on receipt from the sellers of a bank draft for the difference between the buyers' f.o.b. purchase value and the f.o.b. sale value. There were also various other terms in the contract. The terms and conditions of the buyers' corresponding sale contract with M/s. Associated Metals and Minerals Corporation would apply to this contract also except to the extent specified in this purchase contract. A true copy of the buyers' sale contract with M/s. Associated Metals and Minerals Corporation was attached. The appellant claimed that the sales of the mineral ore by the appellant to the State Trading Corporation were sales in the course of exports and were therefore exempt from local tax in view of section 5 of the C.S.T. Act. The High Court held that the sales were liable to tax. The appellant appealed to the Supreme Court and contended that inasmuch as the appellant had entered into negotiations with foreign purchasers and settled all the conditions of the contract and thereafter the corporation entered into a f.o.b. contract with the appellant and with the foreign buyer on identical terms and inasmuch as the appellant took the necessary steps, including payment of customs d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not claim any right against the appellant nor did the appellant have any obligation to the foreign buyer. There was no relationship of principal and agent between the appellant and the corporation and they were, in fact, acting as two principals in the two contracts. The mention of f.o.b. price in the contracts between the appellant and the corporation, did not render the contracts f.o.b. contracts with the foreign buyer. The shipment of the goods by the corporation to the foreign buyer was the f.o.b. contract to which the appellant was not a party. The directions given by the corporation to the appellant to place the goods on board the ship were pursuant to the contract between the appellant and the corporation. These directions were not in the course of export because the export sale was an independent one. The taking of goods from the appellant's place to the ship was separate from the transit pursuant to the export sale. The fact that the export could be made only through the State Trading Corporation, it was held, did not have the effect of making the appellant the exporter where there was direct contract between the corporation and the foreign buyer. Restriction on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence holder at the time of clearance through the customs and (2) that the goods would be utilised only for consumption as raw material or accessories in the licence holder's factories and that no portion thereof should be sold or be permitted to be utilised by any other party. On receipt of the goods, the assessee used two invoices with the local purchaser. The assessee contended that those sales were in the course of import into India and therefore not taxable under article 286(1)(b). The Supreme Court held that a reading of the user's import licence and the letter of authority, it was clear that the import of the goods by the assessee was for and on behalf of the local purchaser and the assessee should not, without committing a breach of contract, divert the goods so imported for any other purpose. Therefore, there was an integral connection between the sale to the local purchaser and the actual import of the goods from the foreign supplier. In order that the sale should be one in the course of import, it must occasion the import and there must be an integral connection or inextricable link between the first sale following the import and the actual import provided by an obligat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egrated that the same cannot be voluntarily interrupted, without breach of the contract or compulsion arising from the nature of the transaction. There must be an obligation for export (or import) and there must be actual export (or import). The obligation may arise by reason of statute, the contract between parties or from mutual understanding or agreement or even from the nature of the transaction. It is not always necessary that the sale should have preceded (say) the import. (2) Introduction of a third party "dealing independently" with the seller on the one hand and with (say) 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. There is no room for two or more sales being in the course of export [Coffee, Board v. Joint Commercial Tax Officer [1970] 25 STC 528 (SC); AIR 1971 SC 870 and Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC)]. The word "occasions" in section 5 means "immediate and direct cause". There must be a contractual obligation directly or indirectly between the assessee and (say) the foreign buyer. The relationship of the parties must be as principals and not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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