TMI Blog1993 (1) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or commerce and the silk fabrics moved from State of Karnataka to outside the State of Karnataka, occasioned by the sales effected by these petitioners to the outside purchasers. The petitioners contend that the purchase tax under section 6 of the State Act was not attracted for two reasons: (i) They purchased the silk fabrics from handloom or power-loom weavers, whose establishments did not fall within the definition of a "factory" under the Factories Act, 1948, who had manufactured those silk fabrics in Karnataka. Such transactions of purchases fall outside the definition of "sales" for all purposes of the State Act in view of section 5(3)(c) read with its proviso, as it stood during the relevant period. If there was no sale there cannot be a purchase; (ii) section 6 is attracted in respect of the purchases made by a dealer of any taxable goods in circumstances in which no tax under section 5 is leviable on the sale price of such goods and those goods are despatched to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. Therefore, if the purchased goods are despatched to a place outside the State in the cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act on his taxable turnover of sales relating to such goods in each year: Provided that the sale by a handloom or a power-loom weaver [other than one whose establishment falls within the definition of a 'factory' under the Factories Act, 1948 (Central Act 63 of 1948)] of silk fabrics manufactured by him in Karnataka shall not be deemed to be a sale for purposes of this Act." We are concerned with the effect of the above proviso. The proviso clearly states that sale by a handloom or a power-loom weaver of silk fabrics manufactured by him shall not be deemed to be a sale for the purposes of this Act. In other words, when these petitioners purchased silk fabrics from handloom or power-loom weavers, which were manufactured by those weavers in Karnataka, "there was no sale" at all for the purposes of the State Act. The proviso is not confined in its application to clause (c) of sub-section (3) of section 5. The proviso pervades the entire Act. For all purposes of the State Act, the transfer of silk fabrics by the weavers, under the circumstances stated therein is not a sale at all. In such a situation can it be said that the petitioners "purchased" the silk fabrics from the weave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision to say that there can be a purchase without a sale. If there was no sale, the consideration paid by the purchaser cannot be a sale price. If so, the main part of section 6 itself will not be attracted. In these circumstances, we are constrained to hold that this is not a case where the petitioners "purchased" any taxable goods in circumstances in which no tax under section 5 was leviable on the "sale price" of such goods, referred in section 6 of the State Act. 8.. Mr. Santhosh Hegde, learned Senior Counsel, appearing for some of the petitioners relied on the principle governing the interpretation of a legal fiction. The learned counsel referred to the observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 (HL): ".......... If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it..........The statute says that you must imagine a certain state of affairs; it does not say that having done so, you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another." "5. When is a sale or purchase of goods said to take place in the course of import or export.- (1).....omitted here. (2).....omitted here. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." 12.. For the purpose of these petitions we assume that the petitioners despatched the goods under sales to outside purchasers who purchased these goods to export the same for the purpose of complying with the agreement or order for or in relation to such exports. In other words, sales effected by the petitioners to the outside purchasers would fall within section 5(3) of the Central Act. According to the learned Government Advocate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e levy of Central sales tax. The petitioners pointed out that under section 6(1) of the Central Act every dealer shall be liable to pay tax under the said Act on all sales of goods effected by him in the course of inter-State trade or commerce. However, the proviso thereto reads thus: "Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India." The learned counsel for the petitioners contended that this proviso makes it abundantly clear that but for section 5(3) of the Central Act, the sales effected by these petitioners to the outside purchasers would be taxed under the Central Act as sales in the course of inter-State trade or commerce. The learned Government Advocate on the other pointed out that the purpose of section 6 of the State Act is to see that at least one tax is levied by the State in respect of a taxable commodity and that purpose will be defeated by the interpretation now pressed for by the petitioners. It was further contended that the subjects of "sale in the course of inter-Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for interpretation before the House of Lords. Similarly in Words and Phrases, Permanent Edition, Volume 11A, at page 181, it is explained that the word 'deemed' is also used to mean 'regarded as being'; it is equivalent to 'shall be taken to be' (at page 185). In our view, when sub-section (3) of section 5 uses the word 'deemed' and says that the penultimate sale 'shall also be deemed to be in the course of export' what is intended to be conveyed is that the penultimate sale shall also be regarded as being in the course of such export. In other words, no legal fiction is created. Moreover, it was conceded by the counsel that the word 'deemed' in sections 3, 4 and 5(1) laid down general principles and did not create any fiction; if that be so, it is difficult to accept the contention that in sub-section (3) the same word should be construed as creating a fiction. Thirdly, a principle has been explained in Butterworths' Words and Phrases, Second Edition, Volume 4, at page 177, thus: 'A "principle" means a general guiding rule, and does not include specific directions, which vary according to the subject-matter' (per Shearman, J., in M'Creagh v. Frearson 1922 WN 39). Similarly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purview of levy under the Central Act. Similarly, till March 31, 1976, because these sales were sales in the course of inter-State trade or commerce they came within the purview of excepted clause in section 6(ii) of the State Act and thus purchase tax was not attracted to this kind of sales (assuming that the transactions under which the petitioners acquired the goods from the weavers are to be considered as purchases). No doubt the concept of inter-State trade or commerce is a concept to be understood by reference to the principles formulated by the Parliament by virtue of the constitutional provisions. With the change of the principles formulated by the Parliament the concept may expand and the meaning to be now given to the relevant words shall have to be the meaning attributable by virtue of expanded meaning resulting from the new or additional principles formulated by the Parliament. 20.. The petitioners mainly relied on rule 12(10)(a) of the Rules made under the Central Act read with form H, to contend that if a certificate in form H is not produced after the sales in question to the outside purchaser, the levy under the Central Act is automatically attracted. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities." The Supreme Court referred to its earlier decision in Coffee Board case [1970] 25 STC 528 to point out that "sale in the course of export " comprised of three essentials: "..........First, there must be a sale. Second, goods must actually be exported. Third, the sale must be a part and parcel of the export. The propositions laid down in the Coffee Board case [1970] 25 STC 528 (SC) are these: 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the end of exportation of the goods out of the country but also as part of or connected with such activities. The time-factor alone is not determinative." As the penultimate sale was held not part of this "course", the claim of non-taxability of such a sale was negatived in Mod. Serajuddin's case [1975] 36 STC 136 (SC). This resulted in the levy of sales tax on the penultimate sale, which in effect resulted in adding burden on the goods exported. To remove this hardship especially in the background of goods being channellised for export through State Trading Corporation (which will be the real, direct exporter), section 5(3) was inserted by the Central Act 103 of 1976 with effect from April 1, 1976. 27.. Since section 5(3) is part of the principles formulated by the Parliament to determine the "sale in the course of export", it is inevitable to infer that, such a penultimate sale is now considered as part of the "course of export", and is one of the activities integrated with other activities leading to export. The Parliament has linked this penultimate sale with the export sale and it has become an integral part of the "course of export". The earlier decisions to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale in the course of export". Therefore, it is necessary to provide for exclusion of such a sale from the net of taxation under the said Act. Proviso to section 6(1) is a necessary incident to the insertion of section 5(3) in the Act. If a dealer claims the benefit of section 5(3), in respect of a sale which also bears the character of an inter-State sale under section 3(a), it has to be proved that in reality, the said sale is a sale in the course of export. Purpose of the proviso to section 6(1), as well as the provisions of rule 12(10)(a) and the certificate in form H is to enable the dealer to establish that the sale in question was a sale in the course of export. Petitioners rely on the certificates obtained by them from the exporter, which are in form H. The prescribed form and the certificates reflect the language of section 5(3); in other words, the certificate in form H is the mode of proving that the penultimate sale preceded the export and it was part of the course of export. 31. Section 5(3) does not create a legal fiction, by deeming an inter-State sale as a sale in the course of export. Section 5(3) is part of the principles formulated by the Parliament under arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5(3) of the CST Act." 34.. The wording of the above observation is not unqualified. It states that protection against the levy of the tax under section 5(3) is not extended to the levy of tax under section 6 of the State Act. Next three paragraphs in the above decision are quite crucial to the ultimate decision; they read: "11. If these penultimate sales are local sales, then, the factual position is that, the assessee before us purchased the goods and sold them locally to Kalbhavi, who in turn despatched the goods in the course of export. The sale effected by the assessee to Kalbhavi gets the protection of section 5(3) of the CST Act, as penultimate sale prior to the actual export sale but that does not mean, the assessee despatches the purchased goods to a place outside the State. 12.. The principle stated in section 5(3) is to regard the sales effected by the assessee as a sale in the course of export; but this principle does not convert the action of the assessee as an act of despatching the goods to a place outside the State. 13.. Section 6 uses the word 'despatch' deliberately. Full effect should be given to its meaning. The question is, whether the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate sale " was not a sale in the course of export outside the territory of India, falling within the 3rd category of ways dealt by section 9(1) therein (and referred at page 92 of [1991] 80 STC 79). The observations of Supreme Court at page 93 are also relevant in this regard, which were quoted in Ashraf Co.'s case [1992] 84 STC 394 (Kar). The Supreme Court held that the High Court was right in accepting the argument of the Revenue that section 9(1) excepted only sales made in the course of section 5(1) of the CST Act but not those under section 5(3) of the said Act. Punjab Act had made a distinction between a sale in the course of export within the meaning of section 5(1) and a sale within the meaning of section 5(3) [page 94 of Murli Manohar Co.'s case [1991] 80 STC 79 (SC)]. 36.. The Supreme Court has laid emphasis on the language of the charging section 9 (of the Punjab Act) and held that, if a transaction is covered by the language of the section, said transaction cannot be excluded from the clutches of the said provision. 37.. State Legislature's intention in excluding only inter-State sales from the purview of section 6(ii) is quite obvious. Under section 6(ii), purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion provides for making over the tax collected to the States in accordance with certain principles. Where, of course, the sale is an export sale within the meaning of section 5(1) of the Central Sales Tax Act (export sale) the State may not get any revenue but larger national interest is served thereby. It is for these reasons that tax on the purchase of raw material is waived in these two situations. Thus, there is a very sound and consistent policy underlying the provision. The object is to tax the purchase by a manufacturer of goods whose existence as such goods is put an end to by him by using them in the manufacture of different goods in certain circumstances." The learned counsel for the petitioners pointed out that the above reasoning supports their contention, because, by treating these penultimate sales as interState sales, levy under section 6 of the State Act will not be attracted and because of section 5(3) and proviso to section 6(1) of the Central Act, there will not be any levy under the Central Act; from such a combined operation of the two concepts, the export trade stands to gain. 39.. We consider this a matter of Governmental policy, rather than a principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 14 of 1987 is another Act touching the proviso to section 6. These enactments indicate that the State Legislature did not consider it necessary to amend the language of section 6(ii) of the State Act to include the sale referred in section 5(3) of the Central Act along with inter-State sales in section 6(ii). 43.. The phrase, "sale in the course of inter-State trade or commerce" was enacted in the State Act, prior to the introduction of section 5(3) of the Central Act. However, it is reasonable to infer that this phrase was to be understood in the sense in which the Constitution expected it to be understood. It was used in the State Act not by specific reference to the Central Act, as the latter Act then stood. The phrase was used, obviously, with reference to the general law concerning the subject of "sale in the course of inter-State trade or commerce". That subject is dealt by the Central Act, by virtue of the relevant constitutional provisions. Therefore, the meaning of the phrase would expand or shrink, depending upon the meaning attributed to the phrase in the Central Act. The principle of interpretation, in such a situation, is the one stated by the Supreme Court in Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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