TMI Blog2000 (2) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany to specify within three months the list of equipments and materials to be imported from outside the country. It also laid down the condition that the ownership of the equipment supplied under the supply contract would vest with NTPC. To discharge such contractual obligations the company made an application to the Joint Controller of Imports and Exports for import licence under the Duty Exemption Scheme, stating that it was for the special imprest import licence for duty-free import of the materials list of which was given in Part III of the application. In Part IV of the application the company declared that the goods to be imported would be utilised exclusively for consumption as raw materials and components for the contract job and that no part of the same would be sold or used for any other purpose. The company claims that an actual user's import licence (No. 3275408 dated August 21, 1989) was issued by the Joint Controller of Imports and Exports, New Delhi, for importation of the goods specified in the list appended to the licence for supply of the same to NTPC. M/s. Daewoo Corporation of Seoul, Korea, as the consignor despatched the M.S. pipes (ERW) A.P. 95L GRADES, BA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the moment the imported goods were taken delivery of at Calcutta port and were used in the factory for erection of ash handling plant. According to the respondents, the import of goods and use thereof in erection of the plant consisted of two sale transactions-one between the exporter in the foreign land and the company and the other between the company and NTPC whereby imported goods were utilised as raw material or accessories for erecting the plant. They add that according to the company itself the materials were imported against the "actual users' import licence" which indicates that imported materials were to be utilised by the importer itself, i.e., the company, and not by NTPC; consequently, the course of import was broken before the imported goods in different form were delivered to NTPC. They point out the futility of the company's plea of prohibition on use of the imported goods in breach of condition of the import, because according to them, the company admittedly used the goods in its factory without delivery of the same to NTPC in the form they were imported. According to the respondents, therefore, the import cannot be said to have been on account of NTPC, particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, after delivery of the M.S. pipes at the port, subjected the same to the factory process to transform them into the integral part of the plant, erection of which was the part of a separate contract. He adds that contract of erection, being an independent one, could be validly given to any other contractor. It is, therefore, necessary to be seen if there existed two separate independent contracts. 6.. Perusal of the documents relating to the erection of a complete AHP at Farakka and the nature of the contract make it difficult to conceive that they were two independent contracts. During the hearing of the case a bunch of additional documents were filed before us by the company and the authenticity of such documents have not been disputed by the respondents. "The scope of the work" as given in the advertisement published inviting tenders covers the whole process right from designing till commissioning of a complete AHP, keeping within its fold, the intervening processes like manufacture, inspection, testing, packing, transportation, unloading, storage and handling at site. Again, in section INB titled "Instructions to bidders" of the condition of contract the terms of bid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e project in question is partially financed by credit/loan from International Development Association (IDA)/International Bank of Reconstruction and Development (IBRC) and hence in terms of Import Export Policy, Volume I (April 1988-March 1991) supplies made in such project under the procedure of international competitive bidding, are treated as "deemed exports". He draws our attention to clause 199 of such policy. He points out that such suppliers to such schemes enjoy, inter alia, benefit of customs duty exemption for import and that unless the part of the contract involving importation of accessories, equipments, etc., for the purpose of use in the AHP is not treated as "supply contract", such benefit cannot be availed of, and that a single contract of the nature of works contract for erection of such plant according to the specifications as given in the "scope of works" will not be eligible for the benefit. Though the scope of work was split up into two parts for the purpose of benefit mentioned above, for all practical purposes it is a single contract. An assembled unit of AHP is not a portable item so that its supply from the assembly site is possible for the ultimate purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that be it a works contract for erection of an AHP or a transaction consisting of two contracts, viz., supply contract and erection contract, there is no escape from the position that the goods imported from Korea were exclusively meant for use in the job and that for transfer of such goods, be it in the same form as imported or not, amounts to sale in course of import. He points out that by virtue of the 46th Amendment of the Constitution of India, incorporating clause (29A) into article 366, a concept of deemed sale has been introduced for the purpose of sales tax and such deemed sale shall include transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract. He adds that such deemed sale has all the connotations and limitations of a "sale" in the context of sales tax. He refers to the Supreme Court's decision in the case of Builders Association of India [1989] 73 STC 370. The observation of the Supreme Court in the said decision, as is material for us, is as follows: "We, therefore, declare that sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of import of any material/component/equipment, etc., from a foreign country, the successful bidder has to furnish within the specified time period a list of components/materials/equipments, etc., to be imported for which adjustment on exchange-rate variation would be available. The contract documents do not demand use of component/material/ equipment of any foreign brand, viz., any particular manufacturer, obligatory, so that by necessary implication it becomes obligatory to import goods of any particular foreign make or foreign origin having the brand name. The position in this regard is made clear in clause 7.1 in section INB of the conditions of contract by the following expression: "The specific reference to these specifications and documents to any material/equipment by brand name, make or catalogue number shall be construed as establishing standard of quality and performance and not as limiting competition. However, bidders may offer other similar material/equipment provided they meet the specified standard, design and performance requirements." 13.. Thus, only for indicating the standard of quality the brand name, make or catalogue numbers are relevant for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lcutta where the applicant on its own behalf took the delivery. Diversion of the materials after such delivery would not amount any breach of the company's contract with the foreign seller or with NTPC. According to para 5 of its application, the declared purpose for the import was to consume of the imported goods as raw materials/components in the company's factory. Therefore, the licence was to an actual user. Since under the contract use of the material of any particular brand was not obligatory, the company, as the actual user, could even use the imported materials for the purpose other than the professed purpose of the import provided the goods similar to those imported has already been supplied in the context of the job for which the import was made. In this context, it may be mentioned that appendix 13B of the Import Export Policy, Vol. I (April, 1988 to March, 1991) contains specific provisions (vide para 1A of Notification No. 210/82-Customs, dated September 10, 1982). Again, paragraph 108 of the said policy further provides that where the actual user is unable to utilise the imported materials he can also transfer to other actual user under certain circumstances. This p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the goods being diverted for internal consumption. The court considered these sales were "for export" but not "in course of export". In laying down the principle the court observed: "In general where the 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 from the nature of the transaction, the sale is in the course of export." 17.. In the above reported case claim for exemption of tax on the ground of sale in course of export was rejected by the majority decision. The reason for such decision is explicit in the part of the decision quoted above. The position in regard to sale "in course of import" may be made clear if we refer to the case of K.G. Khosla and Co. (P) Ltd. v. Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 STC 473 (SC). In that case the applicantcompany (assessee) entered into a contract with the Director-General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain specifications for supply to the Government of India Press, New Delhi. Similar order was placed by the Controller of Stores, Punjab, for supply to the Controller of Printing and Stationery, Chandigrah. The contract of sale provided that the prices quoted was provisional and subject to change according to the price prevailing at the time of shipment and subject to other expenses like sea freight, insurance, customs duty, etc. The delivery date was also settled with reference to the expected date of shipment from England. The goods were manufactured accordingly and shipped from England. The Commercial Tax Officer assessed tax on these transactions but both the Government of India and the Government of Punjab declined to pay taxes on the ground that the sales were exempted from tax under section 5(2) of the 1956 Act. The issue before the High Court was whether the sales were in course of import. The High Court while answering the question in affirmative pointed out the following aspects of the transaction: "The goods under the contract of sale were to be manufactured by the petitioner at its works in England and were to be shipped from England. The said delivery dates were fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of the goods. The purchases of the goods and import of the goods in pursuance to the contracts of purchases were, no doubt, for sale to the DGS D. But it would not follow that the sales or contracts of sales to the DGS D occasioned the movement of the goods into this country. There was no privity of contract between the DGS D and the foreign sellers. The foreign sellers did not enter into any contract by themselves or through the agency of the petitioner to the DGS D and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to the DGS D................... There was no obligation under the contracts on the part of the DGS D to procure import licences for the petitioner. On the other hand, the recommendation for import licence made by the DGS D did not carry with it any imperative obligation upon the Chief Controller of Imports and Exports to issue the import licence. Though under the contract the DGS D undertook to provide all facilities for import of the goods for fulfilling the contracts including an Import Recommendation Certificate, there was no absolute obligation on the DGS D to procure these facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ert to the case of import as is before us. NTPC has no concern wherefrom the company would procure the accessories/equipments in accomplishing the contract relating to the AHP, according to the specification, on turn-key basis. It was the company's own choice to import the M.S. pipes and other equipments from Korea. The foreign seller had also no concern with the manner the company was to deal with the imported material. That the foreign seller, on the request of the company, put some specified markings on the materials will not make the sale of the goods to NTPC an inextricable part of the works contract. Failure to import the said materials from Korea or from that particular manufacturer of Korea would not have caused any breach of condition of the contract. The materials of prescribed specification obtained from any other source could have been utilised in accomplishing the contract job without the breach of the contract. The fact that under the import licence the company was to use the imported goods only for its works contract with NTPC is itself of no avail. Be it mentioned that in case of Binani Bros. (P) Ltd. [1974] 33 STC 254 (SC), import licences were issued to the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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