TMI Blog2012 (6) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction - in order to make a transaction taxable under the CST Act, 1956, the transaction must be a "sale" as defined in section 2(g) - To claim exemption u/s 5(2) of the Act, the sale or purchase of goods should be deemed to take place in the course of the import of the goods into the territory of India - as per the definition, "sale" means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration. In K. Gopinathan Nair Versus State of Kerala (and other appeals) [1997 (3) TMI 513 - SUPREME COURT OF INDIA] the Supreme Court formulated the following three essential conditions to come to a conclusion whether the sale can be said to be in the course of import to claim exemption under section 5(2) of the CST Act or not – starting with, there must be a sale, goods must actually be imported and sale must occasion the import - the assessee has not established that there was any term or condition prohibiting the diversion of the goods after the import, i.e., the inextricable link between the transaction of the sale and the actual import making sale in the course of import - Moreover, in order to qualify for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d taxable turnover at ₹ 2,24,03,18,934 and ₹ 12,46,02,780, respectively. As against the said order, the first respondent preferred an appeal before the Appellate Assistant Commissioner disputing (a) disallowance of exemption on high sea sales relating to coin blank sales turnover to an extent of ₹ 18,00,183, (b) levy of tax on a turnover at enhanced rate at eight per cent in the absence of C forms to a tune of ₹ 9,83,388 and (c) levy of penalty under section 9(2A) of the Act to a tune of ₹ 2,70,027. 3.1. Similarly, for the assessment year 1991-92, the first respondent reported a total and taxable turnover of ₹ 3,02,74,59,790.61 and ₹ 18,07,15,779.56, respectively. The assessing authority by order dated March 31, 1997, determined the total and taxable turnover at ₹ 3,02,79,15,963 and ₹ 45,13,88,752, respectively. As against the said order, the first respondent preferred an appeal before the Appellate Assistant Commissioner disputing the following items: Rs (1) Disallowance of exemption on stock transfer - 6,88,33,817 (2) D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and in such process the title to the goods is retained throughout by the first respondent and, therefore, the said transaction cannot in law and in commercial parlance be designated as import. It is also submitted by him that in the transaction of the first respondent the ownership over the goods before its despatch and after its return is retained by the first respondent until they are sold to Government of India and, therefore, there is no element of sale or purchase involved and the claim of the first respondent as sale in the course of import becomes untenable. It is further submitted by him that the agreement entered into by the first respondent with the Government of India for supply of coin blanks and the subsequent agreement with the foreign party constitute a separate and distinct contract and there is no privity of contract between the Government of India and the foreign party for importation of any goods. According to him, the exemption under section 5(2) of the Act should not be granted to the first respondent. In support of the aforesaid contentions, the learned Special Government Pleader has placed reliance upon the decision of the Supreme Court in K. Gopinathan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of documents of title to the goods during their movement from one State to another. 7.3. Section 5 deals with sale or purchase of goods taken place in course of import or export and clause (2) of section 5 being relevant, it is extracted hereunder: 5. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. 7.4. Article 286(1)(b) of the Constitution, provides: 286. (1) No law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place,- (a) . . . (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. 7.5. Article 286(1) states that no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of the import of the goods into, or export of goods out of, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Government of India with the foreign company or the foreign company with the Government of India. The Government has no role to play in the contract and it remains as a mere spectator. Even in the contract, the first respondent has not stated about the supply of cold rolled ferritic stainless strips by the Government to it. The agreement is silent with regard to supply of steels strips by the Government. Moreover, the first respondent alone has been described as the purchaser and not the Government of India. Therefore, even a normal person who come across the above contract would come to a conclusion that it is a commercial arrangement entered between the parties for a valid sale consideration. 9. After entering into contract with the foreign company, subsequently, the first respondent entered into an agreement with the Government of India on June 11, 1990 for the manufacture and supply of twenty five and fifty paise stainless steel coin blanks. In this agreement, the first respondent was described as the supplier, whereas the Indian Government mint was described as the purchaser. As per the agreement, the purchaser has to pay the supplier at US $ 3307 per MT for 25 paise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction in question continued to be in pursuance of the earlier contract made by the Government of India, Mint, Noida with the first respondent and, therefore, there existed a privity of contract, is liable to be interfered with. In support of the aforesaid contention, the learned counsel, among other decisions cited supra, mainly relied on the Division Bench decision of this court in Indian Photographic Company Ltd. v. State of Tamil Nadu [2002] 128 STC 435 (Mad). 12. In Indian Photographic Company Ltd. v. State of Tamil Nadu [2002] 128 STC 435 (Mad), the decisions of the Supreme Court relied on by the petitioner had been referred to. It would be appropriate to deal with the said decision in detail. In the aforesaid case, the assessee was a dealer in photography films and equipments. The assessee imported the photography goods on the basis of actual users licence, sold the same to the actual buyer and claimed the sales to be in the course of import. The assessing authority rejected the claim of the assessee on the ground that there was no privity of contract between actual buyer and foreign seller and treated the sales as inter-State sales liable to be taxed under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stination, namely, the mills. The Supreme Court, therefore, held that the sales in questions were the sales in the course of import within the meaning of section 5(2) of the CST Act. We are of the view that the decision in Kotak Co. [1973] 32 STC 6 (SC) is distinguishable as the assessee has not established the inextricable link between the import and the subsequent sale to the local buyer. Ultimately, the Division Bench held as follows: 13. We find on the facts of the present case, that the assessee has not established that there was any contract between the foreign seller and the local buyer. It was found that there was privity of contract between the assessee and the foreign seller. It is only in pursuance of the purchase order made by the assessee the goods actually moved from the foreign country to Chennai. The assessee has not established that he had acted as an agent of the local buyer and he has not established the terms in the contract prohibiting diversion of the goods after import. In the absence of any material to support the case of the assessee that it had acted as an agent of the local buyer and in the absence of any evidence to show that there was an inextr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract of sale between the foreign seller and the local purchaser, but, in the present case, the goods were imported from the foreign country to India in pursuance of the contract entered into between the foreign seller and the first respondent, who was not the local purchaser. Therefore, we can safely arrive at a conclusion that the sale contemplated under section 5(2) of the Central Sales Tax Act, 1956 is not applicable to the case on hand. 17. The learned Tribunal had arrived at a wrong conclusion by proceeding on the wrong footing that the sales had occasioned during the course of import. The transaction took place between the parties had amply made it clear that the sale contemplated under section 5(2) had not taken place and, moreover, even assuming that there was an import of goods from Italy, such import was not occasioned as a result of sale by a dealer in Italy. The dealer was prevented from selling the goods to any person other than to whom the import licence had been granted, i.e., to be sold only to the Mint Government of India by the dealer. Therefore, the conclusion arrived at by the learned Tribunal has necessarily to be interfered with. 18. Though vario ..... X X X X Extracts X X X X X X X X Extracts X X X X
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