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2015 (7) TMI 897 - DELHI HIGH COURT

2015 (7) TMI 897 - DELHI HIGH COURT - [2015] 85 VST 1 (Del) - Default Assessment Orders - Sales in the course of import - inter-State sale or not - Section 9 (2) of the CST Act read with Section 32 and penalty assessment orders under Section 33 of the Delhi Value Added Tax Act, 2004 (DVAT Act) - Held that:- the default assessment orders of the VATO give no indication of any detailed examination of the documents. It is not clear which document the VATO is referring to when he concludes that the d .....

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ion of the goods to some other destination. Also, if indeed it is correct that 'Duolite' is the brand name for 'Cation' or 'Anion' resin, then the exemption cannot be denied on the ground of the description of the commodity not matching that mentioned in the PO.

The Court finds that the general cursory approach of the authorities and the VATO, in particular, is unhelpful when the High Court is called upon to examine the correctness of their orders. They must reflect application of min .....

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ek Anand and Mr. Bhuvnesh Satija, Advocates. For the Respondent : Mr. Sanjay Ghose with Mr. Rhishabh Jaitley, Advocates. ORDER Dr. S. Muralidhar, J. 1. These appeals are directed against the common Order No. ATVAT/2014/3015-3020 dated 21st August/1st September 2014 passed by the Appellate Tribunal, Value Added Tax, Delhi ( AT ) in Appeal No. 604-605/ATVAT/09-10 and Appeal No. 397-424/ATVAT/09-10 pertaining to Assessment Years ( AYs ) 2006-07 and 2007-08. The said appeals were directed against th .....

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-08 respectively. Background facts 2. The Appellant is a registered dealer engaged in the business of manufacturing and trading of Reverse Osmosis ( RO ) water purifying systems, water treatment plants, their parts and accessories etc. 3. The Audit Officers of the Trade and Tax Department conducted a DVAT audit in the premises of the Appellant on 22nd August 2008. According to the Appellant, it provided the explanations, clarifications and documents sought by the Audit Officers regarding the tra .....

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he CST Act read with Section 32 and penalty assessment orders under Section 33 of the Delhi Value Added Tax Act, 2004 ( DVAT Act ) for the periods May 2006 to February 2007 and April to September, 2007 respectively. The VATO held that the transactions involving E-I/C Forms (for inter-state sales) and high sea sales did not conform to the conditions prescribed under the CST Act for claiming exemption. Accordingly demands of tax, interest and penalty were raised against the Appellant for the said .....

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l, May, June, July, August, September 2007-08]. According to the VATO the said sales did not satisfy the conditions prescribed. The claim for exemption was rejected on the ground that the description of the goods as mentioned on the purchase bills and the corresponding sales bills was different. Accordingly, tax @4% was levied on all the said transactions and penalty for tax deficiency was also imposed under Section 9 (2) of the CST Act read with Section 33 of the DVAT Act, 2004. (b) High sea sa .....

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exemption. The returns were rejected on the ground that no high seas sale agreement (duly executed/stamped) between the high sea seller and the Indian customer was available or produced by the Appellant; that the bill of entry was in the name of the Appellant and not in the name of final buyer/consumer and the Appellant had received the goods and had also got them cleared from the customs. Accordingly, tax @4% was levied on all the aforesaid transactions and penalty for tax deficiency was also .....

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claimed to be high sea sales/sales in course of import, and 2. Admissibility of exemptions in respect of sales against E-1/C forms. 7. As regard the sales for which exemption was claimed under Section 5 (2) of the CST Act, the OHA noted that in the returns filed the Appellant had claimed these to be high seas sales but in the objections filed before the OHA it had changed its stand and claimed them to be sales in the course of imports. The OHA noted that the Appellant had claimed that the sales .....

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mpany and supplied to the purchasers. The OHA observed: The agreement is simply regarding supply of plants/machinery/equipment and not regarding its import. The purchasers are not party to the act of importing goods... There is no privity of contract between the parties in regard to the element/aspect of import. 8. Consequently, the OHA held that these sales did not qualify for exemption as sales in the course of imports. 9. As regard the inter-state sales for which exemption was claimed under S .....

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ly the title and destination or goods would change. Keen perusal of sales and purchase invoices shows significant difference in the description of items. It is not understandable as to how the description of the items can change when item is the same only the point of delivery/destination has got changed consequent upon endorsement on the GR regarding change in respect of point of delivery. Thus, the argument/contention of the objector on this account is also not tenable. Order of the AT 10. Agg .....

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supplier clearly shows that that goods had directly moved to the ultimate customer. The Appellant was, inter alia, asked to deposit 10% of the tax as pre-deposit in each appeal. 12. By the common impugned final order dated the 21st August 2014, the AT dismissed the appeals. The AT concurred with the findings of the VATO and the OHA that the sales under the E-1/C Forms as well as the sales claimed to be in the course of import did not qualify for exemption under Sections 6 (2) and 5 (2) of the CS .....

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subject matter of appeal before it - in respect of the period concerned i.e. 2006-07 - were not covered by Section 5 (2) of the CST Act and were to suffer local sales tax consequently? Submissions of counsel 14. Mr. M.P. Devnath, learned counsel for the Appellant first submitted as follows: (i) The VAT authorities overlooked a fundamental aspect, viz., that it was not the entire water purifier but only some of the components thereof that were the subject matter of either inter-state sales or sa .....

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icular documents with reference to which the conclusions, viz., that they do not answer the exact description of the commodity for which order was placed or have been diverted to a different destination, have been drawn. Even as regards sales in the course of imports, only one transaction with MUL has been discussed and then again the correct legal principles have not been applied. (iv) Reference was made to sample invoices under each category to illustrate the factual errors in the impugned ord .....

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tion under Sections 5 (2) or 6 (2) of the CST Act as the case might be. (ii) After having initially averred that the sales in respect of which exemption under Section 5 (2) of the CST Act were high seas sales, the Appellant ought not to be permitted to change its stand, without revising the returns filed, and claim that they were sales in the course of imports. (iii) None of the transactions in respect of which exemption was claimed, whether under Section 5 (2) or 6 (2) of the CST Act, satisfied .....

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logies Limited v. State of Karnataka (2009) 2 SCC 326 and Giesccke & Debrient I.P. Ltd. v. Commissioner of Sales Tax, Delhi [2012] 47 VST 343 (Del). (iv) The two important tests were whether for the breach of the contract, action could be taken against the ultimate purchaser or the consignor (which in this case was the Appellant) and whether there was privity of contract between the ultimate purchaser and the supplier of the goods. (v) The fact that these were back to back contracts meant th .....

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must be completed in a definite time frame. Sales in the course of import 16. The Court would like to first discuss the issue concerning the claim of exemption under Section 5 (2) with reference to sales in the course of imports. 17. An objection raised by the Respondent before the AT was the Appellant had initially claimed the said transactions to be high seas sales but later changed its stand, without revising its returns, and claimed them to be sale in the course of import. It is seen that in .....

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course of import of the goods into India. 18. The Appellant appears to have corrected its stand at an early stage in the proceedings. Allowing it to do so was not going to cause any prejudice to the Respondent particularly since in the circumstances it was a plausible contention. Consequently, the Court rejects the above objection of the Respondent. 19. The legal position as regards sales in the course of imports, with reference to Section 5 (2) of the CST Act, has been explained in several dec .....

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ndly, the latter had consigned the goods directly to the assessee by ship under bills of lading. Thereafter they were cleared by the assessee and despatched for delivery to the buyers. Thirdly, the sale was completed only when the goods were delivered and could not be said to be occasioning the import.‟ The Constitution Bench of the Supreme Court held to the contrary and observed that the import was in pursuance of the contract between the assessee and the consignee and that there was no p .....

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ssee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within Section 5(2) of the Act, and are, therefore, exempt from taxation. 20. In Deputy Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam v. Indian Explosives Ltd. [1985] 4 SCC 119, the Supreme Court explained: The test of integral connection or inextricable link between the sale and the actual import or export in order that the sale could become a sale in the course of impo .....

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he sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction. In this sense to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be an obligation to export, and there must be actual export. The obligation may arise by reason of sta .....

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each link is inextricably connected with the one immediately preceding it. Without such a bond, a transaction of sale cannot be called a sale in the course of export of goods out of the territory of India . Conversely, in order that the sale should be one in the course of import, it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising .....

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t satisfy the legal requirement to qualify for exemption. However, thereafter with effect from 1st April 1976, sub-section (3) was inserted in Section 5 of the CST Act to recognise even a penultimate sale i.e the last sale preceding the sale occasioning the export of goods, as deemed to be in the course of such export. 22. In Indure Ltd. v. Commercial Tax Officer [2010] 34 VST 509 (SC) the Court applied the test in K.G. Khosla and concluded that the import in that case had been occasioned only o .....

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preceding India. There could be at least four sources of the obligation to import: the statute, the contract, the mutual understanding between the parties or the nature of the transaction and which obligation cannot be snapped without committing a breach of statute or contract or mutual understanding. 23. In ABB Ltd v. The Commissioner (supra) the Court considered a contract between the Assessee-appellant and the DMRC for supply, installation, testing and commissioning of traction electrificatio .....

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in the course of import, the Court has to see whether the movement of goods through was integrally connected with the contract for their supply. Questions such passing of title, or whether the end user has a privity of contract with the supplier, or where the consideration flows from, are not determinative or decisive of the issue. Section 5 does not prescribe any condition that before a sale could be said to have occasioned import, it is necessary that the sale should have preceded the import. .....

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Grundfos ). The said PO contained an instruction that the invoice should be in the name of the Appellant and that bill of lading (B/L) should state that the goods were consigned to NCS Sugars Ltd. Andhra Pradesh (India). Copies of the invoice prepared by Grundfos and the B/L show that the consignee named therein is NCS Sugars Ltd. 25. The Court finds that there is no discussion in either the order of the VATO or of the OHA or the AT of the documents with reference to the transactions of sale in .....

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bsequent sale and whether the imported goods could have been diverted to some other buyer or destination. In the sample document concerning the PO placed on the Appellant by NCS Sugars Ltd., the mention of the name of NCS Sugars Ltd. as the consignee in the invoice raised by Grundfos and in the B/L might be the link factor. However since the documents produced are unverified copies, no definitive opinion thereon can be expressed at this stage. They would have to be examined in detail by the VATO .....

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produced by the Appellant. This exercise ought to have been undertaken at the level of the VATO at least. Consequently, the Court finds that the impugned order of the AT and the corresponding orders of the VATO and the OHA pertaining to the claims for exemption with reference to Section 5 (2) CST Act for the AYs in question require to be set aside and the matters remanded to the VATO for a fresh determination. Inter-state sales 27. The Court next examines the issue pertaining to inter-state sal .....

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s under: For a sale to be in the course of inter-State trade or commerce under Section 3(a), the two conditions must be fulfilled. There must be sale of goods. Such sale should occasion the movement of the goods from one State to another. A sale would be deemed to have occasioned the movement of the goods from one State to another within the meaning of Clause (a) of Section 3 of the Act when the movement of those goods is the result of a covenant or incidence of the contract of sale, even though .....

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ponents from various suppliers situated outside Delhi against Form-C and directed the supplier to despatch the goods to the place/address of the ultimate buyers. The goods were sent by the supplier outside Delhi to the ultimate buyers outside Delhi. The supplier only sent the invoice and the GR/RR to the Appellant at Delhi. The Appellant made payment and issued C-Forms against the said purchases and, in turn, requested and obtained E-1 Form from the supplier. The Appellant then sent its invoices .....

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denied the Appellant the above benefit on the ground that the documents produced by the Appellant were not found convincing as transactions against E-1/C-Forms involve diversion of movement of goods from original destination to some other/different destination by the purchasing dealer by way of endorsement on transportation documents while the goods are in transit. Further on perusal of the sale and purchase invoices there were significant differences in the description of the items. It was ther .....

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ins to the PO placed on the Appellant by Ramgarh Chini Mills on 27th August 2006 for supply of a water treatment plant. Two of the components were 'cation resin' and 'anion resin'. In turn the Appellant appears to have placed a PO on Auchtel Products Ltd. ( APL ). It is stated that the said two components have been described in the PO by their brand names, viz., Auchtel Duolite A-113 and Auchtel Duolite C-20 respectively. It was contended by Mr. Devnath that the Appellant had pla .....

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ed that the consignee was Ramgarh Chini Mills, Ramgarh. This is stated to be the proof of the inextricable link and yet none of the documents were actually examined and discussed in the default assessment above orders of the VATO. 32. As already observed, the default assessment orders of the VATO give no indication of any detailed examination of the documents. It is not clear which document the VATO is referring to when he concludes that the description of the commodity is different or when he c .....

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deed it is correct that 'Duolite' is the brand name for 'Cation' or 'Anion' resin, then the exemption cannot be denied on the ground of the description of the commodity not matching that mentioned in the PO. In any case, as explained in State of Karnataka v. Azad Coach Builders Pvt. Ltd. (2010) 9 SCC 524, where it is able to be shown that the local sale or purchase between the parties is inextricably linked with the export of the goods then a claim for exemption is justif .....

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