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2015 (8) TMI 27 - KERALA HIGH COURT

2015 (8) TMI 27 - KERALA HIGH COURT - [2015] 86 VST 392 (Ker) - Denial of exemption claim u/s 5(3) of CST - inter-state sale of paper cartons - The case pleaded is that the firm had effected inter-state sale of paper cartons to various exporters in the course of export outside the State - Held that:- appellant will have to establish the identity of the goods sold with the goods meant to be exported out of the territory of India. It cannot be said that packing materials as such were meant for exp .....

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ellant is only the packing cartons alone which were never exported as such and the goods exported are different. That, according to us, will take out the case of the appellant from the purview of Section 5(3) of the CST Act.

The transaction, going by the provision, should be first one with the exporter and the foreign buyer and the next one is with the exporter and the penultimate seller like the appellant. That inextricable link is absent, going by the facts of this case. There is a .....

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4/2013 - Dated:- 15-7-2015 - T.R. RAMACHANDRAN NAIR AND K.P. JYOTHINDRANATH, JJ. FOR THE APPELLANT : SRI.M.GOPIKRISHNAN NAMBIAR, SRI.P.GOPINATH, SRI.P.BENNY THOMAS, SRI.K.JOHN MATHAI AND SRI.KURYAN THOMAS FOR THE RESPONDENT : GOVERNMENT PLEADER SHRI S. SUDHEESHKUMAR JUDGMENT Ramachandran Nair, J. The appellant in the writ appeal is the petitioner in the three writ petitions. Since a common legal point arises for consideration, all the cases were heard together. 2. The interpretation of Section 5 .....

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challenge was against Ext.P4 assessment order under the CST Act. The year of assessment shown is 2002-2003. In W.P.(C) No.37214/2009 the assessment years are 2005-2006 and 2006-2007 and Exts.P10, P11, P2 and P13 assessment orders are under challenge. In W.P.(C)No.19448/2010, the assessment year is 2007-2008 and Exts.P6 to P9 orders are under challenge. In W.P.(C) No.2934/2010, the assessment years are 2008- 2009 and 2009-2010 and Exts.P1 and P3 are under challenge. 3. The contentions raised by .....

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les are supported by C Form or D Form declarations. The tax at 1% is payable as provided under SRO No.958/2002, as against the normal tax at 4%, if sales are supported by C & D declarations and 10% in other cases. 4. The said contentions have been elaborated by the learned counsel for the appellant by stating that the packing cartons were used by the exporters for export of various items. The contract between the exporters and foreign buyers is to export the goods in packed condition. The go .....

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g Store v. State of Kerala {(1981) 48 STC 518 - Kerala}, State of Tamil Nadu v. Catherene Traders and another {(1991) 81 STC 228 - Madras}, State of A.P. v. Standard Packings {(1995) 96 STC 151 - A.P.}, Kusum Laminating and Packaging Industries v. State of Tamil Nadu {(1996) 101 STC 476 - Madras) and Allappy Company Limited v. State of Kerala {(2012) 20 KTR 69 - Kerala). Our attention was also invited to the decision of the Constitution Bench of the Apex Court in State of Karnataka v. Azad Coach .....

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e at 1% for packing materials. The said benefit alone is which the appellant can claim. It is submitted that the decision of the Constitution Bench in Azad Coach Builders Pvt. Ltd.'s case (supra) will govern the issue. Packing materials were never sought for by the foreign buyers from the exporters and it is not a case of export of any packing materials. Packing materials are only used for wrapping the goods which are the subject matter of export and no independent contract has been proved, .....

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or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." It will also be necessary to refer to the definition of 'goods' in Section 2 (d) of the CST Act which reads as follows: "(d) "goods" includes all materials, articles, commodities and all other kinds of movable property, but does not include newspaper actionable claims, stocks, shares and securities." Section 5(3) of the Act has to be .....

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t of Section 5(3) of the Act. 8. Before going further, we will refer to the judgment of the learned Single Judge which is under challenge in W.A.No.588/2009. In paragraph 2 of the judgment it was held by the learned Single Judge that "Section 5(3) provides for exemption of sale to exporters only for the purchase made by the exporter against advance exports orders for export of goods. The petitioner has no case that the goods purchased by the exporter from the petitioner were goods which are .....

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for exemption only for the goods exported." The learned Single Judge also noticed that it is only because of non availability of exemption for sale of packing material to exporters under Section 5(3) of the Act, the Government granted an incentive by way of reduction in rate of tax to suppliers of packing materials to exporters for packing goods for export. 9. For considering the legal point, it will be profitable and advantageous to refer to the interpretation placed by the Constitution Be .....

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on some experienced export house for exporting the goods because special expertise is needed for carrying on export trade. A sale of goods made to an export canalizing agency such as the State Trading Corporation or to an export house to enable such agency or export house to export those goods in compliance with an existing contract or order is inextricably connected with the export of the goods. Further, if such sales do not qualify as sales in the course of export, they would be liable to Stat .....

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ourse 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." Therein, it has been explained that a sale of goods made to an export canalizing agency such as the State Trading Corporation or to an export house to enable such agency or export house to export those goods in compliance with an existing contract or order is inextricably connected with the export of the goods. 10. The .....

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ity of the goods sold to be exported out of the territory of India. In order to fulfil an export obligation, if an exporter purchases goods and as a result of some processing the identity and character of the goods change then it will not be a case of export of the same goods." 11. The provision has been analysed in paragraphs 23 and 24 which we reproduce below: "23. When we analyse all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 .....

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e to export. - To occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India. 24. The phrase 'sale in the course of export' comprises in itself three essentials: (i) that there must be a sale: (ii) that goods must actually be exported and (iii) that .....

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might both have a direct significance as well as an indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed. 12. Going by the same, there are various elements to be proved to constitute a sale in the course of export. There must be an intention on the part of the buyer and the seller to export. There must be an obligation to export which may arise by reason of statute, contract between the parties, or from mu .....

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part and parcel of the export and the goods must be actually exported. Therefore, the important link to be proved is one that the local sale or purchase between the parties is inextricably linked with the export of the goods and if so, an exemption would be applicable. 13. Under Section 5(3) of the CST Act, both the goods should be the same goods, and the inextricable links will, therefore, have to be established. 14. If we consider the issue in the light of the interpretation placed by the Cons .....

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ch that there was a sale of packing materials attracting exception under Section 5A(1)(c) of the Act. The said section is attracted in case the goods so purchased are despatched to any place outside the State in the course of inter-State trade or commerce and the interpretation of the said provision was considered by the Division Bench therein. Of course, the learned counsel for the appellant relied upon the same to contend that the same will show that packing materials had to be used for the in .....

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. The Bench did not consider the question as to whether the purchase or sale are of the same goods which are meant for export, but emphasis was given to the incidence of last sale of goods alone. In the light of the interpretation placed by the Constitution Bench, in Azad Coach Builders Pvt. Ltd. (supra) as noted already, the various links will have to be established. 17. The decision of the Andhra Pradesh High Court in Standard Packings'case {(1995) 96 STC 151} considered only one aspect, i .....

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g that in the said case there are facts on record to conclude that polythene bags were also exported, according to the contract between the exporter and foreign buyers. Exemption was claimed for the packing material, viz. polythene bags used for packing barytes powder. The Bench concluded that therein the identity of the goods was established with regard to the polythene bags sold by the assessee and the polythene bags in which the barium sulphate was packed and exported by the exporter and only .....

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ase admittedly tags and labels were printed by the supplier-printing press in terms of the petitioner's orders, which were in conformity with export orders. So much so, the commodity even at the time of printing or manufacturing is earmarked for export after purchase. The petitioner attached the tags and labels to the products exported also. Therefore, it was held that the commodity purchased was for export by attachment to the coir products without any change whatsoever and so much so, the .....

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ked goods. But evidently, the exemption under Section 5(3) is in relation to the "goods purchased". It should precede the sale or purchase occasioning the export of those goods. It cannot be said that the purchase of packing materials get the colour of 'goods' which were "exported". The goods, even going by the case of the appellant, are something else like cashew kernels, marine products, food products, etc. It cannot be said that the cartons supplied by the appellan .....

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ose decisions are distinguishable. 21. According to us, in the light of the interpretation placed by the Constitution Bench in Azad Coach Builders' case (supra), the issue will have to be considered by examining whether all the ingredients of Section 5(3) of the CST Act are satisfied. The important aspect pointed out by the Constitution Bench in the above decision is that there has to be an inextricable link between the local sales or purchase with the export of goods. For occasioning 'e .....

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e cause of". 22. As we have already observed, the appellant will have to establish the identity of the goods sold with the goods meant to be exported out of the territory of India. It cannot be said that packing materials as such were meant for export but they were used only for wrapping the "goods which were exported". The said distinction clearly goes against the contentions of the appellant. It cannot be said that the packing materials sold by the appellant and the goods export .....

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