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2016 (11) TMI 416 - SUPREME COURT

2016 (11) TMI 416 - SUPREME COURT - TMI - Whether the State Bank of India (SBI) and its branches, which are registered dealers under the Bengal Finance (Sales Tax) Act, 1941 (for brevity, ‘the Act’) would be liable to levy of purchase tax under Section 5(6a) of the Act for accepting the Exim Scrips (Export Import Licence) on payment of premium of 20 per cent of the face value of the scrips in compliance with the direction contained in the letter of Reserve Bank of India (RBI) dated 18th March, 1 .....

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plenishment licences or Exim scrips with the intention to cancel and destroy them, the replenishment licences or Exim scrips would not be treated as marketable commodity purchased by the grantor - The intent and purpose was not to purchase the replenishment licences because the scheme was to extinguish the right granted by issue of replenishment licences - Appeal dismissed - Decided in favor of the assessee. - Civil Appeal No. 1798 of 2005 - Dated:- 8-11-2016 - Dipak Misra And Shiva Kirti Singh, .....

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letter of Reserve Bank of India (RBI) dated 18th March, 1992. The authorities of the revenue as well as the Taxation Tribunal (for short, the tribunal ) had held against the SBI but the Division Bench of the High Court of Calcutta in a writ petition has dislodged the said conclusion holding, inter alia, that the purchase of Exim scrips by the Bank did not attract the provisions of Section 4(6) (iii) of the Act and resultantly quashed the orders of fora below and issued consequential directions. .....

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and Exports (Control) Act, 1947, as amended from time to time, and the Imports (Control) Order, 1955, to regulate imports into and exports out of the country and contain different incentive schemes and subsidies to build up foreign exchange resources of the country. As the facts would reveal before July 4, 1991 there was provision for issuance of Replenishment Licences which were referred to as "REP Licences". The objective behind the grant of such licences was to provide the register .....

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vogue till July 3, 1991, when it was substituted by a new policy with effect from July 4, 1991 and the nomenclature of the REP Licence was changed to "Exim Scrip" (Export Import Licence). The provisions governing Exim scrips were more or less the same as those governing REP licences with certain minor variations which are really not pertinent for the purpose of adjudication of the controversy. 5. In March, 1992, the RBI took a policy decision to the effect that the unutilised Exim scr .....

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ndia would be purchasing these Exim scrips from March 23, 1992, up to the end of May 1992, at a premium of 20 per cent of the face value. The list of branches which would be purchasing these Exim scrips would be notified by the State Bank of India. The bona fide holder of the Exim scrips should submit an application to the designated branch of the State Bank of India, in the form prescribed by the State Bank of India. The scrips up to the face value of ₹ 5 lakhs will be straightaway purcha .....

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all designated branches of the said Bank to purchase Exim scrips from holders, who intended to dispose of the same at a premium of 20 per cent of the face value of the Exim scrips, from March 23, 1992, subject to certain terms and conditions. Thereafter, the General Manager (Planning of the International Banking Department of the State Bank of India) communicated to the Deputy Manager, State Bank of India, Overseas Branch, Calcutta, the respondent no.1 herein, on March 21, 1992, forwarding the m .....

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the Commercial Tax Officer, Park Street Charge informed the assessee that apart from payment of sales tax on the sale of gold and silver, it would also be liable to pay purchase tax in respect of purchase of Exim scrips from the holders thereof at a premium of 20 per cent of the face value. Before the assessing authority, it was contended by the SBI that the Exim scrips had not actually been purchased but the same had been surrendered by their holders pursuant to the terms contained in the lett .....

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into any transaction on its own which could be regarded as purchase to attract the provisions of Section 4(6) of the Act but had merely acted as an agent of the RBI in terms of the order contained in the above mentioned circular dated March 18, 1992. 8. The assessing officer did not accept the said stand of the Bank and levied purchase tax under Section 5(6a) of the Act, amounting to sum of ₹ 1,00,04,000/- on the total taxable specified price of ₹ 25,00,00,000/-. In the order of asse .....

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ort of goods. 9. The aforesaid order of assessment was assailed in an appeal before the Assistant Commissioner, Commercial Taxes, Calcutta (South) Circle, who vide order dated September 19, 1996, rejected the appeal and confirmed the order of assessment. The Bank Manager of the concerned Branch and the Chairman of SBI approached the West Bengal Taxation Tribunal (for short, the tribunal ). During the hearing of the appeal it was contended on behalf of the SBI that in order to attract the mischie .....

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to "surrender" by the holders which had been wrongly equated with "purchase" at the Branch level. A further stand was taken that for Section 4(6) to apply, the purchase must have been made with the intention of re-selling the Exim scrips and that the same would be apparent from proper reading of Clauses (i) and (iii) of Section 4(6) of the above Act. It was argued that if such a construction was not adopted, Clause (iii) of Section 4(6) would be unconstitutional and violative .....

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ection 5(6) of the Act. The tribunal narrated the facts and noted the stand and the stance of the assessee and the Revenue and came to hold that the Bank had acted in relation to the impugned transactions as agent of RBI, which is an instrumentality of the Government of India, to accept Exim scrips on payment of a premium to the holders thereof and the activity is thus covered by Section 6(1)(a) and (b); that under Section 6(1)(n) such activity was certainly incidental or conclusive to the promo .....

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es and another (1996) 4 SCC 433; that the submission to the effect that the purchase is made not for resale and hence, the bank would not be liable for tax does not commend acceptation, for legislature does not contemplate or lay down that Section 4(6)(iii) would apply to purchase for the purpose of only resale but has left the expression unspecified and unqualified; that there is no rationale to restrict it to resale and limit the expression; that Section 4(6)(iii) uses the word purpose , a pur .....

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d such use cannot keep the transactions out of the mischief and purview of Section 4(6)(iii); that the transactions were really surrenders and not purchases is untenable because surrender is also envisaged by operation of law and hence, the concept of surrender is inapplicable in the instant case; and that there was enough indication of sale and purchase and transfer of property in the scrips as is evident from documents that the holder of script was encashing them by completely foregoing his en .....

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.C. 577 (S.C.) and State of Gujarat v. Raipur Manufacturing Co. Ltd. AIR 1967 SC 1066 and after deliberating on them, posed the question whether mere lack of the element of regularity or frequency, when the other elements are present would it be sufficient to keep take the transactions out of the compass of business and opined that where an intention to carry on business was clearly established, mere lack of the element of regularity or frequency would not convert business transactions into non- .....

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y in the nature of trade or commerce or manufacture which is done not for sport or pleasure or for charity. Thus, there is little difference between the primary or main part of the definition of business and its inclusive part which basically means, as in the present context, any trade or commerce or similar activity and any transaction in connection with, or ancillary or incidental to, such trade or commerce. Process of exchange can be completed by the exchange of goods and services for money. .....

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se a business within the meaning of Section 2(1a). That being so, having carried on such a business the applicant bank became a dealer under section 2(c), even apart from the fact that it was already a registered dealer for sale of gold. Since sale of gold has no connection with purchase of exim scrips, the latter transactions cannot be said to be either in connection with or ancillary or incidental to sale of gold. In our view, the purchase of exim scrips was a separate business of the applican .....

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consider whether purchase of exim scrips was done by the bank as a business with the intention to do a business. It is undisputed that not only the bank paid money for purchasing exim scrips but also it made some gain by receiving commission out of the transactions. Even without any commission the activity clearly constitutes a business . Another question is : when the activity was carried on under the instructions of the Reserve Bank of India, can it be said to be a business ? In the facts of t .....

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ates from Act of 1955 which created the bank. Unlike any other dealer, the applicant bank could not think of acting beyond the provisions of Act of 1955. That being so, in the special circumstances of the case, the element of compulsion involved in the instruction of the Reserve Bank of India is irrelevant. Apart from that aspect, we may refer to the case of Coffee Board v. Commissioner of Commercial Taxes (1988) 70 S.T.C. 162 (S.C.) in which it was held that there was a sale, where the growers .....

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ing of Section 2(c) of the Act in respect of the Exim scrips since it does not and/or did not carry on the business of sale or purchase of such Exim scrips; that in the case at hand it was only a solitary case and that too for a brief period from March 23, 1992 to May 31, 1992 but neither before nor after the said period had any such transaction been entered into which could justify the finding of the tribunal that the assessee-Bank had an intention to carry on business in purchase of Exim scrip .....

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e Bank inasmuch as the said provisions would otherwise suffer from vagueness and would expose it to attack on the ground of constitutional validity; that keeping in view the scheme of the Act and the intent and purpose of relevant provision, purchase tax could be levied on a dealer only if he carried on business of buying or selling the goods in question; that whatever may be the nature of the transaction, the Bank had only acted as an agent of the RBI in the transaction relating to Exim scrips .....

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ur of the granter it is an act of surrender and nothing else; that SBI had merely acted as an agent of the Sovereign, namely, the department of the Central Government which had issued the Exim scrips, that is, the Joint Chief Controller of Import and Export and under the instruction of the RBI and once the said Exim scrips were surrendered by the holders, the same were required to be cancelled and forwarded to the office of the Joint Chief Controller of Import and Exports who had originally issu .....

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nufacturing Co. Ltd. (supra), Board of Revenue v. A.M. Ansari (1976) 3 SCC 512 and Billion Plastics Pvt. Ltd. (supra). 13. Learned counsel for the Commercial Tax Officer, resisting the submissions of the learned counsel for the Bank contended that the controversy raised by the bank having set at rest by the three-Judge Bench in Vikas Sales Corporation (supra), wherein the Supreme Court had given stamp of approval to the decision in P.S. Apparels v. Deputy Commercial Tax Officer, Madras [1994] 94 .....

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d in Vikas Sales Corporation (supra), P.S. Apparels (supra) and the decision in Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes [1991] 86 STC 175 nothing really remain to be adjudicated. 14. The High Court analysed the principles in all the authorities cited before it and came to hold that this Court has opined that REP licences/Exim scrips were merchandise and/or goods in the commercial world and were freely bought and sold in the market and hence, no argument could be urged that t .....

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Bench distinguished the judgments rendered by this Court as well as by the High Courts of Madras and Karnataka. It further proceeded to opine that the purchases by the SBI were not effected in the usual course of business of the Bank, for it was a one-time affair and there was no continuity or regularity involved in such transactions so as to bring the same within the concept of business. The High Court took note of the fact that the Bank was mainly confined to purchase and sale of gold and sil .....

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he direction of the Reserve Bank of India for the purpose of destroying its very commercial nature, amounted to business being carried on by the writ petitioner-Bank in such Exim scrips. There was no question of selling the Exim scrips once they had been purchased by the Bank. The entire transaction appears to be in the nature of a mopping up operation for removing the Exim scrips from the market. 57. Having regard to the view taken by us that the purchase of Exim scrips by the writ petitioner-B .....

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ment dated June 30, 1995 passed by the Commercial Tax Officer, Park Street Charge, as also the order dated September 19, 1996, passed by the Assistant Commissioner, Commercial Taxes, Calcutta (South) Circle, in Appeal case No. A495/1995-96 under Section 20(1) of the Bengal Finance (Sales Tax) Act, 1941 . The aforesaid conclusion entailed allowing the writ petition preferred before the High Court and resultantly the assessee was discharged from the undertaking given for the purpose of continuatio .....

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rips by designate branches of SBI. This is with reference to our discussion with Shri. B.S. Pandya, General Manager (Domestic & Operations) on the captioned subject. It has been agreed that designated branches of the State Bank of India would commence purchasing Exim Scrips , from holders who wish to dispose of them, at a premium of 20 percent on the face value of the scrip & (unutilized face value) from 23rd March 1992, subject to the following terms and conditions: a) The holder of the .....

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g procedures adopted for identification of the person to whom payment is made. d) The payment would be rounded off to the nearest rupee and would be made only by means of a Crossed Banker s Cheque. The term Exim Scrip would also cover post paid REP licenses issued up to 29th February 1999 of export proceeds. e) State Bank of India, Bombay Main Branch, would arrange to get daily details of scrips paid by their various designated branches and then seek reimbursement, on a consolidated basis, daily .....

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rded to the concerned office of J.C.C.I. & E. which had issued the scrips. In the case of scrips of face value up to ₹ 5 lakhs, the concerned office of J.C.C.I. & E. should also be asked to conduct a check about genuineness of the scrips cancelled by SBI and report objections, if any, in regard to payments to the concerned designated office of SBI. h) If in the case of any scrip of the face value up to ₹ 5 lakhs (which is paid without prior check by the office of J.C.C.I. &am .....

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ding expenses incurred on advertisements notifying designated branches. 2. As desired by you, we have also advised the Chief Controller of Imports & Exports to instruct all his regional offices to render necessary assistance to designated branches of SBI for a smooth implementation of the scheme. He has also been advised to instruct his regional offices in particular that they should promptly (say, within 48 hours) furnish authentication of scrips of face value above ₹ 5 lakhs sent to .....

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as to be cancelled. Certain formalities were stipulated to be complied by the holder as well as by SBI. 18. Section 2(1a) of the Act defines business as follows:- business includes - (i) any trade, commerce or manufacture or execution of work contract or any adventure or concern in the nature of trade, commerce or manufacture or execution of works contract, whether or not such trade, commerce, manufacture, execution of works contract, adventure or concern is carried on with the motive to make pr .....

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n specified circumstances or any person making a sale under Section 6D and includes - the Central or a State Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidator or receiver appointed by a Court in respect of a person defined as a dealer under this clause who, whether or not in the course of business sells, supplies or distributes directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable considerat .....

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ry course of business, authority to sell goods belonging to principals is a dealer; 20. Section 2(d) of the Act defines goods as follows:- goods includes all kinds of movable property other than actionable claims, stocks, shares or securities 21. Section 4 of the Act deals with incidence of taxation. Sub-Section (6) of Section 4 of the Act is as follows:- (6) Every dealer, who has become liable to pay tax under sub-section (1) or sub-section (2) or sub-section (4) of this section or sub-section .....

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cking of goods so purchased or manufactured; (ii) a registered dealer, to whom a declaration referred to in the proviso to clause (bb) of sub-section (1) of section 5 has been or will be furnished by him in respect of sales referred to in sub-clause (i) or sub-clause (ii) of the said clause, of goods purchased against such declaration, and used by him directly in the manufacture in West Bengal, of goods or in the packing of such goods, when such manufactured goods are transferred by him to a pla .....

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id provisions and submit that respondent Bank is a dealer and once it has purchased something, which is goods, it is liable to pay the purchase tax. In essence, the learned counsel for the State would defend the order passed by the tribunal in entirety and would contend that the High Court has wholly flawed in appreciation of the factual score and the provisions applicable to the transaction. 24. In Vikas Sales Corporation (supra), the question arose whether the transfer of an Import Licence cal .....

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Anraj v. Government of Tamil Nadu (1986) 1 SCC 414. It was contended before this Court that the license/scrips are not goods and hence, they are not property. It was further urged that they represent merely a permission to import goods which permission can be revoked at any time by the licensing authority and, therefore, they are really in the nature of share and securities which have been expressly excluded from the definition of goods in the relevant enactments. Analysing various facets, the .....

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n from the licensing authority, i.e., it will be governed by the ordinary law. Accordingly, clearance of the goods covered by a REP Licence issued under this policy will be allowed by the Customs authorities on production by the transferee of only the document of transfer of the licence concerned in his name. Whenever a REP Licence is transferred the transferor should give a formal letter to the transferee, giving full particulars regarding number, date and address of the transferee, and complet .....

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and are traded as such. They are treated and dealt with in the commercial world as merchandise, as goods. A REP Licence/Exim Scrip is neither a chose-in-action nor an actionable claim. It is also not in the nature of a title deed. It has a value of its own. It is by itself a property - and it is for this reason that it is freely bought and sold in the market. For all purposes and intents, it is goods. Unrelated to the goods which can be imported on its basis, it commands a value and is traded a .....

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er sells it to another person for consideration . 26. The High Court has distinguished the aforesaid authority by stating that this Court did not have the occasion to consider the effect of purchase of Exim scrips made by SBI, for it was not a part of business regularly carried on by it but was a transaction which was to be undertaken on the direction of the RBI. Exim scrips were no longer available as goods for the purpose of commercial transaction and were to be reduced to mere papers having n .....

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the Government to the registered exporters was not a sale. The said finding is significant and it has potency. It is also seen that the said authority extensively relies on the earlier judgment in H. Anraj (supra) that dealt with the question whether lottery tickets are goods and accordingly whether sale thereof would invite sales tax. H. Anraj (supra) draws distinction between lottery tickets and steamship tickets, railway tickets, cinema tickets, etc. Salmond s Jurisprudence, 12th Edition at p .....

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ses, assignments, patents, etc. An agreement, which transfers a right, may be termed generically as an assignment. However, when a transaction extinguishes a right, it is called a release, discharge or surrender. The distinction between creation of a right by a grant and subsequent transfer or assignment was also highlighted in H. Anraj (supra) and noted by Sabyasachi Mukherjee, J. (as His Lordship then was) in his concurrent judgment with the following observations:- 41. It was urged before us .....

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I agree with respect that grant is an agreement of some sort which creates rights in the grantee and an agreement which transfers rights may be termed as assignment. But the question, is, before the grant, was such a right, namely the right to participate in the draw, existing in the grantor? The point made is that there is no transfer of property involved in the issue of a lottery ticket and it is only after the issue of the lottery ticket that the grantee gets a right to participate. In other .....

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d in a grant, for the rights come into existence after purchase. 28. The decision in the case of H. Anraj (supra) was overruled by the Constitution Bench in Sunrise Associates v. Govt. of NCT of Delhi and others (2006) 5 SCC 603 on several grounds including that there was no distinction between the chance to win and the right to participate in the draw. Such a sub-division was not correct. There was no value in mere right to participate in the draw. Therefore, lottery tickets were not goods but .....

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context, would carry its ordinary meaning of the subject matter of ownership and not denote the nature of interest of goods. The word goods was used to describe the thing itself. The relevant passages of the Constitution Bench in Sunrise Associates (supra) on the said aspect read as under:- 35. The word goods for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of movable property. The word property may denote the nature of th .....

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er of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods. Hence, when used in the definition of goods in the different sales tax statutes, the word property means the subject-matter of ownership. The same word in the context of a sale means the transfer of the ownership in goods. 36. We have noted earlier that all the statutory definitions of the word goods in the State sales tax laws have uniformly excluded, inter alia, actiona .....

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le claim would not be subject to the sales tax laws. And, again:- 51. We are therefore of the view that the decision in H. Anraj (supra) incorrectly held that a sale of a lottery ticket involved a sale of goods. There was no sale of goods within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim. The decision to the extent that it held otherwise is accordingly overruled though prospectively with effect from the date of this judgment. 29. We .....

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ces (or the DEPB which has replaced the REP licences) are goods . Although we have heard counsel at length on this, having regard to the limited nature of the reference, we do not decide the issue. The decision in Vikas Sales (supra) was referred to only because it approved the reasoning in H. Anraj (supra) and not because the referring court disagreed with the conclusion in Vikas Sales (supra) that REP licences were goods for the purposes of levy of sales tax. Indeed REP licences were not the s .....

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Bench, however, held that the reliance placed in Vikas Sales Corporation (supra) on the observations in H. Anraj (supra), which was agreed to and stood overruled, was to this extent bad in law. To clarify, Vikas Sales Corporation (supra) specifically dealt with the transfer of replenishment licences after they had been issued. However, in Vikas Sales Corporation (supra) it was opined that the grant of a licence by the licensing authority to a registered exporter was not a sale. Sale will take p .....

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oration (supra) impliedly overruled. The three-Judge Bench did not accept the contention by stating thus:- 40. Thus, on a detailed examination, we are unable to see how the decision in Sunrise (supra) can be said to alter the position in regard to the sale of REP licences as held by the earlier decision in Vikas (supra). It is noted above that the Constitution Bench in Sunrise (supra) firmly and expressly declined to go into the question whether REP licences (or DEPB which replaced REP licences) .....

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upra) decision gave illustrations of a number of actionable claims which are transferable. 41. But to our mind that does not in any way change the position insofar as REP licences are concerned. While examining the three-Judge Bench decision in Vikas (supra) earlier in this judgment it is seen that the Court first came to hold that REP licence/Exim scrip fell within the definition of goods quite independently. The Court found and held that REP licences had their own value; they were freely bough .....

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to sales tax. On a careful reading of the decision in Vikas (supra) it is apparent that it was the intrinsic value of REP licence that brought it within the definition of goods. 32. After so stating, the Court specifically referred to the term goods as interpreted in Sunrise Associates (supra) to mean the title and ownership of a thing and not the nature of interest in the goods. The question of free-marketability, it was held, was not primarily relevant as per the decision in Sunrise Associate .....

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third person for consideration, they would attract sale tax. However, the position would be different when replenishment licences or Exim scrips are returned to the grantor or the sovereign authority for cancellation or extinction. In this process, as and when the goods are presented, the replenishment licence or Exim scrip is cancelled and ceases to be a marketable instrument. It becomes a scrap of paper without any innate market value. The SBI, when it took the said instruments as an agent of .....

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