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TMI Blog2020 (8) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption under Section 5(3) for the penultimate sale purchase of raw hides made in the course of export was denied by the said Assessing Authority on the ground that the goods in question exported viz., leather garments were not the "same goods" as the goods purchased, viz., Raw Hides and Skins and therefore, the Assessee was not entitled to exemption under Section 5(3) of the Act. 2. Against the assessment order dated 25 April 1997, the Assessee also filed appeal before the Appellate Assistant Commissioner, who confirmed the said Assessment order vide his order dated 5 August 1998 for the three assessment years in question viz., Assessment Years 1993-94, 1994-95 and 1995- 96. Aggrieved by the same, the Assessee filed second appeal before the Tamil Nadu Sales Tax Appellate Tribunal, (Additional Bench), Madurai, which, however, allowed the appeals of the Assessee with the following observations:- Points (i) and (ii) In all the three appeals, the main reasons stated by the assessing officer are:- (a) When the goods were converted into different commercial commodities and exporter exemptions is not admissible; (b) The exemption under the CST Act, 1956 will be applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng them for a temporary period till they reach a tanning centre assumes importance. Raw hides and skins are 'cured' by either wet slating, dry slating or drying. In the 'cured state', the raw materials can be preserved for a temporary period. In the third state of temporary preservation, the hides and skins are 'picked'. During the next stage, they are tanned, in which state, they can be preserved almost indefinitely. These tanned hides and skins which are for use, "dressed or finished material" could also be preserved almost indefinitely. From the above discussion, it can be seen that dressed hides and skins and coloured leather are the outcome of raw hides and skins after curing and processing and they are not a different commodity as stated by the Assessing Officer. Since the raw hides and skins cannot be exported as such, they are subjected to tanning and being exported. No doubt that the process of tanning amounts to manufacturing. But merely there is a manufacturing process is undergone it need not to be inferred that different goods emerges. The only condition is whether the dealers have complied with the orders entered into with the foreign buyers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent latest, judgment in SLP (Civil No.22914/1994) in the case of Hifiz Sultan Ali and sons, it has been held that if the raw hides by Alahabad dealer are sold to export at by the Madras party, Madras, against phone orders, for export after tanning by the Madras party, were export sales exempt under section 5(3) of the CST Act, 1956 (as held by the Supreme Court reported in 108 STC page 5). Similarly in the subsequent case reported in 111 STC 313, it has been held that exemption should be given on the preceded purchase of raw skins towards the direct export". (f) In an identical issue, the Assessing Officer had made revision of Assessment to Tvl.Saddique Leathers, Dindigul, based on the reference from the Accountant General Audit, Chennai, para1/II-A & 5/II-B of the Accountant General Audit - II/SIRI/ TX/15-29/98-99 dated 17.7.98. So, for the very same issue, the department cannot take dual stand for different Assesses. (g) From the foregoing facts and circumstances, the assessment made by the Assessing Officer for all the three years 1993-94, 1994-95, 1995-96 is not sustainable and ordered to be deleted (h) Item (ii) With regard to penalty the Assessing Officer had not pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted viz., the leather garments were not the same goods, viz., Raw Hides and Skins and the two were commercially different articles, therefore, the Assessee was not entitled to exemption on the purchase of Raw Hides and Skins and the Tribunal has erred in allowing such exemption. He further submitted that unless the inextricable link between the purchase of Raw Hides and Skins is established by leading evidence by the Assessee, with the pre-existing export orders in hand of the Assessee, Section 5(3) of the Act is not attracted. He relied upon several case laws in support of his contention, including the recent Constitution Bench decision of the Hon'ble Supreme Court in the case of State of Karnataka vs. Azad Coach Builders, 2010(9) SCC 524 and submitted that though the Hon'ble Supreme Court in the said Constitution Bench decision has held that in case the Assessee is able to establish the inextricable link between the local sale or purchase and the export of goods, then only, the interpretation given by the Constitution Bench of the Hon'ble Supreme Court that the theory of 'same goods' need not be applied in such cases, and the exemption to the penultimate sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the State. He had also relied upon certain judgments in support of his contentions, which we will deal hereafter. 9. The provisions of Section 5 of the Central Sales Tax Act, are quoted below for ready reference :- 5. When is a sale or purchase of goods said to take place in the course of import or export.- (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. (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. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erritory of India shall be deemed to be in the course of export, subject to the condition that 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. All these different words and phrases in sub-Section (3) have given rise to considerable litigation and debates in the Courts of law and have resulted in several judgments from various High Courts and even the Apex Court of the country. 12. The parts of sub-Section (3) in our understanding upon closer analysis are:- (i) Last sale or purchase of any goods preceding the sale or purchase occasioning the exports; (ii) The goods exported should be "those goods" (same goods) which have been last purchased or sold; (iii) Such last purchase or sale should be in the course of export, or in other words, should have direct and immediate nexus to the sale which occasions export; (iv) Such last sale or purchase should took place 'after' and for complying with the export order. 13. Thus, not only the inextricable link of the last sale or purchase with the actual export has to be established, but those very goods which are exporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the Assessee was not entitled to exemption under Section 5(3) of the Act. (c) Way back in the year 1975, the Constitution Bench of the Hon'ble Supreme Court in the case of Mohammed Serajuddin and ors. vs. State of Orissa, 1975(2) SCC 47, dealt with the case of the Assessee carrying on the business of mining and exporting mineral ores to foreign countries. The Assessee entered into four contracts for sale of chrome concentrates. Two of these contracts were directly with foreign buyers while the two others were with the State Trading Corporation. Since the export of mineral ores was channelized through STC, the STC in turn entered into a contract with foreign buyers. The High Court held that sales under first two contracts directly with foreign buyers were exempt from sales tax, being in the course of export but held that sales under the contract with STC were not exempt from sales tax. The Assessee took up the matter before the Hon'ble Supreme Court and the Hon'ble Supreme Court held that the two contracts in question, one with the foreign buyers and the other with the STC were integrally connected and were part of one integrated transaction which resulted in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because, both Raw Hides and Skins and Dressed Hides and Skins were included in Section 14(iii) of CST Act and being "Declared Goods", they could be taxed only one point of tax in the State. Following the decision of the Constitution Bench in the decision of the Hon'ble Supreme Court in the case of A.Hajee Abdul Shukoor and Co. vs. State of Madras, AIR 1964 SC 1729, the Hon'ble Supreme Court rejected the said contention of the Assessee and came to the conclusion that Raw Hides and Skins and Dressed Hides and Skins are not the one and the same commodity and merely because both were mentioned as one entry in section 14(iii) of CST Act, the same could not be treated as one commodity but they were different commodities and therefore, the Assessee was held liable to tax on the sale of dressed hides and skins. (e) Dealing with the case of sale in the course of import under Section 5(2) of CST Act, the Hon'ble Supreme Court in the case of K.Gopinathan Nair and others vs. State of Kerala, 1997 (10) SCC 1, summarized the settled legal position, emerging from the various Constitution Bench decisions of the Hon'ble Supreme Court in the following manner:- 14. In the light of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. But if on the contrary the transactions between the foreign exporter and the local users in India get transmitted through an independent canalising import agency which enters into back-to-back contracts and there is no direct linkage or causal connection between the export by foreign exporter and the receipt of the imported goods in India by the local users, the integrity of the entire transaction would get disrupted and would be substituted by two independent transactions, one between the canalising agency and the foreign exporter which would make the canalising agency the owner of the goods imported and the other between the import canalising agency and the local users for whose benefit the goods were imported by the wholesale importer being the canalising agency. In such a case the sale by the canalising agency to the local users would not be a sale in the course of import but would be a sale because of or by import which would not be covered by the exemption provision of Section 5 sub-section (2) of the Central Sales Tax Act. 16. On the facts of these cases and in the light of the propositions enumerated above it is impossible to accept the contention of the learned Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porter and the transactions between the exporter and the foreign buyer were inextricably connected with each other, the "same goods" theory will have no application in such facts and the Assessee will be entitled to exemption on the sale of bus bodies to the exporter M/s.Tata Motors under Section 5(3) of the Act, who actually exported the buses, as made by the Assessee M/s.Azad Coach Builders to the importers in Sri Lanka. The relevant portion of the said judgment are quoted below for ready reference :- 26. When we analyze all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on Section 5(3) of the CST Act, the following principles emerge: - To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export; - There must be obligation to export, and there must be an actual export. - The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export. - To occasion export there must exist su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the `same goods' theory has no application. 29. We may also indicate that the burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and to establish that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer, which in this case the assessee has succeeded in establishing. 30. Mr. T. S. Narasimha, learned counsel appearing for Respondent No. 2 contended that any penultimate sale made in furtherance of export, irrespective of the nature of the goods, would also be covered, is too tall a proposition to be accepted. It all depends on the question as to whether the sale or purchase is inextricably connected with the export of goods and not a remote connection as tried to be projected by the counsel. The connection between the penultimate sale and the export of goods should not be casual, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; of complete bus body or complete bus by Azad Coach Builders to Tata Motors, who has exported the same to Sri Lanka buyers. If it was so, then where is the need to give a go-bye to the "same goods" theory in those facts. What was sold (complete bus) has been exported. But since these aspects are not clearly spelled out in these judgments, we cannot dilate more on them. These facts, as reproduced in the law reports are quoted from these two judgments. (i) State of Karnataka v. Azad Coach Builders (P) Ltd., (2006) 3 SCC 338 - (Two Judges Reference Judgment) "1. Manufacturers of buses, such as, TATA and Ashok Leyland get orders for export of buses. One such export order is annexed as "R-3" in the paperbook. These manufacturers manufacture chassis and they thereafter place orders on the assessee for building bus bodies (see Annexure "R-5" in the paper-book). The name of the assessee in the present case is Azad Coach Builders Pvt. Ltd. The foreign buyers place an order on the exporter, namely, TATAs for supply of "the complete bus/buses" giving specifications of the chassis and the bus body. In some cases, the foreign buyers even indicate the source from which the exporter in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two tests, as mentioned in para 12 of the above judgment, are the only two requirements which every penultimate sale must satisfy in order to attract the benefit of exemption under Section 5(3). In our view, the judgment of this Court in K. Gopinathan Nair [(1997) 10 SCC 1] is correct and in the light of this judgment and the tests propounded therein, we are of the view that the aforestated two judgments of this Court in Sterling Foods [(1986) 3 SCC 469 : 1986 SCC (Tax) 609] and Vijayalaxmi Cashew Co. [(1996) 1 SCC 468] need reconsideration. 8. For the reasons aforementioned, we are of the view that the decisions of this Court cited hereinabove in Sterling Foods v. State of Karnataka [(1986) 3 SCC 469 : 1986 SCC (Tax) 609] and Vijayalaxmi Cashew Co. v. CTO [(1996) 1 SCC 468] need reconsideration by a larger Bench. The papers may be placed before Hon'ble the Chief Justice of India for further directions." (ii) State of Karnataka v. Azad Coach Builders (P) Ltd., (2006) 3 SCC 338 - (Constitution Bench Judgment) "6. Sterling Foods [(1986) 3 SCC 469 : 1986 SCC (Tax) 609] and Vijayalaxmi Cashew Co. [(1996) 1 SCC 468] were essentially advocating the "same goods" theory, of cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing authority held that the transactions could not amount to penultimate sale eligible for exemption under sub-section (3) of Section 5 of the CST Act. 20. In quite a contrast with the facts of the case before the Hon'ble Supreme Court in the case of Azad Coach Builders, we do not find even a link established between the purchase of Raw Hides and Skins by the Assessee in the present case to the export of Leather Garments or Dressed Hides and Skins by the Assessee. Neither pre- existence of the export order is available on records before us nor the specification of the purchase of Raw Hides and Skins by the importer in foreign countries is specified as were the facts before the Hon'ble Supreme Court, in the case of Azad Coach Builders, where the Assessee was specified to be the person who shall make the bus bodies, as per the specifications at the instance of the exporter, M/s.Tata Motors. The inextricable link between the sale claimed to be exempted under Section 5(3) and the actual export has to extend from point "A" of the purchase of the commodity to point "B", actual export of the commodity. Unless such entire transaction is inextricably linked or integrated part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Hon'ble Supreme Court in the case of Azad Coach Builders. Therefore, we cannot infer from the reading of the said judgment in case of Azad Coach Builders that the concept of "same goods" theory has been altogether done away with. That, in our understanding, is neither called for and it can even be contrary to the plain language of Section 5(3) of the Act as well the previous judgments of the Hon'ble Supreme Court also. Therefore, the application of the said judgment depending upon the inextricable link established for the whole transaction, applied to the peculiar facts of that case. 22. Reverting back to the facts of the present case before us, as noted above, we do not find any such details of entire chain of transactions established by the Assessee at all. Neither the details of export orders are available, nor the purchases of Raw Hides made by the Assessee directly linked to such export orders after being converted into Leather Garments is established. We do not find any such discussion in any of the orders of authorities below passed by them and placed before us. The mere claim of the Assessee that the Assessing Authority had initially allowed such exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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