1969 (10) TMI 58 - SC - VAT and Sales Tax

Whether the sale is one which is connected with the export of the goods from this country to an importer in another country? Whether the sale to the agent or the intermediary was a sale in the course of export out of India? Held that - Appeal dismissed.Unless the sale is inextricably bound up with a particular export it cannot be said to be in its course. If no particular export is in sight the sale by the Coffee Board cannot go beyond the description of sale for export. The petitioner cannot claim exemption from the tax and the department was right in demanding the tax.

Issues Involved:

1. Preliminary Objection on the Maintainability of the Petition under Article 32.
2. Interpretation of "in the course of export" under Article 286(1)(b) and Section 5(1) of the Central Sales Tax Act, 1956.
3. Whether the sales by the Coffee Board to registered exporters are exempt from sales tax as sales in the course of export.

Detailed Analysis:

1. Preliminary Objection on the Maintainability of the Petition under Article 32:

The respondents raised a preliminary objection questioning the maintainability of the petitions under Article 32 of the Constitution, arguing that no fundamental right was involved. The objection was twofold: (i) the petitioner, being a corporation, could not claim the right to hold, acquire, and dispose of property under Article 19, as it is available only to citizens; and (ii) there were adequate remedies available under the Sales Tax Act to challenge the assessment.

The court addressed the first part by referring to previous judgments, including the State Trading Corporation case, which held that corporations are not citizens under Article 19 but can claim protection under Article 31(1) as it applies to "persons," including corporations. The court thus rejected the argument that the petitioner lacked standing.

Regarding the second part, the court held that a demand for tax not backed by a valid law constitutes a threat to property, giving rise to a right to move the Supreme Court under Article 32. The court emphasized that this remedy is not absolute and should be limited to establishing a breach of fundamental rights, not serving as an appeal mechanism. The preliminary objection was thus dismissed, allowing the petitioner to raise the jurisdictional point.

2. Interpretation of "in the course of export" under Article 286(1)(b) and Section 5(1) of the Central Sales Tax Act, 1956:

The court examined the term "in the course of export" as defined in Section 5(1) of the Central Sales Tax Act, 1956. According to this section, a sale or purchase is deemed to take place in the course of export if it either occasions such export or is effected by a transfer of documents of title to the goods after they have crossed the customs frontiers of India.

The court referred to previous rulings, including State of Travancore-Cochin v. Bombay Co. Ltd. and State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, which established that sales occasioning the export of goods fall within the exemption. The court emphasized that the sale must be integrally connected with the export, meaning the movement from an exporter to an importer as a result of the sale.

The court clarified that the phrase "occasions the export" means that the sale must cause the export to take place or be the immediate cause of the export. The sale must be a link in the export chain, with no room for multiple sales in the course of export.

3. Whether the sales by the Coffee Board to registered exporters are exempt from sales tax as sales in the course of export:

The court analyzed the procedure followed by the Coffee Board for selling coffee intended for export. The Coffee Board conducts export auctions where registered exporters bid for the coffee. The conditions of the auction mandate that the coffee must be exported within three months, with penalties for non-compliance.

The court concluded that the sales by the Coffee Board to registered exporters did not qualify as sales in the course of export. The court reasoned that there were two independent sales: the first between the Coffee Board and the export promoter, and the second between the export promoter and the foreign buyer. The first sale was not integrally connected with the export, as the Coffee Board had no control or knowledge of the subsequent export.

The court held that the first sale was a sale for export, not in the course of export, and thus subject to sales tax under the Madras General Sales Tax Act. The petitions were dismissed with costs.

Separate Judgment by SIKRI, J.:

Justice Sikri disagreed with the majority opinion, arguing that the sales in question were made in the course of export. He emphasized the broader meaning of the term "occasion" and the economic importance of export trade. He argued that the conditions imposed by the Coffee Board created a bond between the sale and the eventual export, making the sales part of an integrated transaction. He concluded that the sales were exempt under Article 286(1)(b) and Section 5 of the Central Sales Tax Act, 1956, and would have allowed the petitions.

Order:

In accordance with the majority judgment, the petitions were dismissed with costs.

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