1975 (4) TMI 109 - SC - VAT and Sales Tax

Whether the agreements between the appellants and the State Trading Corporation (hereinafter referred to as the Corporation) were in the course of export, and, therefore, immune from liability to the Central Sales Tax Act? Held that - Appeal dismissed.

Issues Involved:
1. Whether the agreements between the appellants and the State Trading Corporation (STC) were in the course of export and thus exempt from liability under the Central Sales Tax Act, 1956.
2. Whether the STC acted as an agent of the appellants in the integrated transaction of export.
3. Whether the contracts between the appellants and the STC on an FOB basis meant that the property in goods passed only on shipment, thus making the sale non-taxable.

Detailed Analysis:

1. Whether the agreements between the appellants and the State Trading Corporation (STC) were in the course of export and thus exempt from liability under the Central Sales Tax Act, 1956.

The appellants entered into contracts with the STC for the sale of mineral ore, which the STC then sold to foreign buyers. The Supreme Court examined whether these sales were "in the course of export" under Section 5(1) of the Central Sales Tax Act, 1956. The Court reaffirmed that a sale or purchase of goods is deemed to take place in the course of export only if it 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 appellants argued that the contracts with the STC were inextricably linked with the export process and thus formed an integrated transaction. They cited various terms of the contracts, such as price in USD, FOB terms, and the requirement for final sampling and weighing at the port of discharge, to support their claim.

The Court, however, found that the contracts between the appellants and the STC and those between the STC and the foreign buyers were separate and independent. The STC was the entity that exported the goods, and there was no privity of contract between the appellants and the foreign buyers. The Court concluded that the sales to the STC did not occasion the export and were therefore not exempt from sales tax.

2. Whether the STC acted as an agent of the appellants in the integrated transaction of export.

The appellants contended that the STC acted as their agent in the integrated transaction of export, thus making the sale exempt from tax. They argued that the STC was interposed by statute for a limited purpose and could not divert the goods to a buyer in India without violating export and import control orders.

The Court rejected this argument, stating that there was no principal-agent relationship between the appellants and the STC. The STC acted as an independent principal, purchasing goods from the appellants and selling them to foreign buyers. The Court emphasized that agency is created by actual authority given by the principal to the agent or by the principal's ratification of a contract entered into by the agent on his behalf but without his authority. In this case, no such relationship existed.

3. Whether the contracts between the appellants and the STC on an FOB basis meant that the property in goods passed only on shipment, thus making the sale non-taxable.

The appellants argued that the FOB terms of the contracts meant that the property in the goods passed only on shipment when the goods were in the course of export, thus making the sale non-taxable. They cited previous cases to support their argument that FOB contracts imply that the property in the goods passes only when the goods are shipped.

The Court found that the mention of FOB price in the contracts between the appellants and the STC did not render the contracts FOB contracts with the foreign buyer. The STC entered into independent FOB contracts with the foreign buyers, and the appellants were required to bring the goods to the ship named by the STC. The shipment of goods by the STC to the foreign buyer was the FOB contract to which the appellants were not parties. Therefore, the sale to the STC was not in the course of export and was taxable.

Conclusion:

The Supreme Court concluded that the sales between the appellants and the STC were not in the course of export and were therefore subject to sales tax under the Central Sales Tax Act, 1956. The Court dismissed the appeals, holding that the appellants were not entitled to claim exemption from sales tax. The Court also directed that the parties bear their own costs.

← Previous Next →