1977 (8) TMI 134 - SC - VAT and Sales Tax

Whether a sale effected by the respondents-M/s. Swaika Oil Mills-is a sale in the course of the export of goods out of the territory of India? Held that - Appeal allowed. Set aside the judgment of the High Court and hold that the sale in respect of which the respondents claimed exemption, is not a sale in the course of export and is, therefore, exigible to sales tax.

Summary

Issues:
- Interpretation of Article 286(1)(b) of the Constitution regarding taxation on sale or purchase of goods during import or export.
- Application of section 5(1) of the Central Sales Tax Act, 1956, to determine if a sale is in the course of export.
- Examination of a contract between parties to ascertain if a sale qualifies as an export transaction for tax exemption.

Analysis:
The judgment by the Supreme Court in this case delves into the interpretation of Article 286(1)(b) of the Constitution, which prohibits the imposition of tax on the sale or purchase of goods during import or export. The Court notes the Sixth Amendment to the Constitution, empowering Parliament to formulate principles for determining such transactions. In this context, the Court examines the application of section 5(1) of the Central Sales Tax Act, 1956, which deems a sale to be in the course of export under specific conditions.

The primary issue before the Court is whether a sale by the respondents qualifies as a sale in the course of export, thus exempt from sales tax. The revenue authorities initially held the sale to be taxable, but the Calcutta High Court overturned this decision. The Court scrutinizes a contract between the parties involving the sale of linseed oil to the Netherlands Selling Organisation to determine the nature of the transaction.

The Court relies on a previous Constitution Bench decision and a series of legal precedents to analyze the case. It emphasizes key points to establish that the sale in question does not meet the criteria for being considered an export transaction. The Court highlights the absence of a direct link between the respondents and the foreign buyer, indicating two separate sales transactions. It underscores that the export was primarily driven by the contract between the Netherlands Organisation and their buyer, not the sale between the respondents and the Netherlands Organisation.

Furthermore, the Court emphasizes that the respondents' role was limited to facilitating the export by loading the goods onto the ship as carriers, without creating mutual rights or obligations with the ultimate beneficiaries of the export. The Court dismisses arguments related to payment terms, delivery conditions, and licensing arrangements, asserting that these factors do not alter the fundamental nature of the sales transactions involved.

Ultimately, the Court sets aside the High Court's judgment, ruling that the sale in question does not qualify as an export sale and is therefore subject to sales tax. The appeal is allowed in favor of the appellant, with costs awarded accordingly.