1994 (7) TMI 292 - SC - VAT and Sales Tax

Whether there has been no contravention of the declaration given under rule 27(2) of the Orissa Sales Tax Rules thus attracting the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act? Whether there was no contravention of section 5(2)(A)(a)(ii) of the Act, acted within its jurisdiction in remanding the appeal. Whether the sale by the petitioner-company to the Japanese buyers comes within the ambit and scope of article 286(1)(b) of the Constitution of India read with section 5 of the Central Sales Tax Act? Held that - Appeal partly allowed. The sale by the respondent-assessee was in contravention of the declaration given by the assessee under rule 27(2) of the Rules and, as such, attracts the proviso to section 5(2)(A)(a)(ii) of the Act. We uphold answer No. 2 given by the High Court but we set aside answer No. 1 of the High Court and in that place substitute the following answer that the Tribunal was wrong in holding that there was no contravention of the declaration given under rule 27(2) of the Rules. The assessee contravened the said declaration and, as such, the proviso to section 5(2)(A)(a)(ii) of the Act was attracted.

Issues Involved:
1. Contravention of the declaration under rule 27(2) of the Orissa Sales Tax Rules.
2. Jurisdiction of the Tribunal in remanding the appeal.
3. Applicability of Article 286(1)(b) of the Constitution of India and Section 5 of the Central Sales Tax Act to the sale by the petitioner-company to Japanese buyers.

Issue-wise Detailed Analysis:

1. Contravention of the declaration under rule 27(2) of the Orissa Sales Tax Rules:

The Tribunal initially held that there was no contravention of the declarations given under rule 27(2) of the Orissa Sales Tax Rules, thus not attracting the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act. The High Court upheld this view, stating that the sales to Japanese buyers were covered by the embargo under article 286(1)(b) of the Constitution of India read with section 5 of the Central Sales Tax Act and were not exigible to sales tax under the Orissa Act.

However, the Supreme Court found a patent error in the High Court's judgment. It was determined that the assessee's sale to the Japanese buyers was in the course of export and not within the State of Orissa. The declaration made by the assessee was found to be incorrect, as it concealed the preexisting export contract with the Japanese buyers. Thus, the assessee contravened the provisions of section 5(2)(A)(a)(ii) of the Act, attracting the proviso to the said section.

2. Jurisdiction of the Tribunal in remanding the appeal:

Given that the Tribunal found no violation of the declarations, it remanded the matter for re-verification of accounts to ascertain the correct figures. The High Court did not address this issue directly due to its findings on the other issues.

The Supreme Court, by setting aside the High Court's answer regarding the contravention of declarations, implicitly recognized the Tribunal's jurisdiction to remand the appeal for re-verification of accounts.

3. Applicability of Article 286(1)(b) of the Constitution of India and Section 5 of the Central Sales Tax Act to the sale by the petitioner-company to Japanese buyers:

The High Court and the Supreme Court both agreed that the sale by the assessee to the Japanese buyers was in the course of the export of goods out of the territory of India. This sale was protected by article 286(1)(b) of the Constitution of India read with section 5 of the Central Sales Tax Act, making it non-exigible to sales tax under the Orissa Act.

The Supreme Court emphasized that an "export sale" involves a series of integrated activities that commence with the agreement of sale with a foreign buyer and end with the delivery of goods for transport out of the country. The sale and export are so intertwined that they form a single transaction, and the sale cannot be dissociated from the export.

Conclusion:

The Supreme Court allowed the appeals partly. It upheld the High Court's answer regarding the non-exigibility of sales tax on the export sale to Japanese buyers but set aside the High Court's finding that there was no contravention of the declaration under rule 27(2). The Supreme Court substituted this with a finding that the assessee contravened the declaration, attracting the proviso to section 5(2)(A)(a)(ii) of the Act. The appellant was awarded costs quantified at Rs. 20,000.

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