1997 (3) TMI 513 - SC - VAT and Sales Tax

Whether, the purchases of African raw cashewnuts made by the assessees from the Cashew Corporation of India are in the course of import and, therefore immune from liability to tax under the Kerala General Sales Tax Act, 1963? Held that - Appeal allowed. Since there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the canalising scheme pertaining to the import of cashewnuts, the sales in question cannot be taxed under the Kerala General Sales Tax Act or the Karnataka Sales Tax Act, as the case may be.

Issues Involved:

1. Whether the purchases of African raw cashewnuts made by the assessees from the Cashew Corporation of India (CCI) are in the course of import and therefore immune from liability to tax under the Kerala General Sales Tax Act, 1963.
2. Whether the sale of imported raw cashewnuts from African countries to the local purchasers by the CCI is subject to tax under the Karnataka Sales Tax Act, 1957.
3. Interpretation of section 5(2) of the Central Sales Tax Act, 1956 regarding sales in the course of import.
4. Applicability of section 2(ab) of the Central Sales Tax Act, 1956 and its retrospective effect.

Detailed Analysis:

1. Whether the purchases of African raw cashewnuts made by the assessees from the Cashew Corporation of India (CCI) are in the course of import and therefore immune from liability to tax under the Kerala General Sales Tax Act, 1963:

The appellants, processors of cashewnuts, argued that their purchases of raw cashewnuts from CCI were in the course of import and thus exempt from state sales tax. The Kerala Sales Tax Appellate Tribunal and the Kerala High Court rejected this contention, leading to the present appeals. The court examined whether the transactions between CCI and the local users occasioned the import of cashewnuts. It was found that CCI acted independently in its dealings with foreign exporters and was not an agent of the local users. The court noted several key facts, including the lack of privity of contract between the local users and the foreign sellers, the issuance of bills of lading in CCI's name, and the ownership of goods remaining with CCI until customs clearance. These facts led to the conclusion that the transactions were not in the course of import but were independent sales by CCI to the local users. Therefore, the sales were subject to Kerala General Sales Tax.

2. Whether the sale of imported raw cashewnuts from African countries to the local purchasers by the CCI is subject to tax under the Karnataka Sales Tax Act, 1957:

In the Karnataka cases, CCI, as a canalising agency, imported cashewnuts and sold them to local processors. The Karnataka Sales Tax Appellate Tribunal and the Karnataka High Court held that these sales were subject to local sales tax. The court found that the transactions were similar to those in Kerala, with CCI acting as an independent importer and not as an agent of the local users. The court reiterated that the sales by CCI to the local users were not in the course of import but were independent transactions. Consequently, these sales were also subject to tax under the Karnataka Sales Tax Act.

3. Interpretation of section 5(2) of the Central Sales Tax Act, 1956 regarding sales in the course of import:

Section 5(2) of the Central Sales Tax Act, 1956, was examined to determine whether the sales by CCI to the local users could be considered as sales in the course of import. The court referred to various decisions of the Constitution Benches, including Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, K.G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes, and Coffee Board v. Joint Commercial Tax Officer, to establish the parameters for determining whether a sale is in the course of import. The court concluded that for a sale to be in the course of import, there must be an integral and intertwined connection between the sale and the import. In the present cases, the sales by CCI to the local users did not meet this criterion, as there were two independent transactions: one between the foreign exporter and CCI, and the other between CCI and the local users. Therefore, the sales were not in the course of import.

4. Applicability of section 2(ab) of the Central Sales Tax Act, 1956 and its retrospective effect:

The appellants argued that section 2(ab) of the Central Sales Tax Act, 1956, which defines "crossing the customs frontiers of India," should be applied retrospectively to their cases. The court rejected this argument, stating that the amendment was brought on the statute book much after the relevant assessment years and was not a procedural amendment with retrospective effect. The court held that section 2(ab) could not be applied to the present cases as it was a substantive provision introduced after the relevant period of assessment.

Separate Judgment by Mrs. Sujata V. Manohar, J.:

Mrs. Sujata V. Manohar, J., delivered a separate judgment, disagreeing with the majority opinion. She argued that the sales by CCI to the local users were in the course of import due to the inseverable link between the local sales and the import. She emphasized the canalising scheme and the specific allocation of goods to the local purchasers, which led to the import. She concluded that the sales were exempt from state sales tax under section 5(2) of the Central Sales Tax Act, 1956. However, this view was not accepted by the majority, and the appeals were dismissed with no order as to costs.

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