1986 (3) TMI 304 - HC - VAT and Sales Tax

Held, that - The contract for supply of the cashew was only between the petitioner-Corporation and the foreign supplier and the allottees were not parties to the contract and there was no privity of contract between the foreign suppliers and the allottees and the privity of contract was only between the foreign suppliers and the Corporation. The licences in the instant case were issued to the Corporation with an express condition that the Corporation should be the owner of the goods imported under the licence up to the time of clearance through customs. There was no integral connection with the sale to the allottees and the import by the Corporation and the movement of the goods from the foreign countries was occasioned by the contract of purchase with the foreign suppliers by the Corporation and not by the contract of sale by the Corporation with the allottees.

Issues Involved:
1. Whether the sales by the Corporation were in the course of import and therefore exempt under Section 5(2) of the CST Act.
2. Whether the Corporation acted as an agent of the allottees, making the import by the allottees and not the Corporation.
3. Whether the goods being unascertained and future goods, sales were complete by appropriation to the contract of sale with the allottees even before the goods were shipped, thereby not attracting the provisions of the KST Act.

Detailed Analysis:

Issue 1: Sales in the Course of Import
The primary contention was whether the sales by the Corporation to the allottees were in the course of import and thus exempt under Section 5(2) of the CST Act. The Corporation argued that the sales were effected by transferring documents before the goods were cleared by customs authorities, hence before crossing the "customs frontiers of India" as defined in Section 2(ab) of the CST Act. The court examined the definition and the legislative intent behind the term "customs frontiers of India," noting that prior to the amendment in 1976, this term was interpreted by the Supreme Court in State of Madras v. Davar and Co. The court held that the amendment to Section 2(ab) was not retroactive and did not clarify an existing ambiguity but rather introduced a new and restricted meaning. Therefore, the sales were not in the course of import as the goods had crossed the customs frontiers of India before the transfer of documents.

Issue 2: Agency Relationship
The Corporation claimed it acted as an agent for the allottees, and thus the import was by the allottees. The court refuted this, stating that the Corporation was not an agent but a principal in its transactions with the foreign suppliers. The import licences were issued to the Corporation with a condition that it remained the owner of the goods until clearance through customs. The court referenced the Supreme Court's decision in Mod. Serajuddin v. State of Orissa, which clarified that there was no principal-agent relationship in such cases. The Corporation's role was independent, and its relationship with the allottees was that of two principals.

Issue 3: Appropriation of Unascertained and Future Goods
The Corporation argued that the goods were appropriated to the contract of sale with the allottees even before shipment, thus no sale took place within the State. The court examined Section 2(t) of the KST Act and Section 23 of the Sale of Goods Act, which require unconditional appropriation for the transfer of property in unascertained goods. The court found no evidence of such appropriation before shipment. The appropriation must be final and unconditional, which was not demonstrated by the Corporation. Therefore, the sales were not completed by appropriation before shipment, and the provisions of the KST Act were applicable.

Conclusion:
The court concluded that the sales by the Corporation to the allottees were not in the course of import and thus were subject to tax under the KST Act. The Corporation was not acting as an agent of the allottees but as a principal. There was no unconditional appropriation of goods to the contract of sale before shipment. The sales took place at Mangalore Harbour within the State of Karnataka, making them taxable under the KST Act. The revision petitions were dismissed, and the orders of the Tribunal and the assessing authorities were upheld.

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