1990 (11) TMI 347 - HC - VAT and Sales Tax

Pursuant to an invitation by the Heavy Vehicles Factory for quotations for supply of certain machinery the respondent obtained quotations from foreign suppliers and submitted to the Heavy Vehicles Factory its quotation. The respondent obtained supply orders and import recommendation certificates from the Heavy Vehicles Factory against which it imported the machinery and supplied it to the Heavy Vehicles Factory. Held that - the respondent had acted under its own independent licence to import and although there was some sort of contract to supply certain specified items to the Heavy Vehicles Factory and it did supply such articles to the Heavy Vehicles Factory there was no nexus between the import and the sale. The sale was therefore not exempt in terms of section 5(2) of the Central Sales Tax Act.

Summary

Issues involved:
1. Exemption of sales in the course of import under the Tamil Nadu General Sales Tax Act.
2. Determination of whether sales were in the course of import as per Section 5(2) of the Central Sales Tax Act, 1956.

Issue-wise detailed analysis:

1. Exemption of sales in the course of import under the Tamil Nadu General Sales Tax Act:

The core issue in both petitions was whether the sales made by the assessees were in the course of import, thereby qualifying for exemption under the Tamil Nadu General Sales Tax Act. The Tribunal had accepted the assessees' claims for exemption, stating that the sales were indeed in the course of import.

2. Determination of whether sales were in the course of import as per Section 5(2) of the Central Sales Tax Act, 1956:

T.C. No. 79 of 1980:
The assessee claimed that the disputed turnover related to sales made to the Heavy Vehicles Factory, Avadi, under an import recommendation certificate. The assessee had submitted quotations based on the prices from foreign principals, including customs duties and other charges, and received supply orders from the Heavy Vehicles Factory. The Tribunal held that these sales were in the course of import.

T.C. No. 222 of 1980:
The assessee imported four typewriters, two of which were meant for M/s. Gimpex Minerals Pvt. Ltd. The import was done under a licence and a letter of authority issued by the Controller of Imports. The Tribunal held that these sales were also in the course of import.

Legal Analysis:
Section 5 of the Central Sales Tax Act, 1956, outlines when a sale or purchase is deemed to take place in the course of import or export. According to Section 5(2), a sale is considered to be in the course of import if it either occasions such import or is effected by a transfer of documents of title to the goods before they cross the customs frontiers of India.

The Supreme Court in Coffee Board v. Joint Commercial Tax Officer [1970] 25 STC 528 elucidated that a sale in the course of export must cause the export to take place or be the immediate cause of the export. This principle is applicable to sales in the course of import as well.

In Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Kotak & Co. [1973] 32 STC 6, the Supreme Court held that sales made under an import licence, where the importer acts as an agent of the licensee, are in the course of import. Similarly, in K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes [1966] 17 STC 473, the Supreme Court ruled that sales made to fulfil a contract with a buyer in India, where the goods are imported specifically for that contract, are in the course of import.

Judgment:
In T.C. No. 79 of 1980, the High Court found that the assessee acted under its own independent licence to import and there was no direct nexus between the import and the sale to the Heavy Vehicles Factory. This case was deemed to fall under the precedent set by Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254, where the Supreme Court held that there was no privity of contract between the foreign seller and the ultimate buyer in India. Therefore, the Tribunal's decision to grant exemption was overturned, and the case was remitted to the taxing officer to recover the tax.

In T.C. No. 222 of 1980, the High Court upheld the Tribunal's decision to grant exemption. The assessee imported the typewriters under the licence of M/s. Gimpex Minerals Pvt. Ltd., and there was a direct nexus between the import and the sale. The department failed to prove any irregularities regarding the remaining two typewriters. Thus, the Tribunal's decision to exempt the sales was affirmed.

Conclusion:
T.C. No. 79 of 1980 was allowed, setting aside the Tribunal's order and remitting the case for tax recovery. T.C. No. 222 of 1980 was dismissed, upholding the Tribunal's decision to grant exemption. No order as to costs was made in both cases.