1975 (11) TMI 128 - HC - VAT and Sales Tax

In respect of export of cotton yarn and cotton textiles under the Cotton Textiles Export Promotion Incentive Scheme, the assessees were granted import licence for importation of textile chemicals, dyes and gums. One R agreed to purchase from the assessees the imported dyes and chemicals. But as the licence was not transferable, it was agreed that the assessees would sell to R on monopoly basis the imported goods on forward, afloat or c.i.f. basis at a certain price. On receipt of a part of the sale price, which was the premium, the assessees agreed to hand over the licence to enable the purchaser to take steps for importing the goods in the name of the assessees. Held, that as the licensed importer was the assessees and the purchaser could not have placed on order with the foreign seller, there was no privity of contract between the foreign seller and the purchaser and that, therefore, there was a sale by the assessees to the purchaser which was liable to be taxed under the Tamil Nadu Act.

Summary

Issues Involved:
1. Determination of whether the sales in question were import sales or local sales.
2. Examination of the privity of contract between the foreign sellers, the assessees, and the purchasers.
3. Analysis of the applicability of relevant case law precedents.
4. Assessment of the turnover and its taxability under the Tamil Nadu General Sales Tax Act.
5. Specific examination of the turnover for the assessment year 1962-63.

Issue-wise Detailed Analysis:

1. Determination of Whether the Sales Were Import Sales or Local Sales:
The primary issue was whether the sales of dyes and chemicals by the assessees to the purchasers were import sales or local sales. The assessees argued that these were import sales, claiming they acted as agents for the purchasers, who were the actual importers. They relied on agreements dated 15th March 1960 and 7th April 1961 to support their contention. However, the assessing and appellate authorities concluded that there were two distinct sales: one by the foreign sellers to the assessees (an import sale) and another by the assessees to the purchasers (a local sale). Consequently, the turnovers related to the local sales were deemed liable for assessment under the Tamil Nadu General Sales Tax Act.

2. Examination of the Privity of Contract:
The court examined the privity of contract between the parties involved. The assessees contended that there was a single transaction of import sale, citing the agreements with the purchasers. However, the court found that the import licenses were in the name of the assessees and were non-transferable. The purchasers merely assisted the assessees in importing the goods by paying premiums or part of the price in advance. The actual contracts with the foreign sellers were made by the assessees, and the importation was also effected in their name. Thus, the court concluded that there was no direct privity of contract between the foreign sellers and the purchasers.

3. Analysis of Relevant Case Law Precedents:
The court analyzed several precedents to determine the nature of the transactions:
- Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes: The Supreme Court held that the movement of goods from Belgium to India was incidental to a contract, making it an import sale.
- Deputy Commissioner v. Kotak & Co.: The Supreme Court ruled that the firm acted as an agent of the licensee, making the sales in question import sales.
- Binani Bros. (P.) Ltd. v. Union of India: The court held that there were two transactions: one by the foreign seller to the assessee and another by the assessee to the Government departments.
- Mod. Serajuddin v. State of Orissa: The Supreme Court emphasized the necessity of a privity of contract between the exporter and the foreign purchaser for an export sale.

In light of these precedents, the court concluded that the transactions in question involved two sales, not a single import sale.

4. Assessment of Turnover and Taxability:
The court upheld the view that the turnovers related to the local sales were liable for assessment under the Tamil Nadu General Sales Tax Act. The assessees' argument that there was only one transaction of import sale was rejected. The court confirmed the orders of the Tribunal in T.C. Nos. 461 to 465 of 1970, which held that the sales by the assessees to the purchasers were local sales subject to sales tax.

5. Specific Examination of Turnover for Assessment Year 1962-63:
For the assessment year 1962-63 (T.C. No. 52 of 1972), the court noted that certain goods had been received at the port in Bombay, which was included in the disputed turnover of Rs. 1,32,000. This specific question had not been addressed by the Tribunal. Consequently, the court set aside the Tribunal's order and remanded the matter to the Madras Tribunal to determine which part of the turnover was imported through the port of Madras and which part through the port of Bombay, and whether any part of the turnover related to sales outside the State.

Conclusion:
- T.C. Nos. 461 to 465 of 1970 were dismissed, confirming the local sales were liable to tax.
- T.C. No. 52 of 1972 was allowed, and the case was remanded to the Madras Tribunal for further examination regarding the turnover for the assessment year 1962-63.
- The department was entitled to costs in all petitions, with counsel's fee set at Rs. 150 in each case.