1975 (10) TMI 83 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of sales tax exemption for export sales
- Determination of privity of contract in export transactions

Analysis:
The judgment pertains to a reference under section 11(3) of the U.P. Sales Tax Act regarding the exemption claimed by an assessee engaged in the manufacture and sale of shoes. The assessee claimed exemption on the turnover of Rs. 20,907, contending that the sales represented exports from India under the Central Sales Tax Act. The Sales Tax Officer rejected the claim, stating that the turnover was from local sales to a specific company. However, on appeal, the claim was allowed, and the revision by the State was dismissed. The Commissioner raised a question of law regarding the classification of the sales as export sales. The facts revealed a series of transactions involving the State Trading Corporation (S.T.C.), a local company (Kendra), and the assessee. The agreement stipulated that the assessee would directly export shoes to foreign buyers under the terms of the S.T.C.-Kendra contract. The Court analyzed the nature of the transactions and concluded that despite the contractual arrangements, the actual exporter was the S.T.C., and the sales by the assessee and Kendra were local sales, not export sales.

The Court emphasized the lack of privity of contract between the assessee and the foreign buyers, highlighting that the immediate cause of export was the contract between the S.T.C. and the foreign buyers. Drawing parallels with a Supreme Court decision, the Court clarified that the contract between the exporter (S.T.C.) and the importer (foreign buyers) was the primary factor occasioning the export, not the intermediary sales between the S.T.C., Kendra, and the assessee. The judgment underscored that the term "occasions" in the relevant Act referred to the direct cause of export, which, in this case, was the contract between the S.T.C. and the foreign buyers. Consequently, the Court ruled in favor of the department, denying the exemption claim to the assessee based on the classification of sales as local rather than export sales.

In conclusion, the Court's decision hinged on the determination of the actual exporter in the chain of transactions and the significance of privity of contract in export sales. By analyzing the contractual relationships and the legal principles governing export transactions, the Court clarified the nature of the sales involved and upheld the department's position regarding the exemption claim. The judgment serves as a precedent for interpreting sales tax exemptions in cases involving complex commercial arrangements and export transactions.