1976 (4) TMI 197 - HC - VAT and Sales Tax

Issues Involved:
1. Determination of whether the sales of cotton yarn by the assessee to a local dealer qualify as "sales in the course of export".
2. Examination of the correctness of the Division Bench decision in State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd. in light of the Supreme Court decision in Mod. Serajuddin v. State of Orissa.

Issue-wise Detailed Analysis:

1. Determination of whether the sales of cotton yarn by the assessee to a local dealer qualify as "sales in the course of export":

The assessee, a dealer in cotton and cotton yarn, reported a total turnover of Rs. 2,83,45,614.33 for the assessment year 1966-67. Out of this, Rs. 1,23,362.40 was claimed to represent sales of cotton yarn in the course of export. The assessing authority and the Appellate Assistant Commissioner both held that the turnover represented intra-State sales. However, the Sales Tax Appellate Tribunal held that the disputed turnover represented export sales and should be excluded from the taxable turnover. The State Government challenged this decision.

The nature of the transactions, as found by the Tribunal, involved the assessee-mills selling cotton yarn to a local dealer, M/s. Keshavlal Thalakchand & Company (Private) Limited, Madras. These sales were on f.o.b. terms, and the yarn was earmarked for export, with the assessee-mills shipping the goods directly to purchasers in Colombo. Despite the name of the local purchaser being shown as the exporter in the bills of lading, the Tribunal held that the assessee should be considered the exporter since it had shipped the goods.

The Supreme Court's decision in Mod. Serajuddin v. State of Orissa was cited by the revenue to argue that these transactions cannot be treated as export sales. The Supreme Court held that the sale between the local seller and the State Trading Corporation did not occasion the export, as the export was the result of the sale between the corporation and the foreign buyer. The same principle was applied here, indicating that the sale between the assessee and the local dealer did not occasion the export.

2. Examination of the correctness of the Division Bench decision in State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd. in light of the Supreme Court decision in Mod. Serajuddin v. State of Orissa:

The Division Bench in State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd. had held that similar transactions were sales in the course of export, based on the interconnected nature of the sale and export. However, the Supreme Court in Mod. Serajuddin v. State of Orissa clarified that only the sale between the exporter and the foreign buyer, which directly occasions the export, qualifies as a sale in the course of export. The Supreme Court's decision emphasized that there can be only one sale that occasions the export, and it must be the sale to the foreign buyer.

The Supreme Court's reasoning included that the mere shipment of goods by the local seller in pursuance of a contract with the exporter does not make the local seller an exporter. The decision also clarified that the involvement of a statutory intermediary like the State Trading Corporation does not change the nature of the transaction.

Given this, the Full Bench of the High Court concluded that the earlier decision in State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd. was not correct. The Court held that under section 5 of the Central Sales Tax Act, there can be only one sale that occasions the export, and it must be the sale between the exporter and the foreign buyer. Therefore, the sale between the assessee and the local dealer could not be considered a sale in the course of export.

Conclusion:

The Full Bench allowed the tax case, ruling that the sales in question were not "sales in the course of export" and thus were subject to tax. The decision of the Sales Tax Appellate Tribunal was overturned, and the earlier decisions of the assessing authority and the Appellate Assistant Commissioner were upheld. The Court also clarified that the decision in State of Tamil Nadu v. Cauvery Spinning and Weaving Mills Ltd. was not in line with the Supreme Court's interpretation in Mod. Serajuddin v. State of Orissa. The petition was allowed with no order as to costs.

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