1980 (12) TMI 165 - HC - VAT and Sales Tax

Summary

Issues:
Assessment of taxable turnover based on export sales to Russia through State Trading Corporation; Interpretation of contracts between State Trading Corporation, foreign importer, and local dealer; Determination of privity of contract between local seller and foreign importer; Application of sales tax on transactions involving export sales.

Analysis:
The case involved the assessment of taxable turnover for the appellant, a manufacturer and dealer of mango juice, for the assessment year 1971-72. Initially, an exemption was allowed on a turnover of Rs. 3,81,990 representing export sales of mango juice to Russia through the State Trading Corporation. However, the assessing officer later revised the assessment to include this turnover in the taxable turnover, claiming a local sale by the dealer to the State Trading Corporation. The Appellate Assistant Commissioner viewed the contracts between the State Trading Corporation and the dealer as an integrated transaction, considering them as export sales exempt from local sales tax. The Board of Revenue, following a suo motu proceeding and citing a Supreme Court judgment, held that there was no privity of contract between the dealer and the foreign importer, thus subjecting the turnover to local sales tax.

The appellant's counsel argued that the contracts should be considered integrated based on certain observations in a Supreme Court decision, suggesting that even the four transactions should be treated as export sales eligible for exemption. However, the Court found that the contracts between the State Trading Corporation and the foreign buyer, and the State Trading Corporation and the appellant, were distinct contracts without grounds for integration. The absence of a direct connection between the foreign importer and the local seller indicated that the contracts could not be considered integrated, leading to the dismissal of the appeal. Despite the appellant's attempt to establish an integrated activity, the Court upheld the Board of Revenue's decision to subject the turnover to local sales tax.

In conclusion, the Court dismissed the appeal, affirming the Board of Revenue's order and upholding the application of local sales tax on the turnover of Rs. 2,73,240, as the contracts were not deemed integrated. The judgment highlighted the importance of establishing privity of contract between parties in transactions involving export sales, emphasizing the need for a direct connection between the foreign importer and the local seller to warrant exemption from local sales tax.