1980 (4) TMI 290 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Challenge to the assessment order and appeal order regarding sales tax exemption.
2. Determination of whether sales to export promoters qualify as export sales under Section 5(1) of the Central Sales Tax Act, 1956.
3. Examination of the passing of property and risk in the context of FOB terms and transfer of documents of title.
4. Opportunity to present further evidence regarding the timing of the transfer of property.

Detailed Analysis:

1. Challenge to the Assessment Order and Appeal Order:
The petitioner, a government company engaged in manufacturing steel, challenged the assessment order dated 19th May 1969, and the appellate order dated 27th February 1971, which denied exemption from sales tax for sales worth Rs. 4,57,87,911. These sales were made to export promoters who had separate contracts with foreign buyers. The petitioner contended that these sales should be exempt under Article 286(1)(b) of the Constitution.

2. Determination of Export Sales under Section 5(1) of the Central Sales Tax Act:
The court examined whether the sales to export promoters could be considered as sales in the course of export under Section 5(1) of the Central Sales Tax Act, 1956. Section 5(1) has two limbs:
- The first limb states that a sale is deemed to take place in the course of export if it occasions the export.
- The second limb states that a sale is deemed to take place in the course of export if it is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.

The court held that the sales to export promoters did not qualify under the first limb since the direct cause of export was the contract between the Indian exporters and the foreign buyers, not the contract between the petitioner and the Indian exporters.

3. Examination of Passing of Property and Risk:
The court analyzed the terms of the contract between the petitioner and the export promoters. The significant terms included:
- Payment in US dollars or sterling pounds via an irrevocable letter of credit.
- The bill of lading was taken in the petitioner's name and endorsed in favor of the export promoter upon negotiation.
- Title and risk terms indicated that the title passed upon negotiation of documents and receipt of proceeds, while risk passed upon shipment.

The court disagreed with the Deputy Commissioner's view that property passed at the time of shipment due to FOB terms. Instead, the court held that the property passed when the documents were negotiated and payment was received, as the petitioner had reserved the right of disposal under Section 25(2) of the Sale of Goods Act, 1930.

4. Opportunity to Present Further Evidence:
The court found that the Deputy Commissioner should have allowed the petitioner to present evidence showing that the goods had crossed the customs frontiers before the property passed. The statements submitted indicated a significant gap between the date of shipment and the date of negotiation, suggesting that the property likely passed after the goods crossed the customs frontiers.

Conclusion:
The petition was allowed. The orders of the Regional Assistant Commissioner and the Deputy Commissioner of Sales Tax were quashed concerning the sales worth Rs. 4,57,87,911. The Regional Assistant Commissioner was directed to allow the petitioner to present evidence on whether the property passed after the goods crossed the customs frontiers and to reassess the sales accordingly. No order as to costs was made, and the security amount was ordered to be refunded to the petitioner.