1982 (3) TMI 244 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exemption from sales tax under Section 5 of the Central Sales Tax Act, 1956.
2. Nature of transactions involving quota-holders.
3. Applicability of the second limb of Section 5(1) of the Central Sales Tax Act, 1956.

Detailed Analysis:

1. Exemption from Sales Tax under Section 5 of the Central Sales Tax Act, 1956:
The assessee, a dealer in hides and skins, claimed exemption from sales tax for a turnover of Rs. 56,21,480, arguing that these were export sales. The court referenced the Supreme Court decision in Serajuddin's case [1975] 36 STC 136 (SC), which clarified that when exports are canalised through the State Trading Corporation (STC), the local sale to the STC is taxable, while the subsequent sale by the STC to the foreign buyer is exempt. The court found that the assessee's transactions followed this model, making the initial sale to the STC taxable. The assessee accepted this decision.

2. Nature of Transactions Involving Quota-Holders:
The assessee contested the taxability of another turnover amounting to Rs. 55,56,053, claiming these were also export sales but under other people's export quotas. The court examined the arrangement where the assessee handled the logistics and financial transactions for goods exported under quotas held by others, described as "quota-holders." Despite the assessee's argument that these transactions were different, the court found that the goods were still exported through the STC, making them two-stage transactions. The court concluded that the initial local sale to the STC was taxable, regardless of whose quota was used, as the privity of contract in the export sales remained between the STC and the foreign buyers. Thus, the assessee's claim for exemption under Section 5 was rejected.

3. Applicability of the Second Limb of Section 5(1) of the Central Sales Tax Act, 1956:
The assessee alternatively argued that the transactions should be exempt under the second limb of Section 5(1), which pertains to sales effected by transfer of documents of title while the goods are on the high seas. The court clarified that for this exemption to apply, the seller must transfer the title to the goods during their voyage. In this case, the STC was the owner and exporter of the goods when they left India, and the assessee merely acted as a transferee of the bills of lading. The court determined that the endorsement on the bills of lading was intended only to facilitate payment collection by the assessee, not to transfer ownership. Therefore, the transactions did not qualify for exemption under the second limb of Section 5(1). The court also noted that the second limb of Section 5(1) is generally unnecessary for export operations, as subsequent dealings with shipping documents do not alter the commencement of export.

Conclusion:
The court dismissed the assessee's revision petition, affirming that the transactions in question were taxable local sales to the STC and did not qualify for exemption under either limb of Section 5(1) of the Central Sales Tax Act, 1956. The assessee was ordered to pay costs amounting to Rs. 250.