1982 (4) TMI 273 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the purchases of shoes by the applicant were exempt from payment of purchase tax under the U.P. Sales Tax Act.
2. Whether the transaction of sale by the applicant to the State Trading Corporation constituted a sale in the course of export.

Issue-wise Detailed Analysis:

1. Exemption from Payment of Purchase Tax:
The applicant, Liberty Footwear Company, claimed that purchases of shoes valued at Rs. 11,09,784.50 during 1974-75 were exempt from purchase tax as they were made in the course of export outside India. This claim was rejected based on the Supreme Court's ruling in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC), where it was established that a sale in the course of export must be directly connected with the export activity and must occasion the export. The Supreme Court emphasized that the immediate and direct cause of export must be the contract between the exporter and the foreign buyer, not any intermediary contracts.

2. Sale in the Course of Export:
The applicant argued that its case differed from Mod. Serajuddin and Nihal Shoe Factory cases. The applicant was a recognized exporter and had direct negotiations with foreign buyers. However, due to legal requirements under the Exports (Control) Order, 1968, the State Trading Corporation (STC) was involved. The applicant contended that the contract between STC and the foreign buyer, and the subsequent contract between STC and the applicant, constituted a single transaction. The applicant claimed it was not selling to STC but was merely fulfilling an export obligation entrusted by STC.

The court, however, found that the transaction between the applicant and STC was indeed a sale. Despite the applicant's argument, the court held that there were two separate contracts: one between STC and the foreign buyer, and another between STC and the applicant. The applicant had no privity with the foreign buyer, and the immediate cause of export was the contract between STC and the foreign buyer, not the applicant's contract with STC.

Analysis of Precedents:
The court referred to several precedents to support its decision. In Commissioner of Sales Tax v. Hanuman Trading Company [1979] 43 STC 408, the court observed that the goods moved pursuant to a contract between the purchasing agent and the ex-U.P. buyers. However, this case was not applicable to the present facts as there was no direct contractual obligation between the applicant and the foreign buyer.

The court also referred to Commissioner of Sales Tax v. Ganeshi Lal and Sons [1982] 49 STC 253, which held that for a sale to be in the course of export, there must be a direct link between the sale and the export. The absence of such a link in the applicant's case meant that the purchases could not be exempt from tax.

Conclusion:
The court concluded that the applicant's purchases were not exempt from purchase tax as they were not made in the course of export. The transaction between the applicant and STC was a separate sale, and the export was occasioned by the contract between STC and the foreign buyer. The revision was dismissed, with each party bearing its own costs.