1986 (7) TMI 387 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the purchases of soapstone lumps by the assessee from local dealers were in the course of export and thus exempt from purchase tax.
2. Whether the Board of Revenue was justified in holding that no purchase tax is leviable on Rs. 4,47,235.25 despite no privity of contract between local sellers and foreign buyers.

Issue-wise Detailed Analysis:

1. Purchases in the Course of Export:
The core issue was whether the purchases of soapstone lumps by the assessee from local dealers were in the course of export and thus exempt from purchase tax under section 5 of the Central Sales Tax Act and article 286(1)(b) of the Constitution of India. The Commercial Taxes Officer had determined that these purchases were not made in the course of export but were only intended for export. The goods were purchased much before they entered the export stream, and the exports were not a direct result of the purchase. The Board of Revenue, however, set aside this view, holding that the purchases were directly connected with the export trade and exempt from tax.

The High Court examined the legal precedents, including the Supreme Court's rulings in *State of Travancore-Cochin v. Bombay Company Ltd.*, *Ben Gorm Nilgiri Plantations Company v. Sales Tax Officer*, *Coffee Board v. Joint Commercial Tax Officer*, and *Mod. Serajuddin v. State of Orissa*. These cases clarified that for a sale to be in the course of export, the sale and export must be integrally connected, with the sale occasioning the export.

The High Court concluded that the transactions between the local dealers and the assessee were independent of the export transactions. The property in the goods passed to the assessee when the goods were loaded onto railway wagons in Rajasthan, and there was no binding agreement necessitating the export of these goods. The sale to the foreign buyer was a separate transaction, and the local purchases could have been diverted or sold within India. Therefore, these purchases were not in the course of export but were for export, making them liable to purchase tax under section 5A of the Rajasthan Sales Tax Act.

2. Privity of Contract:
The second issue was whether the Board of Revenue was justified in holding that no purchase tax is leviable on Rs. 4,47,235.25 despite no privity of contract between the local sellers and the foreign buyers. The High Court noted that the absence of privity of contract between the local sellers and the foreign buyers indicated that the local purchases were not directly linked to the export transactions. The Court referred to the Supreme Court's interpretation in *Mod. Serajuddin v. State of Orissa*, which emphasized the necessity of a direct and immediate cause for the export to be considered in the course of export.

The High Court found that the local purchases and the export sales were two distinct transactions. The local dealers were not involved in the export process, and the goods could have been sold or diverted within India. The amendment to section 5 of the Central Sales Tax Act, which deemed the last sale before export as part of the export, was not applicable retroactively to transactions before April 1, 1976.

Conclusion:
The High Court held that the Board of Revenue was not justified in exempting the purchases from purchase tax. The purchases by the assessee from local dealers were not in the course of export but were for export, making them subject to purchase tax. The order of the Board of Revenue was set aside, and the orders of the Commercial Taxes Officer and the Deputy Commissioner (Commercial Taxes) were restored. The petition was allowed with no order as to costs.

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