1991 (11) TMI 235 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the purchases of African raw cashewnuts by the assessees from the Cashew Corporation of India (CCI) are in the course of import and hence immune from tax under the Kerala General Sales Tax Act, 1963?

Issue-wise Detailed Analysis:

1. Nature of the Transaction:
The primary question was whether the purchases of African raw cashewnuts by the assessees from the CCI are in the course of import and thus exempt from tax. The assessees argued that the transaction was inextricably linked to the import by the CCI under the import license granted by the Government, making CCI merely a conduit between the assessees and the foreign sellers. The Revenue contended that the CCI remained the owner of the imported goods until the actual purchase by the assessees, making the transactions taxable.

2. Relationship Between CCI and Assessees:
The court examined whether the canalisation system created a principal-agent relationship between the CCI and the assessees. It was argued that CCI acted as an agent of the assessees, but the court found no evidence of actual authority given by the assessees to the CCI to create such a relationship. Thus, the relationship was determined to be that of two principals, not principal and agent.

3. Integrated Transaction Argument:
The assessees argued that the transactions were part of a single integrated transaction involving the assessees, CCI, and the foreign seller. They claimed the intervention of CCI did not alter the nature of the transaction. The court, however, noted that the purchase and import must form part of a single transaction, which was not the case here. The purchase by the assessees from the CCI after importation was a separate transaction.

4. Legal Precedents and Judicial Pronouncements:
The court referred to several Supreme Court rulings, including Mod. Serajuddin v. State of Orissa, which clarified that the sale or purchase must occasion the import to be exempt from tax. The court found that the purchases by the assessees from the CCI did not occasion the import, as there was no privity of contract between the assessees and the foreign sellers, and the transactions were distinct and independent.

5. Impact of Canalisation System:
The court examined the purpose of the canalisation system, which was to control foreign exchange and prevent its abuse. The system did not create an agency relationship but established CCI as an independent principal. The court concluded that the transactions under which the CCI sold the imported cashewnuts to the assessees were unconnected with the purchase contracts CCI had with the foreign sellers.

6. Customs Frontiers Argument:
The assessees argued that the purchases were made by transfer of documents of title before the ship crossed the customs frontiers of India, thus qualifying for exemption. The court rejected this argument, stating that the definition of "customs frontiers of India" at the relevant time included territorial waters, and the purchases were made after the goods had reached the port, thus crossing the customs frontiers.

Conclusion:
The court concluded that the purchases made by the assessees from CCI were not in the course of import and were therefore taxable under the Kerala General Sales Tax Act. The tax revision cases were dismissed, with no order as to costs.