1997 (8) TMI 459 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of section 5(3) of the Central Sales Tax Act, 1956.
2. Validity of reassessment disallowing the exemption initially granted.
3. Determination of the nature of the sale by the assessee to STAR.
4. Eligibility for exemption under section 5(3) of the Central Sales Tax Act.

Detailed Analysis:

1. Applicability of section 5(3) of the Central Sales Tax Act, 1956:
The core issue was whether the sales made by the Indian Textile Paper Tube Company Limited (the assessee) to Star Textile Engineering Works (STAR) qualified for exemption under section 5(3) of the Central Sales Tax Act, 1956. This section exempts the last sale or purchase occasioning the export of goods out of India. The court analyzed the series of agreements and transactions to determine if the sales by the assessee to STAR were in the course of export.

2. Validity of reassessment disallowing the exemption initially granted:
The reassessment for the years 1979-80 and 1980-81 disallowed the exemption initially granted to the assessee. The Sales Tax Appellate Tribunal upheld the reassessment, which led to the dispute. The court noted that the disputed turnover was Rs. 3,24,490 for 1979-80 and Rs. 1,32,840 for 1980-81. The reassessment was challenged on the grounds that the sales were indeed made in the course of export.

3. Determination of the nature of the sale by the assessee to STAR:
The court examined the agreements between the various parties involved, including the consortium of textile machinery manufacturers, the National Textile Corporation of Tanzania (TEXCO), and STAR. It was crucial to determine if the property in the goods sold by STAR to TEXCO passed only after the goods crossed the customs frontier of India. The agreements indicated that the property in the goods remained with STAR until they crossed the customs frontier, and only then did it pass to TEXCO. This indicated that STAR was the exporter, and the goods were sold in the course of export.

4. Eligibility for exemption under section 5(3) of the Central Sales Tax Act:
The court concluded that the sales by the assessee to STAR were for the purpose of fulfilling the export obligation under the contract between STAR and Lakshmi Textile Exporters Ltd. The court relied on the Supreme Court decision in C.T. Ltd. v. Commercial Tax Officer, which established that the penultimate sale preceding an export sale is exempt under section 5(3). The court found that the arrangement between STAR and Lakshmi did not involve a sale to Lakshmi but was an export sale to TEXCO. Consequently, the sale by the assessee to STAR qualified as the penultimate sale and was entitled to the exemption.

Conclusion:
The court held that the Tribunal was in error in denying the benefit of section 5(3) to the assessee. The appeals were allowed, and the reassessment orders disallowing the exemption were set aside. The court emphasized that the formation of the consortium and the series of agreements were specifically for the purpose of exporting Indian textile machinery to Tanzania, and the sales made by the assessee were in the course of such export. The appeals were allowed without costs.