1998 (3) TMI 643 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Entitlement to exemption under Section 5(3) of the Central Sales Tax Act.
2. Applicability of Article 286(1)(b) of the Constitution of India.
3. Determination of the nature of transactions (whether sales or agency).
4. Jurisdictional issues and the ability to raise new legal arguments at the revision stage.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 5(3) of the Central Sales Tax Act:

The petitioners, registered dealers under the Kerala General Sales Tax Act and Central Sales Tax Act, purchased spices like pepper and dry ginger within Kerala, which were taxable at the last purchase point. They sold these to exporters outside Kerala, who then exported the goods. The petitioners claimed exemption under Section 5(3) of the Central Sales Tax Act, arguing their purchases were the penultimate transactions preceding export. However, the Tribunal found that the petitioners' purchases were not the last purchases preceding the export, as the transactions involved three stages: purchase by the petitioners in Kerala, sale by the petitioners to exporters outside Kerala, and the final export by these exporters. The Tribunal's decision was supported by precedents from the High Courts of Andhra Pradesh and Kerala, which held that similar transactions did not qualify for exemption under Section 5(3).

2. Applicability of Article 286(1)(b) of the Constitution of India:

The petitioners argued that their purchases were inextricably connected with the export, thus falling under the exemption provided by Article 286(1)(b) of the Constitution. They cited cases such as State of Travancore-Cochin v. Bombay Company Ltd. and State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, where the Supreme Court held that sales integral to export activities were exempt. However, the court distinguished these cases, noting that the petitioners' transactions did not form an integrated activity directly linked to export. The court referred to several Supreme Court judgments, including Mod. Serajuddin v. State of Orissa, which clarified that only sales inextricably linked to export qualify for exemption, and not preliminary sales for export.

3. Determination of the Nature of Transactions (Sales or Agency):

The petitioners claimed they acted as commission agents or buying agents for exporters, implying their transactions were penultimate sales exempt under Section 5(3). The court analyzed precedents such as Liptons Ltd. v. Municipal Sales Tax Officer and Panna Lal Babu Lal v. Commissioner of Sales Tax, which discussed the nature of agency relationships. However, the court found no evidence or pleadings to support the petitioners' claim of being commission agents. The petitioners' transactions were found to be independent purchases and sales, not agency transactions.

4. Jurisdictional Issues and Raising New Legal Arguments at the Revision Stage:

The petitioners raised the argument of being commission agents for the first time during the hearing of the revision petition. The court acknowledged that questions of law and jurisdiction can be raised at any stage, but emphasized that factual determinations, such as the nature of the petitioners' transactions, must be pleaded and proven before the assessing authority. The court found no such pleadings or evidence in the lower proceedings, and thus rejected the new argument.

Conclusion:

The court concluded that the petitioners' transactions did not qualify for exemption under Section 5(3) of the Central Sales Tax Act or Article 286(1)(b) of the Constitution. The Tribunal's findings were upheld, and the tax revision cases were dismissed. The court emphasized that the petitioners failed to establish an agency relationship or prove that their purchases were the penultimate transactions preceding export. The judgments in similar cases, such as Kepee Sons v. State of Kerala and K.V. Moosakoya & Co. v. State of Kerala, were found to be applicable, reinforcing the decision to dismiss the petitions.