1998 (9) TMI 642 - AT - VAT and Sales Tax

Issues Involved:
1. Wrongful levy of sales tax on sales in the course of export.
2. Privity of contract between the applicant and the foreign buyer.
3. Validity of the agreement among Consortium members and the Association.
4. Determination of whether the transaction constituted a sale in the course of export or consisted of two independent sales.
5. Entitlement to exemption under section 5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941.

Detailed Analysis:

1. Wrongful Levy of Sales Tax on Sales in the Course of Export:
The applicant, a registered dealer in tea and a recognized export house, challenged the assessment for the four quarters ending on December 31, 1985, on the grounds of wrongful levy of sales tax on sales in the course of export. The applicant argued that the sale of tea to the National Corporation of the Socialist People's Libyan Arab Jamahiriya (the Corporation) was an export sale and should be exempt from sales tax under section 5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941 (the 1941 Act).

2. Privity of Contract Between the Applicant and the Foreign Buyer:
The Commercial Tax Officer disallowed the applicant's claim for exemption, reasoning that there was no privity of contract between the applicant and the Corporation. The officer contended that the contract was between the Consortium (formed by the applicant and other exporters) and the Corporation. The appellate authority and the Board upheld this view, leading to the applicant's contention that the authorities erred in their judgment.

3. Validity of the Agreement Among Consortium Members and the Association:
The respondents questioned the validity of the agreement among the Consortium members and the Association, arguing that the Association was not a signatory to the document. However, the Tribunal found that the document served as an agreement binding on the signatories and could be used for collateral purposes to explain the role and position of the involved parties.

4. Determination of Whether the Transaction Constituted a Sale in the Course of Export or Consisted of Two Independent Sales:
The Tribunal examined several documents, including letters of offer and acceptance, the bill of lading, and invoices, to ascertain the real nature of the contract. The Tribunal concluded that the formation of the Consortium was solely for negotiating the deal with the Corporation, which required a single supplier. The Consortium's role ended once the Corporation accepted the offer, and the individual members, including the applicant, executed the contract by shipping their respective quotas of tea, drawing invoices, and receiving payment directly.

The Tribunal found that the Consortium never acquired title to the goods, nor did it receive any share of the sales proceeds. The Consortium acted as an agent for its members, and the sale was directly between the individual members and the Corporation. Therefore, the transaction did not consist of two independent sales but was an integrated transaction in the course of export.

5. Entitlement to Exemption Under Section 5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941:
The Tribunal held that the sale of tea by the applicant to the Corporation was in the course of export and was not exigible to tax under section 5(2)(a)(v) of the 1941 Act. The Tribunal quashed the order of the Commercial Tax Officer rejecting the applicant's claim for exemption and set aside the orders of the appellate authority and the Board. The assessing authority was directed to modify the assessment order accordingly.

Conclusion:
The application was allowed, and the Tribunal held that the sale of tea to the Corporation by the applicant was in the course of export and not subject to sales tax. The orders of the Commercial Tax Officer, the appellate authority, and the Board were quashed, and the assessing authority was directed to modify the assessment order. The Tribunal made no order as to costs and rejected the request for a stay of the judgment's operation.

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