1999 (12) TMI 833 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for exemption under section 5(3) of the Central Sales Tax Act for exports made through export houses.
2. Validity of deleting turnover on the grounds of wastage involved in processing goods and non-export of entire purchased quantity.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 5(3) of the Central Sales Tax Act:
The primary issue was whether the exports made by the assessee through export houses were eligible for exemption under section 5(3) of the Central Sales Tax Act, 1956. The assessing authority disallowed the exemption on the grounds that the conditions of section 5(3) were not satisfied, as the goods were sold to export houses which then sold them to foreign buyers. The Sales Tax Appellate Tribunal, however, concluded that the assessee was the real exporter and the export houses were merely intermediaries. The Tribunal based its decision on evidence showing that the assessee received the net proceeds in foreign currency and was entitled to export benefits. The Tribunal held that the export houses acted as agents for certain functions, and the assessee was eligible for exemption under section 5(3).

However, the Tribunal's decision was challenged, and it was argued that the assessee could not claim to be the real exporter while benefiting from the export houses' status. The agreement between the assessee and the export houses indicated that the export house was the actual exporter, as the goods were sold to the export house for valuable consideration, and the export house then sold the goods to the foreign buyers. The Tribunal's decision was set aside, and it was held that the assessee's transactions with the export houses constituted local sales, making the assessee liable for tax. The taxable turnover was restored to Rs. 5,34,18,977 for 1976-77 and Rs. 5,27,83,418 for 1982-83, subject to deductions for wastage.

2. Validity of Deleting Turnover on Grounds of Wastage:
The second issue was whether the Sales Tax Appellate Tribunal was right in deleting the turnover on the grounds that goods to the extent of Rs. 1,13,99,454 for 1976-77 and Rs. 89,73,181 for 1982-83 were not exported and were wastage involved in processing. The Appellate Assistant Commissioner had found that a portion of the purchased prawns was not exported due to wastage and assessed it at 5% tax. The Tribunal, however, deleted the turnover, stating that there was no warrant for refixing the taxable turnover based on wastage.

The Tribunal's decision was reviewed in light of an earlier judgment (East Bay Fisheries v. State of Tamil Nadu), which held that natural wastage in processing prawns should not be taxed if within reasonable limits. The wastage was permitted up to 10.8%, and any excess wastage needed to be examined for potential diversion for profit. The Appellate Assistant Commissioner had adopted a 17% wastage rate without specific evidence for 1982-83. Given the lack of clarity and passage of time, the Tribunal's decision to delete the turnover for wastage was upheld, and the taxable turnover was adjusted accordingly.

Conclusion:
The Tribunal's decision was partially upheld and partially overturned. The assessee's eligibility for exemption under section 5(3) was denied, reinstating the taxable turnover for both years. However, the deletion of turnover due to wastage was sustained, allowing for reasonable deductions. The final taxable turnovers were adjusted to reflect these findings, ensuring compliance with the legal standards and preserving the integrity of the tax assessment process.