2009 (2) TMI 757 - HC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case, the purchases of the dealer-applicant are not exempted being not the penultimate purchases within the provisions contained in section 5(3) of the Central Sales Tax Act, 1956? Held that - In the present case, the petitioner has purchased goods from the cultivators. The Indian exporters, namely, M/s. Peanut Product, Vijayawada and M/s. Essel International, Vijayawada, have purchased goods from the petitioner and sold those goods to the foreign buyer M/s. Export Khleb, Moscow. Hence, purchase of groundnut by the petitioner from the cultivators is not the last purchase of goods preceding the purchase occasioning export of such goods to the foreign buyers outside the territory of India. It is a purchase removed by one more step. Thus the purchase of groundnut effected by the petitioner from cultivators is not exempted not being the penultimate purchase within the provisions contained in section 5(3) of the CST Act. Decided in favour of the Revenue and against the petitioner-dealer.

Summary

Issues:
Interpretation of section 5(3) of the Central Sales Tax Act, 1956 regarding exemption on purchases preceding export.

Analysis:
The Orissa Sales Tax Tribunal referred a question of law to the Orissa High Court under section 24(1) of the Orissa Sales Tax Act, 1947, concerning whether purchases made by a dealer were exempted under section 5(3) of the Central Sales Tax Act, 1956. The dealer purchased groundnuts from local cultivators, claiming exemption based on subsequent sales to Indian exporters who then exported the goods to a foreign buyer. The assessing officer allowed the exemption, but the first appellate authority disagreed, stating that the purchases were not the last preceding purchases before export, but one step removed. The Tribunal upheld this view, considering the purchases by the Indian Export Houses as penultimate purchases, making the dealer liable for tax under section 5(3) of the CST Act.

The petitioner argued that their supply of groundnuts to Indian exporters was in the course of export, as it was to fulfill contracts with foreign buyers. They contended that the agreements with Indian exporters preceded those with the petitioner, making them exempt from tax liability. However, the Revenue argued that the purchases did not meet the criteria under section 5(3) of the CST Act, as the goods were not the last preceding purchases before export. The Andhra Pradesh High Court's interpretation in George Maijo & Co. v. State of Andhra Pradesh outlined the conditions for exemption under section 5(3), emphasizing pre-existing agreements, timing of purchases, and compliance purposes.

The Supreme Court's decision in Consolidated Coffee Ltd. v. Coffee Board clarified that section 5(3) applies to specific penultimate sales meeting specified conditions, not creating a legal fiction but extending exemption under certain circumstances. Referring to Bismillah & Co. v. State of Andhra Pradesh, the Andhra Pradesh High Court held that section 5(3) did not apply to purchases removed by an additional step from the export transaction. The Tribunal, in this case, denied the exemption under section 5(3) to the petitioner, as the purchases were not the penultimate ones preceding export, thus making them liable for tax.

In conclusion, the Orissa High Court ruled in favor of the Revenue, holding that the purchases of groundnuts by the petitioner from cultivators were not exempted under section 5(3) of the CST Act, as they were not the penultimate purchases before export. Chief Justice Dr. B.S. Chauhan agreed with the decision, affirming the judgment against the petitioner-dealer.