2010 (9) TMI 879 - SC - VAT and Sales Tax

Whether assessee (local manufacturer) is eligible to get exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956 (for short the CST Act ), if the penultimate sale effected in favour of the exporter is inextricably connected with the export of goods outside the territory of India - communication between the foreign buyer and the exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the assessee under the specifications stipulated by the foreign buyer. The bus bodies constructed and manufactured by the assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer. In the purchase order placed on the assessee by the exporter, it is specifically indicated that the bus bodies have to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order. The assessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the same goods theory has no application, assessee is entitled to exemption under section 5(3) of the CST Act, appeals stand dismissed

Issues Involved:
1. Eligibility of exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956.
2. Interpretation of "same goods" theory.
3. Inextricable connection between penultimate sale and export.
4. Legal precedents and their applicability.
5. Burden of proof on the assessee.

Issue-Wise Detailed Analysis:

1. Eligibility of Exemption under Sub-section (3) of Section 5 of the CST Act:
The primary question was whether a local manufacturer (assessee) is eligible for exemption under sub-section (3) of section 5 of the CST Act if the penultimate sale to the exporter is inextricably connected with the export of goods outside India. The court examined the legislative intent behind the Amending Act 103 of 1976, which aimed to exempt the last sale or purchase occasioning the export from State levy, provided it was for complying with the export order.

2. Interpretation of "Same Goods" Theory:
The court analyzed previous judgments, including Sterling Foods and Vijayalaxmi Cashew Company, which advocated the "same goods" theory. It was held that to attract sub-section (3) of section 5, the goods purchased for export must be the same as those exported. However, the court clarified that the test is whether the goods retain their original character and identity after processing.

3. Inextricable Connection between Penultimate Sale and Export:
The court emphasized that for a sale to be considered in the course of export, there must be an inseverable link between the local sale and the export. The sale must be integrally connected with the export, not merely incidental. The court found that the transaction between the assessee and the exporter was inextricably connected with the export to Sri Lanka, as the bus bodies were manufactured specifically to the foreign buyer's specifications and had no local market utility.

4. Legal Precedents and Their Applicability:
The court reviewed various judgments to determine the principles governing sales in the course of export. It referenced cases like Consolidated Coffee Ltd., K. Gopinathan Nair, and Indian Explosives Ltd., which dealt with the integral connection between local sales and exports. The court concluded that the "same goods" theory does not apply when the transactions are inextricably linked.

5. Burden of Proof on the Assessee:
The court held that the burden of proof lies on the assessee to establish the link between the penultimate sale and the export. In this case, the assessee successfully demonstrated that the sale of bus bodies was directly connected to the export order, satisfying the requirements for exemption under section 5(3) of the CST Act.

Conclusion:
The court upheld the High Court's decision, affirming that the assessee is entitled to exemption under section 5(3) of the CST Act. The court emphasized that the connection between the penultimate sale and the export must be real, intimate, and inter-linked, which the assessee successfully established. The appeals were dismissed with no order as to costs.

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