2017 (11) TMI 1742 - HC - VAT and Sales Tax

Validity of assessment order - CST Act 1956 - whether the petitioner is entitled to claim exemption on the sale of zip fasteners to a readymade garment manufacturer who has exported the readymade garments outside the territory of India? Held that - The petitioner has sold zip fasteners to a manufacturer of readymade garments who has fixed the zips in the garments and exported the garments outside the territory of India. Therefore the transaction between the petitioner and the exporter was inextricably connected with the export of the goods outside India - Thus when the transaction between the petitioner and the exporter and the transaction between the exporter and the foreign buyer were inextricably connected with each other the same goods theory would have no application to the case on hand. Petition allowed.

Summary

Issues:
Challenge to assessment order under Central Sales Tax Act, 1956 for the assessment year 2005-2006. Legal issue of entitlement to claim exemption on the sale of zip fasteners to a readymade garment manufacturer exporting garments outside India.

Analysis:
The petitioner challenged an assessment order under the Central Sales Tax Act, 1956 for the assessment year 2005-2006, specifically regarding the entitlement to claim exemption on the sale of zip fasteners to a readymade garment manufacturer who exported the garments outside India. The respondent rejected the exemption claim, arguing that the petitioner had sold only zip fasteners, not the readymade garments exported, and thus was not eligible for exemption. The legal issue revolved around whether the petitioner could claim exemption under the relevant provisions. This issue had been previously settled by the Constitution Bench of the Supreme Court in a similar case involving the interpretation of Section 5(3) of the Central Sales Tax Act.

In the referenced Supreme Court case, involving a manufacturer of bus bodies and an exporter, it was held that the transaction between the manufacturer and the exporter was connected with the export of goods outside India, making the manufacturer eligible for exemption under Section 5(3) of the Act. The Court emphasized the connection between the domestic transaction and the subsequent export, stating that the "same goods" theory did not apply when the transactions were interlinked. This precedent was deemed applicable to the present case where the petitioner sold zip fasteners to a garment manufacturer who then exported the garments, establishing an inextricable connection between the petitioner's sale and the subsequent export.

Based on the above analysis and the precedent set by the Supreme Court, the High Court allowed the writ petition, setting aside the impugned assessment order and ruling in favor of the petitioner. The court concluded that the transaction between the petitioner and the exporter, leading to the export of goods outside India, qualified for exemption under the Central Sales Tax Act. Consequently, the writ petition was allowed, no costs were imposed, and the connected miscellaneous petition was closed.