2024 (7) TMI 101 - HC - VAT and Sales Tax

Disallowance of petitioner s claim for deduction from the aggregate selling price under Section 5(2) of the Central Sales Tax Act, 1956 - privity of contract - HELD THAT - In order to decide whether the provisions of Section 5(2) of the said Act can be made applicable it is not necessary that there should be a privity of contract between the foreign supplier and the ultimate consumer in India. Section 5(2) of the said Act does not prescribe that there has to be a privity of contract between the end user and the foreign supplier. The aforesaid issue has been considered by the Hon ble Supreme Court in the case of Commissioner of Delhi Value Added Tax 2016 (4) TMI 534 - SUPREME COURT wherein the Hon ble Supreme Court had clearly recorded that sale in course of imports do not require privity of contract between the foreign supplier and the ultimate consumer in India. In the judgment delivered by the Hon ble Delhi High Court in the case of Abb Limited 2012 (10) TMI 185 - DELHI HIGH COURT , it has been observed that what is relevant consideration was to ascertain whether the movements of goods were integrally connected with the contract for their supply. It would appear from Section 5(2) of the said Act that a sale or purchase of goods shall be deemed to take place in course of import of goods into the territory of India only if, the sale or purchase occasioned such import. This aspect needs consideration on exchange of affidavits especially when a finding has been returned by the Board that the import is not inextricably bound up with local sale. The petitioner having been able to make out a prima facie case, the writ petition shall be heard. On the question of grant of interim protection, taking into account that the matter pertains to revenue and that on the petitioner s own showing a sum equivalent to 5% of the taxable turnover working out to be Rs.1,68,53,080/- has been taxed under the said Act - Petition allowed by way of remand.

Summary

Issues:
Challenge to order disallowing deduction under Section 5(2) of the Central Sales Tax Act, 1956
Interpretation of whether sale of medical equipment can be considered in the course of import
Prima facie case for interim protection against coercive measures

Analysis:
The petitioner challenged an order disallowing a deduction under Section 5(2) of the Central Sales Tax Act, 1956, for the assessment period 2016-17. The issue was whether the sale and purchase of medical equipment by the petitioner could be considered as taking place in the course of import into India. The petitioner argued that even without a direct contract between the foreign seller and local buyers, the import of goods exclusively for local purchasers should qualify for the deduction. The petitioner relied on judgments emphasizing the integral connection between the movement of goods and the contract for their supply. The Board found two separate sales transactions, denying the benefit of Section 5(2) to the petitioner. The High Court noted that privity of contract between the foreign supplier and local consumer was not a requirement for the application of Section 5(2), as established in previous judgments. The Court directed the petitioner to deposit a portion of the taxed amount as a condition for interim protection against coercive measures.

The Board's findings were based on the petitioner's agreements with local customers for the supply of medical equipment procured from foreign sellers. The Board concluded that the import was not inseparably linked to local sales, denying the petitioner the benefit of Section 5(2). The Court reiterated that privity of contract between the foreign supplier and the end consumer was not mandatory for Section 5(2) to apply. The Court emphasized the need to ascertain if the sale or purchase occasioned the import, especially when the Board found the import not integrally connected with local sales. The Court granted interim protection to the petitioner, considering the revenue implications and directed a partial deposit of the taxed amount.

The Court acknowledged the factual complexity of the case and allowed the respondents to file an affidavit-in-opposition. The Court decided to hear the writ petition based on the petitioner's prima facie case and the need for further consideration through exchange of affidavits. The Court restrained the respondents from taking coercive measures for a specified period and directed the petitioner to deposit a sum with the Court for the interim protection to remain in effect. The matter was scheduled for a hearing in September 2024, and all parties were instructed to act based on the official copy of the order from the Court's website.