2012 (1) TMI 37 - HC - VAT and Sales Tax

Exemption u/s 5(2) of the Central Sales Tax Act, 1956 - Sale in the course of import assessee entered into contract with Canara Bank, Bangalore for sale of Bank Note Processing System BPS-204 another contract with German manufacturer for import of same assessee claiming it to be sale in the course of import - Held that - To claim exemptionu/s 5(2), import should have a direct nexus and should be connected with the transaction of sale in India. In present case, the import was by the appellant in his own name. The appellant had entered into an earlier contract with Canara Bank but for the purpose of said contract the appellant was not the agent of the supplier in Germany. Contract with Canara Bank and contract with the German company, both were on principal to principal basis. They were two independent transactions. Back to back contracts by themselves do not establish and prove that the first part of Section 5(2) is attracted and applicable. The import may have been with the intention to supply the imported goods to the Canara Bank but could have been diverted to another third person, without violation/default of the contract between the appellant and the Canara Bank. Thus, it does not qualifies for exemption under Section 5(2). - Decided against the assessee.

Summary

Issues Involved:
1. Whether the sale of One Bank Note Processing System BPS-204 between the appellant and Canara Bank, Bangalore constitutes a sale in the course of import under Section 5(2) of the Central Sales Tax Act, 1956.

Issue-wise Detailed Analysis:

1. Legal Framework and Question of Law:
The appellant filed an appeal under Section 81(1) of the Delhi Value Added Tax Act, 2004, challenging the order of the Appellate Tribunal, Value Added Tax, New Delhi. The High Court framed the substantial question of law: "Whether the sale offer for the purchase of One Bank Note Processing System BPS-204 between the Appellant and M/s. Canara Bank, Bangalore could not be said that the sale is in the course of import under Section 5(2) of the Central Sales Tax Act, 1956?"

2. Facts of the Case:
The appellant, a registered dealer, imported the Bank Note Processing System BPS-204 from Germany. The import was based on an order placed by Canara Bank, Bangalore. The appellant placed the order with the German manufacturer after receiving the order from Canara Bank. The customs duties and clearances were handled by the appellant, not by Canara Bank.

3. Legal Provisions and Interpretations:
Section 5(2) of the CST Act states that a sale or purchase of goods is deemed to take place in the course of import if it occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Article 286(1) and (2) of the Constitution of India prohibit state laws from imposing taxes on sales or purchases that occur outside the state or in the course of import/export.

4. Supreme Court Precedents:
The court referred to several Supreme Court decisions, including Binani Bros. (P) Ltd. Vs. Union of India, which clarified that for a sale to be considered in the course of import, it must have a direct nexus with the import transaction. The court highlighted that the introduction of an intermediary between the seller and the importing buyer breaks the link, resulting in two independent sales.

5. Application of Legal Tests:
To claim exemption under Section 5(2), the import must have an integral connection with the sale in India. The court noted that in the present case, the import by the appellant was not directly linked to the sale to Canara Bank. The appellant was the importer and had a principal-to-principal contract with Canara Bank. The German manufacturer had no privity of contract with Canara Bank, and the appellant could have sold the imported goods to another party without breaching the contract with Canara Bank.

6. Distinguishing Precedents:
The court distinguished the present case from precedents like Indure Ltd. Vs. Commissioner of Commercial Taxes and State of Maharashtra Vs. Embee Corporation, where the conditions of import and sale were such that the imported goods could not be sold to any party other than the specified buyer. In contrast, the appellant in the present case had no legal or contractual obligation to sell the imported equipment exclusively to Canara Bank.

Conclusion:
The court concluded that the conditions stipulated in Section 5(2) of the CST Act were not satisfied in this case. The import by the appellant did not occasion the sale to Canara Bank, as there was no inextricable link between the import and the sale. Consequently, the sale did not qualify for exemption under Section 5(2). The question of law was answered in the affirmative, against the appellant, and in favor of the Revenue. The appeal was disposed of with no order as to costs.