2015 (8) TMI 27 - HC - VAT and Sales Tax

Denial of exemption claim u/s 5(3) of CST - inter-state sale of paper cartons - The case pleaded is that the firm had effected inter-state sale of paper cartons to various exporters in the course of export outside the State - Held that - appellant will have to establish the identity of the goods sold with the goods meant to be exported out of the territory of India. It cannot be said that packing materials as such were meant for export but they were used only for wrapping the goods which were exported . The said distinction clearly goes against the contentions of the appellant. It cannot be said that the packing materials sold by the appellant and the goods exported are the same. It is also not their case that they had sold the goods which were exported with the packing materials like paper cartons. Herein, evidently the goods exported were purchased by the exporter from other sources. What is described as sale by the appellant is only the packing cartons alone which were never exported as such and the goods exported are different. That, according to us, will take out the case of the appellant from the purview of Section 5(3) of the CST Act. The transaction, going by the provision, should be first one with the exporter and the foreign buyer and the next one is with the exporter and the penultimate seller like the appellant. That inextricable link is absent, going by the facts of this case. There is a contract or understanding between the exporter and another seller from whom the goods exported were purchased. As far as packing materials are concerned, the intention on the part of both buyer and seller to export, is absent. - As rightly pointed out by the learned Senior Government Pleader, the provisions of Section 5(3) of the CST Act will not come to the aid of the appellant for claiming exemption. - Decided against assessee.

Issues Involved:
1. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956 (CST Act)
2. Eligibility for exemption under Section 5(3) of the CST Act for the sale of packing materials used by exporters

Detailed Analysis:

1. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956 (CST Act):

The primary issue in this case is the interpretation of Section 5(3) of the CST Act. The appellant, a registered dealer under the Kerala General Sales Tax Act, 1963, and CST Act, 1956, contended that the sale of packing materials (paper cartons) to exporters should be exempt from tax under Section 5(3) of the CST Act. The appellant argued that the packing materials were used by exporters for exporting goods in compliance with export orders and were supported by Form H declarations.

The court referred to the decision of the Constitution Bench of the Supreme Court in State of Karnataka v. Azad Coach Builders Pvt. Ltd. and another {(2011) 19 KTR 73 - SC}, which provided a detailed interpretation of Section 5(3). According to the court, Section 5(3) states that the last sale or purchase preceding the export of goods out of India shall be deemed to be in the course of such export if it was for the purpose of complying with the export order.

The court emphasized that to qualify for exemption under Section 5(3), the goods purchased and the goods exported must be identical. The identity of the goods should be maintained throughout the transaction. The court noted that the term "goods" as defined in Section 2(d) of the CST Act includes all materials, articles, commodities, and all other kinds of movable property.

2. Eligibility for Exemption under Section 5(3) of the CST Act for the Sale of Packing Materials Used by Exporters:

The appellant contended that the sale of packing materials to exporters was for the purpose of complying with export orders and should be exempt under Section 5(3). The court examined whether the sale of packing materials could be considered as the last sale preceding the export of goods.

The court referred to several judgments, including Moncompu Egg Store v. State of Kerala {(1981) 48 STC 518 - Kerala}, State of Tamil Nadu v. Catherene Traders and another {(1991) 81 STC 228 - Madras}, State of A.P. v. Standard Packings {(1995) 96 STC 151 - A.P.}, and Kusum Laminating and Packaging Industries v. State of Tamil Nadu {(1996) 101 STC 476 - Madras}. These cases dealt with the applicability of Section 5(3) to various transactions involving packing materials.

The court noted that in Azad Coach Builders Pvt. Ltd., the Supreme Court held that there must be an inextricable link between the local sale or purchase and the export of goods. The sale must be part and parcel of the export, and the goods must be actually exported. The court emphasized that the goods purchased and the goods exported must be the same for the exemption to apply.

In the present case, the court found that the goods exported by the exporters were different from the packing materials sold by the appellant. The packing materials were used for wrapping the goods meant for export, but they were not exported as such. The court held that the sale of packing materials could not be considered as a sale in the course of export under Section 5(3) because the identity of the goods was not maintained.

The court also referred to the judgment of the learned Single Judge, which held that Section 5(3) provides exemption only for the goods exported by the exporter against prior orders for export. The court agreed with this view and concluded that the sale of packing materials did not qualify for exemption under Section 5(3).

Conclusion:

The court dismissed the writ appeal and the writ petitions, holding that the sale of packing materials to exporters did not qualify for exemption under Section 5(3) of the CST Act. The court emphasized that the identity of the goods must be maintained for the exemption to apply, and in this case, the packing materials were not the same as the goods exported. The court agreed with the view taken by the learned Single Judge and held that the provisions of Section 5(3) did not aid the appellant in claiming exemption.

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