2017 (11) TMI 1160 - HC - VAT and Sales Tax

Exemption from tax - purchases of mentha oil - notification dated 12 February 1999 - denial on the ground that it was not the ultimate exporter of the goods and unless it were established that the manufacturer and ultimate exporter are one and the same, the benefit flowing from the said notification would not be available - Held that - A plain reading of the terms of the notification establishes that the primary issue which must govern the grant of exemption is the export of the manufactured goods. The notification neither mandates nor provides that the manufacturer himself export the goods out of India. As is evident from a plain reading of Condition (i) , the emphasis is on the manufactured goods being exported and not that the actual manufacturer export the goods. The crucial test, therefore, is whether the manufactured goods have ultimately been exported out of India. In view thereof, the Court finds that the reasoning which weighed with the Department to deny relief to the revisionist on this score cannot be sustained. Admittedly the assessee was not the ultimate exporter of the goods. In order to succeed, therefore, it would be incumbent upon him to establish that the transactions fall within the ambit of Section 5 (3) of CST Act 1956. This issue as to whether the manufactured goods have moved in the course of export cannot be determined on the basis of the notification dated 12 February 1999 since this would principally have to be answered with reference to the provisions encapsulated in section 5. Appeal allowed by way of remand.

Summary

Issues:
- Interpretation of exemption notification dated 12 February 1999 for purchases of mentha oil
- Eligibility for exemption from purchase tax under the notification
- Requirement of being the ultimate exporter for availing exemption
- Analysis of Section 5(3) of CST Act, 1956 for determining export in the course of goods

Interpretation of Exemption Notification:
The revisionist challenged the Tribunal's decision that purchases of mentha oil were not exempt from tax under the notification dated 12 February 1999. The assessee argued that since the mentha oil was used as a raw material for goods ultimately exported, they should be exempt from purchase tax. The Court analyzed the notification's terms, emphasizing that the exemption hinges on the export of manufactured goods, not necessarily by the manufacturer itself. The Court disagreed with the Department's stance that the manufacturer and ultimate exporter must be the same to qualify for the exemption.

Eligibility for Exemption:
The Court highlighted that the key condition for exemption was the export of manufactured goods, not the identity of the exporter. It found the Department's denial of relief to the revisionist based on exporter identity untenable. However, the Court noted that the assessee was not the ultimate exporter, necessitating an examination under Section 5(3) of the CST Act, 1956 to determine if the goods moved in the course of export.

Analysis of Section 5(3) of CST Act, 1956:
To qualify under Section 5(3) for the first purchase to be deemed in the course of export, two conditions must be met: the goods purchased must be for complying with the export agreement, and there must be an inseparable link between the first purchase and ultimate export. Citing legal precedents, the Court emphasized that the goods purchased and exported must be the same, and there must be a clear connection between the sale and export. The Court concluded that the matter required fresh consideration under Section 5(3) principles, directing the assessing authority to reevaluate the issue in light of the observations made.

In conclusion, the Court set aside the Tribunal's order, allowing the revision, and remitted the matter for a fresh assessment considering both the exemption notification and the provisions of Section 5(3) of the CST Act, 1956.