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TMI Blog1997 (3) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the appeals from Kerala. R.F. Nariman, Senior Advocate (Fazlin Anam and E.M.S. Anam, Advocates, with him) for the appellants in C.A. Nos. 1167 to 1171 of 1992. N.S. Hegde, Senior Advocate (G.V. Chandrasekhar, A.D.N. Rao and A. Subba Rao, Advocates, with him) for the appellants in C.A. Nos. 3647 to 3652 of 1986. P.S. Poti, Senior Advocate (S. Prasad, Kumar Parimal, M.K.D. Namboodiri and S. Balakrishnan, Advocates, with him) for the appellants in C.A. Nos. 4955 to 4977 of 1991. -------------------------------------------------- The judgment of A.M. AHMADI, C.J.I. and S.B. MAJMUDAR, J., was delivered by S.B. MAJMUDAR, J. Mrs. SUJATA V. MANOHAR, J., delivered a separate judgment. S.B. MAJMUDAR, J.-According to our esteemed colleague SUJATA V. MANOHAR, J., these appeals are required to be allowed. With profound respect, it is not possible for us to agree with her findings and the conclusions in so far as it is held by her that section 5, sub-section (2) of the Central Sales Tax Act, 1956 will cover the transactions in question. We, however, agree with her so far as it is held that section 2(ab) of the Central Sales Tax Act, 1956 has no retrospecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got itself registered as a dealer in the Karnataka State nor had it filed returns for the years 1970-71 to 1975-76. The contention of the appellant-company before the taxing authority was to the effect that the transaction of sale by the company to the actual users was in the course of import and, therefore, the State Sales Tax Act could not encompass such a transaction. The taxing authority in Karnataka on the other hand sought to levy sales tax on the appellant on the basis that it was a non-resident dealer. The contention of the CCI was negatived by Karnataka Appellate Tribunal, Bangalore. The appellant's revision before the High Court came to be dismissed by a Division Bench of the High Court by its order dated March 3, 1986 See [1986] 63 STC 90 (Kar)., and that is how the CCI is before us on special leave. 5.. It becomes, therefore, clear that a common question arises for our determination as to whether the import of raw cashewnuts by the CCI from African exporters and its purchase by actual users in India could be said to be a transaction in the course of import and, therefore, eligible for exemption under section 5(2) of the Central Sales Tax Act, 1956. Both the Kerala Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia only if the sale or purchase either 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. It, therefore, becomes a moot question as to whether the sale of raw cashewnuts imported by CCI from African countries, to local users in State of Karnataka or Kerala, as the case may be, can be said to be sales in the course of import of these raw cashewnuts into the territory of India. For deciding this question the provision of sub-section (2) of section 5 will have to be kept in view. As per the said provision the sale of imported raw cashewnuts shall be deemed to take place in course of import only if such sales by CCI to the local actual users or conversely the purchases of such imported raw cashew by the local users from the CCI have occasioned such import of raw cashew. The second part of sub-section (2) of section 5 is not attracted on the facts of the present cases as factually it is not found in these cases that such sales were effected by transfer of documents of title to goods, namely, the raw cashewnuts before they crossed the customs frontiers of India. The entire controversy, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es an integral relation or bond between the sale and the export. In general where a sale is effected by the seller, and the seller is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of the sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of the obligations arising by statute or contract of mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of export. It was further laid down as under: "A sale in the course of export predicates a connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction. In the present case there was between the sale and the export no such bond as would justify the inference that the sale and the export formed parts of a single transaction or that the sale and export were integrally connected. The appellants were not concerned with the actual exportation of the goods and the sales were intended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r but partially succeeded before the Tribunal which held that part of the goods were sold in the course of import. Both the parties filed two revision applications in the High Court. The High Court allowed the revision application of the State and rejected that of the assessee. The appellant thereafter approached this Court by special leave. Allowing the appeal of the assessee it was held by the Constitution Bench of this Court, speaking through Sikri, J., that section 5, sub-section (2) of the Central Sales Tax Act, 1956 does not lay down any condition that before a sale could be said to have occasioned import it is necessary that the sale should be preceded the import. That it was quite clear on the facts that it was incidental to the contract that the axle-box bodies would be manufactured in Belgium, inspected there, and imported into India for the consignee. Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of those goods being diverted by the assessee for any other purpose. Consequently the sales took place in the course of import of goods within secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same export for which the sale is held. The tests are that there must be a single sale which itself causes the export or is in progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer. Sale must be an integral part of the precise export before it can be said to have occasioned that particular export. Applying the aforesaid test laid down by majority in that decision to "sales in the course of import" three essentials would obviously be required to be met before the sale can be said to be in the course of import, (i) there must be a sale; (ii) the goods must actually be imported; and (iii) the sale must be part and parcel of the import. Consequently it must be shown by the appellants that the sale by CCI to the local users of imported raw cashewnuts had occasioned the import and such a sale was a part and parcel of the import. If there are two independent sales, one by a foreign exporter to CCI and second sale by CCI to the local users, the link between the import of raw cashewnuts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods was occasioned by the contracts for purchase which the petitioner entered into with the foreign sellers. No movement of goods in the course of import took place pursuant to the contracts of sale made by the petitioner with the DGS D. The petitioner's sales to DGS D were distinct and separate from his purchase from foreign sellers. To put it differently, the sales by the petitioner to the DGS D did not occasion the import. On the contrary purchases made by the petitioner from the foreign sellers occasioned the import of the goods. There was no privity of contract between DGS D and the foreign sellers. The foreign sellers did not enter into any contract by themselves or through the agency of the petitioner with the DGS D and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to DGS D. It was further held that though under the contract DGS D undertook to provide all facilities for the import of the goods for fulfilling the contracts including an Import Recommendation Certificate, there was no absolute obligation on the DGS D to procure these facilities. And it was the obligation of the petitioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative meaning to the expression "in the course of export" and "in the course of import". The expression "in the course" implies not only a period of time during which the movement is in progress but postulates a connected relation. Sale in the course of export out of the territory of India means sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. In paragraph 18 of the report the following pertinent observations were made: "................A sale in the course of export predicates a connection between the sale and export. No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But it does not mean that distinction between transactions which may be called sales for export and sales in the course of export is not real. Where the sale is effected by the seller and the seller is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inent question is as to which is the sale or purchase which occasions the export. The distinction between sales for export and sales in the course of export cannot be disregarded. The features which point with unerring accuracy to the contract between the appellant and the Corporation on the one hand and the contract between the Corporation and the foreign buyer on the other as two separate and independent contracts of sale are: There was no privity of contract between the appellant and the foreign buyer. The privity of contract is between the Corporation and the foreign buyer. The immediate cause of the movement of goods and export was the contract between the foreign buyer who was the importer and the Corporation who was the exporter and shipper of the goods. All relevant documents were in the name of the Corporation whose contract of sale was the occasion of the export. The expression 'occasions' in section 5 of the Act means the immediate and direct cause. But for the contract between the Corporation and the foreign buyer, there was no occasion for export. Therefore, the export was occasioned by the contract of sale between the Corporation and the foreign buyer and not by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or by import carried out by the canalising agency like CCI. It is also pertinent to note that the Constitution Bench in Serajuddin's case [1975] 36 STC 136 (SC); (1975) 2 SCC 47 has heavily relied upon other Constitution Bench judgment in the case of Binani Bros. [1974] 33 STC 254 (SC); (1974) 1 SCC 459, which was directly concerned with the interpretation of section 5(2) of the Central Sales Tax Act, 1956 as we have seen earlier. 14.. Learned Senior Counsel for the appellants invited our attention to a decision of a Bench of two learned Judges of this Court in the case of Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Kotak Co. [1973] 32 STC 6 (SC); (1974) 3 SCC 148. The said decision was rendered in the light of the peculiar facts of the case which came up for consideration of this Court. The Bench speaking through Hegde, J., noted the fact that the assessee-firm before them had imported cotton against actual user's import licence granted to the mills concerned and was selling the cotton to them. That the assessee was also precluded from selling to anybody other than the mills to whom the user's import licence had been granted. It was also noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it and make remittance of foreign exchange against the said licence to the extent of value specified therein. The import licence expressly contained two conditions, (i) that the goods imported will be the property of the licence-holder at the time of clearance through the customs and (ii) that the goods will be utilised only for consumption as raw material or accessories in the licence-holder's factory and that no portion thereof will be sold to or be permitted to be utilised by any other party. In the light of these facts the decision of the Kerala High Court that respondent-assessee had effected sales in the course of import, was upheld by this Court. Tulzapurkar, J., speaking for this Court, observed that there was an integral connection between the sale to the local purchaser and the actual import of the goods from the foreign supplier. The movement of goods from foreign country like United States to India was in pursuance of the conditions of the pre-existing contract of sale between the respondent-assessee and the local purchaser. The import of the goods by the respondent-assessee was for and on behalf of the local purchaser and the respondent-assessee could not, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bench, had to consider the constitutional validity of section 5, sub-section (3) of the Central Sales Tax Act, 1956 which was brought on the statute book in the light of the earlier Coffee Board case judgment of the Constitution Bench in Coffee Board [1970] 25 STC 528; (1969) 3 SCC 349 and the decision in Serajuddin's case [1975] 36 STC 136; (1975) 2 SCC 47. By the said amendment to section 5(3) the Legislature thought it fit to grant exemption also to the penultimate sales prior to the sales in the course of export by the canalising agency. That was with a view to boost up foreign exchange earnings. While upholding the said amendment it was held that section 5(3) of the Central Sales Tax Act has been enacted to extend the exemption from tax liability under the Act not to any kind of penultimate sale but only to such penultimate sale as satisfies the two conditions specified therein, namely, (a) that such penultimate sale must take place (i.e., become complete) after the agreement or order under which the goods are to be exported and (b) it must be for the purpose of complying with such agreement or order and it is only then that such penultimate sale is deemed to be a sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a new provision. It is necessary to visualise that but for sub-section (3) of section 5 as introduced by the later amendment, the penultimate transactions would have remained outside the sweep of the phrase "sale in the course of export". It is only because of the later amendment that by a legislative fiction even the penultimate sales were sought to be covered by the said phrase. It is pertinent to observe in this connection that there is no such amendment introduced by the Legislature for extending the sweep of the phrase "sale in the course of import". 18.. In the light of the aforesaid settled legal position emerging from the Constitution Bench decisions of this Court the following propositions clearly get projected for deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by section 5(2) of the Central Sales Tax Act, 1956: (1) The sale or the purchase, as the case may be, must actually take place. (2) Such sale or purchase in India must itself occasion such import, and not vice versa, i.e., import should not occasion such sale. (3) The goods must have entered the import stream when they are subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the other between the import canalising agency and the local users for whose benefit the goods were imported by the wholesale importer being the canalising agency. In such a case the sale by the canalising agency to the local users would not be a sale in the course of import but would be a sale because of or by import which would not be covered by the exemption provision of section 5, sub-section (2) of the Central Sales Tax Act, 1956. 19.. On the facts of these cases and in the light of the propositions enumerated above it is impossible to accept the contention of learned Senior Counsel for the appellants that the sales in the present cases effected by the CCI in favour of the local users were in course of import of raw cashew from African countries. We may state that a clear finding of fact is reached by the Tribunal in cases arising out of revisions before the Kerala High Court and also by the Karnataka High Court in the appeals by CCI that neither the CCI nor the assessee had led any evidence to show that goods were sold by transfer of documents of title on high seas, and hence it had to be held that CCI had not sold the goods to local users on high seas and before the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed raw cashewnuts to the assessees on payment of the price thereof are wholly unconnected with the contract of purchase, the CCI had entered into with the foreign sellers. (c) There is no privity of contract between the assessees and the foreign sellers. (d) The assessees remained undisclosed to the foreign sellers. (e) The foreign sellers know nothing of the understanding between CCI and the assessees, discernible from the various orders and agreements executed between them in connection with the distribution of the raw cashewnuts. (f) The bills of lading were undisputably made out in the name of the CCI and the CCI therefore has obtained a complete and indefeasible title to the goods purchased by them from foreign sellers. (g) The transaction under which the raw cashewnuts were put on board the ship did not create any real rights and obligations as between the foreign sellers and the assessees although the raw cashewnuts are supposedly imported for their benefit. (h) The circumstance that the contract between CCI and the foreign sellers was in the CIF form strengthens the position that there were two distinct, independent and unconnected purchases. (i) Sale prices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f imported material in favour of the concerned local user in whose favour the sub-licence is issued. At page 96 is found a copy of the bill of lading which also shows that the foreign exporter has exported the goods in favour of the CCI, Cochin, through the concerned ship. It is also found established on record that the goods could be cleared through customs by the local users after making full payment of the goods to the CCI. Thus ownership of the goods remains with the CCI till the concerned documents are cleared through the bankers of the local users. The subsidiary licence issued to the local users a copy of which is found as annexure "I" at page 99 of the paper book shows that the goods for the import of which the licence has been granted shall be the property of the licensee at the time of clearance through the customs. It was submitted by the learned Senior Counsel for the appellants that that was a mistaken condition imposed in the subsidiary licence. Be that as it may, during the relevant period of assessment such subsidiary licence clearly showed that the main licence to import was in favour of CCI and the sub-licence was available to the local user who could become the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw cashew from the foreign exporter that occasions the movement of raw cashew from African countries to India. The imported cashew remains of the ownership of the importer CCI and only on retirement of documents on payment of value of the allotted cashew by the local users and on their getting the goods cleared from customs that the property in the concerned imported goods would pass from CCI to the local users. Thus there are two clear transactions. One transaction is import of raw cashew by CCI from foreign exporters. The second transaction which is back to back transaction is of sale by the canalising agency like CCI which is the wholesale importer in favour of the local users for whom the goods are indented. That independent sale which may be based even on a prior agreement of sale by CCI to local users would remain an independent transaction between importer CCI and the local purchaser, namely, the local user. There is no privity of contract between the local users on the one hand and the foreign exporter on the other. These two transactions cannot be said to be so integrally inter-connected as to represent one composite transaction in the course of import of raw cashewnu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed." 23.. Consequently it cannot be said that the enactment of a new definition regarding crossing the customs frontiers of India as laid down by section 2(ab) of the Central Sales Tax Act, 1956 for considering the liability to pay sales tax could be legitimately pressed in service for deciding the question of sales tax liability of appellants during the assessment years when such definition was not on the statute book. For all these reasons no case is made out by the appellants for our interference in these cases. With great respect to our esteemed colleague Sujata V. Manohar, J., it is not possible to agree with her conclusion that there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the canalising scheme pertaining to the import of cashewnuts. Nor it is possible for us to agree with her finding that these transactions are covered by the exemption provisions of section 5(2) of the Central Sales Tax Act, 1956. In view of our fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd., which is a canalising agency for the import of cashewnuts for sale to the processors of cashewnuts in Karnataka. The processors, after processing cashewnuts, export cashew kernel. However, which under the Kerala General Sales Tax Act, 1963, cashew was assessable at the last point of purchase in the State, under the Karnataka Sales Tax Act, 1957 cashew is assessable at the first point of purchase in the State. Hence, in these appeals, assessment of sales tax by the State of Karnataka is sought to be made on the Cashew Corporation of India in respect of cashew imported by it at the instance of the processor and sold to the processor. The transactions which are the subject-matter of controversy in these appeals, however, are identical with the transactions which are the subject-matter of appeals in the Kerala matters. 26.. Before we decide whether the import of cashewnut by the Cashew Corporation of India and the purchase of cashewnuts by the assessees/processors from the Cashew Corporation of India is in the course of import or whether it is a local sale liable to tax under the Kerala or Karnataka General Sales Tax Act, it is necessary to set out the exact nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acceptance of such an allotment order by the concerned processor. The Cashew Corporation of India prepared separate invoices in the name of each allottee in respect of each separate and marked shipment. A separate bill of lading was prepared in respect of goods pertaining to each allottee. The insurance premium for this lot was also charged by the Cashew Corporation of India from the allottee. For the clearance of these goods from the customs, separate documents of title pertaining to each processor were prepared and subsidiary import licences were also issued in the name of each allottee by the Cashew Corporation of India in respect of their earmarked lots. A simultaneous letter of authority was also issued by the Chief Controller of Imports and Exports in favour of the allottee in respect of the lot concerning which the allottee was given a sub-licence. On the marine insurance taken by the Cashew Corporation of India a separate endorsement was taken in the name of each allottee and the premium was included in the CIF value of the goods so despatched. The steamer agent issued a delivery order to the processors' clearing agent and the goods were accordingly cleared by the clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace in the course of inter-State trade or commerce." Accordingly, the Central Sales Tax Act, 1956 in sections 3 and 5 lays down principles for deciding whether a sale or purchase takes place in the course of inter-State trade or commerce or in the course of import or export: "3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.-A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. 5.. When is a sale or purchase of goods said to take place in the course of import or export.-(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. (2) A sale or purchase of goods shall be deemed to take place in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties, from the very nature of the transaction. It is immaterial whether the sale has preceded such movement or succeeded such movement. So long as there is an unbreakable chain linking the sale and the movement of goods, it will be covered by section 5 or section 3, as the case may be. Usually such an unbreakable chain is forged by the terms of the contract of sale, or from operation of statute or even from an understanding between the local buyer and the local seller. Of course where there is only one sale-between a local buyer and a foreign seller or a local seller and a foreign buyer, the contract of import or export causes import or export. But the application of section 5 is not confined to such contracts alone as the cases cited hereafter will show. If only a one-sale test were to be applied, these would be the only contracts qualifying for exemption. Such is not the interpretation put on sections 3 and 5 because in several cases this Court has considered even a sale other than an import sale or an export sale as a sale in the course of import or export if there is a direct connection between the sale and the import or the export. 32.. The distinction between an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract the goods were to be manufactured in Belgium and the D.G.I.S.D., London or its representative, was entitled to inspect the goods in Belgium. It was the assessee's responsibility to get the goods manufactured in Belgium and import them into India. Accordingly the assessee supplied axle-box bodies to the Southern Railway at Perambur Works after importing them from Belgium. The question was whether this was a sale in the course of import. The Court said that the sale by the assessee to the Railways need not have preceded the import. This court further held that the movement of goods from Belgium to India was in pursuance of the conditions of contract between the assessee and the Director-General of Supplies. There was no possibility of those goods being diverted by the assessee for any other purpose. Consequently, the sales took place in the course of imports. 35.. The next important case decided by this Court deals with a sale in the course of export of goods. This is the case of Coffee Board v. Joint Commercial Tax Officer [1970] 25 STC 528 (SC); (1969) 3 SCC 349. It is a decision of a Constitution Bench of this Court with one Judge dissenting. In this case, the Coffee Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Kotak Co. [1973] 32 STC 6 (SC); (1974) 3 SCC 148 and in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Indian Explosives Ltd. [1985] 60 STC 310 (SC); (1985) 4 SCC 119 on the basis that in the Coffee Board's case [1970] 25 STC 528 (SC); (1969) 3 SCC 349 there was no inextricable link between the local sale and the export, while in the cases of Indian Explosives Ltd. [1985] 60 STC 310 (SC); (1985) 4 SCC 119 and Kotak Co. [1973] 32 STC 6 (SC); (1974) 3 SCC 148 there was such an inextricable link between the import of the goods and the local sale. 37.. In the case of Kotak Co. [1973] 32 STC 6 (SC); (1974) 3 SCC 148 the assessee-firm was engaged in the supply of foreign cotton to textile mills on the basis of actual user's import licences issued to the textile mills. The assessee-firm contacted the foreign suppliers and if the offers received were found acceptable to the mills, the assessee entered into a contract with the concerned mill and on that basis, accepted the offer made by the foreign supplier. The textile mill issued a letter of authority authorising the assessee-firm to import cotton. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce orders with the assessee quoting their import licence numbers. The assessee then placed orders with the foreign supplier for the supply of goods. In such orders the name of the local purchaser who required the goods as also its import licence numbers were specified. On receipt of the goods, the assessee used to invoice the local purchaser. This Court held that the sale effected by the assessee to the local purchaser was in the course of import as there was an integral connection between the sale to the local purchaser and the actual import of goods from the foreign supplier. This Court cited with approval the ratio laid down in K.G. Khosla's case [1966] 17 STC 473 (SC); [1966] 3 SCR 352. It distinguished Binani Bros. case [1974] 33 STC 254 (SC); (1974) 1 SCC 459 on two material aspects: (1) In that case the assessee itself held the import licence and the goods were imported on the strength of such an import licence and (2) there was no term or condition prohibiting diversion of the goods after the import. However, in the case before them, the integral connection or inextricable link between the transaction of sale and the actual import were established. 40.. In the case of Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as valid. This decision led to the amendment of section 5 by Parliament by the addition of sub-section (3) which makes a sale preceding the export sale also a sale in the course of export in circumstances set out therein, thus obviating any difficulties which may arise in the case of sales in the course of export by virtue of this emphasis on a single sale in the case of Mod. Serajuddin [1975] 36 STC 136 (SC); (1975) 2 SCC 47. To put it a little differently, when there is a local sale followed by export of the goods sold; or import of goods followed by a local sale, one must examine whether the export or the import of goods is an essential ingredient of the local sale. In some cases dealing with exports, the court found that the local sale lacked this essential ingredient because the local seller of the goods had no interest in seeing that the goods were exported, although the local purchaser may have bought the goods for export. To the local seller, it was immaterial whether the goods were in fact exported or not. So that there was no understanding between the local seller and the local buyer that the goods must be exported. 42.. This seldom happens in the case of imports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic requirement of local purchaser which has led to the specific import. Whether the actual sale takes place before the import or after the import is irrelevant in this context [vide K.G. Khosla's case [1966] 17 STC 473 (SC); [1966] 3 SCR 352. It is the arrangement between the local buyer and the local seller which has occasioned the import. 44.. The respondents drew our attention to the fact that in the case of any default by the local purchaser, the canalising agency would be entitled to sell the goods elsewhere. This, however, in my view, does not detract from the fact that the import is as per the requirements of the local purchaser and is directly linked with it. A specific allocation is made in favour of each of the local purchasers. The orders for import are placed to comply with the specific requirements of the local purchasers. A default clause cannot alter the nature of the transaction between the local purchaser and the canalising agency. The very term "canalising agency" in the context of the canalisation scheme as set out earlier strengthens the argument that the imports were effected on behalf of and/or for the benefit of the local purchaser who had agreed to purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down in the cases of Coffee Board [1970] 25 STC 528 (SC); (1969) 3 SCC 349 and Mod. Serajuddin [1975] 36 STC 136 (SC); (1975) 2 SCC 47 should be confined only to export sales and should not be applied to imports. They further contend that even in the area of export the test has now been ruled out by reason of a subsequent amendment made to section 5 of the Central Sales Tax Act, 1956 as a result of which sub-section (3) has been introduced in section 5. Hence such a test should not now be applied to imports for the first time. 46. In view of similarity of language in section 5(1) and 5(2), no such distinction is possible between imports and exports. Similar tests will have to be applied to both the sub-sections. There is no express amendment as far as imports are concerned which can assist the processors in the present case. It may be that such an amendment was not necessary in the case of imports because the difficulty with the penultimate sales had mainly arisen in the case of exports. However, whether it is exports or imports or inter-State sales, what needs to be emphasised is the basic requirement prescribed under sections 3 and 5, namely, that the transaction in quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Sales Tax Act, 1956, crossing the customs frontiers of India was understood as crossing the limit of territorial waters of India. The definition, therefore, cannot be considered as merely clarificatory. Since it came to be introduced in the Central Sales Tax Act after the imports in question, it cannot be resorted to for the purposes of the present case. 48.. It was next submitted by Mr. Poti that the sale in the present case was effected by a transfer of documents of title to the goods before the goods crossed the customs frontiers of India even in the sense of crossing the territorial waters of India. Hence it was a sale in the course of import. He relied upon the second part of section 5(2) of the Central Sales Tax Act, 1956 for this purpose. The Tribunal, however, has found as a fact that there is no clear evidence as to when the sale by transfer of documents took place. In the absence of any factual basis, therefore, this submission also cannot be accepted. 49.. However, since there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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