9911796707
TMI Blog1989 (11) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to as "the CST Act"). 2.. The applicant-companies are exporters of Indian tea to foreign countries on the strength of licences/permits issued to them according to the provisions of the Tea Act, 1953 and the Tea (Distribution and Export) Control Order, 1967. In or about the year 1983, the State Trading Corporation of India Ltd. ("the STC", for short) intervened in the export market by introducing what is termed by the applicants as the "consortium approach" for eliminating unhealthy competition among the Indian exporters. The STC entered into export contracts with foreign buyers and entrusted performance of those contracts to the Indian companies, like the present applicants, who shipped the specified quantities of tea of the agreed quality "a/c STC" on the strength of their own export licences. Letter of credit was opened in favour of the STC which realised price from the foreign buyers and made payments to the Indian companies, having retained an agreed percentage (here one per cent of FOB value) as service charge. All benefits accruing out of the exports are to go to the applicants and all expenses and obligations towards performance of the contracts are to the account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tea brokers were hit by articles 14 and 19(1)(g) of the Constitution of India. The facts as such are not really disputed. What is disputed is the legal position arising out of the facts. The decision on the dispute in these two cases really turns upon the correct construction of the written agreements executed between the STC and the applicants regarding compliance of the export contracts. In other words, the central question is whether it was an agency agreement or an agreement for sale of goods for export. 6.. It is well-settled that construction of a document of this nature depends on the substance rather than the form and such documents deserve to be considered as a whole. Annexure "A" to the application in RN-119(T) is the relevant part of the export contract entered into by the STC with the foreign buyer. Admittedly, the export contract between the STC and the foreign buyer in case No. 120(T) is of identical nature. Annexure "B" to the application in RN-119(T) at pages 31-39 is the agreement between the applicant and the STC. Similarly, the agreement in RN-120(T) is annexure "B" to that application at pages 33-37. The two agreements are substantially the same and Mr. Gupta, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies, have been disclosed to the foreign buyer. In order to persuade us to accept his point, he referred to a decision of Madras High Court in the case of Transformer and Switchgear Ltd. v. State of Tamil Nadu [1986] 62 STC 445. In that case there was no privity of contract between the local seller and the foreign buyer. There was, however, a contract between the assessee and the selling agent, according to which the export was made. It was held that non-disclosure of the principal by the agent in his dealing with the foreign buyer will not make the agent an independent dealer with respect to the goods exported. The ratio of that decision has no application to the cases before us, since the question of agency is disputed here, whereas there was a clear contract of selling agency between the parties in that case. Mr. Chakraborty, the State Representative, relied on AIR 1962 Ker 243 (Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer). At page 249 of the Report in paragraph 27 the learned Judge held that the fact that the petitioners might have export quota permits under the Tea Act has no bearing in considering the question whether the particular sales are covered by the exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation of actually shipping on behalf of the STC as its agent for that limited purpose. The mere fact that out of the sale proceeds, the STC retained or enjoyed only one per cent or that the amount was described in the documents as service charge is immaterial and has no bearing on the construction of the documents as a whole. Thus, in our view, the documents contemplated two contracts, one for sale of goods to the STC and the other for shipment of goods to the foreign buyer. The contract never envisaged that the applicants were directly dealing with the foreign buyer either as disclosed or as undisclosed principals. The contract with the foreign buyer was independently entered by the STC, not as an agent of the applicants and the contract was performed by the STC. It purchased the goods from the applicants and the shipment was done "a/c STC" by the applicants showing that the applicants were doing so on behalf of the STC as its carriers. The despatch of goods in ships to Iran followed by transfer of the documents of title to the goods to the STC resulted in a sale to the STC, which, in turn, sold the same to the foreign buyer by way of performing the export contract. 10.. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred from the applicants to the STC and then again as soon as the goods crossed the customs frontiers of India and documents of title to the goods were transferred to the foreign buyer by the STC, there was a sale of the goods to the foreign buyer by export within the meaning of sub-section (1) of section 5 of the CST Act, 1956. We conclude that there was a sale from the applicants to the STC and there was another sale from the STC to the foreign buyer and there is no escape from this conclusion. That being the position, the alternative case of the applicants that the STC was the principal and they were the agents for the purpose of the export sale does not stand to reason. We are unable to accept this contention. 11.. Mr. P.K. Chakraborty, the learned State Representative, cited in support of the contention of the Revenue, a decision of Madras High Court in the case of Lakshmi Machine Works Ltd. [1981] 48 STC 342. In that case in almost similar circumstances the Madras High Court held that there was no privity of contract between the assessee and the foreign customer and the sale by the assessee in favour of STC was only a local sale liable to tax. With the object of counterin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods by NSO and in loading the goods on the ship, the respondents were acting as mere carriers, since they were under an obligation to do so under their contract with NSO. Applying the ratio in Serajuddin's case [1975] 36 STC 136 (SC), it was held by the Supreme Court that the sale effected by Swaika Oil Mills in favour of NSO was not a sale in the course of export. The ratio of this decision, in our view, is that on the facts of that case the exportation of the goods to the foreign buyer was not a sale by Swaika Oil Mills directly to the foreign buyer, but was a sale by NSO to whom Swaika Oil Mills sold the goods in India. We agree with Mr. Chakraborty, appearing for the respondents, that the ratio of this decision is applicable to the facts of the cases under our consideration. 12.. Mr. Gupta, learned Advocate for the applicants, made a reference to the decision of the Supreme Court in Consolidated Coffee Ltd. v. Coffee Board [1980] 46 STC 164, in which the court laid down the conditions which were required to be fulfilled for availing of the exemption under section 5(3) of the CST Act, 1956. The court held that section 5(3) has been enacted to extend the exemption from tax l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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