9911796707
TMI Blog1991 (10) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... t out of India. The claim for exemption arises in respect of sales of 3,000 tonnes of N.S.D. washing powder by the applicants through their subsidiary, the respondent No. 6, Indexport Limited (hereinafter mentioned as "Indexport") to a Russian purchaser, namely, Vesojuznoje Objedinenije Scjuzchimexport, Moscow (hereinafter referred to as "the foreign buyer") through the STC on the basis of one contract dated January 19, 1972, entered into between the foreign buyer and the STC (hereinafter called "the foreign contract") and another contract dated January 19, 1972, entered into by Indexport with the STC (hereinafter referred to as "the Indian contract "). The applicants have claimed exemption for export of 3,000 tonnes of N.S.D. washing powder on the basis of these two contracts under section 5(1) of the Central Sales Tax Act, 1956 and have prayed for setting aside of the aforesaid three orders of assessments passed by the respondent No. 1 and an appellate order dated March 25, 1982, passed by the respondent No. 2. affirming these orders for assessments. 3.. The case is contested by the respondents by filing an affidavit-inopposition, wherein all the material allegations made out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment shall be to the account of Indexport and shall be claimed from authorities concerned directly by them. Under clause 8, Indexport is to be fully responsible for all demurrage, dead freight, etc., if any, incurred at the loading port as may be payable to the shipping company. Clause 10 is the general clause to the effect that all the provisions of foreign contract between the STC and the foreign buyers mutatis mutandis and in so far as they are not repugnant to the terms of the Indian contract shall apply and will be binding between both the parties. 5.. Under the foreign contract, payment shall be effected out of an irrevocable letter of credit, valid 30 days, opened in favour of STC for the value of the lot ready for shipment. Such letter of credit is to be opened by the buyer within 10 days after receipt of the seller's advice (STC's advice), that the given lot is ready for shipment. Clause 6 of the foreign contract provides for quantitative and qualitative inspection of the goods to be effected at the place of destination in the USSR within 60 days after the arrival of the goods at the final place of destination. Clauses 7 and 8 are to the effect that the seller (STC) is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... link between the sale by Indexport and the actual export in order that the sale could become a sale in the course of export. This theory of integral connection was laid down by the Supreme Court in the case of Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 STC 753, the following passage from which at page 759 has been quoted with approval in various decisions of the Supreme Court: "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 this sense, to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be an obligation to export, and there must be an actual export. The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export. A transaction of sale which is a preliminary to export of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that as Indexport is acting as the agent of STC in exporting the goods to the foreign buyer, Indexport has agreed to indemnify the STC against all claims on account of quality, quantity, demurrage, etc., owing to any default on the part of Indexport in the performance of their obligation under the contract. This contention cannot be accepted. In the case of Mod. Serajuddin [1975] 36 STC 136 (SC), most of the judgments of the Supreme Court rendered before the delivery of judgment in that case, such as the cases of Ben Gorm Nilgiri Plantations Co. [1964] 15 STC 753, Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254, Coffee Board v. Joint Commercial Tax Officer [1970] 25 STC 528, Khosla and Co. (P) Ltd. v. Deputy Commissioner of Commercial Taxes [1966] 17 STC 473, State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory [1953] 4 STC 205 and Wadeyar v. Daulatram Rameshwarlal [1960] 11 STC 757, to which our attention has been drawn by either Dr. Pal or Mr. P.K. Chakraborty, the learned State Representative, have been discussed. In that case of Mod. Serajuddin [1975] 36 STC 136 (SC) there were two contracts by the appellants, Mod. Serajuddin with the STC for the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receiver of shipment of goods against the contract does not change the position that the foreign contract was the immediate cause of export. All documentations relating to shipment were to be effected by Indexport in their capacity as nominee of the STC and on behalf of STC. The provisions of sections 222 and 223 of the Indian Contract Act, 1872, show that the employer is to indemnify the agent against consequence of lawful acts and against consequence of acts done in good faith. The provisions in the Indian contract for indemnification of STC by Indexport against all losses, expenses, costs, claims on account of quality, quantity, defects in packing, shortages and charges arising either by way of demurrage or otherwise owing to any default on the part of Indexport in the performance of their obligations do not fit in with the theory that Indexport is the agent of STC. On the other hand, this provision for indemnity of STC goes to show that the obligations of Indexport were to the STC and not to the foreign buyer with whom Indexport had no privity of contract. 9.. In the case of Coffee Board v. Joint Commercial Tax Officer [1970] 25 STC 528 (SC), it was held that the phrase "sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Indian contract specifically provides that all the export incentives, duty drawbacks and concessions, if any, available on the export shall be to the account of Indexport and shall be claimed from the authorities concerned directly by them. Dr. Pal has referred us to the provisions in clause 11 of the Customs and Central Excise Duties Drawback Rules, 1971, which has been framed in exercise of the powers conferred under section 75 of the Customs Act and the definition of "exporter" in section 2(20) of the Customs Act, 1962. The word "exporter" includes any owner or any person holding himself out to be the exporter. Drawback means rebate of duty chargeable on any imported materials or excisable materials used in the manufacture of such goods in India. Under clause 11 of the Drawback Rules, the exporter shall, at the time of the export of the goods, state on the shipping bill or bill of export the various particulars like description, quantity and such other particulars as are referred to therein. The obligation to file the declaration is upon the exporter under clause 11 of these Rules. Clause 12 of these Rules provides that the drawbacks under these Rules shall be paid by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, as the assessments in question were for the periods before April 1, 1976. The decision of the Supreme Court in the case of Mod. Serajuddin [1975] 36 STC 136 and Coffee Board [1970] 25 STC 528 will govern this case and hence, because of availability of export incentives and drawbacks to Indexport, it cannot be stated that the sale by Indexport to STC was in the course of export. 11.. Dr. Pal has referred us to several cases relating to import. These cases are the cases of Khosla and Co. (P) Ltd. v. Deputy Commissioner of Commercial Taxes [1966] 17 STC 473 (SC), Deputy Commissioner of Agricultural Incometax and Sales Tax v. Indian Explosives Ltd. [1985] 60 STC 310 (SC) and Embee Corporation v. State of Maharashtra [1990] 78 STC 311 (Bom). In the case of Khosla and Co. [1966] 17 STC 473 (SC), Khosla and Company entered into a contract of sale with the Director-General of Supplies and Disposals, for supply of axle-box bodies manufactured by the principal of Khosla and Company in Belgium. The goods were to be inspected by the Director-General of Inspection, Supply and Disposals in Belgium. Under the contract of sale, the goods were liable to be rejected by the buyer, the Director- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aharashtra [1990] 78 STC 311 (Born), there was import of goods from West Germany by Indian importer against order from the Director-General of Supplies and Disposals. There were two sales, one by the West German supplier to the Indian importer and the other by the Indian importer to the Director-General of Supplies and Disposals. It was held by the Division Bench of the Bombay High Court in that case that the two sales were integrated. Following the decision of the Supreme Court in the case of Khosla and Co. (P) Ltd. [1966] 17 STC 473, it was held in that case that the sale to the Director-General of Supplies and Disposals was in the course of import as the facts of that case and the case of Khosla and Co. [1966] 17 STC 473 (SC) were almost identical with the only difference that there was a provision in the case of Khosla and Co. [1966] 17 STC 473 (SC) for manufacture of goods in Belgium and for inspection of goods in Belgium on behalf of the Director-General of Supplies and Disposals, though these provisions did not exist in that case. 14.. On the basis of the aforesaid three cases relating to import of goods into India, Dr. Pal has contended that the test of inextricable link ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the foreign contract and the surrounding circumstances, we are of the opinion that the obligation of Indexport for arranging delivery of the shipment of the goods to the foreign buyer and effecting all documentations relating to the shipments in their capacity as nominee of the STC as on behalf of STC did not convert the Indian contract into a contract of agency of Indexport for sale to the foreign buyer and that Indexport was agent of STC only for the limited purpose of discharging the obligation of shipping the goods for delivery to the foreign buyer. Reference can, in this connection, be made to the decisions of the Division Bench of the Madras High Court in the case of State of Tamil Nadu v. Chillies Export House Limited [1978] 42 STC 340, the Division Bench decision of the Karnataka High Court in the case of Coffee Board v. State of Karnataka [1990] 76 STC 337 and the decision of the Supreme Court in the case of Murarilal Sarawagi v. State of Andhra Pradesh [1977] 39 STC 294, which support this view taken by us with regard to the first limb of section 5(1) of the CST Act. An attempt has been made to distinguish the present case from the case of Mod. Serajuddin [1975] 36 STC 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computed and levied and it was not until this process was completed that the goods could be shipped for transportation or cleared by the consignee or its representative, as the case might be. The Supreme Court observed that it would, therefore, seem logical to hold that the course of export out of, or of the import into, the territory of India did not commence or terminate until the goods crossed the customs frontier. The contention of Dr. Pal is that this exposition of the meaning of the expression, "customs frontiers" and the goods "crossing the customs frontiers", in the context of sale in the course of exports out of the territory of India, as enunciated by the Supreme Court in the case of State of TravancoreCochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 on May 8, 1953, has received legislative recognition by enactment of section 2(ab) of the CST Act. Section 2(ab) of the CST Act defines "crossing the customs frontiers of India" as crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities. For the purpose of section 2(ab), "customs station" and "customs authorities" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial decision of the Supreme Court in the case of State of TravancoreCochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 and hence the sale to STC by Indexport was in the course of export. This contention cannot be accepted. It is true that section 5(1) of the CST Act gives legislative recognition of the principles laid down by the Supreme Court in the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [vide the case of Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 STC 753 (SC)]. With due respect, we are unable to agree with the views of A.K. Sengupta, J., in the case of Louis Dreyfus Co. Ltd. v. Assistant Commissioner of Commercial Taxes [1990] 78 STC 25 (Cal) that section 2(ab) of the CST Act is retrospective in operation, for being curative and clarificatory in nature. The decision of the Supreme Court in the case of State of Madras v. Davar and Co. [1969] 24 STC 481 is that the expression "customs frontiers" in section 5(2) of the CST Act did not mean "customs barrier". According to the Supreme Court, this expression "customs frontiers" has to be construed in accordance with the Notification No. S.R.O. 1683, dated August 6, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrier", even then the sale by Indexport to the STC was effected by transfer of documents of title to the goods after the goods crossed the customs frontiers of India inasmuch as there is always a time lag between the date when the goods are delivered on board the vessel and the bill of lading is obtained and the date when such bill of lading is endorsed in favour of STC and payment is received from the STC. The contention is that on the basis of this time lag, the documents of title to the goods were transferred in favour of STC after the goods crossed the territorial waters of India. It is contended that much time is not spent for passing a distance of 6 or 12 nautical miles measured from the appropriate base line and hence the title to the goods passed to the STC after the vessel crossed the territorial waters of India. This contention cannot also be accepted. As held by the Supreme Court in the case of Wadeyar v. Daulatram Rameshwarlal [1960] 11 STC 757, to which reference has been made also by Dr. Pal, in the case of f.o.b. contract, in the absence of any special agreement, the property in the goods does not pass until the goods are actually put on board the vessel. The materi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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