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TMI Blog1991 (8) TMI 321X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." This article which speaks of a tax on the sale or purchase of goods, where such sale or purchase takes place outside the State or in the course of the import of the goods into or export of the goods out of the territory of India, has made a reference to clause (29A) of article 366, which defines "tax on the sale or purchase of goods" to include, "(a) a tax on the transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import or export only to the conditions where the sale or purchase either occasioned/occasions such import or export or was/is effected by the transfer of documents of title to the goods before the goods or after the goods had/have crossed the customs frontiers of India. The phrase, either occasions such export or import or is effected by the transfer of documents of title to the goods before or after the goods have crossed the customs frontiers of India, has clearly envisaged two situations, namely, (1) if the sale or purchase occasions such import or export and (2) if the sale or purchase is effected by a transfer of documents of title to the goods before or after the goods have crossed the customs frontiers of India. The expression "customs frontiers" has been understood to mean the boundaries of the territory including the territorial waters of India. 4.. In State of Madras v. Davar and Co. [1969] 24 STC 481, the Supreme Court considered the case of an assessee, who claimed that their turnover represented sales in the course of import and as such was not liable to tax under the Madras General Sales Tax Act, 1959. The State of Madras claimed that the sales had been effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of by introducing a definition to the expression "crossing the customs frontiers of India " in section 2(ab) of the Act as under: "'crossing the customs frontiers of India' means 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. Explanation.-For the purposes of this clause, 'customs station' and 'customs authorities' shall have the same meanings as in the Customs Act, 1962." 6.. The words in article 286(1)(b) of the Constitution of India speak of tax on the sale or purchase of goods in the course of the import of the goods into or export of the goods out of the territory of India. In one of the earliest judgments, what is described as the second Travancore case, in State of Travancore-Cochin v. Shanmuga Vilas Cashew-nut Factory [1953] 4 STC 205, the Supreme Court took notice of the four different views as to the meaning and scope of this expression and said: "(1) The exemption is limited to sales by export and purchases by import, that is to say, those sales and purchases which occasion the export or import, as the case may be, and extends to no other transactions h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import into' mean the exportation out of the country and importation into the country, respectively. The word 'course' etymologically denotes movement from one point to another, and the expression 'in the course of' not only implies a period of time during which the movement is in progress but postulates also a connected relation. For instance, it has been held that the words 'debts due to the bankrupt in the course of his trade' in section 15(5) of the English Bankruptcy Act, 1869, do not extend to all debts due to the bankrupt during the period of his trading but include only debts connected with the trade (see In re Pryce, Ex parte Rensburg 4 Ch. Dn. 685 and Williams on Bankruptcy, 16th Edition, page 307). A sale in the course of export out of the country should similarly be understood in the context of clause (1)(b) as meaning a 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. The time factor alone is not determinative. The previous decision proceeded on this view and emphasised the integral relation between the two where the contract of sale itself occasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arded to him, any further sale of such goods by the Indian seller is impossible, and where the export trade is conducted through representatives or branch offices, the sale by the latter of the exported goods usually takes place abroad and would not then be subjected to tax by the State in India. It is in relation to import of goods from abroad that the question of exemption assumes practical importance. It is well-known that sales or purchases by transfer of shipping documents while the goods are in transit are a characteristic feature of foreign trade, and as they take place in the course of import as defined above, and are regarded commercially as incident to the import transaction, they fall within the terms of clause (1)(b) and would be entitled, in our view, to the protection of that clause, if the State is constitutionally competent to tax such sales, as to which we express no opinion." The Supreme Court summed up its conclusions in these words: "(1) Sales by export and purchases by import fall within the exemption under article 286(1)(b). This was held in the previous decision. (2) Purchases in the State by the exporter for the purpose of export as well as sales in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customs frontier. It is not necessary to multiply and refer to a number of decisions taking this view. This Court in Seshasayee Paper and Boards Limited v. Deputy Commercial Tax Officer [1984] 56 STC 8 has said in no uncertain words that this section provides for two types of fact situations in which and subject to the existence of which alone a sale may be regarded as taking place in the course of export. One is where the sale occasions the movement of goods from India to a place abroad and the other is where there is a transfer of documents of title after the goods had crossed Indian customs frontiers. 8.. In an earlier judgment of State of Tamil Nadu v. Mohammad Yousuff Sahib and Co. [1978] 42 STC 335 this Court has said that if the case does not fall under the first limb of section 5(1) of the Act, it may still fall under the second limb of the section. If the property in the goods passed after shipment on payment against presentation of documents and if this event happened after the goods crossed the customs frontier, the second limb of section 5(1) will be attracted. This implies that to attract the first limb, the existence of privity of contract will be necessary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f credit. Balance after destinational weight and analysis on the basis of documents mentioned in S.T.C.'s corresponding sale contract with buyers. If the balance 10 per cent is insufficient to cover shortfall in weight and analysis at destination or any penalty imposed by the S.T.C.'s foreign buyers, the additional amount shall be payable by sellers to buyers on demand." Another clause in the contract provided as follows: "(i) Unless otherwise agreed upon, the sellers agree that the contract shall be deemed as cancelled if for any reason whatsoever M/s. Associated Metals and Minerals Corporation cancel their corresponding purchase contract with the buyers for supply of chrome ore; (ii) The terms and conditions of the buyers' corresponding sale contract with M/s. Associated Metals and Minerals Corporation will apply to this contract also except to the extent specified in this purchase contract; (iii) A true copy of the buyers' sale contract with M/s. Associated Metals and Minerals Corporation is attached." Serajuddin claimed that the sales of the mineral ore by him to the corporation were sales in the course of export and were therefore exempt from tax under section 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) and stated: "In Serajuddin's case [1975] 36 STC 136 (SC); [1975] Supp SCR 169, this Court referred to the rulings in Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC); [1970] 3 SCR 147 and Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254 (SC); (1974) 1 SCC 459 as laying down the correct tests to find out the sale in the. course of export. The tests are that there must be a single sale which itself causes the export or is in the 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 . ......... After the decision of the Constitution Bench in Serajuddin's case [1975] 36 STC 136 (SC); [1975] Supp SCR 169, the decision in National Tractors, Hubli v. Commissioner of Commercial Taxes, Bangalore [1971] 27 STC 271 (SC); (1971) 3 SCC 143 is no longer good law. In National Tractors case [1971] 27 STC 271 (SC); (1971) 3 SCC 143 which was a three-Judge Bench decision, reliance was placed on the decision in B.K. Wadeyar v. Daulatram Rameshwarlal [1960] 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import had been occasioned by the sale contract entered into by the assessee with the local buyers and therefore had satisfied the criteria laid down by section 5(2) of the Act. The Supreme Court said: ".........the movement of 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 in pursuance to the contracts of sale made by the petitioner with the DGS D. The petitioner's sales to the DGS D were distinct and separate from his purchases from the foreign sellers. To put it differently, the sales by the petitioner to the DGS D did not occasion the import. It was the purchases made by the petitioner from the foreign sellers which occasioned the import of the goods. The purchases of the goods and import of the goods in pursuance to the contracts of purchases were, no doubt, for sale to the DGS D. But it would not follow that the sales or contracts of sales to the DGS D occasioned the movement of the goods into this country. There was no privity of contract between the DGS D and the foreign sellers. The foreign sellers did not enter into any contract by thems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be seen whether there was privity of contract between the purchaser and the foreign seller, Indian Explosives case [1985] 60 STC 310 (SC) adds that in order to hold that the sale by the actual importer in favour of the purchaser is an import sale, it is necessary in all cases that there should be privity of contract between the purchaser and the foreign seller. All that is necessary to see therefore, is whether the movement of the goods from the foreign country is incidental to or in pursuance of the condition of the contract between the importer and his purchaser or there is inextricable link between the sale following the import and the actual import provided by an obligation to import and that an integral connection or link between the first sale to the assessee following the import and the actual import is found provided by an obligation to import under a statute, contract or mutual understanding. It is in this context, it seems, that this Court in the case of Blue Star Ltd. v. State of Tamil Nadu [1984] 56 STC 172 said that, unless the intermediary who actually imports, is held to be the agent of either the actual user or the foreign seller, there can be no privity of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f.o.b. expenses, despatch and demurrage expenses, saying that their own contract with the State Trading Corporation clearly excluded such charges from the price of the goods sold by them. 15.. The Appellate Tribunal under the Act, however, has held that, notwithstanding the various features pointed out, the petitioners had no privity of contract with the foreign buyer and they were only responsible to the State Trading Corporation, that the State Trading Corporation retained a part of the sale price allowing the petitioners to take the balance of the realisation and therefore the petitioners were not entitled to relief on the basis of the first limb of section 5(1) of the Act. As regards the submission that the sales were effected by transfer of documents on the high seas, the Tribunal has held against the petitioners primarily on the, ground that there was no sale by them to the foreign buyer. As regards the claim of exclusion of packing charges and handling charges, f.o.b. expenses, despatch and demurrage charges, the Tribunal's finding is that they were not excludible, since the petitioners had agreed to sell on f.o.b. Madras basis and any break-up details given in the contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show that the sales by him occasioned the export of the goods under section 5(1) of the Act or the sale was effected by the transfer of documents of title to the goods after the goods had crossed the customs frontiers of India, in the case of export sale, and, in the case of import, similarly by showing that the sale or purchase was occasioned the import or the sale or purchase was effected by a transfer of documents of title to the goods before the goods had crossed the customs frontiers of India. To satisfy the first limb, the assessee must show the privity of contract with the foreign seller or purchaser and if there has been an intermediary, then that intermediary was the real purchaser or if the assessee claimed that he/it was the intermediary, the real seller or purchaser being some one else then he/it acted only as agent of the real purchaser or seller. 17.. Messrs. India Cements Limited (petitioners in T.C. Nos. 494 to 497 of 1979 and 563 and 564 of 1980) contend that the State Trading Corporation had placed orders on behalf of the foreign purchasers to them for which they had entered into contract on c.f. (or f.o.b.) terms for the sale and shipment of the goods to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the manufacturers of the goods. The foreign buyers however had nothing to do with the supplies by the petitioner to the State Trading Corporation. No doubt, the petitioner sold the goods to the corporation to facilitate the performance of the contract between the corporation and the foreign buyer on terms, which were similar as held in Serajuddin's case [1975] 36 STC 136 (SC), but the said circumstance did not make the contract between the petitioners and the corporation the immediate cause of the export. The petitioners were under no contractual obligation to the foreign buyers either directly or indirectly. Their rights were against the corporation. Similarly, their obligations were to the corporation. The foreign buyers could not claim any right against them. The petitioners had no corresponding obligation to the foreign buyers. The petitioners have not pleaded that there was a relationship of principal and agent between them on the one hand and the corporation on the other hand. They have also not been able to show that there was any relationship of principal and agent between them and the corporation out of necessity. The relationship between the petitioners on the one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better right under the contract which Tvl. General Marketing and Manufacturing Company Limited, Madras had with them, who in turn sold the goods to Tvl. Clyde Engineering Limited, New Zealand against their own export contract. They had contract with the local buyers, namely, the General Marketing and Manufacturing Company Limited, Madras. They placed the goods on board the ship according to the contractual obligation with the local buyers. They had no privity of contract with the foreign buyer. No rights or obligations they had under any contract with any foreign buyer. It will be a repetition, if not verbatim, substantially of the principles stated in Serajuddin's case [1975] 36 STC 136 (SC) to reject their claim that sale by them was an export sale. Their case also does not fall under either of the two limbs in section 5(1) of the Act. 22.. Coming to the case of Messrs. ABMTM Private Limited (petitioner in T.C. No. 439 of 1981), we however find that there are some facts which require a closer examination. How to know whether the petitioner only acted as an agent, the privity of contract being between Heavy Vehicles Factory at Avadi and the foreign seller? The Board of Revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at certain documents revealed that the contract of sale was only between the assessee and the foreign seller, the Board has said, "Even though the goods might be ultimately indented to the Heavy Vehicles Factory that will not make the transaction as one of sale in the course of import." That will not be enough. It would be necessary to see whether the import in effect was for Heavy Vehicles Factory at Avadi and the order of the DirectorGeneral of Supplies and Disposals alone occasioned the import and that the assessee never had any right in the goods imported. If it is so found, the assessee may escape the taxation. If however, it is not so, the Board's order will be proper. We do not propose to give any judgment on the facts ourselves. It would be fit and proper that a fresh look is given by the Board (officer now designated under the amended law) to the facts of this case and adequate opportunity is afforded to the petitioner before any order reversing the order of the Appellate Assistant Commissioner is passed. 23.. Except the contentions above confined to the export and import sales, no other contentions have been raised before us by the learned counsel for the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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