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TMI Blog2010 (9) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... SHNAN J.-The question that falls for consideration in this case is whether an assessee (local manufacturer) is eligible to get exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956 (for short "the CST Act"), if the penultimate sale effected in favour of the exporter is inextricably connected with the export of goods outside the territory of India. This court in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC)., [1975] 2 SCC 47, held that, under article 286 of the Constitution, the sale which was not liable to tax under the State sales tax law was only the actual sale by the exporter, but the benefit of export sale did not extend to the penultimate sale to the Indian exporter for the purpose of export. This led to the insertion of sub-section (3) of section 5 of the CST Act by the Amending Act 103 of 1976 with effect from April 1, 1976, whereby the last sale or purchase occasioning the export of goods was granted exemption from the State levy. The scope of the Amending Act later came up for consideration before a Constitution Bench of this court in Consolidated Coffee Ltd. v. Coffee Board, Bangalore [1980] 46 STC 164 (SC)., [1980] 3 SCC 358 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nut kernels are not the same goods as raw cashew nuts. Sterling Foods [1986] 63 STC 239 (SC). [1986] 3 SCC 469 and Vijayalaxmi Cashew Company [1996] 100 STC 571 (SC). [1996] 1 SCC 468 were essentially advocating the "same goods" theory of course in different fact-situations. Later, in K. Gopinathan Nair v. State of Kerala [1997] 105 STC 580 (SC). [1997] 10 SCC 1, a three-judge Bench of this court examined the question whether the purchase of African raw cashew nuts made by the assessees from the Cashew Corporation of India (for short "the CCI") is in the course of import and, therefore immune from liability to tax under the Kerala General Sales Tax Act, 1963. In that case, on facts the court found that there was no privitiy of contract between the local users on the one hand and the foreign exporter on the other and held that those two transactions could not be said to be so integrally interconnected as to represent one composite transaction in the course of import of raw cashew nuts. The court held that those sales by the CCI to the local users go out of the sweep of the exemption provisions engrafted by section 5(2) of the CST Act, the reason being that there was no privity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porter and the foreign buyer and also the order placed by the exporter on the assessee, the High Court came to the conclusion that the bus bodies supplied by the assessee to the exporters were in the course of exports and the words "in relation to such export" extended the scope of the exemption to the extent that even if there is no agreement or order but they are in relation to such exports, the exemption could still be claimed under section 5(3) of the CST Act. The High Court, therefore, allowed the revision petition and held that the assessee is eligible for the benefit of exemption from tax under section 5(3) of the CST Act. Aggrieved by the order of the High Court, the State of Karnataka has come up with these appeals. A Division Bench of this court felt that the judgments of this court in Sterling Foods [1986] 3 SCC 469 and Vijayalaxmi Cashew Company [1996] 100 STC 571 (SC). [1996] 1 SCC 468 need a fresh look in the light of a later judgment of this court in K. Gopinathan Nair(1) [1997] 10 SCC 1 and hence the matter was referred to a Larger Bench, the reference order is reported in [2006] 145 STC 176 (SC). [2006] 3 SCC 338. The Larger Bench then placed this matter before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be covered and any other construction would render the use of those words otiose. Mr. Soli J. Sorabjee, learned senior counsel appearing for the respondents, submitted that section 5(3) of the CST Act should be given a purposive interpretation keeping in mind the statement of objects and reasons of the Amendment Act 103 of 1976. The learned senior counsel submitted that the only requirement of section 5(3) is that the goods sold to the exporter should be exported as such without loss of identity and if that happens, the penultimate sale gets the benefit of section 5(3) of the CST Act. Shri Goolam E. Vahanvati, learned Attorney-General, assisting the court submitted that if the penultimate sale is inextricably connected with the export of goods outside the territory of India, then such a sale is eligible for exemption under sub-section (3) of section 5 of the CST Act. The only pre-condition is that the exemption be linked to the penultimate sale, preceding the export. Before examining the rival contentions of the parties, it would be appropriate to refer to the Statement of Objects and Reasons of the Amending Act 103 of 1976 by which section 5(3) of the CST Act was added. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such export . . ." Article 286(1)(b) of the Constitution of India states that no law of a State shall impose, or authorise the imposition of the sales tax on the sale or purchase of goods when such sale or purchase takes place in the course of export of goods. Article 286(2) prohibits imposition of sales tax on import and export by the State Government. Article 286(2) authorises Parliament to formulate principles for determining when sale is in the course of import/export. The sale or purchase of goods is deemed to be in the course of export of 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. Therefore, under article 286(1) of the Constitution, the court has to examine whether any tax is being imposed by the State Legislature 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 order to resist imposition of sales tax by the State, the assessee will have to establish the identity of the goods sold to be exported out of the territ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent-assessee was concerned with sale transactions in the course of import of chemicals, dyes, etc. The modus operandi of the assessee in that case was to the effect that local purchasers used to place orders with the respondent quoting their import licence numbers in accordance with their pre-existing contracts with the respondent. The respondent then placed orders with the foreign supplier for the supply of the goods and in such orders the name of the local purchaser who required the goods as also its licence numbers, were specified; the actual import was done on the strength of two documents like (a) the actual users' import licence and (b) letter of authority issued by Chief Controller of Imports and Exports whereunder the local purchaser was authorized to permit the respondent-assessee on his behalf to import the goods, to open letters of credit and make remittance of foreign exchange against the said licence to the extent of value specified therein. The court held 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r between the canalizing agency and the local users for whose benefit the goods were imported by the canalizing agency. In such a situation, the court held that the sale by the canalizing 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(2) of the Central Sales Tax Act. The court further noticed that a sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer. When we analyse all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on section 5(3) of the CST Act, the following principles emerge: - To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export; - There must be obligation to export, and there must be an actual export. - The obligation may arise by reason of statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order. The assessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the "same goods" theory has no application. We may also indicate that the burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and to establish that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer, which in this case the assessee has succeeded in establishing. Mr. T.S. Narasimha, learned counsel appearing for respondent No. 2 contended that any penultimate sale made in furtherance of export, irrespective of the nature of the goods, would also be covered, is too tall a proposition to be accepted. It all depends on the question as to whether the sale or purchase is inextricably connected with the export of goods and not a remo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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