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TMI Blog2000 (3) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... ng will be in the joint names of the appellant and the export house; (b) All expenses up to placing the cargo on board will be borne and paid by the appellant; (c) The appellant will hand over to the export house, the clean bill of lading and all relative documents after completing all the formalities in respect of the export, within 15 days from the date of the respective bill of lading; (d) The export house will advice the appellant's bankers to credit the proceeds of the export to the account of the appellant on negotiation without recourse to the export house. 3.1. The term relating to sharing of export benefits contained in one of the agreements with export houses is extracted below [Note: The term "processor" and VEOL in the said agreement refer to the appellant and the export house respectively]: "Benefits of income-tax under section 80HHC of the Income-tax Act, 1961 on the exports will be to the account of the processors. VEOL shall provide disclaimer certificate to the processors to enable the processors to claim relief under the provisions of the Income-tax Act and other income-tax benefits, if any. All other benefits such as advance licence to be applied unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps, to which it was entitled as an exporter, in favour of the export houses in pursuance of the aforesaid agreements. Consequently, the REP licences/exim scrips, which, but for the terms of the agreement between the appellant and the export house and the disclaimer executed by the appellant would have been issued to the appellant, were issued to the export houses entitling the export houses to either sell or transfer them to others for consideration or to import goods under them. The declaration made by the appellant while issuing the disclaimer certificates in favour of the export houses was as follows: "This is to declare that in respect of the following shipping bill, we have no objection if (the name of export house), claim the export house/trading house benefits. We hereby further declare that we have not claimed any trading house benefits nor shall we claim the same in future in respect of exports covered by the aforesaid shipping bill. We further declare that we have not paid any commission nor it is payable at future date to the foreign agent (in regard to) the export covered by the above shipping bill. We further declare that we have not been debarred from receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the export. (ii) The export house gets the benefit of export (REP licences/exim scrips) in view of the disclaimer certificates given by the exporter. (iii) The export house pays 2.4 per cent or other agreed percentage of f.o.b. value to the exporter (known as service charge/premium/incentive amount). (iv) The export house does not get any benefit under section 80HHC of Income-tax Act, firstly because it does not get any income/profit from the export transaction and secondly because under the agreement, the benefits of section 80HHC of Income-tax Act, 1961 are to the account of the exporter. 8.. In regard to assessment years 1989-90, 1990-91, 1991-92, 1993-94 and 1994-95, the appellant received Rs. 14,82,926, Rs. 8,74,726, Rs. 52,39,939, Rs. 18,44,363.42 and Rs. 72,50,000 as service charges/premium/ incentive/commission, from export houses, in pursuance of agreements entered into with them (of the nature described in para 3 above) by parting with export benefits (REP licences/exim scrips) by issuing disclaimer certificates. The net result of such transaction is that the export house gets the REP licences/exim scrips and the benefit of the export being counted to its name, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the appellant and the export house was in the nature of an exchange under which in consideration of the transfer of the benefit under section 80HHC of the Income-tax Act by the export houses to the appellant, the appellant transferred the "export benefit" (REP licences/exim scrips) under the Import-Export Policy. The assessing authority, held that section 80HHC of Income-tax Act contemplates and provides for the supporting manufacturer (appellant) getting the benefit of deduction of profits derived from exports under section 80HHC (by producing a certificate from the export house certifying that it had not claimed the deduction in regard to such export turnover); and the appellant would have received the said benefit under section 80HHC, even without a disclaimer by the export house; and that if there was really an exchange of benefit under section 80HHC of Income-tax Act and export benefits under Import-Export Policy, the question of the export house paying an agreed percentage of f.o.b. price to the appellant would not have arisen. He held that the act of disclaimer in the REP licences/exim scrips in favour of the export houses, amounted to sale of the export benefits (REP l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the appellant has not even applied for REP licences/exim scrips, nor received the REP licences/exim scrips, the question of appellant selling them does not arise. A percentage of earning of the export house is passed on to appellant by way of export incentive or premium." 13.. The Commissioner of Commercial Taxes initiated suo motu revisional proceedings under section 22-A(2) of the KST Act, in regard to the proceedings relating to assessments for the periods 1989-90, 1990-91, 1991-92, 1993-94 and 1994-95 ending with the orders dated December 5, 1997 passed by the Additional Commissioner under section 22-A(1) of the KST Act. The Commissioner, after hearing has passed the impugned common order dated January 22, 2000 holding that there was a transfer of REP licences/exim scrips, by the appellant to the export houses, by executing disclaimer certificates for consideration, and such transfer amounted to sale, the sale price being the "percentage of f.o.b. price" paid by the export house to the appellant under the description of "service charge" or "premium" or "export incentive" or "commission". He therefore set aside the revisional order dated December 5, 1997 passed by the Addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right liable to tax. In fact, the assessee has not even applied for REP licence and therefore the question of selling the licence does not arise. The percentage of earning of the export house is passed on to assessee by way of export incentive or premium." It is lastly contended that even if it is held that there is any transfer of export benefits, that is the right to get REP licences/exim scrips, the transfer took place in the course of an export transaction outside the territory of India and therefore there is no liability to pay sales tax under CST Act. 15.. The following questions therefore arise for consideration on the contentions raised: (i) Whether there is a sale of REP licences/exim scrips by the appellant exigible to tax under CST Act, on account of appellant entering into an agreement agreeing that the export house will be entitled to directly receive the export benefits of the appellant and by executing disclaimers in regard to such export benefits in favour of export houses. (ii) Whether the payment by the export house to the appellant (by way of a percentage of the f.o.b. price), termed as "service charge" or "export incentive" or "premium" or "commission", ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses and intents, it is goods. Unrelated to the goods which can be imported on its basis, it commands a value and is traded as such. This is because, it enables its holder to import goods which he cannot do otherwise. 18.. The appellant contends that it has not "sold" or, "transferred" REP licences/exim scrips. It is stated that under the agreements entered by it with export houses, the export houses are entitled to all export benefits (that is, REP licences/exim scrips) and it is entitled to the benefit under section 80HHC of Income-tax Act and it merely gave effect to the said term of the agreement by issuing disclaimers in favour of the export house regarding the REP licences/exim scrips. It is pointed out that in pursuance of the agreements between the appellant and export houses and in view of the disclaimers, the REP licences/exim scrips were directly issued to the export houses (in the names of the export houses), by the concerned licensing authority (Joint Controllers of Exports/Imports) of the States where the export houses are situated. According to the appellant, the question of a transfer or sale of REP licences/exim scrip would arise only if the REP licence/exim scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax and the taxable event would be the issue of REP licences/exim scrips to "B". To ascertain whether there is sale, the essence of the agreement between the two parties and the reality of the transaction in its entirety should be considered and not whether there is physical delivery by the seller to buyer or whether the transaction is referred to as "sale". 20.. The Madras High Court in P.S. Apparels v. Deputy Commercial Tax Officer [1994] 94 STC 139, makes it clear that the transaction need not be termed as "sale" or "transfer" to be exigible to tax. In that case the assessee surrendered the REP licences to a bank for consideration. When the transaction was sought to be taxed, it was contended that there was no "sale" or "transfer". Repelling the said contention, the Madras High Court held: "Mr. Gangadharan, learned counsel appearing in W.P. No. 19467 of 1993, raised a plea that the authorities are seeking to levy sales tax also on the value or sum received by the petitioner therein on surrendering the licence in question to the specified or designated banks and the act of surrender cannot be treated as a transaction of sale attracting liability to sales tax. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse as it did not receive any part of the sale consideration, make it clear that but for the disclaimer by the appellant issued as per the agreements, the export benefits (REP licences/exim scrips) would have been issued in the name of the appellant and not in the names of the export house. Only the exporter is entitled to the REP Licences/exim scrips under the Import-Export Policy. If the REP licences and exim scrips which became due on account of exports by the appellant, were issued in favour of the export house instead of the appellant, it is only in view of the terms of the agreement between appellant and the export house and consequential disclaimer by the appellant. Therefore, renunciation or disclaimer of export benefits (REP licences/exim scrips) by the appellant in favour of export houses amounts to a sale taxable under the Act even though REP licences/exim scrips were directly issued in the name of the export houses. 22.. It is alternatively contended that the transaction between appellant and the export house is in the nature of a barter or exchange; that is, the export benefits to which appellant is entitled are exchanged for the income-tax benefits to which the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.. We therefore hold that transaction between the appellant and export houses, under which the export house obtains the REP licences/exim scrips directly from the licensing authority, in pursuance of the disclaimer by appellant, amounts to a sale of REP licences/exim scrips by the appellant to the export houses. Re: Point No. (ii): 24.. The next question relates to identifying the consideration for the sale or transfer of REP licences/exim scrips. It is seen from the agreement between the parties that the actual export is by the appellant and not by the export house. Even the bill of lading is in the joint names of the appellant and the export house. The entire proceeds of exports are received by the appellant. In fact, the benefit of section 80HHC of the Income-tax Act accrues to the appellant in view of the fact that the entire proceeds of the export are received by the appellant. As no part of the proceeds of export is received by the export house, the export house could not have derived any benefit under section 80HHC. Hence, the disclaimer by the export house in favour of the appellant in regard to income-tax benefit is illusory. It is not therefore possible to accept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27.. The contention of the appellant is that even if it has to be held that there is a sale or transfer of export benefit, it took place in the course of the export transaction outside the territory of India and not in the course of inter-State trade or commerce, and therefore there is no liability to pay Central sales tax. This contention is not sound. The subjectmatter of sale or transfer which is being taxed is not the exported goods (marine products). The subject-matter of the sale is REP licences/exim scrips. The sale or transfer of REP licences/exim scrips took place in pursuance of the agreement between the appellant and the export house. As the goods (REP licences/exim Scrips) were not in existence at the time of the agreements, the transfer is completed only on delivery of the goods. In this case therefore, the taxable event is the issue of the REP licences/exim scrips in favour of the export house by the licensing authority in pursuance of the agreement and the disclaimer by the appellant. Thus, it cannot be said that the sale/transfer took place outside the territory of India. 28.. We do not find any error in the impugned revisional order dated January 22, 2000 pas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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