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TMI Blog2016 (11) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... el and destroy them, the replenishment licences or Exim scrips would not be treated as marketable commodity purchased by the grantor - The intent and purpose was not to purchase the replenishment licences because the scheme was to extinguish the right granted by issue of replenishment licences - Appeal dismissed - Decided in favor of the assessee. - Civil Appeal No. 1798 of 2005 - - - Dated:- 8-11-2016 - Dipak Misra And Shiva Kirti Singh, JJ. JUDGMENT Dipak Misra, J. The seminal question that emerges for consideration in this appeal is whether the State Bank of India (SBI) and its branches, which are registered dealers under the Bengal Finance (Sales Tax) Act, 1941 (for brevity, the Act ) would be liable to levy of purchase tax under Section 5(6a) of the Act for accepting the Exim Scrips (Export Import Licence) on payment of premium of 20 per cent of the face value of the scrips in compliance with the direction contained in the letter of Reserve Bank of India (RBI) dated 18th March, 1992. The authorities of the revenue as well as the Taxation Tribunal (for short, the tribunal ) had held against the SBI but the Division Bench of the High Court of Calcutta in a writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch a decision, the RBI issued a circular, being No. 12/92 on 27th March, 1992. The said circular is as follows:- Reserve Bank of India had earlier notified that arrangements were being made to purchase Exim scrips at an appropriate premium from those holders of Exim Scrips who wish to dispose of them. The designated branches of State Bank of India would be purchasing these Exim scrips from March 23, 1992, up to the end of May 1992, at a premium of 20 per cent of the face value. The list of branches which would be purchasing these Exim scrips would be notified by the State Bank of India. The bona fide holder of the Exim scrips should submit an application to the designated branch of the State Bank of India, in the form prescribed by the State Bank of India. The scrips up to the face value of ₹ 5 lakhs will be straightaway purchased by the designated branch of State Bank of India and the premium amount would be paid to the holder of the scrips. Where the face value of the scrips exceeds ₹ 5 lakhs, the concerned branch would send it to the office of the JCCI, which had issued the scrip, for authentication and on receipt of the scrip duly authenticated would pay the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The assessing officer did not accept the said stand of the Bank and levied purchase tax under Section 5(6a) of the Act, amounting to sum of ₹ 1,00,04,000/- on the total taxable specified price of ₹ 25,00,00,000/-. In the order of assessment, the assessing authority held that the scheme contained in the circular of the RBI dated March 18, 1992, provided for sale of Exim scrips by the holder and purchase by designated bankers and consequently such sale or purchase by the bankers could not by any stretch of imagination be treated as an act of surrender. It was also held that the purchase of the Exim scrips by the bankers from the holders thereof were as much sales as purchase by private importers who availed of the same for import of goods. 9. The aforesaid order of assessment was assailed in an appeal before the Assistant Commissioner, Commercial Taxes, Calcutta (South) Circle, who vide order dated September 19, 1996, rejected the appeal and confirmed the order of assessment. The Bank Manager of the concerned Branch and the Chairman of SBI approached the West Bengal Taxation Tribunal (for short, the tribunal ). During the hearing of the appeal it was contended on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Exim scrips were goods as has been conclusively settled in Vikas Sales Corporation and another v. Commissioner of Commercial Taxes and another (1996) 4 SCC 433; that the submission to the effect that the purchase is made not for resale and hence, the bank would not be liable for tax does not commend acceptation, for legislature does not contemplate or lay down that Section 4(6)(iii) would apply to purchase for the purpose of only resale but has left the expression unspecified and unqualified; that there is no rationale to restrict it to resale and limit the expression; that Section 4(6)(iii) uses the word purpose , a purchase for any purpose other than those specified in clauses (i) and (ii) of Section 4(6) would be enough to attract the clause and in the case at hand, RBI s letter dated March 18, 1992 the purpose was to forward the scrips to the Joint Chief Controller of Imports and Exports, Government of India, after suitably cancelling them; that use of the purchased scrips by way of cancellation and onward transmission to the Joint Chief Controller was clearly subsequent to completion of the transactions and such use cannot keep the transactions out of the mischief and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be completed by the exchange of goods and services for money. The tribunal has observed that in the instant case the purchase of exim scrips was by way of exchange of the scrips, which are financial instruments, for money. Thereafter, the tribunal referred to the meaning of the terms trade and commerce and stated in Black s Law Dictionary and certain other dictionaries including Aiyer s Judicial Dictionary and eventually came to hold as follows:- Thus, purchase of exim scrips for money, comprising a large volume (at least ₹ 25 crores) is in every sense a business within the meaning of Section 2(1a). That being so, having carried on such a business the applicant bank became a dealer under section 2(c), even apart from the fact that it was already a registered dealer for sale of gold. Since sale of gold has no connection with purchase of exim scrips, the latter transactions cannot be said to be either in connection with or ancillary or incidental to sale of gold. In our view, the purchase of exim scrips was a separate business of the applicant bank. A point was argued on behalf of the bank that it had to undertake this activity under instructions from the Reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(c) of the Act in respect of the Exim scrips since it does not and/or did not carry on the business of sale or purchase of such Exim scrips; that in the case at hand it was only a solitary case and that too for a brief period from March 23, 1992 to May 31, 1992 but neither before nor after the said period had any such transaction been entered into which could justify the finding of the tribunal that the assessee-Bank had an intention to carry on business in purchase of Exim scrips and that mere lack of regularity or frequency would not convert a business into non-business and would not make a dealer a non-dealer; that there was no material on record to arrive at the conclusion that it was clearly established that the writ petitioner No. 1, i.e., the SBI, had the intention to carry on business in purchase of Exim scrips; that even if the Bank was to be treated as a dealer, the provisions of Section 4(6)(iii) would have to be related to the business being carried on by the Bank inasmuch as the said provisions would otherwise suffer from vagueness and would expose it to attack on the ground of constitutional validity; that keeping in view the scheme of the Act and the intent and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof was liable to sales tax within the ambit and sweep of Section 4(6) (iii) of the Act and, therefore, the finding recorded by the tribunal that the transaction involving the purchase of Exim scrips by the assessee bank amounted to sale could not be found fault with. It was also canvassed that the intention of the legislature was clear and in view of the authority rendered in Vikas Sales Corporation (supra), P.S. Apparels (supra) and the decision in Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes [1991] 86 STC 175 nothing really remain to be adjudicated. 14. The High Court analysed the principles in all the authorities cited before it and came to hold that this Court has opined that REP licences/Exim scrips were merchandise and/or goods in the commercial world and were freely bought and sold in the market and hence, no argument could be urged that they do not constitute goods for the purposes of commercial transactions. The High Court referred to the circular dated March 18, 1992, issued by the RBI regarding purchase of Exim scrips by the designated branches of the SBI and opined that the said Exim scrips were handed over to the Bank solely for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Appeal case No. A495/1995-96 under Section 20(1) of the Bengal Finance (Sales Tax) Act, 1941 . The aforesaid conclusion entailed allowing the writ petition preferred before the High Court and resultantly the assessee was discharged from the undertaking given for the purpose of continuation of the interim order initially passed. 15. We have heard Mr. Soumitra G. Chaudhuri, learned counsel for the appellants and Mr. Pradip Kumar Ghosh, learned senior counsel with Mr. Chiraranjan Addey, learned counsel appearing for the respondents. 16. To appreciate the controversy, it is pertinent to extract the communication dated March 18, 1992 sent by the RBI, Exchange Control Department to the Chairman, State Bank of India, Bombay. The said letter is as follows:- Dear Sir, Purchase of Exim Scrips by designate branches of SBI. This is with reference to our discussion with Shri. B.S. Pandya, General Manager (Domestic Operations) on the captioned subject. It has been agreed that designated branches of the State Bank of India would commence purchasing Exim Scrips , from holders who wish to dispose of them, at a premium of 20 percent on the face value of the scrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment has been made. i) SBI would be acting on behalf of the Reserve Bank of India and would be paid commission at the rate at which commission is payable to them for conducting Government business. They would also be paid out-of-pocket expenses including expenses incurred on advertisements notifying designated branches. 2. As desired by you, we have also advised the Chief Controller of Imports Exports to instruct all his regional offices to render necessary assistance to designated branches of SBI for a smooth implementation of the scheme. He has also been advised to instruct his regional offices in particular that they should promptly (say, within 48 hours) furnish authentication of scrips of face value above ₹ 5 lakhs sent to them and their findings of the check done of scrips up to the face value of ₹ 5 lakhs paid without any prior authentication. He has also been requested to advise J.C.C.I. E., Bombay, to assist you with a check list containing important features of the Exim Scrip to check their genuineness. [Emphasis added] 17. The aforesaid, as is manifest, authorises the SBI to purchase the Exim scrips as an agent of RBI and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act deals with incidence of taxation. Sub-Section (6) of Section 4 of the Act is as follows:- (6) Every dealer, who has become liable to pay tax under sub-section (1) or sub-section (2) or sub-section (4) of this section or sub-section (3) of section 8 and is registered under this Act, shall, in addition to the tax referred to therein, be also liable to pay tax under this Act on all his purchases from (i) a dealer who is not registered under this Act, of goods other than [gold, rice (Oryza sativa L.) and wheat (Triticcum Vulgare, T. compactum, T. sphaerococcum, T. durum, T. aestivum L., T. dicoccum)], intended for direct use in the manufacture in West Bengal of goods for sale, and of containers and other materials for the packing of goods so purchased or manufactured; (ii) a registered dealer, to whom a declaration referred to in the proviso to clause (bb) of sub-section (1) of section 5 has been or will be furnished by him in respect of sales referred to in sub-clause (i) or sub-clause (ii) of the said clause, of goods purchased against such declaration, and used by him directly in the manufacture in West Bengal, of goods or in the packing of such goods, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence to another person. The licence-holder or such transferee may import the goods permitted therein. (2) The transfer of a REP Licence will not require any endorsement or permission from the licensing authority, i.e., it will be governed by the ordinary law. Accordingly, clearance of the goods covered by a REP Licence issued under this policy will be allowed by the Customs authorities on production by the transferee of only the document of transfer of the licence concerned in his name. Whenever a REP Licence is transferred the transferor should give a formal letter to the transferee, giving full particulars regarding number, date and address of the transferee, and complete description of the items of import for which the licence is transferred. 25. The Court also observed that the relevant features of Exim Scrips are identical to REP Licences. Thereafter, the Court proceeded to state:- They are bought and sold as such. The original licensee or the purchaser is not bound to import the goods permissible thereunder. He can simply sell it to another and that another to yet another person. In other words, these licences/Exim Scrips have an inherent value of their ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een lottery tickets and steamship tickets, railway tickets, cinema tickets, etc. Salmond s Jurisprudence, 12th Edition at pages 338-339 under the heading The Classes of Agreements was quoted to draw distinction between three classes, namely, agreements which create rights, agreements which transfer or assign rights, and lastly agreements which extinguish them. Agreements which create rights were divided into two sub-classes, namely, contracts and grants. A contract is an agreement, which creates an obligation or right in personam between the parties, whereas a grant creates a right of another description such as leases, assignments, patents, etc. An agreement, which transfers a right, may be termed generically as an assignment. However, when a transaction extinguishes a right, it is called a release, discharge or surrender. The distinction between creation of a right by a grant and subsequent transfer or assignment was also highlighted in H. Anraj (supra) and noted by Sabyasachi Mukherjee, J. (as His Lordship then was) in his concurrent judgment with the following observations:- 41. It was urged before us on behalf of the dealers that by the issue of lottery tickets, the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposition of sales tax which, it was observed in the context, would carry its ordinary meaning of the subject matter of ownership and not denote the nature of interest of goods. The word goods was used to describe the thing itself. The relevant passages of the Constitution Bench in Sunrise Associates (supra) on the said aspect read as under:- 35. The word goods for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of movable property. The word property may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods. In the Dictionary of Commercial Law by A.H. Hudson (1983 Edn.) the difference is clearly brought out. The definition reads thus: Property .-In commercial law this may carry its ordinary meaning of the subjectmatter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... REP licences were not the subject-matter of the appeal before the referring court and could not have formed part of the reference. The only question we are called upon to answer is whether the decision in H. Anraj (supra) that lottery tickets are goods for the purposes of Article 366(29-A)(a) of the Constitution and the State sales tax laws, was correct. 30. Thus, the Constitution Bench did not overrule the decision of the Court in Vikas Sales Corporation (supra) holding replenishment licences were goods. The Constitution Bench, however, held that the reliance placed in Vikas Sales Corporation (supra) on the observations in H. Anraj (supra), which was agreed to and stood overruled, was to this extent bad in law. To clarify, Vikas Sales Corporation (supra) specifically dealt with the transfer of replenishment licences after they had been issued. However, in Vikas Sales Corporation (supra) it was opined that the grant of a licence by the licensing authority to a registered exporter was not a sale. Sale will take place only when the registered owner further sells it to another person for consideration. The relevant paragraph of the judgment has been earlier reproduced. 31. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Vikas (supra) it is apparent that it was the intrinsic value of REP licence that brought it within the definition of goods. 32. After so stating, the Court specifically referred to the term goods as interpreted in Sunrise Associates (supra) to mean the title and ownership of a thing and not the nature of interest in the goods. The question of free-marketability, it was held, was not primarily relevant as per the decision in Sunrise Associates (supra), albeit could be relied upon as an additional reason, for replenishment licences fall within the definition of goods quite independently. These licences could have their own intrinsic value and could be freely brought and sold at their market value. There was also a ready market for the sale and purchase of replenishment licences. 33. Thus analysed, the replenishment licences or Exim scrips would, therefore, be goods , and when they are transferred or assigned by the holder/owner to a third person for consideration, they would attract sale tax. However, the position would be different when replenishment licences or Exim scrips are returned to the grantor or the sovereign authority for cancellation or extinction. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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