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TMI Blog1984 (5) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of goods preceding the sale or purchase occasioning the export of goods outside the territories of India subject to certain conditions. Applying this section, it appears that while the export coffee sales were exempt from central sales tax, the Coffee Board, which is the immediate previous seller of coffee to the exporter, was also not liable to pay central sales tax provided certain conditions were satisfied. But apprehending that sales tax may be levied on the Coffee Board, the Board asked the exporters to deposit the probable sales tax payable by the Coffee Board or in the alternative to furnish bank guarantee to that effect. The action of the Board in demanding the guarantee was challenged by the assessee and two others in a writ petition before the Supreme Court. The order passed by the Supreme Court and its effect will be considered later in our order. Suffice it to say, that on the basis of the circular issued by the Coffee Board the assessee claimed that there was an accrued liability on their part to pay the aforesaid sums of Rs. 84,21,284 and Rs. 28,37,124 to the Coffee Board which has to be allowed as an admissible deduction in the computation of its income for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. Finally, the appellant contends that the assessee-company on purchasing coffee for valuable consideration did not incur a liability in the year of account. An assessee maintaining the books on the mercantile system of accounting is entitled to claim a deduction in the year in which the liability arises notwithstanding the fact that he has taken steps to dispute his liability and he fails or omits to make entries in his books of account CIT v. Central Provinces Manganese Ore Co. Ltd. [1978] 112 ITR 734 (Bom.). 6.5. Taking into account all the facts of the case and on the basis of the explanation offered and the evidence produced, I am convinced that the payment made by the appellant-company towards the central tax liability has to be allowed as a deduction from the total income determined by the Income-tax Officer. " 11. For the years under appeal, he observed that on the reasons given by him in his order for 1978-79, the assessee's claim has to be allowed. He then s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. [1964] 53 ITR 75 (SC). He submitted that the assessee was bound to pay to the Coffee Board, the said sums by virtue of the circular dated 7-2-1977. Whether paid or not the liability subsisted. Even if on a subsequent date the liability was extinguished, that did not mean that there was no accrued liability. In Shrikant Textiles' case, it was held that although by a second notice of demand excise duty was reduced, that cannot be made the basis for a finding that even on the earlier date the assessee could be said to have been definitely informed that the excise duty was being recalculated on a fresh basis. Whatever duty was levied on the earlier occasion was allowed as a liability in the relevant year although subsequently it was reduced. Similarly, in the case of Punjab Distilling Industries Ltd., the empty bottle return security deposit was considered as part of the receipts although the assessee was bound to refund the security deposits when 90 per cent of the bottles were returned. It was submitted that the converse also holds good and in the light of the decisions of the Supreme Court in Punjab Distilling Industries Ltd.'s case and Kedarnath Jute Mfg. Co. Ltd.'s case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 5(3). This contention of the appellant was not accepted by the Coffee Board which held the view that the appellant was liable to pay sales tax under the Central Sales Tax Act. The Coffee Board issued a circular dated 7-2-1977 laying down certain conditions for availing of exemption under section 5(3). Further, as the Board was not certain as to the final view of the central sales tax authorities, it insisted on payment of sales tax by the registered exporters.... " Firstly, the assessee was not liable to pay Central sales tax as it was the ultimate exporter. The doubt was only about the liability of the intermediate seller, viz., the Coffee Board. Therefore, the statement that the assessee was liable to pay sales tax under the Central Sales Tax Act is not correct. It was the Coffee Board which apprehended that it might be liable to pay central sales tax on the supposition that the taxing authorities might reject its claim for exemption under section 5(3) of that Act. Since, as the dealer, it thought that it might be asked to pay sales tax, it tried to obtain reimbursement of sales tax from its clients. Therefore, there was no liability imposed by the statute itself on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les. By virtue of the Coffee Board Act, the entire stock of coffee produced in the country is to be handed over to the Coffee Board. The Coffee Board then auctions the coffee and customers are permitted to bid in those auctions. The bidders can also be exporters. Therefore, the Coffee Board becomes the penultimate seller to the exporter. According to section 5(3) read with section 6, the Coffee Board will not be liable to pay central sales tax, provided the conditions stated therein are satisfied. 17. After the introduction of section 5(3) in the Central Sales Tax Act by the Central Sales Tax (Amendment) Act, 1976, the Coffee Board issued the following circular : " Ref. No. AC III/77-575 To All Registered Exporters. Dear Sirs, Sub : The Central Sales Tax Act (Amendment) of 1976 No. 108 of 1976. As all exporters are aware, a new sub-section (3) has been added to section 5 of the Central Sales Tax Act, 1956 (hereinafter referred to as 'the Act') by the amending Act, 108 of 1976. The provisions of this new sub-section has been given retrospective effect from 1-4-1976. The new sub-section reads as follows : 'Notwithstanding anything contained in sub-section (1), the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of sales tax under section 5(3) of the Act is the assessing authority a firm order lodged before the commencement of auction will not be free from doubt in regard to its acceptability to the assessing authority as evidence of order or agreement secured prior to the purchase of coffee in the open auction, until the assessment is completed. As the assessment of the transactions relating to this is generally taken up a couple of years after the close of the financial year, it has been decided to collect a contingency deposit in lieu of the sales tax liability on such exports and equivalent to the amount of such liability from the exporters. 6. If, however, the exporters do not choose to make a contingency deposit, they could adopt either of the following two alternatives to cover their liability towards sales tax : (a) The exporters may furnish a bank guarantee to the Board as per the specimen enclosed, for the amount of sales tax involved in respect of their purchases in such auction and for which they propose to seek the benefit of exemption from liability. While furnishing the bank guarantee, the exporters should also furnish details of the sales tax involved separately i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were filed by the assessee. These writ petitions along with those filed by Consolidated Coffee Ltd. and T.G.M. Assadi Sons were disposed of by the Supreme Court. The decision is reported in Consolidated Coffee Ltd. v. Coffee Board AIR 1980 SC 1468. Regarding interpretation of section 5(3), the Court held as follows : " 14. In the first place the concerned phrase speaks of two things in disjunctive : 'agreement' or 'order'. The word 'order' which appears in a statute dealing with sales tax must be understood in a commercial sense, that is, in the sense in which traders and commercial men will understand it. In commercial sense an order means a firm request for supply of definite goods emanating from a buyer, an indent placed by a purchaser and, therefore, an order for or in relation to export would mean an indent from a foreign buyer. It is not possible to accept the contention urged by counsel for the petitioners that the word 'order' in this phrase can mean or refer to an order, direction, mandate, command or authorisation to export that may be issued by a statutory body like the Coffee Board for two reasons : first, occurring in a sales tax statute the word must be given its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting section 5(3) and that would depend upon the proper construction of the phrase 'the agreement or order for or in relation to such export' occurring therein and, as we have said above, since on proper construction the expression 'the agreement or order' means the agreement with or an order from a foreign buyer it must be held that the Parliament intended to prescribe that the obligation to export arising only from such agreement or order that would afford the inextricable link so as to constitute the penultimate sale a sale in the course of export. " Next it considered the question as to when the penultimate sale of coffee to the exporters at auctions conducted by the Coffee Board could be said to have taken place. In paragraph 30 the Court held as follows : " Having regard to the above discussion it is clear to us that in the penultimate sales (sales of coffee effected to Registered Exporters at export auctions conducted by the Coffee Board) the property in the coffee sold thereat passes to the buyer immediately upon payment of full price, weighment and setting apart of coffee for delivery to the buyer under clauses 19 and 20 of the Auction Conditions and it would be at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deposits already made and the bank guarantees became unenforceable by virtue of the Supreme Court judgment. It, thus, appears that the circular of the Coffee Board ipso facto did not impose a liability on the exporters to make payments to the Coffee Board towards apprehended sales tax liability of the latter. The Tribunal in its order dated 15-3-1983 in Ramesh Enterprises (P.) Ltd.'s case held as follows : " The circular of the Coffee Board has been extracted in the Commissioner (Appeals)'s order. It is clear from the said circular that the Coffee Board was not collecting any sales tax but only required the exporters to make contingent deposit or bank guarantee in order only to provide for a cover against any levy of sales tax by the assessing authority in future. That will clearly show that what was demanded by the Board was not in respect of any sales tax liability ascertained but only by way of contingency. It required the exporters to make security deposit or bank guarantee. Thus, there was no actual sales tax liability on the assessee when the bank guarantee was given. There was no such sales tax liability even on Coffee Board when the bank guarantee was furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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