Karnataka High Court
Motor Industries Company Limited vs The Assistant Commissioner Of ... on 15 December, 1981
Equivalent citations: 1982(1)KARLJ449, [1983]52STC206(KAR)
ORDER Chandrakantaraj Urs, J.
1. The petitioner is a company incorporated under the Indian Companies Act. It is a manufacturer of spark plugs and fuel injection equipment used in internal combustion engines, mostly motor vehicles. The petitioner is also an assessee on the file of the Assistant Commissioner of Commercial Taxes (Asst. I), Bangalore City Division, Bangalore. For the assessment year 1974-75 corresponding to the financial year, the petitioner declared its total and taxable turnover under the Central Sales Tax Act (hereinafter referred to as the Act) in the sums of Rs. 44,48,10,498.65 and Rs. 12,91,54,418.30 and claimed exemption in respect of the turnover of Rs. 12,42,600 relatable to the value of spark plugs exported by it to the Union of Soviet Socialist Republics (for short "U.S.S.R.").
2. The first respondent issued a proposition notice under section 12(3) of the Karnataka Sales Tax Act, as the machinery for assessment under the Act is the one provided for by the State enactment, by which he proposed to disallow the exemption claimed under section 5(1) of the Act. The petitioner filed its objections to the proposal. It was contended by the petitioner :
(1) That there was only one sale which occasioned the movement of the goods sold from this country to the U.S.S.R.;
(2) That the invoice in the case had been raised on the Projects and Equipment Corporation of India Ltd. (for short "P.E.C.") by and in respect thereof only service charges at one per cent on the f.o.b. value of the goods was paid;
(3) That there was no transfer of property in the goods (spark plugs) to the P.E.C. prior to the export of the goods from the Indian ports;
(4) That the goods in question were not delivered to the possession of the P.E.C. at any point of time or place before they were put on board;
(5) That all the shipping documents including bills of lading were directly taken out in the name of the foreign buyer by the assessee-petitioner as the shipper, and the goods were put on board by the petitioner which alone was liable to the foreign buyer for all penalties, charges and guarantees;
(6) That the sale in question was the direct result of tripartite negotiations among the Avtoexport-foreign buyer, the assessee-petitioner and the P.E.C. and there was also privity of contract between the foreign buyer and the assessee and all payments by the foreign buyer were received by the assessee directly through letters of credit opened by the foreign buyer in favour of the assessee;
(7) That the P.E.C. only acted as an agent for the limited purpose of negotiating and facilitating the supply of spark plugs by the petitioner to Avtoexport, the foreign buyer;
(8) That the contract between the P.E.C. and the Avtoexport and the contact between the P.E.C. and the assessee should be read as composite documents for ascertaining the true nature of the sale and not us independent documents; and (9) That the P.E.C. itself had recognised this position by issuing a certificate that the petitioner alone was entitled to the incentives based on the said export in question.
3. However, the respondent Assistant Commissioner of Commercial Taxes, (Asst. I), Bangalore City Division, Bangalore, did not accede to the arguments advanced on behalf of the assessee and proceeded to assess the petitioner-assessee denying the exemption claimed in respect of the turnover relating to the export of spark plugs in the sum of Rs. 12,42,600. Aggrieved by the same, the petitioner soon after the order passed by the Assistant Commissioner of Commercial Taxes, has approached this Court under article 226 of the Constitution for relief, inter alia, contending that the respondent had acted without jurisdiction and that in any event subjecting to tax the sale relating to the export of spark plugs to the U.S.S.R. in the relevant assessment year was contrary to the express provisions contained in section 5(1) of the Act.
4. The respondent has entered appearance and filed his statement of objections. In the objections statement it is asserted that the exemption was rightly denied as the circumstances of the sale in favour of the U.S.S.R. viewed as a whole clearly indicated that the sale was in fact effected by the P.E.C. on its initiative and that the assessee-company was no more than a mere agent of the P.E.C. who carried out certain instructions in accordance with the agreement between the P.E.C. and the assessee-company. Further it is asserted that the ratio of the decision of the Supreme Court in the case of Mod. Serajuddin v. State of Orissa clearly applies to the facts of the case and therefore the respondent was justified in holding that the facts of the present case were similar to that of the facts found in Mod. Serajuddin's case and therefore the exemption claimed was not available to the assessee-petitioner.
5. Much of the facts are not in dispute. What little dispute there is, it lies in the area of understanding the intent and purpose of the P.E.C. on the once hand and the assessee-company on the other hand in their respective agreements with each other and the agreement of the P.E.C. with the foreign buyer Avtoexport-U.S.S.R.
6. However, the respondent has raised a preliminary objection regarding the maintainability of the writ petition under article 226 of the Constitution inasmuch as the assessee-petitioner has by-passed the procedural remedies available to it under the Karnataka Sales Tax Act by way of appeal, second appeal and a revision petition to this High Court. It is therefore contended that not having exhausted the other available remedies, this Court could not directly be approached under article 226 of the Constitution.
7. Mr. S. V. Narasimhan, the learned Government Pleader appearing for the respondent, has pressed the preliminary objection. He has invited my attention to the ruling of this Court on this question. It is true that in this country from the very beginning the High Courts and the Supreme Court time and again have laid down that the High Courts should not ordinarily exercise their jurisdiction under article 226 of the Constitution when the petitioners before them had other alternative and efficacious remedies available to them. There are equally good number of decisions of the High Courts and the Supreme Court of India carving out the exceptional cases in which the High Court can and ought to interfere under article 226 of the Constitution. A few of the exceptions may be illustrated. When there is inherent lack of jurisdiction in the authority whose order is questioned before the court, the High Court, notwithstanding the availability of alternative remedies to the petitioner, shall interfere with the order that is questioned before it. Similarly, when an authority proceeds to act in a manner contrary to the express provisions of the statute which it seeks to enforce, then the presumption arises that that authority acts in excess of its jurisdiction and therefore liable to be interfered with. In the instant case, the assessee-petitioner has prima facie made out a case of lack of jurisdiction on the second-mentioned ground, i.e., that the officer has acted in utter-disregard of the specific provisions of law. In any event, I should notice that this petition was filed in 1978 when article 226(3) of the Constitution was in force as it was amended by the 42nd amendment. In spite of sub-article (3) of article 226 of the Constitution, this Court admitted the petition. It would be a futile exercise after so many years of its pendency in this Court to direct the petitioner to seek is remedy under the statute. For the reasons given above, the preliminary objection raised by the learned Government Pleader does not merit further consideration.
8. Therefore, in the light of the undisputed facts, what really falls for consideration is whether on the facts and circumstances of the case the petitioner is entitled to the exemption available to him in terms of section 5(1) of the Act. It is now therefore convenient to state the facts which are in dispute. It is contended for the respondent that even on the material produced by the assessee-petitioner itself, it is possible unerringly to infer as to what caused the movement of goods from the Indian frontiers to the U.S.S.R. It is asserted that it is the contract of sale between the P.E.C. and the Avtoexport-U.S.S.R. A true copy of the said agreement is produced along with the petition. In that agreement the P.E.C. is described as the sellers and the Avtoexport as the buyers. Subject of the contract is stated and the price of the spark plugs as well as delivery schedule is also agreed upon including the terms of payment. It also provides for letter of credit being opened against the following documents :
(a) Sellers' specified invoice;
(b) Full set of "clean on board" bill of lading made out in the name of Avtoexport, U.S.S.R.;
(c) Packing list;
(d) The seller's letter of guarantee for the quality of the goods.
It also provides that the sellers undertake to carry out without delay on their account, to eliminate the defects or to replace the defective parts. It further provides for the seller bearing certain other liabilities in the event of defects found in the goods contracted to be supplied. The arbitration clause provides for arbitration being in accordance with the procedure for such arbitration available in the country depending as to which of the two parties raises the dispute. If the foreign buyers raise the dispute then it will be in accordance with the procedure available to the Avtoexport-U.S.S.R. and if the dispute is raised by the P.E.C. then the same will be decided in accordance with the procedure available for arbitration in India. It is on the basis of these terms and conditions, it is contended for the respondent that the real exporter is the P.E.C. and therefore this Court having regard to all the circumstances should presume a first sale by the assessee-petitioner in favour of the P.E.C. which is the real exporter and therefore deny exemption to the assessee-petitioner who but acted as mere agent of the P.E.C. to carry out the terms of the agreement with the foreign buyer.
9. It is in this context, the learned counsel for the respondent also asserted that there is no privity of contract between the foreign buyer and the assessee-petitioner.
10. On the other hand, the learned counsel appearing for the assessee-petitioner has strongly urged that the court should read the contract between the Avtoexport and the P.E.C. which preceded the agreement between the P.E.C. and the assessee-petitioner in the context of the latter. It is not disputed by the respondent that before the contract of export between the P.E.C. and the Avtoexport was executed, the representative of the assessee-petitioner was invited to accompany a trade delegation to Moscow as part of the overall scheme of export which the P.E.C. was promoting in that country. It was in that context that the export agreement came to be signed between the Avtoexport-U.S.S.R. and the P.E.C. of India. At all times, it is urged, the assessee-petitioner was fully appraised of the latest developments in the matter of clearly reaching the export contract on the terms already stipulated. The learned counsel further points out that some of the provisions of which the respondent strongly relied was never acted upon. They are the issue of bill of lading, invoices and the letter of credit and the sellers' guarantee as well as the penalties in case defective goods supplied as evidenced by the bill of lading which is at exhibit G to the petition. From the copy of the bill of lading it is seen the shipper is the assessee-petitioner. It is not disputed that the letter of credit was directly opened by the Avtoexport in favour of the assessee-petitioner. In other words, the crucial terms on which the export agreement of the Avtoexport and the P.E.C., on which the learned Government Pleader strongly depended upon were never acted upon by the parties to that agreement. On the other hand, if the export agreement is read as part and parcel of the composite documents as contended for by the assessee-petitioner, then a slightly different picture emerges. It is unnecessary to set out the terms and conditions of the agreement between the P.E.C. and the assessee-petitioner. In substance the P.E.C. and the assessee-petitioner agreed to give effect to the export agreement with the Avtoexport which P.E.C. had, and strangely the assessee-petitioner in the second of the agreements is described as the seller. Article III of the contract provides for the foreign buyer to open an irrevocable and divisible, permitting part shipment, letter of credit for 100 per cent value of the order in favour of the assessee-petitioner with a validity of three months. The letter of credit is to be operated against the assessee-petitioner's presentation of documents to the bank, though under the export agreement, it was the P.E.C. who was required to present them. Article V of the contract provides for payment of service charges by the assessee-petitioner to the P.E.C. at one per cent of the f.o.b. value of the goods. If the first contract of the foreign buyer is read jointly with the agreement between the P.E.C. and the assessee-petitioner, it leads to the inevitable conclusion that the intention of the P.E.C. was that at all times the assessee-petitioner should act as an exporter though it be on the efforts of the P.E.C. to a greater extent than the assessee-petitioner itself. Therefore, on the main construction of the documents to which I have referred to, it is difficult to place the P.E.C. as the exporter or the seller to the foreign buyer. On the other hand, evidence tends towards accepting the assessee-petitioner as the seller who acted in accordance with the terms of the agreement between the P.E.C. and the Avtoexport on his own behalf by virtue of the second agreement entered into between the P.E.C. and the assessee-petitioner. On the facts therefore it is difficult to agree with the conclusions reached by the respondent.
11. However, since reliance has been placed in his order on Serajuddin's case , it is necessary to briefly refer to the distinguishing features of this case and those of Serajuddin's case . In Serajuddin's case , the Supreme Court on the facts found that title in the goods before they left the shores of this country to a foreign purchaser, passed on to the S.T.C. and therefore in Serajuddin's case the assessee therein could not claim the exemption as the sale made by it was not the one which occasioned the movement outside the country. All that has been stated in Serajuddin's case is only supplemental to what the Supreme Court in an earlier constitution Bench decision in Coffee Board's case , had stated. In Coffee Board's case , speaking for the majority, Hidayatullah, C.J., as he then was, after discussing a number of earlier decisions of the High Courts and the Supreme Court while reiterating that the facts in each case must be given full meaning and effect while taking a decision, nevertheless, necessarily laid down some tests which ought to be applied in all cases to determine whether a sale was in the course of export or for export. It was clearly laid as one of the tests that an intervening sale before the goods are moved out of the country would deny the exemption available to the exporter. In other words, the exporter should not effect sale in this country before such goods are moved out of this country. It is in this context that in Serajuddin's case also the appellant therein could not get exemption available to him under section 5(1) of the Act on account of two sales.
12. In the case on hand, apart from there being no evidence of a second sale in this country, no material is placed before this Court even to presume such a sale. The argument of the learned Government Pleader assumes such a sale in favour of the P.E.C. by the assessee-petitioner by virtue of the documents, viz., invoice, bill of lading and the copies of the agreements placed before the assessing authority.
13. In all cases of taxation, the burden to prove that something is liable to be taxed is on the revenue. Unless the revenue discharges its burden, the revenue cannot levy tax. In the present case, no attempt whatsoever appears to have been made to establish a sale answering to the meaning of that term defined in the Act itself between the assessee-petitioner and the P.E.C. In other words a sale is assumed but not proved.
14. Under the sales tax laws of the State and the Union, the taxable event is the sale itself and not the person who effects the sale. What is exempted under section 5(1) of the Act is a sale which causes or occasions the movement of the goods outside the country. Any other sale is not so exempted from the charging section under the Act. In the case of the assessee-petitioner one sale is established and there is no dispute that that sale occasioned the movement of goods outside the country and that sale is exempted. The question as to whether the sale was made by the P.E.C. or on behalf of the P.E.C. or vice versa, does not arise for consideration. If the taxable event is exempted from sales tax, then the assessee-petitioner ought to have had the benefit of the documents produced by him, as he was the seller notwithstanding the terms to the contrary in the first contract entered into between the P.E.C. and the Avtoexport.
15. In regard to the question raised by the learned counsel for the petitioner as a pure question of law which question had not been raised by the respondent, I must refer to the argument of the learned Government Pleader in regard to one document of the assessee-petitioner itself. That document is a letter addressed by the P.E.C. to the State Bank of India bearing the date 25th April, 1975. In the said letter it is stated that the assessee-petitioner would be exporting spark plugs on their behalf to the Avtoexport-U.S.S.R. for a total value of Rs. 58,59,000 against their contract dated 17th February, 1975. The learned Government Pleader wants this Court to infer that the sale in the present case was in fact agreed to be a sale and export by the P.E.C. Unfortunately, if one looks at the contract with which we are concerned, it is seen that the contract between the P.E.C. and the Avtoexport is dated 29th April, 1974. Any reference to another contract has no meaning or purpose in relation to the earlier contract with which alone we are concerned in this case.
16. However, Shri Devanathan, the learned counsel for the petitioner, has drawn my attention that this document was produced before the respondent only for the purpose of pointing to that export incentives available on account of the export in question was only to the assessee-petitioner and not to the P.E.C. clearly establishing that the petitioner was the exporter and not the P.E.C.
17. I, therefore, see no difficulty in allowing the petition for the reasons I have given above and quash the order which is impugned in this writ petition, namely, the order of the respondent at annexure M in so far as it relates to disallowance of the claim for exemption from payment of tax under the Act, in the light of the provisions contained in section 5(1) of the Act. It is ordered accordingly.
18. Before parting with this case I must notice one other contention urged by Shri. Devanathan. That contention relates to the reference to sale effected by transfer of documents of title to the goods after the goods have crossed the customs frontiers of India in section 5(1) of the Act. It is his argument in the alternative, that if this Court came to the conclusion that the sales in question were not in the course of export on account of the movement occasioned by such sales, it should be brought within the meaning of sale by transfer of documents of title to the goods after the goods had crossed the customs frontiers of India. Reliance was placed on the bill of lading, the letter of credit and the invoices as well as the shipping schedule which was produced in this Court. The schedule does indicate the ship's departure time and the date on which the L.C. was presented and therefore the learned counsel wanted this Court to draw an inference that the title to the goods if at all passed on to the P.E.C. only on the high seas and therefore the assessee should get the benefit of exemption on that ground as well. I do not think that I should deal with this. The plain language of the section may given room for such a question which is a pure question of law. Investigation of shipping schedule and the present documents as listed cannot be considered as pure questions of law. The same was not urged before the respondent nor the material placed before him. Therefore, it is not proper for me to express any opinion in that matter without sufficient investigation.
19. In the result, rule issued is made absolute. The order impugned at exhibit M is hereby quashed in so far as it relates to denial of exemption in respect of the sale of spark plugs to Russia involving the exemption of Rs. 12,42,600. The bank guarantee furnished by the assessee-petitioner stands discharged.
20. But in the circumstances of the case, there will be no order as to costs.