Madras High Court
Hindustan Motors Ltd. vs State Of Tamil Nadu on 12 August, 1991
JUDGMENT Mishra, J.
1. The provision of law in section 5 of the Central Sales Tax Act, 1956, which has fallen for interpretation in several cases, has once again to be subjected to interpretation. Article 286 of the Constitution of India reads :
"(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place -
(a) outside the State; or
(b) in the course of the import of, the goods into, or export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, -
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify."
This article which speaks of a tax on the sale or purchase of goods, where such sale or purchase takes place outside the State or in the course of the import of the goods into or export of the goods out of the territory of India, has made a reference to clause (29A) of article 366, which defines "tax on the sale or purchase of goods" to include, "(a) a tax on the transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration;
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."
2. With a view to formulate the principles for determining when a sale or purchase of goods takes place in the course of import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in such trade or commerce and other purposes including inter-State trade, the Parliament has enacted the Central Sales Tax Act, 1956 (hereinafter referred to as "the Act").
3. Section 5 of the Act prescribes when is a sale or purchase of goods said to take place in the course of import or export :
"(1) A sale or purchase of goods shall be deemed to take place in the course of export of the 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.
(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India."
The word "only" used as a prefix in sub-sections (1) and (2) of this section of the Act to the expression "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" and "if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India" confines a sale or purchase of goods said to take place in the course of import or export only to the conditions where the sale or purchase either occasioned/occasions such import or export or was/is effected by the transfer of documents of title to the goods before the goods or after the goods had/have crossed the customs frontiers of India. The phrase, either occasions such export or import or is effected by the transfer of documents of title to the goods before or after the goods have crossed the customs frontiers of India, has already envisaged two situations, namely, (1) if the sale or purchase occasions such import or export and (2) if the sale or purchase is effected by a transfer of documents of title to the goods before or after the goods have crossed the customs frontiers of India. The expression "customers frontiers" has been understood to mean the boundaries of the territory including the territorial waters of India.
4. In State of Madras v. Davar and Co. [1969] 24 STC 481, the Supreme Court considered the case of an assessee, who claimed that their turnover represented sales in the course of import and as such was not liable to tax under the Madras General Sales Tax Act, 1959. The State of Madras claimed that the sales had been effected by transfer of documents of title to the respective buyers after the ships and crossed the territorial waters and hence they were liable to tax under the Madras Act. After referring to article 286(1) of the Constitution of India and section 5(1) and (2) of the Act, the Supreme Court noticed the claim made by the assessee for exemption from tax liability on the ground that the sale was effected by transfer to the buyer of documents of title to the goods and posed the question, namely, "what does the expression 'customs frontiers' of India in section 5 of the Central Act mean ?" To answer this question, the Supreme Court thought it necessary to refer to certain Proclamations made by the President of India and notifications issued by the Central Government under section 3 of the Sea Customs Act, 1878 (8 of 1978). After quoting the proclamation by the President and referring to section 3-A of the Seal Customs Act, 1878, which gave power to the Central Government to define by notification in the Official Gazette the customs frontiers of India, the Supreme Court said :
"The expression 'customs frontiers of India' in section 5 of the Central Act, in our opinion, must be construed in accordance with the notification issued by the Central Government under section 3-A of the Act, on August 6, 1955, read with the Proclamation of the President of India dated March 22, 1956. So applying the definition of 'customs frontiers' it is clear that, in the instant case, the sales were effected by transfer of documents of title long after the goods had crossed the customs frontiers of India. We have already stated that the ships carrying the goods in question were all in the respective harbours within the State of Madras when the sales were effected by the assessees by transfer of documents of title to the buyers. If so, it follows that the claim made by the assessees that the sale in question were sales in the course of import has been rightly rejected by the assessing authority. Unfortunately, though various aspects seem to have been pressed before the High Court by the State of Madras, this notification of August 6, 1955, issued by the Government of India, defining the 'customs frontiers' of India, was not brought to the notice of the High Court."
5. The problem that existed in the case of State of Madras v. Davar and Co. however, has been taken care of by introducing a definition to the expression "crossing the customs frontiers of India" in section 2(ab) of the Act as under :
"'crossing the customs frontiers of India' means crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities.
Explanatioan. - For the purposes of this clause, 'customs station' and 'customs authorities' shall have the same meanings as in the Customs Act, 1962."
6. The words in article 286(1)(b) of the Constitution of India speak of tax 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 one of the earliest judgments, what is described as the second Travancore case, in State of Travancore-Cochin v. Shanmuga Vilas Cashew-nut Factory [1953] 4 STC 205, the Supreme Court took notice of the four different views as to the meaning and scope of this expression and said :
"(1) The exemption is limited to sales by export and purchases by import, that is to say, those sales and purchases which occasion the export or import, as the case may be, and extends to no other transactions however directly or immediately connected, in intention or purpose, with such sales or purchases, and wheresoever the property in the goods may pass to the buyer.
(2) In addition to the sales and purchases of the kind described above, the exemption covers the last purchase by the exporter and the first sale by the importer, if any, so directly and proximately connected with the export sale or import purchase as to form part of the same transaction.
(3) The exemption covers only those sales and purchases under which the property in the goods connected in transferred from the seller to the buyer during the transit, that is, after the goods begin to move and before they reach their foreign destination.
(4) The view which found favour with the learned Judges of the High Court, namely, 'the clause is not restricted to the point of time at which goods are imported into or exported from India; the series of transactions which necessarily precede export or import of goods will come within the purview of this Clause'", and then stated, "The only question debated before us was whether in addition to the export-sale and import-purchase, which were held in the previous decision to be covered by the exemption under clause (1)(b), the following two categories of sale or purchase would also fall within the scope of that exemption :
(1) The last purchase of goods made by the exporter for the purpose of exporting them to implement orders already received from a foreign buyer or expected to be received subsequently in the course of business, and the first sale by importer to fulfil orders pursuant to which the goods were imported or orders expected to be received after the import.
(2) Sales or purchases of goods effected within the State by transfer of shipping documents while the goods are in the course of transit.
As regards the first mentioned category, we are of opinion that the transactions are not within the protection of clause (1)(b). What is exempted under the clause is the sale or purchase of goods taking place in the course of the import of the goods into or export of the goods out of the territory of India. It is obvious that the words 'import into' and 'export out of' in this context do not mean the article or commodity imported or exported. The reference to 'the goods' and to 'the territory of India' make it clear that the words 'export out of' and 'import into' mean the exportation out of the country and importation into the country, respectively. The word 'course' etymologically denotes movement from one point to another, and the expression 'in the course of' not only implies a period of time during which the movement is in progress but postulates also a connected relation. For instance, it has been held that the words 'debts due to the bankrupt in the course of his trade, in section 15(5) of the English Bankruptcy Act, 1869, do not extend to all debts due to the bankrupt during the period of his trading but include only debts connected with the trade (see in re Pryce, Ex parte Rensburg 4 Ch. Dn. 685 and Williams on Bankruptcy, 16th Edition, page 307). A sale in the course of export out of the country should similarly be understood in the context of clause (1)(b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. The time factor alone is not determinative. The previous decision proceeded on this view and emphasised the integral relation between the two where the contract of sale itself occasioned the export as the ground for holding that such a sale was one taking place in the course of export. It is, however, contended that on this principle of connected or integrated activities a purchase for the purpose of export must be regarded as covered by the exemption under clause (1)(b). We are unable to agree."
Coming to the next question whether the sales or purchasers effected in the State by transfer of shipping documents while the goods are still in transit are entitled to exemption under clause (1)(b), the Supreme Court observed :
"As regards sales or purchases effected in the State by transfer of shipping (c.i.f.) documents while the goods are still in transit, we have already observed that the words 'in the course of' imply a movement or progress and, therefore, a beginning and an end of such movement or progress. As clause (1)(b) is concerned only with exempting certain sales or purchases from taxation by the States in this country, it is sufficient to determine where the course of export begins and where the course of import ends. In this connection, it is useful to remember that the power to make laws with respect to duties of customs including export duties (entry 83 of List I) and also with respect to import and export across customs frontiers and the definition of customs frontiers (entry 41 of List I) is vested exclusively in the Central Legislature, and detailed provisions have been made in the Indian Seal Customs Act, 1878, for the levy of customs duties by the officers of the Central Government who are stationed along customs frontiers as defined by the Central Government where, after appraising the goods exported or imported, the duties chargeable, if any, are computed and levied, and it is not until this process is completed that the goods can be shipped for transaction or cleared by the consignee or his representatives as the case may be. It would seem, therefore, logical to hold that the course of the export out of, or of the import into, the territory of India does not commerce or terminate until the goods cross the customs frontier. It is, however, to be noted that the question of imposing sales tax on transfer of goods in the course of export would not often arise in practice for, where the goods are transported pursuant to a contract of sale already concluded with a foreign buyer and the shipping documents having been forwarded to him, any further sale of such goods by the Indian seller is impossible, and where the export trade is conducted through representatives or branch offices, the sale by the latter of the exported goods usually takes place abroad and would not then be subjected to tax by the State in India. It is in relation to import of goods from abroad that the question of exemption assumes practical importance. It is well-known that sales or purchases by transfer of shipping documents while the goods are in transit are a characteristic feature of foreign trade, and as they take place in the course of import as defined above, and are regarded commercially as incident to the import transaction, they fall within the terms of clause (1)(b) and would be entitled, in our view, to the protection of that clause, if the State is constitutionally competent to tax such sales, as to which we express no opinion."
The Supreme Court summed up its conclusions in these words :
"(1) Sales by export and purchases by import fall within the exemption under article 286(1)(b). This was held in the previous decision.
(2) Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption.
(3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State-power of taxation extends to such transactions."
7. A Bench of this Court in Gandhi Sons Ltd. v. State of Madras [1955] 6 STC 694 considered the statement of law in the Travancore case [1953] 4 STC 205 decided by the Supreme Court as to sale in the course of export. The view expressed by the court in the said judgment is that an export sale will only be where the sale is to a foreign buyer with whom the local seller has privity and as a direct result of such sale the goods are transported across the customs frontier and further even if there is no export sale, if the sellers are able to establish that they continued to be the owners of the goods up to or beyond the time when the goods entered the export stream or until after the goods had crossed the customs barrier, the sale by them would be one "in the course of export" to which article 286(1)(b) of the Constitution would apply. This judgment emphasised on privity of contract as a direct result of which goods are transported across the customs frontier as well as the sale effected beyond the customs barrier in a case where the seller continued to be the owner of the goods up to or beyond the time when the goods entered the export stream or until after the goods had crossed the customs frontier. The Bench also took notice of the fact that the property in the goods did not pass to the buyers until the relevant bills of lading were presented to the buyer or in any event at least not until the good were put on board the vessels at the harbour. The earliest point of time when any contention could be raised that the property in the goods passed to the buyers would thus be the point when the goods were placed on the ship or bills of lading were taken in the name of buyers or consignees. There should therefore be no doubt as to the proposition that section 5(1) of the Act which deals with export sales has got two limbs. The first limb provides for a circumstance in which the sale itself occasions the export. The second limb contemplates a sale which arises as a result of transfer of documents of title after the goods crossed the customs frontier. It is not necessary to multiply and refer to a number of decisions taking this view. This Court in Seshasayee Paper and Boards Limited v. Deputy Commercial Tax Officer [1984] 56 STC 8 has said into in no uncertain words that this section provides for two types of fact situations in which and subject to the existence of which alone a sale may be regarded as taking place in the course of export. One is where the same occasions the movement of goods from India to a place abroad and the other is where there is a transfer of documents of title after the goods had crossed India customs frontiers.
8. In an earlier judgment of State of Tamil Nadu v. Mohammad Yousuff Sahib and Co. [1978] 42 STC 335 this Court has said that if the case does not fall under the first limb of section 5(1) of the Act, it may still fall under the second limb of the section. If the property in the goods passed after shipment on payment against presentation of documents and if this event happened after the goods crossed the customs frontier, the second limb of section 5(1) will be attracted. This implies that to attract the first limb, the existence of privity of contract will be necessary. To attract the second limb, two conditions should be fulfilled. The first condition is that the sale should be effected by a transfer of title to the goods. The second condition is that the sale should have taken place after the goods had crossed the customs frontiers of India. The Supreme Court has in a catena of decisions explained as to when a sale or purchase of goods shall be deemed to take place in the course of export. Besides the cases of State of Travancore-Cochin v. Shanmuga Vilas Cashew-nut Factory [1953] 4 STC 205 (SC), Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer , Coffee Board v. Joint Commercial Tax Officer and Mod. Serajuddin v. State of Orissa are the cases which may be referred to. We will pick up however the case in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 in which a Constitution Bench of the Supreme Court has considered the effect of a contract with the State Trading Corporation for the sale of mineral ore and the corporation in its turn entering into similar contracts with foreign buyers for sale of the identical goods purchased by the corporation. Under the terms of the contract between Serajuddin and the corporation, the price was expressed in U.S. dollars per long ton f.o.b. ocean liner vessel, Calcutta and that the material should be ready in Calcutta harbour for shipment by a particular steamer. The clause in the contract regarding payment was as follows :
"90 per cent payment against shipping documents as described in buyers' corresponding sale contract. Buyers will assign the relevant foreign letter of credit, which is to be opened in their name by their foreign buyer, Messrs. Associated Metals and Minerals Corporation, on receipt from the sellers of a bank draft for difference between buyers' f.o.b. purchase value and f.o.b. sale value, that is, $ 1.00 (Rs. 4.75) per dry long ton for a bank guarantee from a scheduled bank guaranteeing that sellers will pay buyers immediately upon shipment/shipments the difference between buyers' f.o.b. purchase value as shown in this contract and buyers' f.o.b. sale value as shown in foreign letter of credit, that is $ 1.00 (Rs. 4.75) per dry long ton by bank draft for each shipment and the buyers will endorse the bills of lading and deliver the same to sellers to negotiate against the abovementioned letter of credit. Balance after destinational weight and analysis on the basis of documents mentioned in S.T.C.'s corresponding sale contract with buyers. If the balance 10 per cent is insufficient to cover shortfall in weight and analysis at destination or any penalty imposed by the S.T.C.'s foreign buyers, the additional amount shall be payable by sellers to buyers on demand."
Another clause in the contract provided as follows :
"(i) Unless otherwise agreed upon, the sellers agree that the contract shall be deemed as cancelled if for any reason whatsoever M/s. Associated Metals and Minerals Corporation cancel their corresponding purchase contract with the buyers for supply of chrome ore; (ii) The terms and conditions of the buyers' corresponding sale contract with M/s. Associated Metals and Minerals Corporation will apply to this contract also except to the extent specified in this purchase contract; (iii) A true copy of the buyers' sale contract with M/s. Associated Metals and Minerals Corporation is attached."
Serajuddin claimed that the sales of the mineral ore by him to the corporation were sales in the course of export and were therefore exempt from tax under section 5 of the Act. The High Court held that the sales were liable to tax. The Supreme Court in its majority judgment, however said that there was no privity of contract between Serajuddin and the foreign buyer. The privity of contract was between the corporation and the foreign buyer. The immediate cause of the movement of goods and export was the contract between the foreign buyer, who was the importer and the corporation, who was the exporter and shipper of the goods. All relevant documents were in the name of the corporation whose contract of sale was the occasion of the export. The Supreme Court said :
"The expression 'occasions' in section 5 of the Act means the immediate and direct cause and, but for the contract between the corporation and the foreign buyer, there was no occasion for export."
The Supreme Court opined that the export in that case was occasioned by the contract of sale between the corporation and the foreign buyer and not by the contract of sale between the corporation and Serajuddin. The Supreme Court also said on the facts of the case that there was no principal and agent relationship between Serajuddin and the corporation and in the absence of such relationship the agency of necessity did not arise. In other words, the Supreme Court pointed out that it will have to be seen as to what is the relationship between the so called agent and the seller, and, if the relationship between them was between the two principles and there was no aspect of principal and agent, it would not be proper to treat such relationship as the agency to enter into contract with foreign buyers on behalf of the seller. The Supreme Court followed the ratio in Coffee Board's case [1970] 25 STC 528 to state the law in no uncertain terms that the last sale, immediately preceding the sale occasioning the export of goods out of India, however closely related to the final export, will not be in the course of export but only for export and hence liable to tax. In other words, to occasion export, there must exit such a bond between the contract of sale and the actual exportation that each link is inextricably connected with one immediately preceding it.
9. In a later judgment, the Supreme Court in Murarilal Sarawagi v. State of Andhra Pradesh [1977] 39 STC 294 followed the law stated in the Coffee Board case and Serajuddin's case [1975] 36 STC (SC) and stated :
"In Serajuddin's case , this Court referred to the rulings in Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras and Binani Bros. (P.) Ltd. v. Union of India as laying down the correct tests to find out the sale in the course of export. The tests are that there must be a single sale which itself causes the export or is in the progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer. ....... After the decision of the Constitution Bench in Serajuddin's case , the decision in National Tractors, Hubli v. Commissioner of Commercial Taxes, Bangalore is no longer good law.
In National Tractors case which was a three-Judge Bench decision, reliance was placed on the decision in B. K. Wadeyar v. Daulatram Rameshwarlal . In Wadeyar's case , this Court said that the normal presumption attaching to f.o.b. contracts is that property in the goods passes only when they are put on board the ship. Wadeyar's case was before the Central Sales Tax Act, 1956. Further the bill of lading, the export licence and the export clause all showed that the export did not commence till the ship left the port.
In National Tractors case it was said that the purchase by the State Trading Corporation from the merchant was in the course of export by the S.T.C. to the foreign buyer and, therefore, the purchase by the merchant from the mine-owner was the last purchase in the State. The basis of the decision is that these were integrated f.o.b. contracts in the course of export.
The decision in National Tractors case made no reference to the decision of this Court in Coffee Board case . The correct law is laid down by this Court in Coffee Board case and Serajuddin's case . The law is this. It has to be found out whether the contracts between the merchants and the corporation are integrated contracts in the course of export or they are different. If they are different contracts, as they are in the present case, the last purchaser within the State is the M.M.T.C."
10. Although the above statement of law by the Supreme Court is in respect of export sale or purchase, it is not difficult to understand that the principle as to the privity of contract between the seller and the buyer and the sale by transfer of documents in course of the voyage are the two tests to apply to the case of import sale. The case which should be referred to illustrate this, in our view, is Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254. In that case, the assessee had entered into contracts with the Director-General of Supplies and Disposals for the supply of certain goods. Thereafter, the assessee procured the requisite import licence and imported the goods from abroad and supplied the same to the Director-General of Supplies and Disposals in fulfilment of the contract. The assessee contended that the import had been occasioned by the sale contract entered into by the assessee with the local buyers and therefore had satisfied the criteria laid down by section 5(2) of the Act. The Supreme Court said :
"......... the movement of goods was occasioned by the contracts for purchase which the petitioner entered into with the foreign sellers. No movement of goods in the course of import took place in pursuance to the contracts of sale made by the petitioner with the DGS & D. The petitioner's sale to the DGS & D were distinct and separate from his purchases from the foreign sellers. To put it differently, the sales by the petitioner to the DGS & D did not occasion the import. It was the purchases made by the petitioner from the foreign sellers which occasioned the import of the goods. The purchases of the goods and import of the goods in pursuance to the contracts of purchases were, no doubt, for sale to the DGS & D. But it would not follow that the sales or contracts of sales to the DGS & D occasioned the movement of the goods into this country. There was no privity of contract between the DGS & D and the foreign sellers. The foreign sellers did not enter into any contract by themselves or through the agency of the petitioner to the DGS & D and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to the DGS & D."
The Supreme Court thus held that the sale by the assessee to the purchaser did not occasion the import of the goods and it was the purchase made by the assessee from the foreign seller which occasioned the import of the goods and that there was no privity of contract between the purchaser and the foreign seller who did not enter into any contract by itself or through the agency of the assessee to the purchaser. This was a case however in which the purchaser had not obtained any import licence and it was the assessee who had obtained the import licence and imported the goods for the supply to the buyer.
11. Binani Bros. case was distinguished by the Supreme Court on such a fact only in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Indian Explosives Ltd. [1985] 60 STC 310. It was a case in which the assessee placed orders with the foreign suppliers for the supply of goods giving the name of the local purchasers, their licence numbers and the import was on the basis of actual users' import licence and a letter of authority given by the Chief Controller of Imports and Exports authorising the local purchasers to permit the assessee to import the goods, to open letter of credit and make remittance of foreign exchange against the said licence. One of the conditions in the import licence was that the goods imported would be the property of the licence-holder at the time of clearance through the customs. The Supreme Court in such a situation pointed out that, in order that the sale should be one in the course of import, it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding be snapped.
12. Binani Bros. case and Indian Explosives case together thus complete the sequence. While Binani Bros. case states that it should be seen whether there was privity of contract between the purchaser and the foreign seller, Indian Explosives case adds that in order to hold that the sale by the actual importer in favour of the purchaser is an import sale, it is necessary in all cases that there should be privity of contract between the purchaser and the foreign seller. All that is necessary to see therefore, is whether the movement of the goods from the foreign country is incidental to or in pursuance of the condition of the contract between the importer and his purchaser or there is inextricable link between the sale following the import and the actual import provided by an obligation to import and that an integral connection or link between the first sale to the assessee following the import and the actual import is found provided by an obligation to import under a statute, contract or mutual understanding. It is in this context, it seems, that this Court in the case of Blue Star Ltd. v. State of Tamil Nadu [1984] 56 STC 172 said that, unless the intermediary who actually imports, is held to be the agent of either the actual user or the foreign seller, there can be no privity of contract between the actual user and the foreign seller and in State of Tamil Nadu v. Ashok Leyland Limited [1984] 56 STC 180 that, if the assessee had acted as an agent either of the foreign seller or the actual user, there would be privity of contract between the foreign seller and the actual consumer and consequently, the transaction would amount to a purchase in the course of import.
13. Petitioners/Messrs. India Cements Limited have said that the export sale to foreign buyers was through the State Trading Corporation of India and that they had no tax liability on such sale under the Tamil nadu General Sales Tax Act. They have questioned the validity of the order of assessment for various years on export sales stating that the export contracts between the State Trading Corporation and the foreign buyer were identical in terms to that of the contract between them and the State Trading Corporation. Letters of credit opened by the foreign buyer were assigned in favour of the petitioners and they were allowed to raise invoices on the foreign buyer for the price agreed to between the State Trading Corporation and the foreign buyer. The invoices were negotiated by them through their own bank and, on realisation, the difference in price was credited to the account of State Trading Corporation. Thus, according to them, the contracts were integrated to the actual export. The export contracts themselves were finalised after consultation between the petitioners and the State Trading Corporation and that in the export contract the petitioners were mentioned as actual manufacturers executing the contract, the export contracts provided for the participation of the petitioners in arbitration and disputes and in the circumstances, the sales of the petitioners occasioned the export of the goods under section 5(1) of the Act. They have also alleged that the sales were completed by transfer of documents and the shipping documents were presented on the high seas as per data furnished by the authorities as well as before the State Trading Corporation. In any case, according to them, they could not have been assessed beyond the amounts actually realised by them, that is to say, not on the price between the State Trading Corporation and the foreign importer.
14. Besides the above, the petitioners herein have objected to realization of any packing charges, handing charges, f.o.b. expenses, despatch and demurrage expenses, saying that their own contract with the State Trading Corporation clearly excluded such charges from the price of the goods sold by them.
15. The Appellate Tribunal under the Act, however, has held that, notwithstanding the various features pointed out, the petitioners had no privity of contract with the foreign buyer and they were only responsible to the State Trading Corporation, that the State Trading Corporation retrained a part of the sale price allowing the petitioners to take the balance of the realisation and therefore the petitioners were not entitled to relief on the basis of the first limb of section 5(1) of the Act. As regards the submission that the sales were effected by transfer of documents on the high seas, the Tribunal has held against the petitioners primarily on the ground that there was no sale by them to the foreign buyer. As regards the claim of exclusion of packing charges and handling charges, f.o.b. expenses, despatch and demurrage charges, the Tribunal's finding is that they were not excludible, since the petitioners had agreed to sell on f.o.b. Madras basis and any break-up details given in the contract can only be characterised as pre-sale charges. The Tribunal remitted the assessment back for the purpose of fixing the actual figure with reference to the accounts and records.
In the case on behalf of Hindustan Motors Limited/petitioner in T.C. No. 438 of 1981, it is said that sale of goods by them to Messrs. Cycle Engineering Limited, New Zealand, were export sales and therefore it is outside the purview of the Act. Facts however reveal that Tvl. General Marketing and Manufacturing Co. Ltd., Madras had export contract with Tvl. Cycle Engineering Limited, New Zealand. According to the petitioners, however, the goods were sold when they were on the high sea by the transfer of documents. The Tribunal has, however, found that the assessees are not entitled to claim sales made by them as sales in the course of export.
In the case on behalf of Tvl. ABMTM Private Limited/petitioner is T.C. No. 439 of 1981, an order passed by the Board of Revenue is under challenge. In a suo motu revision of the order of the Appellate Assistant Commissioner-I (CT), Madras, under section 34 of the State Act read with section 9(2) of the Act (the Board had such power then), the Board has held that the petitioners' claim that the sale of goods by them to the Director-General of Supplies and Disposals was not exigible, was not acceptable. This the Board said on the basis that the Director-General of Supplies and Disposals, New Delhi, had placed an order with the assessee for the supply of goods. On the recommendation of the Director-General of Supplies and Disposals, an import licence was issued. These goods were intended for the Heavy Vehicles Factory at Avadi. On the strength of the import licence, the assessee placed an order with the foreign seller. This order placed to the foreign seller occasioned the movement of the goods from the United Kingdom to India. The Board has found that there was privity of contract between the foreign seller and the assessee and there was a separate contract between the assessee and the Director-General of Supplies and Disposals for the sale of the goods. Thus there was no privity of contract between the Director-General of Supplies and Disposals or Heavy Vehicles Factory, Avadi and the foreign seller.
16. We have already noticed the law on the subject. The assessee can succeed in claiming exemption from any tax on sale of goods, if he is able to show that the sales by him occasioned the export of the goods under section 5(1) of the Act or the sale was effected by the transfer of documents of title to the goods after the goods had crossed the customs frontiers of India, in the case of export sale, and, in the case of import, similarly by showing that the sale or purchase was occasioned the import or the sale or purchase was effected by a transfer of documents of title to the goods the before the goods had crossed the customs frontiers of India. To satisfy the first limb, the assessee must show the privity of contract with the foreign seller or purchaser and if there has been an intermediary, then that intermediary was the real purchaseer or if the assessee claimed that he/it was the intermediary, the real seller or purchaser being some one else then he/it acted only as agent of the real purchaser or seller.
17. Messrs. India Cements Limited (petitioners in T.C. Nos. 494 to 497 of 1979 and 563 and 564 of 1980) contend that the State Trading Corporation had placed orders on behalf of the foreign purchasers to them for which they had entered into contract on c.f. (or f.o.b.) terms for the sale and shipment of the goods to the foreign country. The also contend that the documents were presented for negotiation against the letter of credit to the banks after the goods had crossed the customs frontier of India. The special feature, according to the petitioners/India Cements Limited, of their contract was that the letter of credit opened by the foreign buyers was assigned to them. They drew the sale invoice straightaway on the foreign buyers and negotiated the invoices against the letters of credit assigned by the State Trading Corporation in their favour. They transferred only the excess over the agreed amount of the sale price to be realised by them under the contract with the State Trading Corporation credited to the latter. Export contracts entered into by the State Trading Corporation with the foreign buyers named them (India Cements Limited) as the manufacturers who would be executing the contract. Arbitration clause mentioned that the State Trading Corporation and Messrs. India Cements Limited would take part in arbitrations jointly. Thus, according to them, the ratio is Serajuddin's case , if applied to these facts, would indicate that even though they had no direct contract with the foreign buyers, their contract with the State Trading Corporation was so integrated with the latter's contract with the foreign buyer that, such sales by them were in the course of export and/or exports were occasioned by their sale only and not by any sales by the State Trading corporation to the foreign buyers independent of what they did not in manufacturing the goods and executing the contract.
18. The above submission is in line with the minority judgment of Khanna, J., in Serajuddin's case who after taking notice of similar facts, found in favour of the assessee that the sale by it to the State Trading Corporation was a sale in the course of export. The majority, however, took the view that the privity of contract was between the corporation and the foreign buyer and the immediate cause of the movement of goods and export was the contract between the foreign buyer, who was the importer and the corporation, who was the exporter and shipper of the goods. Hereto, all relevant documents were in the name of State Trading Corporation. The State Trading Corporation, however, had in its contact with the foreign buyer mentioned the petitioner's name as one of the manufacturers of the goods. The foreign buyers however had nothing to do with the supplies by the petitioner to the State Trading Corporation. No doubt, the petitioner sold the goods to the corporation to facilitate the performance of the contract between the corporation and the foreign buyer on terms, which were similar as held in Serajuddin's case , but the said circumstance did not make the contract between the petitioners and the corporation the immediate cause of the export. The petitioners were under no contractual obligation to the foreign buyers either directly or indirectly. Their rights were against the corporation. Similarly, their obligations were to the corporation. The foreign buyers could not claim any right against them. The petitioners had no corresponding obligation to the foreign buyers. The petitioners have not pleaded that there was a relationship of principal and agent between them on the one hand and the corporation on the other hand. They have also not been able to show that there was any relationship of principal and agent between them and the corporation out of necessity. The relationship between the petitioners on the one hand and the corporation on the other hand was undoubtedly between two principals and there was no aspect whatever of principal and agent. The mention of the f.o.b. price in the contracts, the shipment of the goods, etc., or certain rights which the corporation intended to extend to the petitioner in the arbitration in the event of any dispute with the foreign buyers or to engage the petitioners in the shipment, etc., are not such facts which alter the relationship between the petitioners and the corporation or integrate their contract with the corporation's contract with the foreign buyers so inextricably that some sort of privity is created. It is not possible thus on the facts of this case to accept the claim of Messrs. India Cements Limited for exemption.
19. Coming to the case of the petitioners that there has been transfer of property in the goods when goods had crossed the customs frontier of India, we may straightway see that there has been no sale of any kind by the petitioners to any foreign buyer. How and where the transfer of property in the goods was effected between the petitioners and the State Trading Corporation is wholly irrelevant since it is found that there was no export at all by the petitioners.
20. To repeat, the words of the Supreme Court in Murarilal Sarawagi's case :
"Nowadays a party which has contracted to sell goods to a foreign buyer may itself buy the goods f.o.b. Indian port from an Indian seller in order to fulfil f.o.b. contract with a foreign buyer.
This Court in Serajuddin's case [1975] 36 STC 136 has laid down that the mere mention of f.o.b. price or f.o.b. delivery in a contract between a merchant and the STC which exports the goods under a separate contract with the foreign buyer to the latter will not make the two contracts either integrated or the contract between the merchant and the STC an f.o.b. contract. There cannot be two last purchasers in the sale of the same goods within the same State. Similarly, there cannot be two exporters in respect of the same goods."
give a complete answer to any contention on behalf of the petitioners that there was a transfer of property in the goods only when the goods had been shipped beyond the customs frontier of India.
21. Facts in the case of Hindustan Motors Limited/petitioner in T.C. No. 438 of 1981 also show that they cannot have any better right under the contract which Tvl. General Marketing and Manufacturing Company Limited, Madras had with them, who in turn sold the goods to Tvl. Clyde Engineering Limited, New Zealand against their own export contract. They had contract with the local buyers, namely, the General Marketing and Manufacturing Company Limited, Madras. They placed the goods on board the ship according to the contractual obligation with the local buyers. They had no privity of contract with the foreign buyer. No rights or obligations they had under any contract with any foreign buyer. It will be a repetition, if not verbatim, substantially of the principles stated in Serajuddin's case to reject their claim that sale by them was an export sale. Their case also does not fall under either of the two limbs in section 5(1) of the Act.
22. Coming to the case of Messrs. ABMTM Private Limited (petitioner in T.C. No. 439 of 1981), we however find that there are some facts which require a closer examination. How to know whether the petitioner only acted as an agent, the privity of contract being between heavy Vehicles Factory at Avadi and the foreign seller ? The Board of Revenue has rightly noticed the law that unless it was possible to conceive of sale between the foreign seller and the person who became the ultimate owner of the goods, there cannot be an agency by the intermediary, but this can be known by looking into all the attendant facts and all facts collateral to the import contract and actual import. The law stated in Binani Bros. case has never been in doubt. But then courts have distinguished Binani Bros. case by taking notice of such facts as in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Indian Explosives Ltd. . Such facts have been mentioned, which if found to exist, would clearly make the importer an agent for the real purchaser. We do no intend to say at this stage that there was no error committed by the Appellate Assistant Commissioner and that there was no occasion for the Board of Revenue to exercise its suo motu revisional power. The Board could exercise such suo motu revisional power (which power can be now exercised by the officer designated under the amended Act), if such facts were found existing, which were sufficient to hold the disputed turnover represented the sales made to the Director-General of Supplies and Disposals and not merely an import of goods for and on behalf of the Director-General of Supplies and Disposals and/or Heavy Vehicles Factory at Avadi. We do, however, take notice of the fact that it would not always be wrong to find in such import by an assessee, the character of an agent only. The Appellate Assistant Commissioner would not be wrong, if he noticed such facts in his order and accordingly decided to examine such turnover of the petitioner ABMTM Private Limited. The Board's order does not show what were the facts which prevailed with the Appellate Assistant Commissioner and why the Board decided to revise the order of the Appellate Assistant Commissioner. What the order reveals is that there was a contract between the assessee and the foreign seller and that there was another contract between the assessee and the Director-General of Supplies and Disposals, who had placed an order with the assessee for the supply of goods to the heavy Vehicles Factory at Avadi. After referring to some of the authorities (case laws) including the law stated in Binani Bros. case and finding that certain documents revealed that the contract of sale was only between the assessee and the foreign seller, the Board has said, "Even though the goods might be ultimately indented to the Heavy vehicles Factory that will not make the transaction as one of sale in the course of import."
That will not be enough. It would be necessary to see whether the import in effect was for Heavy Vehicles Factory at Avadi and the order of the Director-General of Supplies and Disposals alone occasioned the import and that the assessee never had any right in the goods imported. If it is so found, the assessee may escape the taxation. If however, it is not so, the Board's order will be proper. We do not propose to give any judgment on the facts ourselves. It would be fit and proper that a fresh look is given by the Board (officer now designated under the amended law) to the facts of this case and adequate opportunity is afforded to the petitioner before any order reversing the order of the Appellate Assistant Commissioner is passed.
23. Except the contentions above confined to the export and import sales, no other contentions have been raised before by the learned counsel for the petitioners.
24. For the reasons stated above, tax cases in T.C. Nos. 494 to 497 of 1979, 563 and 564 of 1980 and 438 of 1981 are dismissed but without costs. T.C. No. 439 of 1981 is allowed. The case of the petitioner therein is remitted to the Board (the officer now designated to revise an order suo motu under section 34 of the State Act) for a rehearing in the light of the observations made above and disposal in accordance with law. No costs.