Madras High Court
Krishna Traders And Om Saravana Trading ... vs The Commercial Tax Officer, The Tamil ... on 14 November, 2003
Equivalent citations: [2004]138STC169(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, S.R. Singharavelu
ORDER R. Jayasimha Babu,J.
1. The submission for the assessee was that a sale within the State when it becomes a part of the sale in the course of export by reason of Section 5(3) of the Central Sales Tax Act, 1956 is nevertheless a sale within the State and, therefore, goods purchased from unregistered dealers which becomes the subject matter of such sales cannot be subjected to tax under Section 7-A of the Tamil Nadu General Sales Tax Act.
2. Mr. Natarajan, learned senior counsel invited our attention to the decision by the Constitution Bench in the case of State of Travancore -Cochin & Ors. Vs. Bombay Co. Ltd.,(AIR 1952 S.C. 366). It was held at paragraph 10 of the judgment that, "Assuming without deciding that the property in the goods in the present cases passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under Art. 286(1)(b). That clause, indeed, assumes that the sale has taken place within the limits of the State and exempts if if it takes place in the course of the export of the goods concerned."
3. Article 286(1) prohibits the law of any State from imposing or authorising the imposition 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.
4. The other decision on which counsel placed reliance was the case of Onkarlal Nandlal v. The State of Rajasthan & anr.(60 S.T.C. 314). Therein, it was held on the facts of the case before the Court, that there is no contradiction in an inter-State sale being inside the State, or outside the state. The Court observed that, "There is, in our opinion, no antithesis between a sale in the course of inter-State trade or commerce and a sale inside the State. Even an inter-State sale must have a situs and the situs may be in one State or another, it does not involve any contradiction in saying that an inter-State sale or purchase is inside a State or outside it. The situs of a sale may fall for consideration from more than (one) point of view. It may require to be considered for the purpose of determining its exigibility to tax as also for other purposes such as the one arising in the present case. Of course a sale which is in the course of inter-State trade or commerce cannot be taxed by a State Legislature even if its situs is within the State, because the State Legislature has no legislative competence to impose tax on sale in the course of inter-State trade or commerce. That can be done only by Parliament. If therefore a question arises whether a sale is exigible to tax by the State Legislature, it may have to be considered whether it is a sale in the course of inter-State trade or commerce. The same sale in another context may have to be examined from a different point of view for determining where its situs lies and whether it is a sale inside the State or outside the State. There is therefore no incompatibility in the same sale being both a sale in the course of inter-State trade or commerce within the meaning of Section 3 of the central Act as also a sale inside the State in accordance with the principles laid down in sub-Section (2) of section 4 of the Central Act."
5. The tax levied on the petitioner, who is a dealer in jaggery and who purchases jaggery from unregistered dealers and sells it to another within the State who, in turn, exports the same, the sale to such an exporter having been after the exporter secured an order for the export of the goods, is under Section 7-A of the Act which provides for levy of purchase tax. The circumstances under which that tax can be levied are, when the purchase is made by the dealer of any goods in the circumstances in which no tax is payable under Section 3 or 4 of the State Act and who, after such purchase (a) consumes or uses such goods in or for the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State, or (c) despatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, or (d) installs and uses such goods in the factory for the manufacture of any goods. The relevant clause under which the tax has been demanded from the assessee is clause (b), the assessing Officer having held that the sale of the goods by the assessee to the exporter being a sale covered by Section 5(3) of the Central Sales Tax Act, is not a disposal of the goods by way of sale in the State.
6. Though the argument advanced is attractive, that argument cannot be accepted having regard to the subsequent decision of the two Judge Bench of the Supreme Court in the case of State of Karnataka Vs. B.M. Ashraf & Co. (107 S.T.C.571), wherein, Section 6 of the Karnataka Sales Tax Act,1957 which is similar to Section 7-A of the Tamil Nadu General Sales Tax Act was considered. The Court, after referring to the relevant provision of the State Act and Section 5 of the Central Sales Tax Act held that, "The words "sale in the State" occurring in Section 6(i) of the Act would refer to "intra0State" sale in contradistinction to "sale in the course of inter-State trade or commerce" as referred to in clause (ii) of Section 6. It has been accepted by the High Court and, it is not disputed, that the sale in the present case to Kalbhavi falls under Section 5(3) of the Central Sales Tax Act. This, therefore, is a sale in the course of export and ipso facto cannot be regarded as intra-State sale. It is to be borne in mind that in the case of inter-State trade sale or sale in the course of export, the property in the goods may stand transferred within the State but merely because the passing of title or sale takes place in a State would not detract it from its character as an inter-State or export sale."
7. After referring to the decision of the Supreme Court in the case of Bengal Immunity Company Limited v. State of Bihar (1955) 6 STC 446), wherein, it had been held that what is an inter-State sale or purchase continues to be so irrespective of the State where the sale is to be located either under the general law when it is finally determined what the general law is, or by the fiction created by the Explanation, and further that the situs of a sale or purchase is wholly irrelevant as regards its inter-State character, the Court in the case of Ashraf (107 I.T.R.571) (supra) proceeded to hold at paragraph 12 thus:
"Similarly situs is irrelevant as regards the sales being in the course of export, as in the present case. In the context of sale tax law, the expression "sale in the State" occurring in Section 6 can only mean a local sale or an intra-State sale as opposed to sale in the course of export or in the course of inter-State trade or commerce. Therefore, wherever, there is a sale in the course of export or an inter-State sale, then, that would not be regarded as a "sale in the State" falling under Section 6(i) of the Act and, therefore, sale by the respondent to Kalbhavi, which was admittedly a sale in the course of export under Section 5(3) would not be regarded as "sale in the State".
Having regard to the clear enunciation of the law, it cannot be held that the fact that the purchase is also a sale, and that the situs of the sale can be located within the State would suffice to enable an assessee to contend that the disposal of the goods purchased by it from unregistered dealers is not liable to tax under Section 7-A of the Act, even when the sale, the situs of which is within the State is a sale which is in the course of export covered by Section 5(3) of the Act.
8. It is true that the Section itself does not specifically exclude sales in the course of export from the class of sales referred to in Section 7-A(b) of the Tamil Nadu General Sales Tax Act. However, similar Section has been construed by the Supreme Court in the context of the provision contained in Section 5 of the Central Sales Tax Act which has formulated the principles as required by Parliament by Article 286 of the Constitution to determine the circumstances in which a sale can be regarded a sale in the course of export.
9. Reading the two Acts together, the Supreme Court has found that the class of `export sales' covered by Section 5 of the Central Sales Tax Act cannot be regarded as sales within the State for the purpose of levy of purchase tax under the State enactments.
10. Such an interpretation does not result in any injustice to the concerned parties, as the intention of Parliament as set out in Section 5 of the Central Sales Tax Act is to grant immunity from State tax only for sales which are effected in the course of export. Article 286 of the Constitution, as also the Central Sales Tax Act clearly recognise that despite the fact that the sale has a situs in one State or the other, nevertheless when such sales also have the character of sales in the course of export or inter-State sales, despite the situs of the sale, such sales are to be regarded as sales which are qualitatively different from intra State sales for the purpose of taxation.
11. The writ petitions are dismissed.