Income Tax Appellate Tribunal - Pune
Income-Tax Officer vs Rifox Engg. India (P.) Ltd. on 18 January, 1996
Equivalent citations: [1996]57ITD466(PUNE)
ORDER
Sri G. K. Israni, Judicial Member
1. This appeal by the revenue is directed against the order of the learned CIT(A)-I, Pune dated 31-1-1994 in respect of the assessment year 1991-92.
2. The grounds raised in the appeal are as under :
"(1) On the facts and in the circumstances of the case, the CIT (A) has erred in allowing the deduction under section 80HHC of the Income-tax Act.
(2) On the facts and in the circumstances of the case, the CIT(A) has erred in holding that SOPL is an agent of the assessee.
(3) On the facts and in the circumstances of the case, the CIT(A) has erred in coming to the conclusion that the assessee has received the convertible foreign exchange and therefore, qualify for deduction under section 80HHC.
(4) The CIT(A) has erred in admitting the evidences which were not produced before the A. O. and thus violated the provisions of Rule 46A of the Income-tax Rules, 1962.
(5) The order of the CIT(A) be vacated and that of the A. O. be restored."
3. The facts of the case as narrated in the assessment order are that the assessee is a manufacturer of heat exchangers carrying on its business at Pune. The original return of income was filed on 24-12-1991 showing nil income. The revised return was filed on 28-9-1992 again disclosing nil income. In the original return, the assessee had claimed a deduction of Rs. 1,33,43,104 under section 80HHC. However, in its revised return the claim of this deduction was revised to Rs. 1,28,06,035. From the details collected by the Assessing Officer during the course of the assessment proceedings, he noticed that the assessee had received sale proceeds in rupees and sold the goods exported to an Indian party, namely, M/s Span Overseas Pvt. Ltd. (hereinafter referred to as Span). Hence the Assessing Officer conducted enquiries with Span to ascertain as to who was the real exporter. During the enquiry, Span categorically contended that Span was the real exporter and had received the convertible foreign exchange. It further clarified that the order from the Russian party was in its name, the bill of lading, shipping bill were all in the name of, and all the export formalities were done by, Span Overseas Pvt. Ltd. The Span further claimed that they had purchased the goods locally manufactured Rifox Engineering (India) Pvt. Ltd. and that the export incentives were also claimed by them directly from the authorities in their capacity as exporters. The Span further stated that it was neither an Export House nor a trading house, but only a merchant exporter in the assessment year 1991-92. In this background, the Assessing Officer required the assessee to explain as to on what basis it had claimed deduction under section 80HHC. The assessee vide its letter dated 25-9-1992 contended as follows :
(a) The goods were exported by them through Span who were their commission agents and had passed on the export order to them on back to back basis;
(b) All the terms and conditions of the U. S. S. R. party (importer) were made applicable to them, i.e., the assessee;
(c) The Span was entitled to a commission of Rs. 49.33 lakhs;
(d) The goods were to be shipped by the assessee;
(e) The Span was to give Form No. N-14B prescribed under the Bombay Sales-tax Act which was meant for exports;
(f) Central excise was not to be charged, since the goods were to be exported;
(g) Export benefits were to accrue to the assessee;
(h) Span was not to avail of any packing credit;
(i) Sale proceeds were received by the assessee through Span in Indian rupees.
4. During the course of his investigations, which were through, fair and complete in this case, the Assessing Officer apart from collecting documentary evidence, also orally examined Shri C. S. Gandhi, the Managing Director of the assessee company, Shri R. E. Chothia, the then chairman of the assessee company and Shri Manoj Shivnani, a director of the Span. An opportunity of cross-examining these witnesses was also afforded to the respective parties and was availed of by the assessee. During the course of his oral examination, Shri C. S. Gandhi the Managing Director of the assessee company, disclosed, inter alia, the following facts :
Shri R. E. Chothia was an Steam Engineer and was involved in the assessee company since its inception as a Director and was the Chairman of the assessee company during the period the impugned order of export was executed. He, however, did not have any share-holding in M/s Rifox Engg. (I) P. Ltd. The said Shri Chothia was also a partner of the Steam Process Aids who were appointed as the sole selling agents by the assessee and were paid a commission of Rs. 10 lakhs in connection with the sale which is the subject-matter of the present dispute. Shri C. S. Gandhi further admitted that the export order was not in the name of the assessee, but was in the name of the Span and that the assessee received the sale proceeds not in convertible foreign exchange, but in rupees from Span. The remittance in rupees was also not received directly from the Russian party, but from the merchant exporter, i.e., Span Overseas Pvt. Ltd. when questioned by the Assessing Officer as to on what basis he claimed to be an exporter eligible to deduction under section 80HHC. Shri Gandhi replied that he was an Engineer and this question should be put only to his Chartered Accountant who accompanied him. Shri C. S. Gandhi further disclosed that the enquiry from the Russian importer was obtained by Shri Manoj Shivnani, the Director of Span who was stationed during the relevant period in Moscow. However, Mr. Sathe (General Manger of Hindustan Sealol) passed on the enquiry to the assessee. Then one day Mr. Sathe informed the quantum of budgetary provision with the Russian buyer. It was according to this information that the assessee made the offer and gave it to Mr. Sathe for sending the same to Shri Manoj Shivnani at Moscow. The price was indicated by Shri Manoj Shivnani to Mr. Sathe. At this stage, the assessee had agreed that they would pay 10% commission to Poonawalla Associates. After receiving the offer and getting near O. K. from the Russian buyer, Shri Manoj Shivnani found out that he could get excess amount from the buyer and what would be the amount of this excess value. Then, it was agreed between the assessee and the Span that San would get 50% of the excess price over the quotation of Rifox. It appears that the assessee, after obtaining further legal advice, addressed one more letter dated 30-9-1992 to the Assessing Officer. Besides repeating and reiterating the facts stated and the contentions made in its earlier letter dated 25-9-1992, that since the export order was executed through the Span and the span was not an Export House or a Trading House, the assessee-manufacturer was not a supporting manufacturer within the meaning of the relevant provisions of section 80HHC. It was further stated in this letter that it was Mr. R. E. Chothia who had brought the Russian enquiry to the notice of the design and marketing engineers of the assessee and it was only after this that the assessee quoted the price of the goods to M/s Span Overseas P. Ltd. In this letter, the assessee invited the attention of the Assessing Officer to the following features of the case :
(i) The price mentioned in the order was F. O. B.;
(ii) As per the price mentioned, Span was entitled to commission of Rs. 49.83 lakhs;
(iii) Russian buyers were to make payments to Span and Span was to pass on the same to the assessee, after deducting its commission of Rs. 49.83 lakhs;
(iv) Penalties, if any, were to be to the account of the assessee;
(v) Sales-tax was not to be charged, since Span was to give Form No. 14B to the assessee;
(vi) Excise duty was not to be charged and the clearance of the goods was to be arranged by the assessee on Form No. AR-4. The bond in Form B1 was also furnished by the assessee;
(vii) Span was not to avail of any packing credit and the assessee as a manufacturer was to avail of the facility of packing credit;
(viii) C. C. S. was to be charged by both the parties, i.e., 60% to the assessee and 40% to the Span, REP and duty draw-back, bank certified invoice and disclaimer certificate were to be provided by Span to the assessee;
(ix) Bill of lading showed the assessee's name as manufacturer.
Another point of view claimed by the assessee in its letter read as follows :
"The intention of Legislature is to give the benefits under section 80HHC to the exports for bringing convertible foreign exchange in India. In case of exports by supporting manufacturers through export house or trading house, the legislative intention is that the benefits of tax exemption should be given to both the parties. However, total exemption granted to both the parties should not exceed total profits earned.
In our case, Span in not a export house or trading house and hence, we are not supporting manufacturers. However, the case is synonymous and total profit claimed as exempt by us as well as by span is the total profit earned on exports. The case is not of double claim but that at splitting of the claims. We are claiming benefit to the extent of total profits minus commission paid to Span and Span is claiming benefit to the extent of commission received by them from us.
Since the case involves view points of various parties, we request you to convene a meeting in your office to be attended by M/s Span and Mr. R. E. Chothia."
5. Shri Manoj Shivnani, Director of Span Overseas Pvt. Ltd. who was subjected to examination and cross-examination had disclosed in his statement that the Span had procured orders for the export of heat exchangers from Russian party and subsequently got he heat exchangers manufactured as per the specification of the Russian party through the assessee. The product was locally purchased from the assessee. The fact that it was a local sale is further evident from the fact that the Span had that it was a local sale is further evident from the fact that the Span had issued Form No. 14B under the Sales-tax Act. Form No. 14B is issued where a domestic sale is done in the course of exports and no sales-tax is charged on such domestic sale. Shri C. S. Gandhi of the assessee company was introduced to him by Mr. R. E. Chothia of M/s Steam Process Aids who was also the Chairman of the assessee company. Had Span Overseas Pvt. Ltd. been the agent of the assessee, there was no need for Mr. Gandhi to be introduced to Span through Shri R. E. Chothia. After getting the orders from Span, Shri Gandhi could not even arrange for the finances in time and hence loan for the assessee company was ranged through Hong Kong an Shanghai Bank, Bombay by giving personal guarantee of Dr. C. S. Poonawalla, Chairman of span Overseas Pvt. Ltd. Thus, the version of Shri Gandhi that Span acted as a canalising agency was more of a fiction than fact. Shri Manoj Shivnani further disclosed that the Russian enquiry was sent by him from Moscow to Mr. Dastoor, Director of Span in Pune. He had never met Shri Gandhi personally to discuss the matter in the month of October or November 1989. The first meeting with Shri Gandhi was only after 10th or 15th of December, 1989. The assessee company had given its offer to the Span in the first week of November 1989. The supply order from the Russian party was secured by the Span Overseas (P.) Ltd. much before the work with M/s. Rifox Engg. (I) P. Ltd. was started. The export order was on the Span Overseas P. Ltd. and only Span could have realised the net foreign exchange as the L. C. was in favour of the Span. Since Span was neither an Export House nor a Trading House, the possibility of passing the export turnover to Rifox was not there. All the terms and other conditions which were of commercial nature were obviously on back to back basis, i.e., the delivery date, liquidated damages, inspection clause, quality, guarantee, etc. An exporter as per the import-export rules an regulations can get the goods manufactured locally and export the same, and, if necessary, can also obtain advance licences to help the manufacturer in producing the goods, if they are within the norms and regulations of the import-export policy of that financial year. As regards the specifications and guarantee, Shri Shivnani has explained in his cross-examination that the order between the buyer and the exporter was between M/s. Exporters of Soviet Union and Span Overseas P. Ltd. Pune. Span had used Rifox as a manufacturer who would supply equipment to Span. Obviously, Span being a merchant trader and exporter, had to reflect on a back to back basis, all the guarantee and terms and conditions because the control on the manufacturing could be only by the manufacturer and as the Span had used Rifox as manufacturer, it had to fulfill the terms and conditions of quality. As regards the question of commission agency, it was stated by Shri Shivnani that Span was not the commission agent of Rifox. It was not legally possible, because the order was signed between Span and the Russian buyer. The Span was a merchant exporter. A merchant exporter is never allowed by the Government of India to pass on turnover to the supporting manufacturer.
6. Shri R. E. Chothia in his examination had disclosed that earlier have was the Honorary chairman of the assessee company, but was only a Director of that company as on date. A commission of Rs. 10 lakhs was paid to him through his concern M/s Stream Process Aids. This payment was made by the assessee for securing the purchase order from M/s Span Overseas P. Ltd. in favour of the assessee company. He fully agreed with the contents of the letter dated 23-9-1992 of Span Overseas P. Ltd. and agreed with the contention of Span to the effect that the transaction between Span and the assessee was a transaction of local purchase and the goods were exported to Russia only by span and not by the assessee company. The Span was neither a commission agent of Rifox nor was Rifox an exporter.
7. The assessment order also describes the status of the documents in the following manner :
Status of documents -
(1) Our sale bill is raised on Span.
(2) Form No. AR-4A (Excise document for removing export goods) shows goods manufactured by Rifox and also shows the name of the Russian party as Receiving party through Span. Destination mentioned is U. S. S. R. and contract number mentioned is the original contract number between Span and U. S. S. R. Party.
(3) Shipping bill shows Span's name as exporter and our name as manufacturer.
(4) Bill of lading shows Span's name as shipper and mentions our name as Manufacturer.
(5) We never agreed with Rifox for passing the benefit under 80HHC. We are not Export House or Trading House and have not issued any disclaimer to Rifox.
8. The Assessing Officer, after having considered the respective contentions of the parties, oral examination of the documents produced before him, came to the following findings of facts :
(i) The order for heat exchangers was bagged by Span prior to their discussion with Rifox. Shri C. S. Gandhi who cross-examined Shri Manoj Shivnani failed to prove that Shri Shivnani's version on this aspect was false.
(ii) the agreement with the Russian party was very clearly in the name of Span and the assessee's name did not figure anywhere in it. The said agreement did not make any mention of the agency agreement.
(iii) There is no reason to dispute the reasons stated by Shri Shivnani for passing on the order on back to back basis to the assessee. It is a common sense that any purchaser who purchases the goods for ultimate supply to others at a fair price would definitely pass on the quality, delivery and risk conditions on the manufacturer from whom it purchases the goods.
(iv) It had been admitted by both Shri Gandhi and Shri Chothia that Steam Process Aids was the agent of Rifox Engg. (I) P. Ltd. and the payment of Rs. 10 lakhs and been made to Steam Process Aids on the basis of the agreement dated 12-6-1990 with effect from 1-11-1989. If this is so, it was not known as to how Span could be the assessee's agent.
(v) As per clause (3) of the agreement dated 12-6-1990 the assessee had appointed Steam Process Aids as sole selling agent for obtaining export business from U. S. S. R., other East European countries, Iran and Australia. According to the obligations of the principal, it had been agreed that Principal would not appoint any other selling agent in the above territories mentioned in clause (3). If this was so, there was no question of the assessee appointing Span as the commission agent. There was no reason to disbelieve Shri Chothia who stated that it was Span and not Rifox who were the exporter.
(vi) Had the Span been a commission agent of the assessee, there would have been an agency agreement between the two similar to the one which the Rifox had with M/s. Steam Process Aids. Moreover, from the agreement dated 12-6-1990 (between the assessee and the Steam Process Aids), it was clear that the assessee could not have appointed anybody other than M/s. Steam Process Aids as commission agents for Russian supply.
(vii) The fact that the Span was not the commission agent but was the real exporter is clear from the letter of M/s. Steam Process Aids dated 9-10-1992 to Rifox Engg. (I) P. Ltd. in response to Rifox's letter dated 5-10-1992.
(viii) As regards the export benefits, it was observed by the Assessing Officer that the same had been claimed by the exporter, namely, Span Overseas P. Ltd. and subsequently passed on to the Rifox as mutually agreed to between them.
(ix) As regards excise and sales-tax deductions, Span had given necessary forms as the goods manufactured were meant for export. Above all, the Form No. 14B for sales-tax benefit clearly showed that the goods had been sold by the assessee in Maharashtra.
9. On the basis of the above findings, the Assessing Officer has recorded his conclusions in the following manner :
(a) Span was not an agent of Rifox Engg. (I) P. Ltd.
(b) Rifox Engg. (I) P. Ltd., i.e., the assessee is not an exporter in relation to the impugned export consignment.
(c) Rifox was not even a supporting manufacturer as per the definition of supporting manufacturer laid down in section 80HHC(4A)(d) of the Income-tax Act.
(d) Span Overseas P. Ltd. through whom the goods manufactured by the assessee had been exported to Russia was neither an Export House nor a Trading House.
(e) The assessee had locally sold the goods to Span and the sale proceeds had been received in rupees.
(f) All the export formalities had been done by the span and the convertible foreign exchange had been received by the Span.
(g) The export benefits had been claimed by the Span through the Government agencies and had been passed on to the assessee as per the agreement between the two parties regarding supply of goods.
(h) The export order, the letter of credit, shipping bill, bill of lading etc. were all in the name of the Span.
(i) Span was not a canalising agency.
(j) Span had not acted as a commission agent, but had proved itself to be an exporter.
(k) The sale of the heat exchanger by the assessee was only a local sale and was made to M/s. Span Overseas P. Ltd. and it was for this reason that the transaction was treated as a domestic sale during the course of export under the provisions of the Income-tax law. Neither the assessee had exported any goods nor had it received the price consideration thereof from any foreign buyer. The price received by the assessee was from a local buyer, namely, Span Overseas P. Ltd.
10. As a result of the above findings and the conclusions drawn therefrom, the Assessing Officer rejected the assessee's claim to deduction under section 80HHC and directed initiation of penalty proceedings for concealment of income under section 271(1)(c) of the Income-tax Act.
11. On the matter being taken in the first appeal, the pleas and contentions made before the Assessing Officer were repeated and reiterated in the appeal. Emphasis was laid in those appellate proceedings on the fact that it were the assessee's goods which were exported and it was the assessee who had derived profits from the export and, therefore, it was the assessee who could only be treated as 'exporter' and should be held entitled to deduction under section 80HHC. In this connection, reference was also made before the learned CIT(A) to the definition of 'exporter' under section 2(18) of the Customs Act, 1962 and the definition of the term 'exporter' within the meaning of that Act. As regards the receipt of the convertible foreign exchange against the sale proceeds of the goods sold, it was contended that since U. S. S. R. was a bilateral account country, the remittance received in rupees from Russia could also be treated as convertible foreign exchange as per the press note issued by the C. B. D. T. dated 22-6-1983. Emphasis was also laid on the F. O. B. price stipulation in the purchase order placed by the Span on the assessee and it was contended that the assessee had reimbursed the expenses made by the Span in connection with pre-shipment and inspection of the goods, premium paid to Export Credit Guarantee Corporation Ltd. the collection charges and interest to bankers. According to the assessee, since the F. O. B. Bombay. Before the learned CIT(A), an entirely new plea was made to the effect that there were minutes of meetings held on 1st January, 1990 and 5th January, 1990 between the representatives of the assessee and the Span and it was agreed in the meeting dated 5-1-1990 that an agency agreement would be signed in a maximum period of one week. This new plea was sought to be proved with the assistance of copies of the minutes produced before the learned CIT(A). At this stage, it would be necessary to point out that neither the assessment order shows that these minutes were filed or produced before the Assessing Officer nor any reference was made in the assessment proceedings to the minutes dated 1-1-1990 and 5-1-1990 and the minutes thereof. It is, however, an admitted position that no agency agreement or any other agreement pursuant to these minutes was ever executed between the assessee and the Span. A pointed reference was also made to the fact that the price of the goods exported mentioned in the Russian buyer's contract agreement was Rs. 3,96,26,082 and the same price was mentioned in the purchase order placed by the Span with the assessee. According to the assessee, no trader in goods would pay a purchase price equal to the sale price of the goods exported. The fact that for Span both the purchase and sale price was the same and the Span was entitled only to a commission indicates that the Span was merely a commission agent of the assessee and not an exporter in its own right. One contention raised before the learned CIT(A) and accepted by her was that the Form No. 14B under the Sales-tax rules was furnished by penultimate seller to ultimate seller. Since it was so done in the present case, it indicated that the Span was an agent and not a principal or an exporter. So far as the tax law is concerned, reliance was placed before the learned CIT(A) on the decision of the Andhra Pradesh High Court in the ease of CIT v. R. S. Subbaiah Pillai & Co. (P.) Ltd. [1972] 85 ITR 71 and the decision of the Delhi High Court in the case of Ferro Alloys Corpn. Ltd. v. R. C. Mishra, Director, Tax Credit [1978] 114 ITR 753.
12. After consideration of the various issues raised and the material produced before her, the learned CIT(A) has recorded the following findings :
(i) The fact that the assessee holds a registration-cum-membership certificate from the Engineering Export Promotion Council and that it was its goods which had actually been exported to Russia proves that it was the assessee who had exported the goods.
(ii) The mention of the subject "export of Laminary Heat Exchangers to USSR" by the Span in its purchase order addressed to the assessee also indicates that the transaction involved was for export of the goods to USSR and not of any local sale.
(iii) The quotation of FOB Bombay price also indicated that its goods were not to be locally sold, but were to be exported.
(iv) The Form No. AR 4A and execution of B1 bond by the assessee also shows that it was the assessee who was the exporter.
(v) The fact that the Russian party was shown as the consignee in the various export documents, including guarantee certificate and the gate pass (G. P. 2) also indicates that the consignor who was the assessee in the present case was the exporter of goods.
(vi) The fact that the Form No. 14B was given by the assessee, i.e., penultimate seller to Span Overseas P. Ltd., i.e., ultimate seller, also indicated that it was the assessee who had exported the goods.
(vii) Merely because the letter of credit, shipping bill, bill of lading, etc., were in the name of the Span it could not be held that the Span was the real exporter. For this finding, reliance was placed upon the decision of the Delhi High Court in the case of Ferro Alloys Corpn. Ltd. (supra).
(viii) The goods were delivered not to the Span but to the Russian party and it was the assessee who had borne the risk of transit.
(ix) In view of the publication of the Institute of Chartered Accountants of India on the subject of export through a canalised agency, it was held that although the goods were exported through the Span, yet it was the assessee who was the exporter.
(x) The formalities in connection with export were carried out not by the Span but by the assessee.
(xi) Since USSR were a bilateral account country, the remittance of sale proceeds in Indian rupees was to be treated as remittance in convertible foreign exchange as per the CBDT press-note dated 22-6-1983.
(xii) The sale proceeds were received from the Russian party by the Span not on its own behalf, but on behalf of the assessee.
(xiii) It was true that M/s. Span was not a canalising agency, but it is similarly true that M/s. Span acted only as an agent/intermediary on account of the fact that the order was placed on back to back basis with the assessee.
(xiv) The fact that same price was mentioned in the contract agreement with the Russian party as well as in the purchase order placed by the Span with the assessee indicated that the Span was to receive only the commission and was, therefore, a commission agent.
(xv) Commission cannot be equated with profit and commission received only by an agent and not by a person trading on his own account.
(xvi) The penalties, if any, leviable under the transaction were to be borne by the assessee.
(xvii) The commission and charges paid to Hongkong Bank were deducted by the Span from the amount paid to the assessee and this also indicated that it was the assessee who had borne all the expenses of export and was, therefore, the exporter of the goods.
(xviii) The minutes of the meetings held on 1-1-1990 and 5-1-1990 showed that arrangement was that of principal and commission agent and an agency agreement was to be executed between the two parties.
(xix) The fact that the excess price was to be shared between the two parties on 50 : 50 basis and that the cash assistance was to be shared by Rifox and Span at 60% and 40% respectively showed that it was not a case of local sale, but the relationship was that of an agent and principal.
(xx) The Span had not made any capital investment in the transaction and it was the assessee who had made the investment.
13. On the basis of the above findings and views, the learned CIT(A) held that it was the assessee who had exported the goods and received the sale proceeds in deemed convertible foreign currency and, therefore, was entitled to the deduction under section 80HHC of the Income-tax Act.
14. The findings and the order of the learned CIT(A) was assailed by the learned senior departmental representative, inter alia, on the following grounds :
(a) The export order, letter of credit, shipping bill, bill of lading etc. are not in the name of the Rifox.
(b) Rifox had manufactured the goods and sold the same to the local concern, viz., M/s. Span. The goods procured from Rifox had been exported to the Russian firm by Span.
(c) All export formalities, including appointment of forwarding/clearing agents was made by the Span and and not by the assessee.
(d) Form No. 14B to be filled in by an exporter to claim exemption from sales-tax was filed and signed by the Span and was accepted by the assessee. Such form is furnished by a dealer purchasing goods from another dealer and selling the same in the course of export out of the territory of India.
(e) Had there not been a local or domestic sale involved and had the assessee itself exported the goods through an agent, the question of local sale and furnishing of certificate in Form No. 14B under Rule 21A of the Sales-tax Rules would not have arisen.
(f) The convertible foreign exchange was admittedly received by the Span and there is a certificate to the effect from the banker.
(g) Span was neither a Trading House nor an Export House and, therefore, the assessee company who had only manufactured the goods was not a supporting manufacturer within the meaning of section 80HHC(4A)(d).
(h) The export benefits were claimed by the Span from the various Government agencies and had been partly passed on to Rifox as per the terms of their commercial agreement relating to the local purchase of goods.
(i) It is an admitted position that the Span was not a canalising agency.
(j) The Russian party had nothing to do with Rifox. There was no privity of contract between the Russian buyer and the assessee manufacturer.
(k) There existed an agreement dated 12-6-1990 (with effect from 1-11-1989) between Rifox and Steam Process Aids according to which Steam Process Aids was the sole selling agent of Rifox, for this category of goods for various foreign countries including Russia. This agreement was to be in force for 3 years from 1-11-1989 and Rifox had paid commission to Steam process Aids on the basis of this agreement. Since Steam Process Aids was the sole selling agent, the question of appointing Span as an agent in respect of the same category of goods and for the same territory was totally ruled out.
(l) Shri R. E. Chothia, who was the Chairman of Rifox when the order was received through his good office and who was also a partner in Steam Process Aids has categorically stated that the Span was not an agent of Rifox.
(m) The fact that the Span was not the commission agent of the assessee is further made clear by the internal correspondence between Steam Process Aids (Rifox's agent) and Rifox which was produced by Shri Chothia during his examination. (Letter dated 9-10-1992 of Steam Process Aids in response to Rifox's letter dated 5-10-1992).
(n) Rifox had raised bills on Span. Had Span been its agent, Rifox would not have raised any bills.
(o) The agreement dated 26-12-1989 between the Span and Rifox makes it very clear that the relationship between the two parties was that of principal to principal and not that of agency or partnership.
15. The learned senior departmental representative, apart from orally discussing the various aspects of the manner, has also filed a written note as well as para-wise comments on the impugned order of the learned CIT(A). They form part of the paper book of the department. According to the learned senior departmental representative, the copy of the minutes of the meetings dated 1-1-1990 and 5-1-1990 were not before the Assessing Officer and they were for the first time introduced in the first time introduced in the first appeal. The learned CIT(A) had clearly erred in admitting these documents, more particularly without confronting the Assessing Officer with the same. There was a clear violation of rule 46A of the Income-tax Rules. Therefore, any finding of the learned CIT(A) based on these documents cannot be allowed to be used in favour of the assessee. According to the learned senior departmental representative, even though these documents by themselves do not prove any material fact helpful to the assessee, yet it was not open to the learned CIT(A) to have used these documents without compliance of rule 46A. The learned senior departmental representative also made a specific reference to the contract agreement entered into between the Russian buyer and M/s. Span, and, more particularly clause 17.3 thereof which reads as under :
"17.3 The sellers are not entitled to assign to the third parties the performance of the present contract without the buyer's written consent. The breach of this rule entitles the buyers to rescind the contract immediately.
All the same time, the sellers are entitled to assign the manufacture of separate parts of the subject of the contract to the sub-contractors.
However in those cases all the responsibility under the contract rests with the sellers."
The learned senior departmental representative also pointed out that there is absolutely no mention or reference whatsoever to M/s. Rifox Engg. (I) P. Ltd. in this contract agreement. There was thus no privity of contract between the Russian buyer and the assessee. The learned senior departmental representative made similar reference to the purchase order No. 89/01 dated 25-12-1989 placed by the Span with Rifox Engg. (I) P. Ltd. This document is nomenclatured as purchase order which, according to the learned senior departmental representative, indicates that the transaction was that of local sale and purchase. On the question of use of the work 'commission', it was submitted by the learned senior departmental representative that the word has to be interpreted in the factual context in which it has been used. In the present case, the word was used in a loose sense and with a view to ensure only the minimum margin of profit of the Span in executing the Russian order. Since the goods manufactured by the assessee were to be exported, it was considered expedient by the parties that the Span should be guaranteed the minimum margin of profit with reference to the contractual price to be paid by the Russian party. It was in that context and with a view to ensure the minimum margin of profit that the word 'commission' was used. In this connection, the learned senior departmental representative made a reference to pages 830, 834, 835 and 842 of Mulla's commentary on Indian Contract & Specific Relief's Act dealing with the subject of 'commission'. As regards the sharing of export benefits between the parties, it was submitted by the learned senior departmental representative that it was a commercial arrangement between the two parties and it in no case indicated that Rifox was the exporter of the goods. As regards the character of the San as a canalising agency, the learned departmental representative submitted that it was not disputed by the assessee either before the Assessing Officer or before the learned CIT(A) that the Span was not a canalising agency. Moreover, according to the learned senior departmental representative the list of canalising agencies is exhaustive and appears at Appendix IV-E. In support of his contentions, the learned senior departmental representative placed reliance upon the decision of the Bombay High Court in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708 and also on the decision of the Supreme Court in the case of Mineral & Metal Trading Corpn. v. R. C. Mishra [1993] 201 ITR 851. The learned senior departmental representative pointed out that the decision of the Delhi High Court in the case of the same party in Ferro Alloys Corpn. Ltd. (supra) has since been overruled by the Supreme Court in its this judgment, and, as such, the use by the learned CIT(A) of the decision of the Delhi High Court in Ferro Alloys Corpn. Ltd.'s case (supra) was not legally tenable.
16. On behalf of the assessee, the same pleas were raised and contentions mad as were raised and made in the first appeal. The learned counsel for the assessee, however, stated that the most important aspect of the case was as to at what point of time the transfer of title in the goods exported took place. According to the learned counsel, since in the present case the goods were sold FOB Bombay, the title in the goods continued to vest in the manufacturer, i.e., the assessee, till the goods were placed on board the ship. Since this event of loading the ship on board in terms of FOB stipulation took place after the goods were placed on board the ship. Since this event of loading the ship on board in terms of FOB stipulation took place after the goods had crossed the customs frontiers of India, it was the assessee who made the export of the goods. In this connection, the learned counsel referred to the definition of 'export' as given in the Imports & Exports (Control) Act, 1947, the Customs Act, 1962 and contended that since the delivery of the FOB and the delivery took place after crossing by the goods of the customs frontiers, it was the assessee who exported the goods. According to the learned counsel, since it was the assessee who had furnished the Bond to the Central Excise authorities in connection with the export of the goods, it was the assessee who should be treated as the exporters. In this connection, he referred to the dictionary meaning of the term 'FOB' as given in the Black's Law dictionary and Jowitt's Dictionary of English Law, and also the decision of the Supreme Court in the case of Mineral & Metal Trading Corpn. (supra), the decision of the Andhra Pradesh High Court in the case of K. S. Subbaiah Pillai & Co. (P.) Ltd. (supra) and the decision of the Cochin Bench of the Tribunal in ITA No. 1220/86, a copy whereof is available at pages 100 to 120 of the assessee's paper book. He also discussed the general meaning of the word 'commission' with reference to the dictionaries of Black and Jowitt and the judgment of the Bombay High Court reported in Harihar Cotton Pressing Factory v. CIT [1960] 39 ITR 594. He further contended that there was only one price mentioned both in the contract agreement between the Russian buyer and the Span as well as in the purchase order issued by the Span in favour of Rifox. This indicated that there was no separate sale by Rifox to the Span and Rifox itself had exported the goods on payment only of commission to the Span. Had it been a sale by the Span to Russian party, then the Span would have appropriated whole price received from the Russians. The fact that the other export benefits were also shared by both the Span and Rifox also indicated that it was a case of principal and agent and not of two principals. The learned counsel also claimed that the Russians were directly in touch with the Rifox before any agreement took place between the Russians and the Span. Shri Shivnani in entering into contract with Russians was in fact acting on behalf of the Rifox as their agent. In relation to the assigning of the contract on back to back basis, the learned counsel referred to section 63 of the Contract Act and contended that since the assignment of the contractual rights by the Span to Rifox was not objected to by Russians, they shall be deemed to have dispensed with or remitted their rights under the contract. As regards the three documents, namely, AR 4A form, Gate Pass (GP 2) and the Bond (B. 1), the learned counsel conceded that the Form AR 4A and the Gate Pass GP 2 are invariably issued by a manufacturer irrespective of whether he is or is not an exporter. These two documents, therefore, have no bearing on the question as to who was the exporter. He, however, contended that Bond B1 is furnished only by an exporter and since in the present case the Bond was furnished by the assessee, it should be held to be an exporter. As regards the sales-tax aspect of the matter, the learned counsel conceded that where there is no domestic sale involved, sales-tax liability is not there and it was not necessary to issue or furnish certificate in Form No. 14B in furnished by a penultimate seller to an ultimate seller and it was done so in the present case. According to the learned counsel, the furnishing of Form 14B in the present case was not significant and could not have any material bearing on the question as to whether or not any domestic/local sale took place in India. He further contended that in view of the fact that the nature of the transaction was clearly shown by the documents, it was not necessary for the Assessing Officer to have orally examined the witnesses. As regards the production of the minutes of the meetings dated 1-1-1990 and 5-1-1990, the learned counsel stated that event though these documents were not produced or filed before the Assessing Officer. On the other aspects of the case, the learned counsel cited the following Court decisions :
(1) Broach Distt. Co-operative Cotton Sales, Ginning & Pressing Society Ltd. v. CIT [1989] 177 ITR 418 (SC), (2) CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431 (SC), (3) CIT v. South Arcot Distt. Co-operative Marketing Society Ltd. [1989] 176 ITR 117 (SC), (4) CIT v. U. P. Co-operative Federation Ltd. [1989] 176 ITR 435 (SC), (5) CBDT v. Aditya V. Birla [1988] 170 ITR 137 (SC), (6) CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320 (SC), (7) CIT v. Madho PD. Jatia [1976] 105 ITR 179 (SC).
17. In addition to his oral arguments, the learned counsel has also filed written submissions which have been placed on record and have been taken into consideration.
18. Let us now discuss the various aspects involved in the dispute in the light of the contentions of the assessee and the discussion thereof made by the two revenue authorities and the findings recorded and conclusions drawn by them.
19. The two documents which are fundamental to the adjudication of the issue and have the most important bearing thereon are the agreement dated 25-12-1989 executed between the Span and Rifox and the purchase order by the Span with Rifox. The first document is available at pages 1 to 12 and the second document is available at pages 78 to 81 respectively of the departmental paper book. It would be convenient and useful to reproduce the relevant and material parts of those documents.
(I) Agreement dated 25-12-1989 :
Preamble : "WHEREAS SPAN is desirous of exporting 'PRODUCTS' as specified in Annexure I and manufactured by RIFOX to the 'TERRITORY' as specified in Annexure II and for this purpose, the parties have agreed that SPAN will purchase from RIFOX the products for the consideration and upon the terms and conditions contained hereinafter.
Clause 1 (a) : RIFOX shall sell and supply and SPAN shall purchase from RIFOX the products for the purpose of export of the 'Products' by SPAN to the customers in the Territory.
It is understood that placement of orders by SPAN to RIFOX is only after firm quotation received on back to back basis for the said export business.
Clause 1 (c) : Notwithstanding anything to the contrary contained herein, the property in the products shall pass to SPAN upon the delivery notwithstanding that RIFOX may not have received payment for the same.
Clause 3 : It is clarified, for removal of doubts, that Export orders in all cases will be secured and accepted by SPAN in its own name. SPAN will place a back-to-back purchase order with RIFOX in the case of each export order for execution thereof. RIFOX shall execute the purchase orders and perform its obligations in relation thereof in accordance with the terms and stipulations of the export order secured by SPAN (a copy whereof shall be furnished to RIFOX) and shall be responsible to the customer for the due performance of the contract for supply of the products and shall be liable for breach or non-performance of its contractual obligations including damages/penalties stipulated therein.
Clause 8 : SPAN shall pay to RIFOX or to their bankers in case RIFOX avails of the bill discounting facility, the amount due to RIFOX, within 7 days of the receipt by SPAN of the sale proceeds from its customers.
Clause 14 : RIFOX hereby agrees to indemnify SPAN in respect of any action, claims, demands, costs, losses, expenses and damages, if any, caused by reason of the products contravening the specifications in force from time to time.
Clause 15 : The date of delivery shall be normally construed to be the date on which delivery of goods alongwith all the necessary documents is given to the specified forwarding agents at an Indian port.
Clause 16 : RIFOX shall reimburse to SPAN expenses incurred by SPAN, if any, in connection with pre-shipment inspection of the products, premium paid to the Export Credit Guarantee Corporation Ltd. collection charges, interest charges and any other charges paid to the bankers.
Clause 17 : SPAN shall provide RIFOX with a declaration waiving in favour of RIFOX the right of SPAN to draw export packing credit in respect of the order secured in pursuance of this agreement. SPAN shall relinquish in favour of RIFOX duty drawback, cash assistance, and import replenishment licence applicable at the time of shipment of the goods. Provided however that it is expressly agreed and declared that if SPAN derives any benefits or privileges as an Export/Trading House such as Import Licences, Additional Licences, etc., the same shall exclusively belong to SPAN and be appropriated by SPAN and RIFOX shall have no right, title or interest in the same.
Clause 19 : This arrangement shall be effective for a period of three years from December 1989.
Clause 21 : This Agreement supersedes all earlier understanding arrangements or agreements, whether oral or written, relating hereto, and shall be modified only by mutual consent in writing.
Clause 22 : Nothing contained herein shall be construed as creating any relation ship of partner ship herein is strictly on a principal to principal basis."
(II) "PURCHASE ORDER NO. 89/01 DATED : 25-12-1989 SPECIAL INSTRUCTIONS :
2. Sales Tax : N. A. We shall issue declaration in Form No. N-14.
3. Price : F. O. B. Bombay.
5. Dispatch Instructions : To be delivered to out Clearing Agents.
ANNEXURE TO PURCHASE ORDER NO. 89/01, DATED 25-12-1989
1. General : This Purchase Order is placed on you on a back-to-back basis against contract No. 589/1859809/9006109-322, dated 4th December, 1989 between us and Vsesojuznoe Khozraschetnoe Vneshnetorgovoe Objedinenie, Moscow, U. S. S. R. A photocopy of this Contract is enclosed herewith. All the terms and conditions of the above Contract placed by the party on us are to be complied with you. As the buyers are very strict about delivery commitments, penalties due to delayed delivery by you, will be enforced on you.
2. Prices : (a) The prices mentioned in this Purchase Order are on FOB Bombay basis, including cost of sea-worthy packing as mentioned in the Contract.
(b) On the prices mentioned in the Purchase Order a commission of Rs. 49,83,000.00 (Rupees forty nine lakhs eighty three thousand only) is payable to us.
10. Taxes & Duties : Sales Tax will not be charged by you. We will furnish you Form N-14 if necessary. Central Excise Duty is not chargeable, since the goods are meant for export. You will arrange for clearance of the goods on Form AR4/AR4A under your own Bond and follow the prescribed procedure for adjustment of the Bond Accounts.
11. Packing Credit : We hereby declare that we have not availed of Packing Credit from any bank against this export Contract, and shall not avail of the same. You, as manufactures, may avail of Packing Credit from your bankers, in respect of this Order, based on this waiver. The original certificate dated 18-12-1989 from our bankers is enclosed herewith for you perusal.
12. Export benefits : Export benefits available in the form of Cash Compensatory Support (CCS) will be shared on a mutual basis. Decision to this effect is to be taken not later than February 15, 1990. The CCS sharing is over and above the commission mentioned in Points 2 and 4 of this Annexure. REP Licence and Duty Drawback will accrue to you in respect of supplies made by you against this order. The documents necessary for this purpose such as Bank Certified Invoice and Disclaimer Certificate will be provided by us.
I : The agreement dated 25-12-1989 is the basic document which determines the inter se relationship between the assessee on the one hand and SPAN on the other. It would be evident from this document that the words 'purchase' and 'sell' have been used in the preamble and clause 1(a) and other clauses of this agreement which indicates that the relationship envisaged in this agreement was that of a purchaser and a seller. It has envisaged in this agreement was that of a purchaser and a seller. It has been further clarified in clause 3 that export orders in all cases will be secured and accepted by SPAN in its own name. Had the parties intended the relationship of principal and agent, the words 'purchase' and 'sell' would not have been used and no clarification of the nature as specified in clause 3 would have been necessary. The reason for back-to-back purchase order has also been stated in clause 3. Placing of back-to-back order is not uncommon in commercial/mercantile circles, more particularly where the goods which are the subject-matter of a deal are manufactured are to be exported. In all such cases, it is common practice with the exporters to pass on the liability with regard to the specifications, quality control and manufacturing defects and after-sales service and warranty liabilities to the manufacturer. This is done even in the domestic sales, but in the international trade this practice is more common and prominent. Moreover, having goods manufactured on the basis of back-to-back order was part of the commercial arrangement between the two parties and merely because the contract was to be executed on the basis of back-to-back order, it cannot reasonably be concluded that the relationship between the two parties, namely, RIFOX and SPAN, was not that of principal to principal, but of principal to agent. On this aspect of the matter, there cannot be any clearer provision than that contained herein shall be construed as creating any relationship of partnership or agency between the parties hereto and the relationship herein is strictly on a principal to principal basis." It appears that neither before the two revenue authorities nor before us any explanation has been offered justifying the insertion of such clause if the parties really intended to create a relationship of principal and agent. In this connection, we would like to observe that under the rules of interpretation of evidence, what is apparent is presumed to be real until the party contending otherwise is able to prove that it is not so. In the present case, clause 22 does clearly define the relationship between the parties. Since it is the assessee who contends that the relationship was not of principal to principal basis, it was incumbent upon the assessee to prove to the contrary. The assessee has neither made any serious effort, nor succeeded in proving that the relationship between it and SPAN was not of principal to principal basis. In this connection, it would be further necessary to refer to clause 21 of the agreement which lays down that "this agreement supersedes all earlier understandings, arrangements or agreements, whether oral or written, relating hereto, shall be modified only by mutual consent in writing". In the present case, no mutual consent in writing modifying the terms and conditions or understandings or arrangements under the agreement dated 25-12-1989 has been executed between the parties, and, as such, the agreement dated 25-12-1989 continued to operate and was not superseded in any manner whatsoever. Now, we cannot understand as to what prevented the assessee from having an agreement drawn and executed expressedly creating the relationship of principal and agent between it and SPAN. The assessee had not volunteered any explanation as to what prevented the execution of a document creating the relationship of principal and agent. It was only when Shri C. S. Gandhi, Managing Director of the assessee was cornered by the Assessing Officer that he offered an explanation. His answer to question No. 5 of his oral examination dated 14-12-1992 was to the following effect :
"As per the discussion with Span Overseas, as they knew Russian language and deal with Russians it was agreed that the order can be in name of Span Overseas and accordingly back to back order was placed by Span Overseas P. Ltd. on Rifox Engg. (I) Pvt. Ltd."
20. Now, this explanation which has been compulsively extracted from Shri Gandhi, the Managing Director of the assessee-company, is simply untenable and cannot be accepted. Irrespective of whether the relationship inter se between Rifox and Span was that of principal to principal or principal to agent, it was only Span who was supposed to deal with Russians and execute their orders. It was only Span who was supposed to deal with Russians and execute their orders. It was only Span or its Managing Director who had to interact with the Russians. How then the inter se relationship between Rifox and Span made a difference is not understandable.
II : Purchase Order No. 89/01, dated 25-12-1989 :
21. The fact that the relationship between Rifox and Span was that of principal to principal is further evidenced by the Purchase Order No. 89/01, dated 25-12-1989, the relevant portions whereof have been reproduced above. The fact that this document is nomenclatured as a 'Purchase Order' is by itself indicative of the fact that the transaction between the two parties was one of sale and purchase and not of transfer of goods under an agency arrangement. There is a specific clause 10 in this document with regard to Taxes & Duties. It has been provided in this clause that sales-tax would not be charged by Rifox. Span was to furnish Form No. N-14B, if necessary. Now, had this not been an order of purchase, no condition with regard to liability for taxes and duties would have been incorporated in this order. Sales-tax is chargeable only when a domestic sale takes place. In case Span was intended to be an agent of Rifox, then there would not have been any question of domestic sale so as to attract sales-tax liability. The question of providing a clause of the nature as clause 10 would, therefore, not have arisen. A seller cannot sell the goods to himself. Similarly, a seller cannot sell the goods to his agent who is supposed to act on behalf of his principal.
III : Another aspect which requires consideration is the contract agreement between Span and the Russian party. A photocopy of this document has been made available at pages 62 to 76 of the departmental paper book. Here again, Span has been referred to as 'sellers'. In this contract agreement there is totally no mention at all of Rifox Engg. (I) Pvt. Ltd. or of its concern in any way with the execution of this deal. Had any agency (oral or documentary) been really created between Rifox and Span prior to the execution of this contract agreement, mention of Rifox in some for or the other would have been there in this document, or, alternatively, it would have been provided in this document embodying an international deal that Span was acting not as a principal, but as an agent. Rather, clause 17.3 of this document clearly brings out a position totally contrary to that contended by Rifox. That clause reads as under :
"17.3 : The sellers are not entitled to assign to the third parties the performance of the present Contract without the Buyers' written consent. The breach of this rule entitles the Buyers to rescind the Contract immediately."
Now, in connection with this clause it was contended by the learned counsel for the assessee that the promise contained in this clause was in favour of the Russian party and the promissee, i.e., the Russian party could dispense with or remit, wholly or in part, the performance, or may accept instead of it any satisfaction which is thought fit. For this purpose, he relied upon the provision contained in section 63 of the Indian Contract Act. We have considered this argument of the learned counsel, but do not find any force in it. Firstly, it is doubtful that section 63 of the Indian Contract Act, which is a municipal law (Indian law) will govern the rights and obligations arising out of clause 17.3 of the contract between the two contracting parties belonging to different countries. Moreover, this clause and clause 17.2 lay down that all amendments and addenda to the present contract are valid only when being made in writing and signed by the contracting parties. The assessee has not adduced any evidence to show that the Russian buyer has consented in writing to the assignment of the performance of this contract to Rifox Engg. (I) P. Ltd. or to any third party. There is no evidence of such written consent, nor is there any mention of the name of Rifox in the contract agreement, and, as such, there was no privity of contract between Rifox and the Russian party so as to give rise to mutual rights and obligations between them. It would, therefore, be difficult to accept the proposition that it was the assessee, Rifox Engg. (I) P. Ltd. which sod the goods to the Russian party and was, therefore, the real exporter.
IV : Sales-tax :
22. The next aspect of the matter which has been discussed at all levels of the proceedings relates to the question as to whether there was any domestic sale so as to give rise to the sales-tax liability under the Bombay Sales-tax Act/Central Sales-tax Act or to necessitate the furnishing of Certificate in Form No. N-14B under rule 21A of the Sales-tax Rules. It appears that the learned CIT(A) has gravely erred in using this circumstance in favour of the assessee's contention that it was the assessee who was the real exporter. Rather this circumstance weighs heavily against the assessee's contention. The Form No. N-14B is issued under rule 21A copy whereof is available at page 53 of the departmental paper book. As would be evident from rule 21A and the tenor of this For, the certificate in this form is delivered by a dealer purchasing goods from another dealer and selling the same in the course of export out of the territory of India within the meaning of sub-section (3) of section 5 of the Central Sales-tax Act, 1956. In the present case, it was Span Overseas P. Ltd., which had furnished this Certificate to Rifox Engg. (I) P. Ltd. In other words, it was the ultimate seller (in India) who had furnished this Certificate to a penultimate seller, i.e., the assessee. Contrary to this factual position, the learned CIT(A) has misconstrued the event and held that such Certificate is issued by a penultimate seller to an ultimate seller. By recording such erroneous finding of fact, she has proceeded to draw a wrong conclusion to the effect that there was no domestic or local sale by Span to Rifox to Span. Rather the event of furnishing of this Certificate by Span to Rifox clearly proves that a domestic or local sale had taken place in the state of Maharashtra and that such sale was in the course of export of the goods out of the territory of India and that such export was to be made by Span and not by Rifox. Had there not been any sale of goods by Rifox to Span, the necessity of seeking or obtaining such Certificate would not have arisen. The primary liability of sales-tax is that of a seller, i.e., in the present case, the primary liability was that of the assessee, i.e., Rifox. On the basis of this Certificate, the assessee could have got exemption on domestic sale provided the goods which were the subject-matter of domestic sale were eventually exported out of the territory of India. Thus, the obtaining of this Certificate from Span was in the interest of the assessee who was primarily liable to pay sales-tax, but was seeking exemption on account of the proposed export of the goods. It was thus the assessee who solicited and obtained Form No. N-14B on the basis that it had made a domestic sale of goods to Span. The learned counsel for the assessee before us frankly conceded that where no domestic or local sale is involved, the question of furnishing of Certificate in Form No. N-14B does not arise. How then the assessee solicited, obtained and furnished to the sales-tax authorities for the purposes of exemption this certificate, has not been explained. The assessee, therefore, cannot now be heard to say that it had not sold the goods under a domestic sale and had itself exported the goods to Russia and was, therefore, a real exporter.
V : Excise/Customs Duty :
23. The next aspect which requires discussion relates to the documents made/executed under the Central Excise Act/Rules. In this connection, three documents have been brought on the record. The are Form No. A. R. 4-A and Form No. G. P-2 which are available at pages 205 and 207 respectively of the assessee frankly conceded before us that these documents have necessarily to be executed and filed by a manufacturer, irrespective of whether the is or is not an exporter. Thus, these documents as such do not have any bearing on the question as to whether the assessee was or was not an exporter. Thus, in no case, these documents can be pressed into service to the advantage of the assessee. Rather, from a perusal of Form No. A. R. 4A, we find that this document discloses a fact which speaks adverse to the assessee's contention. In column 13 it has been stated that the excisable goods which are sought to be removed from the factory under this application are to be exported through Span Overseas P. Ltd. When the Bench required the learned counsel for the assessee to explain, he candidly conceded that this circumstance was unfavorable to the assessee's case, but stated that this was only a mistake and, therefore, cannot be given much significance. We, however, feel that this fact stated by the assessee in its own application is highly important and cannot be lost sight of. Rather, it is indicative of the fact that it was Span which was to export the goods removed from the assessee-manufacturer's factory. The learned counsel for the assessee, however, contended that the fact that it was the assessee who had furnished the General Bond in Form B-1 indicates that it was the assessee who was exporting the goods. We have given our careful thought to this argument of the learned counsel, but find that there is absolutely no force in it. The primary liability of Excise duty is that of the manufacturer of the goods. The Excise duty has to be paid at the time of the removal of the goods from the factory. It is only when a manufacturer of the goods. The excise duty has to be paid at the time of the removal of the goods from the factory. It is only when a manufacturer who is liable to pay Excise duty seeks exemption/rebate from the payment of such duty on the ground that the goods removed from his factory are to be exported that furnishing of such Bond becomes necessary. Since the beneficiary of the exemption/rebate from the Excise duty is the manufacturer, it is he who has to furnish such Bond undertaking an obligation undertaken in this Bond would undertaking an obligation an obligation of the fulfilment of the condition to the effect that the goods would eventually be exported out of India. The failure fulfil the obligation undertaken in this Bond would render only a manufacturer liable to the Excise duty. Where an exporter is other than a manufacturer, the exporter does not come into picture and he is not required under the law to furnish such Bond nor such Bond can be accepted by Excise authorities. Thus, under the scheme of the Central Excise Act/Rules, such Bond is also furnished by a manufacturer and not by an exporter. This Bond thus does not in any way indicate that it was the assessee in the present case who was the real exporter of the goods to Russia.
VI : Invoices, Shipping documents, etc. :
24. We will now discuss various other documents which have been filed before us and have bearing on the question under consideration. One such document is the Invoice which is available at page 57 of the departmental paper book. This Invoice to the Russian party has been issued by Span and not by Rifox. There is no mention at all in this document of the name of Rifox Engg. (I) Pvt. Ltd. even as manufacturer, nor is there any mention to the effect that Span was acting as an agent of Rifox Engg. (I) Pvt. Ltd. in relation to this export bill. The next document is the Bill of Lading, which is available at page 59 of the departmental paper book. In this Bill of Lading, the Shipper is shown to be Span Overseas P. Ltd. and not Rifox Engg. (I) P. Ltd. does appear in this document, but as the manufacturer and not as the exporter or shipper. In the Bank Certificate of Export, available at page 60 of the departmental paper book, it is the Span Overseas P. Ltd. which has been shown to be exporter. Similar is the case with the Shipping Bill available at page 61 of the departmental paper book. Thus, all the documentary evidence is indicative of the fact that it was Span who was the exporter and shipper of the goods.
VII : Forwarding/Clearing Agents :
25. The next fact which is relevant to the present question is, as to who was the clearing/forwarding agent for this consignment and who has appointed that agent. The Shipping Bill available at page 61 of the departmental paper book shows that in the present case it was A. T. C. (Clearing & Shipping) Pvt. Ltd. which had forwarded this consignment. A copy of this Shipping Bill is issued to enable an exporter of goods to make a claim for drawback. The A. T. C. (Clearing & Shipping) Pvt. Ltd. has certified, vide its document at page 83 of the departmental paper book, that they had arranged the shipment of the Heat Exchangers under this contract with the Russian party and that they, namely, A. T. C. (Clearing & Shipping) P. Ltd. had acted as the agent of Span Overseas P. Ltd. and all the documents required under the Customs Act were furnished by Span Overseas P. Ltd. as the exporter. They have further certified that the bills for clearing and forwarding charges were raised on Span Overseas P. Ltd. and the payment was received from that company. The assessee has neither contended nor adduced any evidence to the effect that it was the assessee who had appointed the clearing/shipping agents in respect of this export consignment.
VIII : Consignor/consignee :
26. Another mistake which has been committed by the learned CIT(A) which has influenced her impugned decision is the meaning and use of the word 'consignee' in the Invoices raised by the assessee on Span. It appears that the learned CIT(A) has not properly understood the meaning of the word 'consignee'. The word 'consignor' only means a 'sender/shipper of goods'. Similarly, the word 'consignee' means the person to whom the goods have been sent or shipped. These words in no way indicate the status of the consignor in relation to the goods. In other words, the use of these words does not in any way indicate that the consignor or the consignee are the exporter or importer of the goods or that they are the owners or would be owners of the goods. Merely, because in the Invoice raised by the assessee on Span the assessee stated the name of the Russian party as the consignee, it does not mean that the assessee, a manufacturer, was the exporter of those goods. Rather the fact that all the Invoices (pages 98 to 122) have been raised on Span showing the Russian party therein as mere consignee indicates that the goods were sold by the assessee to Span and not to the Russian party. The assessee, therefore, could not be the real exporter of those goods.
IX : Appointment of Steam & Process Aids as agents and payment of commission of Rs. 10 lakhs to them :
27. The learned senior departmental representative drew our attention to the agreement dated 12-6-1990 between Rifox Engg. (I) P. Ltd. and Steam & Process Aids. This agreement is available at pages 13 to 17 of the departmental paper book. With the assistance of this document, the learned senior departmental representative elaborated that Rifox had appointed Steam & Process Aids as its sole selling agent for these type of goods for the territories of U. S. S. R. and other East European countries, Iran and Australia and, therefore, there was no question of Span having been appointed as agent of Rifox. Pursuant to this agreement and on account of the execution of the impugned sale by Rifox to Span, a commission of Rs. 10 lakhs was paid to Steam & Process Aids, a firm, one of whose partners was Shri R. E. Chothia who was also the then Hon. Chairman of Rifox. We have examined this document and find that this document also takes the department further to the proof that the assessee Rifox was not the exporter of the goods. This agreement purports to be an agency agreement effective from 1-11-1989 and under this document, Steam & Process Aids had been appointed as the sole selling agent for territories of U. S. S. R. and other East European countries, Iran and Australia. Clause 6 of this agreement obliges the principal, i.e., Rifox, not to appoint any other selling agent in the territories mentioned in clause 3 above. Clause 7(d) lays down that all the orders for the products of the principal shall always be in the name of principal. In this connection, it is noteworthy that had Span also been an agent of the assessee, like provision would have been made in the agreement dated 25-12-1989 executed between the assessee and Span. The fact that this was not done also indicates that the relationship between Rifox and Span was not that of principal and agent, but principal to principal.
X : Delivery/Transfer of property in goods :
28. Another aspect on which emphasis was placed by the learned counsel for the assessee related to the transfer of property in goods. The learned counsel contended that the property in the goods is transferred to the purchaser only when the delivery is made. In the present case, as per the Purchase Order dated 25-12-1989 placed by Span with Rifox, the price was FOB Bombay. As per the clause 2.3 of the Contract between the Russian party Span also the price was FOB Bombay. According to the learned counsel, the fact that the price was fixed as FOB Bombay indicated that the goods stood delivered only when they were placed free on board the ship. In other words, the property in the goods passed on to Span in India or the Russian party only when they were placed on board the ship. The goods were placed on the board only after they had crossed the customs frontiers of India. Till then the property in goods continue to vest in Rifox who had manufactured the goods. Since the property in the goods had vested in Rifox who had manufactured the goods. Since the property in the goods had vested in Rifox till the goods crossed the frontiers of India, it should be held that it was the assessee who had exported the goods from India. In this connection, the learned counsel referred to the definitions of 'export' and 'exporter' in clauses (18) and (20) respectively of section 2 of the Customs Act, 1962 and the definitions of 'Customs Station' and 'Import' and 'Export' given in clauses (e) and (g) of section 2 of the Imports and Exports (Control) Act, 1947. With the assistance of these definitions, the learned counsel sought to establish that in the present case it was the assessee Rifox who had exported the goods. In this connection, the learned counsel also referred to the meaning of 'F. O. B.'according to the Black's Law Dictionary and Jowitt's Dictionary of English Law, the relevant extracts whereof have been made available at pages 21 and 24 of the assessee's paper book. These meanings read as under :
"Black's Law Dictionary :
FOB. Free on board some location (for example, FOB shipping point; FOB destination); the invoice price includes delivery at seller's expense to that location. Title to goods usually passes from seller to buyer at the FOB location.
Jowitt's Dictionary of English Law :
FOB. These letters, which mean "free on board," indicate, when used in a contract relating to the sale of goods intended to be sent by sea, that the seller is bound to deliver the goods on board ship free of cost to the buyer."
29. It would be seen from the above that as per the Jowitt's Dictionary of English Law, FOB is a stipulation connected only with price. Similarly other Dictionary also shows that this stipulation is mainly connected with price. Sometimes it may also indicate the location of delivery. But then, this position can be true only when the context requires and/or the time and place of delivery is not well indicated otherwise. In the case before us the position is entirely different. As per clause 15 of the agreement dated 25-12-1989 between Rifox and Span the date of delivery was to be normally construed to be the date on which delivery of the goods along with the necessary documents was given to the specified forwarding agents at an Indian port. Now, it is in evidence and has been held to be proved that the goods in the present case were delivered to A. T. C. (Clearing & Shipping) agents at Bombay who were appointed by Span. This means the delivery took place when the goods along with the necessary documents were delivered to these forwarding agents. These agents in their turn had the goods placed on board the ship. Of course the cost of having the goods placed on board was to be reimbursed by Rifox. But then as per clause 15 of the agreement the delivery took place when the goods were delivered to these forwarding agents. Clause 1(c) of this agreement reads as follows :
"1(c) : Notwithstanding anything to the contrary contained herein, the property in the products shall pass to Span upon the delivery notwithstanding that Rifox may not have received payment for the same."
30. The above stipulation further makes it clear that the property in the goods stood transferred to Span upon the delivery of the goods. Since the delivery to the forwarding agents who were appointed by Span took place much before the crossing of customs frontiers of the goods, the property in the goods passed on to Span before passing of the customs frontiers and, therefore, it would not be possible to accept the assessee's connection that it was the assessee who exported the goods.
XI : Payment of commission to Span Overseas (P.) Ltd. :
31. The next aspect which has been discussed at all levels of the proceedings is the payment of commission to Span on this export deal. In this connection, the learned counsel for the assessee pointed out that the price of Rs. 3,73,30,000 stated in the Purchase Order dated 25-12-1989 placed by Span with Rifox was the same as the price stated in the contract agreement between Span and the Russian party. No exporter will purchase the export goods at the same price at which he has agreed to sell them to a foreign buyer. In the present case, since the same price was quoted in the two documents shows that Span was acting not as a principal, but as an agent of Rifox. Clause 2 of the Purchase Order which relates to prices also lays down that a commission of - Rs 49,83,000 was to be paid to Span. According to the learned counsel, the use of the word 'commission' in these documents indicates that the relationship between Rifox and Span was that of principal and agent. In this connection, the learned counsel also referred to the meaning of the word 'commission' as per Black's Law Dictionary and Jowitt's Dictionary of English Law.
These definitions read as under :
"Black's Law Dictionary :
Commission : Compensation. The recompense, compensation or reward of an agent, salesman, executor, trustee, receiver, factor, broker, or bailee, when the same is calculated as a percentage on the amount of his transactions or on the profit to the principal - Weiner v. Swales, 217 Mc 123, 141 A. 2d 749, 750. Compensation to an administrator or other fiduciary for the faithful discharge of his duties."
Jowitt's Dictionary of English Law :
"Commission, an order or authority to do some act. In the law of contracts and agency, a commission is an authority to an agent to enter into a contract especially one for the sale or purchase of goods; such a commission generally included on engagement by the principal to remunerate the agent, and hence 'commission' is regularly used to denote the remuneration paid to an agent."
As against this, it was submitted by the learned senior departmental representative that the word 'commission' has been used loosely in the Purchase Order. This was done with a view to ensure a fixed margin of profit for Span and also to enable it to participate and share in the excess price, if any, paid by the Russian party. The learned senior departmental representative further submitted that mere use of the word 'commission in a contract does not convert a relationship of vendor and purchaser into one of agency. The fact that a person is paid commission for his work is not by itself enough to constitute an agency. In this connection, he referred to page 830 of Pollock & Mulla's commentary on Indian Contract & Specific Relief's Act and the judgments in Ganesh Export & Import Co. v. Mahadeo [1956] A. Cal. 188; Balthazar & Son v. E. M. Abowath [1919] A. P. C. 166 and State of Madras v. Jayalakshmi Rice Mills [1959] A. A. P. 352; Balthazar & Son's case (supra).
32. We have given our careful thought to this aspect of the matter the find ourselves in agreement with the learned senior departmental representative that the essential relationship in the present case between Rifox and Span was that of principal to principal and the mere use of the word 'commission' in the Purchase Order was not conclusive and could not convert that relationship into one of principal and agent. In this connection, it would be useful also to refer to the oral examination of Shri Shivnani, the Managing Director of Span. His answer to question No. 4 of his oral examination dated 15-12-1992 reads as under :
"Ans. The word commission here is more to define the margins of Span Overseas and it is used more in this context rather than the dictionary meaning. The documents submitted by us from time to time clearly proves beyond any reasonable doubt that Span Overseas was a real exporter and never a commission agent."
33. Now, the test of agency is whether a person is purporting to enter into a transaction on behalf of the principal or not. In order to constitute an agency, it is not necessary to have a formal agreement. But then the mere use of the word commission in a contract does not convert a relationship of vendor and purchaser into one of agency. The fact that a person is paid commission for his work is not by itself enough to constitute agency. A principal does not sell to his agent. The essence of sale is the transfer of title to the goods for a price paid or promised to be paid. The essence of sale is the transfer of title to sell is the delivery of the goods to a person who is to sell them not as his own property but as that of the principal who remains the owner of the goods. In the present case, not only the documentary evidence, but the direct oral evidence of the parties who dealt with the matter clearly shows that the relationship between Rifox and Span was that of principal to principal and not that of principal to agent. As has already been stated, the agreement dated 25-12-1989 clearly provides that the relationship sought to be created by that document was that of principal to principal and not that of principal to agent. The fact that the Purchase Order was placed by Span with Rifox and the goods were purchased on payment of price also show that the transaction was one of purchase and sale. The fact that Rifox sought, obtained and furnished to the sales-tax authorities a Certificate in Form No. N-14B also shows that it was a case of domestic/local sale by Rifox to Span. Otherwise, such Certificate would have been totally unnecessary and of no avail. So far as the direct evidence is concerned, the Managing Director of Span has clearly stated that the relationship was that of principal to principal and the transaction between Rifox and Span was that of sale and purchase. Shri Shivnani and Shri R. E. Chothia. It is an admitted position that he was the Hon. Chairman of Rifox during the relevant period. Besides this, he was also a partner of the firm Steam & process Aids and in that capacity had received a payment of Rs. 10 lakhs on account of commission on the impugned deal from Rifox. His role or participation in the transaction or in the transaction or in channelising the supply order from Span to Rifox is not disputed and is otherwise well proved by the evidence and the facts and circumstances of the case. He has clearly stated that the goods were locally purchased by Span from Rifox and it was a local transaction of purchase and sale and that Span was not a commission agent of Rifox. He further emphatically denied that Rifox was an exporter in relation to this export transaction. We see no reason as to why the oral evidence of this witness should not be given respect which is due to it. The fact that Rifox had appointed Steam & Process Aids as sole selling agents for various territories including Russia also indicates that they could not have again appointed Span as its agents for the same territory. Shri C. S. Gandhi, the Managing Director of Rifox in his oral evidence has sought to make out a case that Shri Shivnani had started working as agent of Rifox much before the obtaining of such order from the Russian party. But we find this factual position is denied and disputed not only by Shri Shivnani, but the circumstances also indicate that there was no such relationship.
Shri Shivnani had denied that he had any contract of any sort with Shri Gandhi before he contacted the Russian party for this export order. Shri Chothia has also disclosed that it was he, Mr. Poonawalla and Mr. Sathe, who had provided this export order to Rifox and it was in lieu of those services that Steam & Process Aids, a firm of which he was a partner, was paid a commission of Rs. 10 lakhs. Had this not been so, that firm could not have been paid any commission. This also substantiates the version of Shri Chothia and Shri Shivnani that there was no relationship of principal and agent between Rifox and Span and the deal between the two parties was one of domestic/local purchase and sale and the assessee was not real exporter of the goods. At this stage, it would be necessary to refer to the minutes of the alleged meetings dated 1-1-1990 and 5-1-1990 said to have taken place between the representatives of Rifox and Span. Photocopies of these minutes have been placed by the assessee at pages 214 and 215 of its paper book. With the assistance of these documents, the assessee has sought to prove before the learned CIT(A) that the relationship between Rifox and Span was that principal and agent.
These two documents read as under : "SPAN"
"MINUTES OF THE MEETING HELD ON Ist JANUARY 1990 AT SAROSH
BHAVAN
PRESENT :
RIFOX : Mr. C. S. Gandhi SPAN : Mr. M. Shivnani
Mr. R. E. Chothia Mr. F. J. Dastoor
Mr. P. C. Nambiar
Mr. S. G. Karandikar
Mr. V. M. Uchil
SUB : CONTRACT NO. 589/1859809/90061-09-322
OUR PURCHASE ORDER NO. 89/01 DATED 25-12-1989
1. The point of calculating the commission due to Span was discussed and agreed that the commission now payable as per the method suggested by Mr. Gandhi is Rs. 48.58 lacs. A written confirmation to this effect will be sent by Span to Rifox. It has been further clarified that henceforth, the commission payable to Span will be calculated on the following lines :
10% on the full contract, plus 50% on the excess value over the price quoted by Rifox.
2. The possibility of getting packing credit by Rifox was explored. Considering the present working capital available with Rifox, Canara bank shows their reluctance in giving the requisite packing credit.
Span suggested that Mr. Gandhi generates Rs. 10 lacs and keep all the papers relating to his residential premises ready.
Span will help Rifox to get the packing credit from Bank of India. All the requisite papers/data have to handed over to Mr. Uchil for further action.
3. Span suggested Rifox to prepare an activity chart and detailed estimates in order to ensure timely execution of this job.
4. It has also been clarified that the equivalent to specification of steel mentioned in the contract may be given to Mr. Shivnani by Rifox so that he can get buyer's approval for it."
MINUTES OF THE MEETING HELD ON 5TH JANUARY 1990 AT SAROSH BHAVAN PRESENT :
RIFOX : Mr. C. S. Gandhi SPAN : Mr. M. Shivnani
Mr. R. E. Chothia Mr. F. J. Dastoor
Mr. P. C. Nambiar
REF. OUR PURCHASE ORDER NO. 89/01, DATED 25-12-1989
1. It was agreed that cash assistance against export under Contract No. 589/1859809/90061-09-322 dated... will be shared as follows :
60% of the amount received by Rifox 40% of the amount received by Span.
2. The Agency Agreement will be signed maximum in a week's time."
34. The learned senior departmental representative made the following arguments in connection with these two documents :
(a) These two documents were not filed before the Assessing Officer, nor the learned CIT(A) is shown to have confronted the Assessing Officer with these documents. The learned CIT(A), therefore, in admitting these documents has violated rule 46A and therefore, these documents cannot be treated as part of and considered as evidence.
(b) The authenticity and genuineness of these documents is also not free from doubt.
(c) No question has been put to Shri Shivanani about these meetings allegedly held on 1-1-1990 and 5-1-1990. The fact that Shri Shivnani has not been cross-examined on this aspect shows that no such meetings ever took place and no such minutes were ever recorded.
(d) Since no agency agreement was signed between Rifox and Span, these minutes, even if they are held to be genuine and moved, could not have the effect of converting the relationship of principal to principal into that of principal and agent.
35. We have considered the submissions made by the two parties before us and find that these two documents do not help the assessee's case in any manner. Neither there is anything to show, nor was it contended before us by the learned counsel for the assessee that these two documents were filed before the Assessing Officer. There is no mention of these documents in the assessment order or in the proceedings before the Assessing Officer. Had any such meeting taken place and minutes recorded, Shri Shivnani and Shri Chothia would have been cross-examined on the point. Even the oral examination of Shri Gandhi himself is silent on this point. There was thus no attempt on behalf of the assessee to prove that any such meetings did take place and such minutes were in fact recorded and signed by the concerned persons. We similarly agree with the learned senior departmental representative that the learned CIT(A) has violated the provision of rule 46A in admitting these documents. For this reason also, these documents cannot be given any weightage. For argument sake, even if these documents are considered as part of, and read as, evidence, yet they do not succeed in proving the assessee's contention that the relationship between Rifox and Span i.e. the relationship principal to principal had changed into one of principal to agent. Clause 2 of the minutes dated 8-1-1990 in respect of the meetings dated 5-1-1990 says that the agency agreement was to be signed maximum in a week's time. Admittedly, no such agency agreement was drawn within a week's time or at any time. Admittedly, no such agency agreement containing specific terms and conditions, this document cannot be pressed into service to establish that the earlier relationship of principal to principal stood converted into one of principal to agent. The fact that the earlier relationship was that of principal to principal is indicated by clause 2 of the minutes dated 8-1-1990. Had it not been so, the necessity of drawing the agency agreement would not have been felt. Now, the basic document dated 25-12-1989 which determined the relationship between the two parties lays down in its clause 22 that nothing contained in that document shall be construed as creating any relationship of partnership or agency between the parties thereto and the relationship therein was strictly on principal to principal basis. It had been further laid down in clause 21 of that document that agreement superseded all earlier understanding, arrangements or agreements, whether oral or written, relating thereto and the agreement could be modified only by mutual consent in writing. There as been no mutual consent in writing so as to have the effect of modifying or superseding the agreement dated 25-12-1989. Thus, these documents, even if taken into consideration, cannot help the assessee's case to the effect that it was the assessee who was the real exporter of the goods.
XII : Sharing of export benefits :
36. The learned counsel for the assessee also referred to the fact that some of the export benefits, such as cash incentive, REP licence etc. were shared by Span with Rifox. This indicates that Span was an agent. We see absolutely no logic in this argument. The logic, if any, speaks contrary to what has been urged by the learned counsel. The original entitlement to all the export benefits was that of Span. This means that it was Span, who, by virtue of being an exporter, was entitled to these benefits. It, however, allowed some of these benefits to be shared with Rifox. This was done by Span as a part of commercial arrangement and it does not in any manner Span as a part to commercial arrangement and it does not in any manner indicate that Rifox was the exporter. If at all any inference can be drawn from this arrangement, such inference can be drawn only against the assessee.
XIII : Case law :
37. Now let us discuss the case law relied upon by the parties. The learned CIT(A), in reaching her conclusion, had heavily relied upon the decision of the Delhi High Court in the case of Ferro Alloys Corpn. Ltd. (supra). This decision has been in Ferro Alloys Corpn. Ltd.'s case (supra) and photocopy of the same has been placed by the assessee on its paper book. The assessee has also placed on its paper book the photocopy of the judgment of the Supreme Court in the case of Mineral & Metal Trading Corpn. (supra). It was the said decision of the Delhi High Court which was the subject-matter of the judgment of the Supreme Court Mineral & Metal Trading Corpn.'s case (supra). The Supreme Court has reversed the decision of the Delhi High Court and allowed the appeal of the M. M. T. C. holding it to be the exporter for the purpose of section 280-ZC. The learned counsel for the assessee agreed before us that since the decision of the Delhi High Court, on which the learned CIT(A) had placed reliance, cannot govern the facts of the present case, it is the ratio of the Supreme Court decision which would prevail. It would be seen from the judgment of the Supreme Court that the facts in the case before the Supreme Court were similar to the facts in the case before us. Rather the assessee's case before us is comparatively weaker than that of the case of Ferro Alloys Corpn. Ltd. (supra) in the appeal before the Supreme Court. Following are the prominent features of the case before us :
(a) The agreement dated 25-12-1989 envisages the relationship of principal to principal. Such relationship is not changeable unless modified or superseded by mutual consent in writing. There is no mutual consent in writing.
(b) The nomenclature of the order dated 25-12-1989 placed by Span with Rifox is that of Purchase Order. The words used in this document are 'purchase', 'sale' and 'price'. There were terms and conditions with regard to the payment of sales-tax, which are relevant only in a domestic/local sale.
(c) All the important documents, i.e., Bill of Lading, Shipping Bill, Bank Certificate of Export, are in the name of Span as an exporter.
(d) Form No. N-14B under the Sales-tax law also shows that this was a case of domestic/local sale in the course of export.
(e) The assessee had appointed a sole selling agent, i.e. Steam & Process Aids for the same territories and, there was therefore no question of appointing any other agent.
(f) All the Invoices in respect of the sale of goods raised by the assessee were against Span. Had the relationship been that of principal and agent between the two parties, the Invoices would not have been raised against Span as a purchaser.
(g) In the Form No. R. 4-A under the Central Excise law, the assessee itself had shown Span as an exporter of the goods.
(h) The Forwarding/Shipping agent was appointed by Span and it was that agency who obtained delivery of goods.
(i) The Letter of Credit was opened by the Russian party in the name of Span and it was that company which had received remittance from abroad.
From a cumulative consideration of all the above facts and circumstances and the discussion thereof made by us, it can safely be concluded that the assessee was not the exporter of the goods in question.
38. The next judgment on which the assessee placed reliance was the judgment of the Andhra Pradesh High Court in the case of K. S. Subbaiah Pillai & Co. (P.) Ltd. (supra). We are afraid that the ratio of this decision is against the assessee and not in its favour. The mere use of the word commission in the Purchase Order in the resent case cannot be held to be conclusive or decisive of the fact that Span was an agent and the assessee-manufacturer was the exporter. It has been held in this judgment of the Andhra Pradesh High Court that unless and until the profits are earned by the activity of exporting goods out of India either directly or through an intermediary, the assessee cannot invoke sec. 2(5) Finance (No. 2) Act, 1962, for rebate. It was further held in that case that the words "profits and gains derived from the export of any goods or merchandise out of India" must be construed as profits earned or received by an assessee by transporting goods or merchandise out of India. As the assessee had only supplied tobacco on commission basis to third parties who ultimately exported the goods or merchandise out of India, the transactions in so far as the assessee as concerned, were only commission sales which had no concern or connection with the export and as such the assessee was not entitled to rebate on the commission transactions. We do not understand as to how this judgment of the Andhra Pradesh High Court helps the assessee before it. So far as the decision dated 3-11-1987 of the Cochin Bench of the Tribunal in the ITA No. 1220 (Coch.) /1986 in the case of M/s. Sea Pearl Industries is concerned, here again, we find that this decision does not offer any assistance to the assessee before us. Firstly, in this decision the Tribunal had heavily relied upon the decision of the Delhi High Court reported in Ferro Alloys Corpn. Ltd.'s case (supra) and it had observed that there was a large number of similarities on facts of the case before the Delhi High Court and the case before the Tribunal. Since the judgment of the Delhi High Court on those facts have been reversed by the Supreme Court, the learned counsel for the assessee agreed before us that this decision of the Cochin Tribunal no longer helps the assessee in the present case. Moreover, we find that as against the case before the Cochin Bench, the facts of the case before us are strongly pointer to the effect that the assessee had neither played any role in the export activity nor could it rightly to be held to be an exporter of the goods.
39. The next decision relied upon by the assessee is the judgment of the Bombay High Court in the case in Harihar Cotton Pressing Factory (supra). This judgment has been cited in connection with the meaning of the expression 'commission'. We have gone through this decision of the Bombay High Court but find that it is of no material assistance to the assessee's case before us. Rather, it has been observed therein that the dictionary meaning of the word 'commission' includes a refund to the purchaser of a thing or commodity or a portion of the price paid by him. It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. If this dictionary meaning of the word 'commission' is accepted, then the use of the word in the Purchase Order placed by Span with Rifox will in no case help in proving that it was not a case of domestic sale and the assessee was the real exporter of the goods. The other judgments on which reliance has been placed on behalf of the assessee lay down the ratio with regard to the liberal construction/interpretation of the beneficial pieces of legislation. It has been held in those decisions that where a piece of legislation has been enacted with a view to promote growth or provide relief and is thus beneficial or ameliorative in nature, then such piece of legislation be interpreted liberally to promote or advance the cause for which it is enacted. There cannot be any quarrel in so far as this principal goes. The common ratio of these decisions is entitled to highest respect and weightage. But then, we find that the ratio is hardly relevant for the purposes of the issue under consideration before us. The entitlement to deduction under section 80HHC is being contested by the revenue not on account of different construction/interpretation of that provision of the Income-tax Act. Rather, the dispute is confined only to the question of fact as to whether it was the assessee who was the real exporter of the goods. For arriving at a finding of fact on that question, pressing into service the ratio of these decisions of the Supreme Court is neither necessary nor relevant.
40. In view of the above discussion and the findings recorded and the conclusion drawn by us therein, we hold that the assessee had neither exported out of India Heat Exchangers nor had received in India the sale proceeds thereof in convertible foreign exchange (in the present case in Indian rupees on account of bilateral accounts system with Russia). The assessee was, therefore, not entitled to any deduction under section 80HHC of the Income-tax Act. The learned CIT(A) has thus clearly erred in allowing the assessee's appeal. This appeal by the revenue thus succeeds and is allowed.