State Taxation Tribunal - West Bengal
Madhu Jayanti International Ltd. vs Commissioner Of Commercial Taxes And ... on 12 September, 1998
Equivalent citations: [2000]120STC17(TRIBUNAL)
JUDGMENT
J. Gupta, Judicial Member
1. By the instant application under Section 8 of the West Bengal Taxation Tribunal Act, 1987, the assessment for the four quarters ending on December 31, 1985 has been challenged on the ground of wrongful levy of sales tax on sales in course of export. The applicant No. 1, a limited company, is a registered dealer in tea and is a recognised export house (hereinafter referred to as "the company"). On an information that National Corporation of the Socialist Peoples' Libyan Arab Jamabiria (in short, "the Corporation") was interested to import Indian tea, the company and some other exporters made enquiry and learnt that the Corporation was willing to place the order with a single party. But since none of the said exporters had the capacity to undertake the whole order individually, a move was made through the Tea Exporters' Association (in short, "the Association") of which the interested exporters were the members, to form a Consortium of the intending exporters which would undertake the supply-contract. The Association agreed to such proposal and accordingly with the assistance of the Association a Consortium called "Tea Exporters Consortium" was formed. The Association was to act as the agent of the Consortium with the specific understanding that in the event the supply order would be procured each member of the Consortium would assume full responsibility to supply tea according to their respective quota and that the Letter of Credit (in short L.O.C.) should be divisible and transferable to the members. The Corporation, on being contacted by the Association, by a fax message addressed to the Tea Exporters Association Consortium, India invited quotation. In pursuance of the said message the Association in the combined letter head of the Association and the Consortium on November 14, 1984 offered to supply 750 metric tons (tonnes) of Indian Black Orange Pekoe Tea with proposal to make payment by transferable and divisible L.O.C. in favour of the Consortium. Later the quantity was raised from 750 tonnes to 1,000 tonnes. On the same date the Corporation communicated their acceptance to the offer to the Consortium. The National Commercial Bank of Tripoli, intimated the Consortium, in the care of the Association, that by the order of the Corporation L.O.C. for $3,447,500 had been confirmed by their mother company, viz., Arab Banking Corporation. Subsequently the applicant's banker, viz. Bank of Baroda, 8 India Exchange Place, Calcutta, received an L.O.C. for $3,447,500 out of which $496,440 was transferred in favour of the applicant and against this the Bank of Baroda granted a credit loan of Rs. 45,35,000 to be adjusted against the final proceeds of the bill. The applicant then shipped its quota of tea under a bill of lading wherein the applicant was the shipper. The National Commercial Bank, Tripoli, was the consignee and the Corporation was the notified party.
2. The applicant alleges that in assessing its account for the four quarters ending on December 31, 1985 the respondent No. 4 (the Commercial Tax Officer) disallowed the claim under Section 5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act") in respect of the said sale of tea to the Corporation, on the grounds that in the matter of said sale the privity of contract was not between the applicant and the Corporation but between the Consortium and the Corporation and that the purported agreement between constituent members of the Consortium and the Association was not valid because the latter did not appear in the agreement document as a signatory. The appeal preferred against the assessment before respondent No. 3 (the Assistant Commissioner of Commercial Tax) was of no avail. Even the revision application filed by the applicant against the appellate order before the West Bengal Commercial Taxes Appellate and Revisional Board (in short, "the Board") did not find the favour of the Board. The applicants (applicant No. 2 being a director of the company) contend that the respondents Nos. 3 and 4 and the Board erred in holding that there was no sale agreement between the applicant and the Corporation or that the applicant had no sale in course of export. The applicants accordingly pray for order setting aside the order of the said authorities and for direction on them to proceed according to law.
3. The Commercial Tax Officer, Bowbazar Charge, who is the present assessing officer for the company has filed an affidavit-in-opposition on behalf of all the respondents and has averred therein that the agreement whereon the applicants rest their claim is itself invalid and that there being no privity of contract between the applicants and the foreign buyer, the exemption claimed under Section 5(2)(a){v) was not entertained by the respondents or the Board. In defending the orders of the appellate authority and the Board, the respondents further contend that order of exporting tea was placed by the foreign buyer on the Tea Exporters Consortium, a separate legal entity, distinct from the applicant-company, though the company was a member of the Consortium. Hence, according to the respondents the applicants are not entitled to any exemption under Section 5(2){a)(v) of the 1941 Act.
4. In the affidavit-in-reply the applicants dispute all material averments of the respondents and reiterates the stand as highlighted in their original application.
5. The dispute here hinges on the question whether in the set of facts given above, the transfer of consignment of tea from the company and the others forming the Consortium, to the Corporation amounts to sale in course of export or such transaction can be said to be consisting of two independent sales, viz., one by the individual members of the Consortium to the Consortium and the other by the Consortium to the Corporation.
The uncontroverted facts are that the Corporation was interested to make bulk purchase of Indian tea of special variety from a single supplier and was not inclined to split the supply order among different suppliers. It is also not in dispute that the applicant and some other suppliers, who had no individual capacity to supply such bulk quantity, formed a Consortium and with the approval and assistance of the Association obtained the order in the name of the Consortium and ultimately supplied 1,000 tonnes of tea to the Corporation which in its turn issued L.O.C. to be apportioned among the individual members of the Consortium. Annexure B to the application is the purported document of agreement among the individual members of the Consortium and the Association, But the validity of this purported agreement has been questioned by the respondents on the ground that the Association is not a signatory-party to this document and that none on behalf of G. Jeerambhai Exports Ltd., has signed it. No doubt, on the said ground the document by itself will not constitute an agreement binding on the Association or Jeerambhai Exports Ltd., but it serves as an agreement binding on the signatories. Again, it being a contemporary document may be useful for collateral purposes in explaining the role and position of the involved parties specially in the context of the conduct of these parties and other relevant documents.
6. The applicant has produced a large number of documents which are capable of giving an idea as to whether there existed any agreement among the Consortium, the Association and the Corporation and, if so, what was the nature of the same. Such inference from contemporaneous documents is permissible under the law. The decision of the Supreme Court in the case of State of Madras v. Richardson & Cruddas Ltd. [1968] 21 STC 245 on the point may be referred to. The respondent before the Supreme Court in that case used to carry on business as engineers and contractors as well as a dealer in iron, steel, etc. It contracted with a co-operative society for fabrication, supply and erection of steel structure for a sugar factory in the State of Mysore. It received Rs. 3,26,075.20 for the job and the amount was included in the turnover for the assessment under the Central Sales Tax Act. There was no formal contract. The High Court of Madras scanned the correspondences between the parties and ascertained the agreement. The Supreme Court held that the High Court was right in ascertaining the nature of agreement from the correspondences.
7. In the case before us the applicant has filed several documents of which the following will help us to ascertain the real nature of contract involving sale of 1,000 metric tonnes of tea to the Corporation :
(i) The letter dated November 13, 1984 (vide page 8 of the application) in the letter head of the Tea Exporters Consortium, c/o. Tea Exporters Association, communicating the Consortium's offer to sell 750 metric tonnes of Indian Black Tea Orange Pekoe to the Corporation at $3.5 per kilogram setting forth other terms and conditions relating to packing, shipment, payment, etc.
(ii) The letter dated November 14, 1984 from the Consortium modifying the offer to the extent that shipment of 1,000 metric tonnes of such tea would be made by March 31, 1985 and also making a further offer of shipment of a further quantity of 1,000 metric tonnes of such tea provided the period would be extended up to August, 1985 ;
(iii) The reply of the Corporation dated November 14, 1984 accepting the offer for 1,000 metric tonnes of tea provided shipment would be made by March 31, 1985 ;
(iv) The Consortium sent a letter on that very date (November 14, 1984) to the Corporation with request to establish the LOC in favour of each member of the Consortium according to the percentage specified against the name of each member. According to this letter the applicant is scheduled to supply 14.4 per cent of the total quantity of tea to be sold to the Corporation ;
(v) A written intimation by the National Commercial Bank, Tripoli, addressed to the Consortium confirming issue of letter of credit for US $34,47,500 (i.e., after deduction of 1,5 per cent for stamp duty from the total sale price of US $ 35,00,000) ;
(vi) The bill of lading for shipment of net 144 metric tonnes of tea by the applicant to the consignee as to the order of the National Commercial Bank, Tripoli (144 metric tonnes of tea constitute 14.4 per cent to the total supply of 1,000 metric tonnes) ;
(vii) The invoice drawn by the applicant on the Corporation for US $4,96,440 being the cost of 144 metric tonnes of tea at 3.5 dollar per K.G., less 1,5 per cent as stamp duty ; and
(viii) A letter dated March 14, 1985 from the Bank of Baroda (International Business Branch) to the applicant enclosing L.O.C. of the National Commercial Bank, Tripoli, Libia transferring US $4,96,440 out of total amount of US $34,47,500.
8. Once these documents are dovetailed they give out a picture of the course of event which makes it convincing that the parties involved in this export transaction (including the Association and the Consortium) acted in pursuance of the terms and conditions of the purported agreement dated May 10, 1984 (annexure B to the application), whereof the applicant was signatory. It is further evident that the formation of the Consortium was for the sole purpose of negotiating the deal with the Corporation, in conformity with the Corporation's intent of placing the order of supply of the whole quantity of tea with a single supplier. The Consortium's role in the negotiation ended once the Corporation by its letter dated November 14, 1984 (vide annexure F) accepted the offer for supply of 1,000 metric tonnes of tea. By its letter dated November 14, 1984 (vide annexure G to the application) the Consortium made it clear to the Corporation that L.O.C. was to be established in favour of each member whose percentage of the total accepted quantity was mentioned in the letter. It lays bare an unmistakable position that these members are the real suppliers. After this letter the Consortium was no more in the picture. The individual members, including the applicant, (1) caused the shipments of their respective quota of tea, (2) drew invoice therefor and (3) got their respective share of sales proceed according to the specified shares by way of transfer of the amount into their respective bank accounts, of course after deduction of 1.5 per cent as stamp duty. These aspects are not in dispute. There is absolutely nothing to show that the Consortium ever got any share of the sales proceed or had any role in the shipment of tea or in drawing any invoice in favour of the Corporation.
9. The applicant's claim of exemption in respect of the sale of tea on the ground that it was an export sale has been rejected by the assessing officer (respondent No. 4). The officer has proceeded on the reasoning that the privity of contract was between the Corporation and the Consortium and not between the Corporation and the applicant along with the constituent members of the Consortium. According to the respondent No. 4 the process of despatch of the tea by the applicant to the Corporation, is composed of two distinct sales, one by the applicant to the Consortium and the other by the Consortium to the Corporation and hence the applicant's sale was not in course of export. He further took note of the fact that only because of absence of the profit-motive the transaction between the Consortium and the Corporation will not cease to be a sale.
10. While it cannot be disputed that in view of the definition of "business" in Section 2(1a) of the 1941 Act, the profit-motive is not essential for a business under the Act, it cannot also be disputed that a dealer's liability to pay sales tax under the Act accrues only if he carries on business of selling goods. So, there must be a sale transaction in order to invoke the power to levy sales tax. The term "sale" has been defined in Section 2(g) of the Act, to mean any transfer of property in goods for cash or deferred payment or for other valuable consideration. Thus, (1) a valuable consideration (be it with profit element or not) must be there and (2) the seller must have title on the property in the concerned goods capable of being transferred. The applicant was the owner of the tea involved in the transaction. The Consortium never paid any valuable consideration to the applicant to acquire such title in the consignment of tea concerned here nor can it be said to have such title at any point of time. The Consortium was at most an agent for members of the Consortium to bargain with the foreign buyer and that too up to the stage of settling the agreement with the Corporation. After the terms of supply were settled, it left the execution of the contract to the individual members to the extent of their respective quota. There is no scope for imaginating a sale transaction between the individual members and the Consortium they form. It is true that in a sale transaction a seller may, without himself taking the possession of the goods involved, direct his seller to deliver the same direct to his purchaser. In such a case there are two sale transactions. But in such transaction such seller must first acquire title of the goods in order to be able to transfer the property in goods to his purchaser. But here in the case before us, as we have observed the Consortium never acquired title. The Consortium was just the shadow identity for the individual members who constituted its corporeal self to meet the Corporation's condition of placing the supply order on a single concern. The individual members in reality shouldered the legal obligation as well as enjoyed the benefit directly under the supply contract. This is evident from clause (3) of the agreement, recorded in the letter head of the Tea Exporters Association (annexure B to the application) and the clause runs thus :
"3. That each member of the Consortium will have to give the undertaking to the Tea Exporters Association to the effect that they will be solely responsible for the performance of the quantity allocated to them by the Consortium and shall indemnify the Association against any loss arising out of the deal if any." (underscoring* done by us).
11. That the individual members are the real persons behind the bargain is further evident from the fact that the Association in its letter dated November 14, 1984 (vide annexure G) typed on the combined letter head of the Association and the Consortium laid bare that the L.O.C. should be established "in favour of each member" in such percentage as mentioned in the letter. Thus, as we have stated, neither any valuable consideration, for transfer of the property in goods to the Corporation, ever passed to nor any title ever rested with the Consortium. The legal position enunciated by the Supreme Court in the case of Sri Tirumala Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry [1968] 21 STC 312, is appropriate for quoting. The relevant excerpts run thus :
"It is a 'nomen juris', its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In other words, it is necessary for constituting a sale that there should be an agreement between the parties for the purpose of transferring title in the goods, that the agreement must be supported by money consideration and that as a result of the transaction the title to the property must actually pass in the goods."
12. In the case before us we have seen that after setting terms of the deal the Consortium left the execution of the contract for sale to the individual members. Even if the Consortium could have direct involvement in the shipment of the goods to the Corporation, drawing of invoice and collection of sales proceeds, it could not have been the seller on its own right since it never owned the property (tea) as its own. It could have been at most the agent for its individual members. In this context we quote below the observation of the Supreme Court in the case of Sri Tirumala Venkat-eswara Timber and Bamboo Firm v. Commercial Tax Officer [1968] 21 STC 312 (SC) :
"As a matter of law there is a distinction between a contract of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of the principal and make over either the sale proceeds or the goods to the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship."
13. Mr. K.K. Saha, learned Advocate for the respondents, asserts that the transaction culminating in supply of tea to the Corporation consisted of two distinct sale transactions, one between the Consortium and its members and the other between the Consortium and the Corporation. To derive support to his contention he relies on the decision in the cases: (1) Hindustan Steel Limited, Bhilai Steel Plant v. State of Madhya Pradesh [1982] 50 STC 287 (MP) and (2) Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC). But in these two reported cases there are certain distinct features which distinguish these cases from the one before us. In the first reported case [Hindustan Steel Limited, Bhilai Steel Plant v. State of Madhya Pradesh [1982] 50 STC 287 (MP)] the issue was whether transfer of goods by the assessee leading to ultimate purchase of the same by a foreign buyer could be considered the assessee's sale in course of export. In the case the assessee, a manufacturer of iron and steel products, did not enter into direct contract of sale with a foreign buyer but had a contract with the export promoter who entered into separate contract with the foreign buyer. The licence to export the goods was taken out by the export promoter in his own name. The Government of India permitted the assessee to sell goods to the export promoter against export licence. The bill of lading was, however, taken out in the name of the assessee, A/c. the export promoter. The title with respect of such shipment would pass to the export promoter when the assessee had negotiated the documents and received the proceeds from the negotiating bank with whom an irrevocable letter of credit was opened by the export promoter. In this circumstances, the High Court of Madhya Pradesh held that the assessee sold the goods to the export promoter and it was not a direct sale by the assessee to the foreign buyer, so as to be treated as sale in course of export under Section 5(1} of the Central Sales Tax Act, 1956. In this reported case there is unmistakable evidence of a distinct contract of sale between the assessee and the export promoter. Price was fixed for that sale. The Government approved such sale to the export promoter. The title to goods clearly transferred to the export promoter, however, only after shipment documents were endorsed in his favour by the assessee on obtaining payment from the promoter's bank by producing the endorsed document. But in the case before us no sale transaction between the Consortium and its constituent members, and the property in goods involved was never transferred to the former at any point of time. Be it mentioned that in this reported case the issue could not be decided finally by the High Court (and it remanded the case to the competent revenue authority) because even in the case of two such distinct sale exemption under Section 5 of the 1956 Act is available provided the sale in question takes place at the high sea after the goods have left the customs frontiers of India ; but in this reported case evidence in regard to the point of time for the questioned sale was not available to the High Court.
14. In the second reported case [Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC)] there was an undisputed sale of goods by the assessee to the State Trading Corporation which really sold the goods to the foreign buyer. In this case, the assessee (the appellant before the Supreme Court) entered into two contracts with the State Trading Corporation for the sale of mineral ore and the Corporation in its turn entered into similar contracts with foreign buyers for sale of the identical goods purchased from the assessee. There was specified condition in regard to the sale of the goods by the assessee to the Corporation against shipping documents. The assessee contended that the sale between him and the Corporation and the export by the Corporation to the foreign buyer constituted one integrated transaction so as to make the assessee's sale as the one in course of export. In this case also there were undisputed two sales and the issue was whether they could be considered as integrated transaction. In view of the existence of two distinct sales and only the second sale (sale between the Corporation and the foreign buyer) being the export sale, the Supreme Court by its majority judgment rejected the assessee's contentions. But in our case we have seen that there was no sale of goods by the applicant to the Consortium and there was no resultant transfer of title to the goods to the Consortium. The principle of integrated transaction as discussed in Serajuddin's case [1975] 36 STC 136 (SC), also applies to the case before us. There being no sale to the Consortium, the only sale involved was between the members of the Consortium and the Corporation, in terms of the negotiation made by the Consortium as its members' representative, and the consideration was paid directly to the individual members including the applicant. Thus, the whole transaction from negotiation by the Consortium, c/o. the Association, shipment of tea by the applicant, establishing of letter of credit and payment of sale price through the bank constituted an integrated transaction without any other intervening sale.
15. The matter may be seen from another premise. An association of persons if not a corporate body, is incapable of entering into a contract on its own right, independent of its members ; the contractual obligation if any, incurred by it is really the obligation of the members individually in the sense that the association acted in the representative character for members. Be it mentioned that in case of such association the members do not have the right of mutual agency akin to the partners of the partnership firm. From the above discussion it is thus evident that the transaction of sale involved in the case before us in effect was between the members and the Corporation. Therefore, the sale by the applicant to the Corporation was in course of export and is not exigible to tax under Section 5(2)(a)(v).
16. During the hearing Mr. G.C. Mookerjee, learned Advocate for the applicant, has submitted that one of the members of the Consortium has already been given the benefit under Section 5(2)(a)(v) of the 1941 Act for the export of tea under the same contract with the Corporation. Mr. Saha has not disputed this position but has failed to explain why two dealers standing on the same footings were dealt with differently in the matter of assessment.
17. In view of the findings above the application is allowed. We hold that the sale of tea to the Corporation by the applicant was in course of export and is not exigible to tax. The order of the respondent No. 4 rejecting the applicant's claim of exemption under Section 5(2)(a)(v) of the 1941 Act in respect of the said sale is quashed. The orders of the respondent No. 3 and of the Board covering this aspect are also set aside. The assessing authority shall modify the assessment order and shall act accordingly. We make no order as to costs.
After the judgment is delivered Mr. M.C. Mukhopadhyay, learned State Representative, prays for stay of operation of the judgment and order. But we find that by this order the assessing authority has been asked to modify the assessment. So respondents will have time, if necessary, to move the appropriate forum against this order. We also find no sufficient cause for staying the operation of this judgment and order and the prayer is rejected.
D. Bhattacharyya, Technical Member
18. I agree.