Madras High Court
Indian Photographic Company Ltd., ... vs The State Of Tamil Nadu, Represented By ... on 30 July, 2002
Equivalent citations: [2002]128STC435(MAD)
Author: V.S. Sirpurkar
Bench: V.S. Sirpurkar
JUDGMENT N.V. Balasubramanian, J.
1. A common question that arises in the appeal is whether the sales of photography goods effected by the appellant/assessee to the local purchasers for the assessment year 1976-77 on the strength of actual users import license are exempt from the levy of sales-tax under the CST Act on the ground that the sales were in the course of import of the goods into the territory of India.
2. The assessee is a dealer in photography films and equipments and for the assessment year 1976-77, the assessee had imported the photography goods to the tune of Rs.5,55,525/- on the basis of the actual users license and sold the same to the actual buyers. The assessee claimed that the sales were "in the course of import into the territory of India" and hence, not liable to be taxed under the Central Sales Tax Act. The assessing officer rejected the claim of the assessee on the ground that there was no privity of contract between the actual buyer and the foreign seller, but there was a privity of contract only between the assessee and the foreign seller and the goods moved out of the foreign country as a result of the purchase effected by the assessee. He therefore held that the assessee was not entitled to claim exemption under section 5(2) of the CST Act, and the sales effected by the assessee were interstate sales liable to be taxed under the Central Sales Tax Act.
3. The assessee preferred an appeal against the order of an assessment before the A.A.C., and the A.A.C. held that on the basis of the actual users license and the letter of authority issued by the Joint Controller, the assessee had acted only as an agent of the local buyer and the goods always remained the property of the licensee at the time when the goods were cleared and there was no sale by the assessee so as to attract the tax under the CST Act. In other words, he was of the view that the assessee had acted only as an agent to import the goods on behalf of the actual user licence holders and there was a contract of sale between the local buyers and the foreign seller which occasioned the import of the goods and therefore, he held that the import and the subsequent sale formed a connected transaction and the sale was held to be in the course of import. The A.A.C. allowed the appeal preferred by the assessee.
4. Against the view taken by the Appellate Assistant Commissioner, the Joint Commissioner in the exercise of the suo motu power, revised the order of the Appellate Assistant Commissioner. After hearing the objections raised by the assessee, he held that there was no privity of contract between the foreign seller and the local buyer and there was only privity of contract between the assessee and the foreign seller. He therefore, held that the assessee had not acted as agent of the local customer and there is no evidence to show that there was a privity of contract between the foreign seller and the local buyer. He thereafter held that it was the assessee who had sold the goods to the actual user licence holders and set aside the order of the A.A.C. and restored the order of the assessing officer. The assessee, aggrieved by the order of the Joint Commissioner, preferred the appeal under section 37 of the TNGST Act 1959, read with 9(2) of the CST Act.
5. Mr. N. Inbarajan, learned counsel appearing for the assessee submitted that the assessee had acted only as an agent of the license holder and the property always remained with the license holder and the Joint Commissioner was not correct in holding that the assessee had not acted as agent and therefore, he contended that there was privity of contract between the foreign seller and the actual license holder and hence, there was a sale in the course of import into the territory of India within the meaning of under section 5(2) of the CST Act.
5. The learned Government Advocate on the other hand submitted that the Joint Commissioner was correct in holding that the assessee had not acted as an agent as there are no materials to show that the assessee was the agent of the local buyer and the import was on account of the contract of sale between the foreign seller and the local buyer and therefore, the transaction was rightly treated as a sale in the course of inter-State sales. The learned Government Advocate therefore, submitted that since the exemption under section 5(2) is not available, the sales being inter-State sales, the same would attract the relevant provisions of the CST Act.
6. We have carefully considered the submissions of the learned counsel for the assessee and the learned Government Advocate.
7. Section 5(2) of the CST Act reads as under.
"A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the Territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the Customs Frontiers of India."
8. The Supreme Court in the case of K.GOPINATH NAIR VS. STATE OF KERALA (105 STC 580) has held that in order that a sale or purchase of the goods shall be deemed to take place in the course of import, there are three essential conditions which must be fulfilled before the sale can be said to be in the course of import and they are as under:
1) There must be a sale.
2) Goods must actually be imported.
3) Sale must occasion the import.
We are of the opinion to hold that in order to qualify for the exemption under section 5(2) of the CST Act the goods must move from the foreign country to India in pursuance of the conditions in the contract of sale between the foreign seller and the local purchaser. In other words, there must be an integral connection or inextricable link between the sale and the import and then, the sale would become the sale in the course of import. The Supreme Court in a number of cases laid down the tests when the exemption under section 5(2) of the CST Act can be claimed by an importer. The Supreme Court in DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, ERNAKULAM, VS. INDIAN EXPLOSIVES LTD., (60 STC 310) laid down the following tests.
"Conversely, in order that the sale should be one in the course of import, it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding, be snapped."
9. Applying the tests laid down by the Supreme Court in the above said decision, we find that the assessee has not produced any material to show that there was a connection or a link between the first sale after import and the import of the goods in order that the sale can be treated as a sale in the course of import. The assessee in the present case has not established that there was any term or condition prohibiting the diversion of the goods after the import. In other words, the assessee has not established that there was an integral connection or link between the transaction of the sale and the actual import making sale in the course of import. Mr.N.Inbarajan, learned counsel for the assessee strongly relied on the decision of the Supreme Court in DEPUTY COMMISSIONER OF AGRICULTURAL INCOME-TAX AND SALES TAX, CENTRAL ZONE, ERNAKULAM VS. KOTAK & CO. (32 STC 6) in the case before the Supreme Court, the assessee had imported cotton on the strength of actual user's import license issued to the mills and sold the goods to the mills. It was found on the facts of the case that the assessee was precluded from selling to anybody other than the mill to whom the actual users import license had been granted and the goods could not be diverted from its destination namely, the mills. The Supreme Court, therefore, held that the sales in questions were the sales in the course of import within the meaning of Section 5(2) of the CST Act. We are of the view that the decision in kotak & Co. case (32 STC 6) is distinguishable as the assessee has not established the inextricable link between the import and the subsequent sale to the local buyer.
10. The learned counsel for the assessee relied upon the decision in the case of DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, ERNAKULAM VS. INDIAN EXPLOSIVES LTD., (60 STC 310) and in that case also it was found that there was an integral connection between the sale and the actual import of the goods from the foreign supplier. However, on the facts of the case, it was found that the assessee has not established the link or nexus to claim exemption under section 5(2) of the CST Act.
11. The learned Government Advocate relied upon the decision of the Supreme Court in the case of K. GOPINATH NAIR VS. STATE OF KERALA (105 STC 580). The Supreme Court in K.GOPINATH NAIR VS. STATE OF KERALA (105 STC 580) considered the decisions in DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, CENTRAL ZONE, ERNAKULAM VS. KOTAK & CO. (32 STC 6) and the decision in DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, ERNAKULAM VS. INDIAN EXPLOSIVES LTD., (60 STC 310) and it found that the sales were not in the course of import within the meaning of Section 5(2) of the Act. The Supreme Court in K.GOPINATH NAIR VS. STATE OF KERALA (105 STC 580) laid down the following tests which should be satisfied to claim that the sale or purchase of the goods was in the course of import:-
"(1) The sale or purchase must actually take place. (2) Such sale or purchase in India must itself occasion such import, and not vice versa, i.e. the import should not occasion such sale. (3) The goods must have entered the import stream when they are subjected to sale or purchase. (4) The import must be effected as a direct result of the sale or purchase transaction. (5) The course of import can be taken to have continued till the goods reach the local users only if the import has commenced through the agreement between the foreign exporter and an intermediary who does not act on his own in the transaction with the foreign exporter and who in turn does not sell as principal the imported goods to the local users.(6) There must be either a single sale which itself causes the import or is in progress or process of import ; or , though there may appear to be two sale transactions, the two are so integrally inter-connected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well integrated transaction consisting of two transactions dovetailing into each other. (7) A sale or purchase can be treated to be in the course of import if there is direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of the importer. (8) The transaction in substance must be such that the canalising agency or the intermediate agency through which the imports are effected so as to reach the ultimate local user appears only as a mere namelender through whom it is the local importer-cum-local user who masquerades."
12. We find on the facts of the present case, the assessee has not established that there was any contract between the foreign seller and the local buyer. It was found that there was privity of contract between the assessee and the foreign seller. It is only in pursuance of the purchase order made by the assessee the goods actually moved from the foreign country to Chennai. The assessee has not established that he had acted as an agent of the local buyer and he has not established the terms in the contract prohibiting diversion of the goods after import. In the absence of any material to support the case of the assessee that it had acted as an agent of the local buyer and in the absence of any evidence to show that there was an inextricable link between the import of the goods and sale to the local buyer, we hold that the Joint Commissioner was correct in holding that the goods moved from the foreign seller to the assessee in pursuance of the contract of sale between the assessee and the foreign seller. Thereafter, the assessee sold the goods to the local buyer and therefore, it was treated and rightly so as inter state sales liable to be taxed under the Central Sales-tax Act. We hold that the order of the Joint Commissioner does not call for any interference .
13. With the result, the tax appeal is dismissed with no order as to costs.