Andhra HC (Pre-Telangana)
The Minerals And Metals Trading ... vs The State Of Andhra Pradesh on 15 July, 1988
Equivalent citations: [1989]72STC29(AP)
Author: M. Jagannadha Rao
Bench: B.P. Jeevan Reddy, M. Jagannadha Rao
JUDGMENT M. Jagannadha Rao, J.
1. This revision petition is preferred by the Minerals and Metals Trading Corporation of India Limited, Visakhapatnam, questioning the orders passed by the Sales Tax Appellate Tribunal in T.A. No. 394 of 1977 dismissing the appeal preferred by the petitioner.
2. The petitioner-corporation was assessed to tax by the Commercial Tax Officer for the assessment year 1970-71 on 24th March, 1975 in so far as the disputed turnover of Rs. 41,80,582 and the same was confirmed on appeal by the Assistant Commissioner (CT) (Appeals), Kakinada, in Appeal No. 85/75-76 on 30th November, 1976. The disputed turnover represented sales of rock phosphate effected by the petitioner-corporation in favour of Coromandel Fertilisers Limited, Visakhapatnam. The commodity "rock phosphate" was imported from U.S.A. into India by the assessee, pursuant to an agreement dated 3rd September, 1969, between the State Trading Corporation of India Limited (which was the predecessor-in-interest of the assessee-corporation) and the foreign seller, International Minerals and Chemical Corporation, U.S.A. (hereinafter called "I.M.C."). The ship by which the goods arrived from U.S.A. reached Visakhapatnam on 2nd June, 1970. The Commercial Tax Officer rejected the claim of the assessee that the transactions were covered by section 5(2) of the Central Sales Tax Act (hereinafter called the "C.S.T. Act"). According to the said assessing authority, the shipping documents were despatched only on 2nd June, 1970 from the New Delhi Head Office of the assessee, inasmuch as the said documents of title were not transferred before the goods had crossed the customs barriers of India, it was held that the sales were covered by the Andhra Pradesh General Sales Tax Act (hereinafter called the "A.P.G.S.T. Act"). The Commercial Tax Officer treated the disputed turnover as representing the proceeds of local sales effected by the assessee in favour of Coromandel Fertilisers Limited. This view was upheld by the first appellate authority and also by the Tribunal.
3. By section 38 of the A.P.G.S.T. Act, all transactions of sales or purchases taking place in the course of import of the goods into or export of the goods out of the territory of India are outside the purview of the A.P.G.S.T. Act. What are export or import transactions, are dealt with in section 5 of the C.S.T. Act. Sub-section (1) deals with export transactions while sub-section (2) deals with import transactions. The said section stood, at the relevant time, as follows :
"Section 5. (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India."
4. It was urged by the learned counsel for the petitioner, Sri S. Dasaratharama Reddi, that what was involved in this case was only one transaction, viz., sale in favour of Coromandel Fertilisers and it was that sale that had occasioned the import of rock phosphate into India and therefore, the case was covered by the first part of section 5(2) of the C.S.T. Act. No arguments were advanced before us as to the applicability of the second part of section 5(2).
5. The point for consideration is : Whether the sale of rock phosphate by the petitioner-corporation to Coromandel Fertilisers had occasioned the import of the commodity to India ? If the answer is "Yes" the assessed had to succeed, otherwise not.
6. Before going further, it is necessary to go into the terms of the agreement dated 3rd September, 1969 between the sellers (I.M.C.) and the S.T.C., the predecessor-in-interest of the assessee-corporation (M.M.T.C.). Apart from the preamble, the agreement has 26 paragraphs. The first paragraph of the preamble states that the contract is between the S.T.C. and the foreign seller, the I.M.C. The total quantity as mentioned in the preamble which the S.T.C. desired to purchase was "for delivery to and use by Coromandel, of 750,000 tonnes of phosphate rock". In para 1, it is stated that the I.M.C. "agrees to sell and does hereby sell to S.T.C. for delivery to Coromandel or other parties as provided under para 13, at the port of Visakhapatnam, 2,330 tonnes of dried Florida phosphate rock hereinafter described, and the State Trading Corporation does hereby purchase and said quantity of phosphate rock ........", during the period between 1st January, 1970 and 31st December, 1972. It is stated in para 13 of the agreement that inasmuch as, due to reasons beyond its control, the S.T.C. is unable to purchase the said quantity of 750,000 tonnes for use by Coromandel only, it was given opportunity to sell the commodity to other consumers throughout India, "in order to avoid breach of this contract and its consequent loss of bonus tonnage ........." The shipping schedule is referred to in para 4. The weight of the stock loaded was to be certified at the Florida port where the samples were also required to be taken at the time of loading as per para 8. The contract was c.i.f. as specified in para 10. In para 12, it is stated that the S.T.C. is entitled to certain bonus tonnage. It is further stated in para 14 that 30 days prior to the estimated arrival of the vessel at the loading port, the S.T.C. "shall open an irrevocable letter of credit in U.S. dollars .......... The funds of the said letter of credit shall be available to I.M.C. upon presentation of a site draft for the full invoice value of the product shipped, together with ..........". Para 18 states that if either party is unable to perform, the whole or in part, any obligations under the contract due to reasons beyond its control, the date of fulfilment of the obligations under the contract shall get postponed. It is stated in para 20 that the title and the risk of loss would pass to the S.T.C. upon loading of the goods into the vessel at Florida. In para 21 it is stated that the S.T.C. has acknowledged that the Coromandel Fertilisers has reserved the right to act for itself in respect of the following matters under the contract -
(i) Review of nominations and shipments schedule;
(ii) supply on payment for and receipt of demurrage and despatch at unloading port;
(iii) insurance claims; and
(iv) matters relating to quality and product analysis.
Paragraph 24 of the agreement provides for arbitration in accordance with the rules of the International Chamber of Commerce. Paragraph 25 gives the addresses of the I.M.C. and the S.T.C. to which notices are to be given.
7. The learned Tribunal, after referring to the above clauses summarised the factual position as follows :
"From the above summary of the important clauses of the contract, it is fairly clear that the contract was between the S.T.C. and I.M.C. and that the Coromandel Fertilisers Ltd. was not a party to the contract with any entitlement to enforce any of the clauses against either the S.T.C. or I.M.C. directly under the contract. Para 13 enables the S.T.C. to purchase the commodity from I.M.C. and supply the same to other consumers in India. Para 1 amplifies this idea by stating that the S.T.C. agrees to purchase for delivery to "Coromandel or other parties". When the letter of credit was opened by the S.T.C. and when the risk, by para 20 was put on the S.T.C. the contract being c.i.f., it was difficult to conclude that the S.T.C. acted as an agent of Coromandel Fertilisers. A reading of all the clauses in the agreement leads to the inference that both S.T.C. and I.M.C. acted as principals. It was only after the title of the goods had passed to the S.T.C. after the unloading was done at Visakhapatnam port, the sale by the M.M.T.C. (the successor of S.T.C.) in favour of Coromandel had taken place."
8. The contention before us, however, once again is that the very purchase made by Coromandel from the M.M.T.C. had occasioned the import of the commodity into India. It was argued that M.M.T.C. was brought in as an agent because under restrictions imposed by the Government, all such imports have necessarily to be canalised by the M.M.T.C. (formerly by the S.T.C.). The learned counsel for the petitioner has referred to a large number of decisions of the Supreme Court and the High Courts for contending that the assessee-corporation was only as agent and that there was only one contract between the sellers and the ultimate purchasers, Coromandel. According to the learned counsel, there were no two contracts of sale in the present case but there was only one. On the other hand, the learned Government Pleader, Sri A. Venkataramana, has contended that the decision of the Tribunal to the effect that there was one sale by the foreign seller to M.M.T.C. and the second sale, in India by the M.M.T.C. to Coromandel, is correct.
9. We have already referred to the provisions of section 38 of the A.P.G.S.T. Act and to section 5(2) of the C.S.T. Act. The question, as already stated, is, whether the sale of the goods by M.M.T.C. to Coromandel can be deemed to have taken place in the course of the import of the goods into the territory of India and this depends upon whether this sale occasioned such import.
10. As originally enacted, article 286 of the Constitution of India was in three parts : Article 286(1) prohibited the imposition of a tax on the sale or purchase of goods (a) outside the State or (b) in the course of import or export of the goods into or out of the territory of India. Article 286(1)(a) contained the following explanation :
"For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase, passed in another State."
11. Article 286(2) prohibited the imposition of a tax on the sale or purchase of goods in inter-State trade or commerce except in so far as Parliament may by law otherwise provide, with a limited exception, not now material. Article 286(3) required that any law imposing a tax on the sale of goods which had been declared by Parliament by law to be essential to the lifeof the community should not have effect till it was reserved for and received the assent of the President.
12. The meaning and effect of the explanation to article 286(1)(a) gave rise to a conflict of judicial opinion. However, the explanation was deleted by the Constitution (Sixth Amendment) Act, 1956 and new sub-articles (2) and (3) have been inserted and they read as follows :
"Article 286. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
(3) Any law of the State shall, in so far as it imposes, or authorises the imposition of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify."
13. Parliament then enacted the Central Sales Tax Act, 1956 and sections 3 and 4 of that Act formulate the principles to take place in the course of inter-State trade or commerce and when a sale or purchase of goods can be said to take place outside the State. Section 5 already set out above formulates the principles for determining when a sale or purchase of goods can be said to take place in the course of import or export.
14. Article 286(1)(b) which relates to sales in the course of import or export has come up for consideration before the Supreme Court in several cases and has to be read in conjunction with section 5 of the C.S.T. Act.
15. We shall deal with the judgments of the Supreme Court chronologically from 1952 onwards, with a view to trace the history of the various concepts developed by the Supreme Court for the purpose of article 286(1)(b) of the Constitution and section 5 of the C.S.T. Act.
16. The earliest of the two cases arising from Travancore were decided before 1956. The first one is the case in State of Travancore-Cochin v. Bombay Company Ltd. [1952] 3 STC 434 (SC). In that case, the respondent claimed exemption from assessment under the Travancore-Cochin Sales Tax Law, in respect of sales effected by them on the ground, inter alia, that such sales took place "in the course of the export of the goods out of the territory of India" within the meaning of article 286(1)(b) of the Constitution. The transaction consisted of export sales of various commodities to foreign buyers on c.i.f. or f.o.b. The sales tax authorities held against the assessee stating that the sales were completed before the goods were shipped and could not, therefore, be considered to have taken place in the course of the export. The Supreme Court pointed out that the words "in the course of import of the goods into or export of the goods out of territory of India" were capable of four different meanings :
"(1) The exemption is limited to sales by export and purchases by import, that is to say, those sales and purchases which occasion the export or import as the case may be, and extends to no other transactions, however directly or immediately connected, in intention or purpose, with such sales or purchases, and wheresoever the property in the goods may pass to the buyer. This was the view put forward on behalf of the State of Madras. The Advocate-General thought that a State could not impose sales tax though title passed within State limits while the goods were still under transport on the high seas and no question of exemption could therefore arise. He said, however, that no such case had actually arisen.
(2) In addition to the sales and purchases of the kind described above, the exemption covers the last purchase by the exporter and the first sale by the importer, if any, so directly and proximately connected with the export sale or import purchase as to form part of the same transaction. This view was sponsored by the Attorney-General who was also inclined to think, as advised at the moment, that sales or purchases made while the goods were on the high seas, would be exempt, but he would prefer not to go into the wider question, because, whatever view was taken, sales such as those involved in the present cases must, in any event, be exempt.
(3) The exemption covers only those sales and purchases under which the property in the goods concerned is transferred from the seller to the buyer during the course of the transit, that is, after the goods begin to move and before they reach their foreign destination. This view is supported by the State of Bombay and certain other States.
(4) The view which found favour with the learned Judges of the High Court ..........."
17. The fourth view above referred to, which the High Court of Travancore-Cochin took in that case was that the words "in the course of" make the scope of this clause very wide and that it is not restricted to the point of time at which the goods are imported into or exported from India. The series of transactions which necessarily precede the export or import of goods will come within the purview of the clause. Where, in the course of that series of transactions, a sale has taken place, such a sale is also exempt from levy of sales tax. The sale may have taken place within the boundaries of the State. Even then, sales tax cannot be levied if the sale had taken place while the goods were in the course of import into India or export out of India.
18. Having set out the four views mentioned above, their Lordships of the Supreme Court in the above case, observed that the sales in that case fell within the exemption under article 286(1)(b). Such sales must of necessity be put through by transporting the goods by rail or ship or both, out of the territory of India by employing the machinery of export. A sale by export involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with delivery of goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated and the sale and resultant export form parts of a single transaction. Their Lordships further observed that, of these two integrated activities, which together constitute an export sale, whichever first occurs, can well be regarded as taking place in the course of the other. Assuming without deciding that the property in the goods, in the cases before them, passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey, the sales must, nevertheless, be regarded as having taken place in the course of export and were therefore exempt in view of article 286(1)(b). Their Lordships also expressly rejected the contention that no sale or purchase can be said to take place "in the course of" export or import unless the property in the goods is transferred to the buyer during their actual movement. Such a construction was rejected as being too narrow. It was held that sales and purchases which themselves occasioned the export or the import of the goods were within the exemption. In the result, the appeals by the State of Travancore-Cochin were dismissed.
19. The next case is the one reported in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory . There were different types of imports and sales in that case. One was where the respondents imported goods from Africa. They purchased the goods through intermediaries called "Bombay party" doing business as commission agents charging commission when the goods were on the high seas and shipped from the African port to Cochin or Quilon. Goods were not landed at Bombay. The Bombay party arranged for purchases on behalf of the respondents, got delivery of the shipping documents on payment at Bombay through a bank which advanced money against the shipping documents and collected the same from the respondents at the destination. So far as this class of cases is concerned, it was held by the Supreme Court that the purchases were purchases which occasioned the import and therefore, came within the exemption of article 286(1)(b). The other type of sales which were dealt with in this case by the Supreme Court were those where the Bombay party indented the goods on their own account and sold the goods as principal to the respondents and other customers; but the goods were shipped direct to Cochin or Quilon on c.i.f. terms. The shipping documents were made out in the name of Bombay party as consignees and were delivered to them against payment through bankers at Bombay. The Bombay party cleared the goods through their own representatives at the port of destination and issued separate delivery orders to the respondents and other customers for the respective quantities ordered. The Supreme Court held that so far as this class of cases is concerned, the purchases by the respondents could only be described as purchases from the Bombay party of the goods, within the State and therefore they did not come within the exemption under article 286(1)(b). The above decision therefore contains (i) a case of single purchase through an agent and also (ii) a case of two separate sales, one by the foreign seller to the Indian buyer and by the Indian buyer to another Indian buyer. The former was held exempt while in the latter, the second sale was treated as a sale within the territory of India.
20. In the year 1960, the Supreme Court decided the case of Wadeyar v. Daulatram Rameshwarlal . The respondents therein claimed exemption of sales tax under the Bombay Act in respect of export sales of cotton and castor oil on the ground that the sales were on f.o.b. contract under which they continued to be the owners of the goods till the goods had crossed the customs barrier and entered the export stream. The Supreme Court upheld the view of the Division Bench of the Bombay High Court to the effect that the goods remained the seller's property till they had been brought on board the ship and so the sales were exempt. Their Lordships further stated that the bill of lading was taken in the name of the buyer but was retained by the seller till the payment of price and that the export was under the buyer's export licence. Moreover, under clause 5(2) of the Export Control Order, 1954, the goods should be the property of the licensee at the time of export. In those circumstances, it was held that it cannot be said that the parties came to any special agreement that though the sales were on f.o.b. contract, property in the goods would pass to the buyer at some point of time before shipment. The real intention was that the goods shall be the property of the licensee, at the time of export and that it would pass immediately before the ship went beyond the territorial waters of the country or at the earliest when the ship left the port.
21. Another case of an export sale was considered in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer . In that case, the appellants who were manufacturers of tea, applied for and obtained from the Tea Board, allotment of export quota rights on payment of the necessary licence fee. The manufactured tea was then sent to Stanes and Company who warehoused the tea at Willingdon Island. The tea was then sold by public auction through brokers at Fort Cochin. The tea chests for which export quota rights were obtained, were sold along with the export quota rights by the auctioneer. At the auction sale, bids for tea chests with export quota rights were offered by the agents or intermediaries of the foreign buyer in Cochin. The chests were delivered at the warehouses by Stanes and Company to the purchasers whose bids were accepted. The agents or intermediaries of foreign buyers then obtained licences from the Central Government for export of the tea chests under the export quota rights vested in them at the auction sale and then exported the same out of India. The question was whether the sale by the auctioneers to the agents or intermediaries of the foreign buyers was a sale in the course of export and was exempt from sales tax. It was held by the Supreme Court that the transaction of sale by the auctioneers to the agents and intermediaries of the foreign buyers did not occasion the export of the goods, even though the appellants knew that the buyers were acting on behalf of the foreign principals and that the buyers intended to export the goods. There was, between the sale and the export, no such bond as would justify the inference that the sale and the export formed parts of a single transaction or that the sale and export were integrally connected. The appellants were not concerned with the actual exportation of the goods and the sales were intended to be complete without the export and as such it could not be said that the sales occasioned the export. The sales were, therefore, for export and not in the course of export and were therefore, not exempt. The above case clearly brings out the concept of sales "for export" and sales "in the course of export" and states that it is only the latter that are exempt under article 286(1)(b). Shah, J. (as he then was), observed that the tea could not be exported otherwise than under a licence issued by the Central Government and that to constitute a sale in the course of export of goods out of the territory of India, common intention of the parties to export the goods, followed by actual export to a foreign destination, was necessary. He further observed :
"But intention to export and actual exportation are not sufficient to constitute a sale in the course of export, for a sale by export 'involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated, and the sale and resultant export form parts of a single transaction' : State of Travancore-Cochin v. Bombay Company Ltd. [1952] 3 STC 434 (SC). A sale in the course of export predicates the connection between a sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without breach of the contract or the compulsion arising from the nature of the transaction ........ There must be an obligation to export and there must be an actual export. The obligation may arise by reason of statute, the contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export. A transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export but is not necessarily to be regarded as one in the course of export, unless the sale occasions export. And to occasion export, there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it."
22. In the above case, Shah, J. (as he then was), gave lucid examples. For instance, if the foreign purchaser either by himself or through his agent purchases goods within the territory of India and exports the goods and, even if the seller has the knowledge that the goods are intended by the purchaser to be exported, such a transaction is not in the course of export, for the seller does not export the goods, and it is not his concern as to how the purchaser deals with the goods. Such a transaction is not one in the course of export. Again, in a contract of sale with a foreign buyer, goods may be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale would indisputably be one for export, whether the contract and delivery to the common carrier are effected directly or through agents. But, in between, lie a variety of transactions in which various factors have to be taken into account. No single test can be laid as decisive. Each case must depend upon the facts. It was finally observed :
"In general, where sale is effected by the seller, and he is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of export."
23. On the facts of that case, their Lordships held that there was no statutory obligation upon the foreign agent or intermediary to export the chests of tea purchased by him with the export rights and he could still have sold locally. There was nothing in law or the contract or otherwise which prohibited diversion of goods for consumption within India. The sellers had no concern with the actual export of the goods by the foreign agents or intermediaries. They had also no control over the goods. There was, therefore, no inextricable link between the sale to the foreign agent and the export by him later. Therefore, the sale to the foreign agent or intermediary was independent of export and was liable for local sales tax.
24. A case contrary to the one above and dealing with the import was decided in Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes . In that case, the assessee-appellant entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according to specifications and then, the D.G.I.S.D., London, or his representative had to inspect the goods at the works of the manufacturers and issue an inspection certificate. Another inspection was provided for at Madras. The assessee was entitled to be paid 90 per cent after inspection and delivery of the stores to the consignee and the balance of 10 per cent was payable on final acceptance by the consignee. In the case of deliveries on f.o.r. basis, the assessee was entitled to 90 per cent payment after inspection on proof of despatch and balance of 10 per cent after receipt of stores by the consignee in good condition. The assessee-appellant was entirely responsible for execution of the contract and for the safe arrival of the goods at the destination. The contract provided that notwithstanding any approval or acceptance given by an inspector, the consignee was entitled to reject the goods, if it was found that the goods were not in conformity with the terms and conditions of the contract in all respects. The manufacturers consigned the goods to the assessee by ship under bills of lading and the goods were cleared at the Madras Harbour by the appellant's clearing agents and despatched for delivery to the Southern Railway in Madras and Mysore. The Supreme Court held that the expression "occasions the movement of goods" in sections 3(a) and 5(2) of the Central Sales Tax Act had the same meaning, that before a sale could be said to have occasioned the import, it was not necessary that the sale should have preceded the import and that the movement of goods from Belgium into India was incidental to the contract that they would be manufactured in Belgium, inspected there and imported into India for the consignee and was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of the goods being diverted by the assessee for any other purpose and, therefore, the sales took place in the course of import of goods and were exempt from local taxation.
25. Again, Hidayatullah, C.J., had occasion to consider the question in great detail in Coffee Board v. Joint Commercial Tax Officer . The Coffee Board was a statutory body functioning under the Coffee Act, 1942, controlling the sale and export of coffee. The Board held auctions for screening and selection of coffee for export. The auctioneers had to register themselves with the Coffee Board which maintained a list of registered exporters and gave to each of them, a permit to bid at an auction. Condition No. 26 of the terms of auction required that the coffee sold at the auction shall be exported within three months to the destination stipulated in the catalogue of lots or to any other foreign country outside India, as may be approved, and that it shall not be diverted to another destination, sold or be disposed of or otherwise released in India. The period of three months could be extended. The buyer was under an obligation to produce evidence of export of coffee within 60 days. The buyer had to pay penalty for neglect to export and in fact, the unexported coffee could be seized and dealt with by the Board. The Board claimed that the sales of coffee at these auctions were export sales but the Supreme Court held that these sales were not sales in the course of export as those sales did not occasion the export of goods. It was held that there were two independent sales involved in the export programme. The first sale was a sale between the Coffee Board as seller to the export-promoters to the foreign buyer. By the latter sale, the Coffee Board did not have any inkling as to when the first sale took place. The Coffee Board sale was not in any way related to the second sale. The first sale had, therefore, no connection with the second sale which was in the course of export movement of goods between an exporter and an importer. It was observed by the majority that the words "sale in the course of export" comprised three essentials (i) there must be a sale, (ii) goods must actually be exported, and (iii) the sale must be a part and parcel of the export. Either the sale must take place when the goods are already in the process of being exported which is established by their having already crossed the customs frontiers, or the sale must occasion the export. The word "occasion" means "to cause" or "to be the immediate cause of". Read in this way the sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. The export results from the sale and is bound up with it. The word "course" in the expression "in the course of" means "progress or process of", or shortly "during". The phrase expanded with this meaning reads "in the progress or process of export" or "during export". Therefore, the export from India to a foreign destination must be established and the sale must be a link in the same export for which the sale is held. To establish export, a person exporting and a person importing are necessary elements and the course of export is between them. Introduction of a third party "dealing independently" with the seller on the one hand and with the importer on the other breaks the link between the two, for then there are two sales, one to the intermediary and the other to the importer. The first sale is not in the course of export for the export begins from the intermediary and ends with the importer. Therefore, the tests are that there must be a single sale which itself causes the export or is in the progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer. Sikri, J. (as he then was), however, dissented and stated that a wider meaning of the word "occasion" is to be given and there was no reason as to why two sales could not occasion an export. If the sale by a dealer brings about the export in an incidental or subsidiary manner, according to the learned Judge, it could be said to occasion the export.
26. From this judgment it could be seen that though the buyer was obliged to export the goods and had no freedom to sell in India, still a sale to such a buyer was subject to local sales tax inasmuch as only the further sale by the buyer for export could alone be treated as an export sale and the first sale to the buyer could not be treated as the sale in the course of export or auctioning the export. The majority took the view that two or more sales could not jointly be treated as sales for export and it was only the sale which was the immediate cause for the export that could be treated as an export sale. It was also held that introduction of a third party dealing independently with the seller on the one hand and with the importer on the other, broke the link between the two. It was held that the State was entitled to levy tax on the sale to the auctioneers by the Coffee Board.
27. In the next case in State of Bihar v. Tata Engineering & Locomotive Co. Ltd. [1971] 27 STC 127 the Supreme Court held that the concerned sales by the respondent-company were exempt from the Bihar Sales Tax Act. The company carried on business of manufacturing and selling trucks and bus chassis, etc., and had its head office in Bombay and its factory in Jamshedpur. It had appointed several dealers all over India. Under the agreements between the company and the dealer, each dealer was assigned a territory in which alone he could sell the trucks, chassis, etc., purchased from the company and the dealer was forbidden from selling them outside his territory. The dealers placed their indents, paid the price of the goods and obtained delivery orders from the Bombay office of the company. In pursuance of those delivery orders the trucks, chassis, etc., wee delivered in Bihar to the dealers, to be taken over to the territory assigned to them. Under the contracts, the dealers were required to remove the trucks, chassis, etc., delivered to them in Bihar, to places outside the State. The question was whether the sales to dealers outside the State of Bihar under those agreements were sales which took place in the course of inter-State trade or commerce within the meaning of article 286(2) of the Constitution of India and were, therefore, exempt from local sales tax in Bihar. It was held by the Supreme Court that the sales were sales in the course of inter-State trade and, therefore, exempt from local tax. The dealers were required to move the trucks, chasses, etc., purchased by them from the State of Bihar to places outside the State and they were so required by the terms of the contracts entered into by them with the company. They would have committed breach of their contracts and incurred penalty prescribed in their dealership agreements, if they had failed to abide by the terms requiring them to move the goods outside the State of Bihar. It was observed that where, under the terms of a contract of sale, the buyer was required to remove the goods from the State in which he purchased them to another State, and the goods were so removed, the sale in question must be considered as a sale in the course of inter-State trade or commerce. Sales would be considered as sales in the course of export or import or sales in the course of inter-State trade or commerce, it was observed, in the following circumstances : (i) when the goods which are in export or import stream are sold; (ii) when the contracts of sale or law under which the goods are sold required those goods to be exported or imported to a foreign country or from a foreign country as the case may be, or required to be transported to a State other than the State in which the delivery of goods takes place; and (iii) where as a necessary incident of the contract of sale, the goods sold are required to be exported or imported or transported out of the State in which the delivery of goods took place.
28. In Deputy Commissioner v. Kotak & Co. the respondent-firm imported cotton on the basis of import licences issued to certain textile mills by the Government. There was a contract in that regard between the respondent-firm and the textile mills. The particulars were fixed c.i.f. - Cochin stating that payment was to be made by the mills against documents. The sale was subject to import licences. Under the letter of authority issued by the Government, though the respondent-firm was authorised to import the goods, the textile mills remained the importer and were liable as such. The letter of authority clearly stated that the respondent-firm will act purely as an agent of the licensee and that the goods imported will be the property of the licence holder both at the time of clearance through the customs and thereafter. The licence holder was to ensure that the goods, on importation would be delivered to him and shall not be disposed of otherwise. The licensee shall not cause or permit the holder of the letter of authority to dispose of the goods. On the abovesaid facts, the Supreme Court held that inasmuch as the respondent-firm was precluded from selling to anybody other than the mills to whom the import licence had been granted and as the goods could not be diverted from the ultimate destination, viz., the mills, the sale was covered by the exemption under article 286(1)(b) read with section 5(2) of the C.S.T. Act. The learned Judges followed the decision in Khosla and Co.'s case above referred to and distinguished Coffee Board's case .
29. In the next case in Binani Bros. (P.) Ltd. v. Union of India a contrary conclusion was arrived at on the facts of that case by the Supreme Court. There, the petitioner-company with its registered office at Calcutta was an importer and a dealer in certain goods and was on the approved list of suppliers to the Director-General of Supplies and Disposals. The petitioner was also registered as a dealer under the Bengal Finance (Sales Tax) Act as well as under the C.S.T. Act. The import was subject to various control orders during 1957 to 1966. The Government of India was granting import licences to the petitioner in terms of the contract. The petitioner imported the goods for several years and the second respondent had agreed to pay the local as well as the Central sales tax. On the basis of the judgment in Khosla and Co.'s case above referred to, the second respondent issued an order directing that sales tax should not be allowed in respect of supplies of stores specifically imported against licences issued. Acting thereupon, the fourth respondent deducted large sums from the bills pending payment to the petitioner and also threatened to recover another large sum already paid by the second respondent to the petitioner as sales tax. It was held that the sales by the petitioner to the Director-General of Supplies and Disposals did not occasion the import of the goods, but it was the purchases made by the petitioner from the foreign sellers which occasioned the import of the goods. There was no privity of contract between the Director-General and the foreign sellers, who did not enter into any contract by themselves or through the agency of the petitioner and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to the Director-General. Even if the contract envisaged the import of the goods and their supply to the Director-General from out of the goods so imported, it did not follow that the movement of the goods in the course of import was occasioned by the contract of sale by the petitioner with the Director-General. As the local sales tax was imposed on the sales made by the petitioner to the Director-General the said orders were quashed. Mathew, J., after referring to Coffee Board's case explained Khosla's case as one where the only sale was the sale by Khosla and Co. as agent of the manufacturer in Belgium. It was pointed out that in that case there was no completed sale in Belgium inasmuch as the Director-General reserved a further right of inspection of the goods on their arrival in India.
30. Most of the above cases were reviewed in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 by the Supreme Court. In that case two contracts were entered into, one by the appellant with the State Trading Corporation (S.T.C.) for the sale of mineral ore and the said corporation, in its turn entered into similar contract with foreign buyers for sale of identical goods purchased by the corporation from the appellant.
31. Under the terms of the contract between the appellant and the corporation the price was expressed in U.S. dollars f.o.b. the vessel at Calcutta and the material was to be ready in Calcutta Harbour for shipment by a particular steamer. The final sampling and moisture determination, etc., was to be done at the port of discharge. 90 per cent of the payment was to be made against shipping documents as described in the buyer's corresponding sale contract. The buyers were to assign the relevant foreign letter of credit which was opened in their name by the foreign buyer, M/s. Associated Metals and Minerals Corporation, on receipt from the sellers of a bank draft for the difference between the buyers' f.o.b. purchase value and the f.o.b. sale value. There was also various other terms in the contract. The terms and conditions of the buyers' corresponding sale contract with M/s. Associated Metals and Minerals Corporation would apply to this contract also except to the extent specified in this purchase contract. A true copy of the buyer's sale contract with M/s. Associated Metals and Minerals Corporation was attached. The appellant claimed that the sales of the mineral ore by the appellant to the State Trading Corporation were sales in the course of exports and were therefore exempt from local tax in view of section 5 of the C.S.T. Act. The High Court held that the sales were liable to tax. The appellant appealed to the Supreme Court and contended that inasmuch as the appellant had entered into negotiations with foreign purchasers and settled all the conditions of the contract and thereafter the corporation entered into a f.o.b. contract with the appellant and with the foreign buyer on identical terms and inasmuch as the appellant took the necessary steps, including payment of customs duty, for shipment and export, there was a sale by the appellant to the State Trading Corporation and the export by the corporation to the foreign buyer was integrated with the sale transaction by the appellant. Secondly, it was argued that the export could not be made except by the State Trading Corporation which could not have diverted the goods to a buyer in India without violating the export and import control order. It was contended that the sale was in the course of export. Thirdly, it was contended that there was no sale in the taxable territory inasmuch as the contract between the appellant and the State Trading Corporation being on f.o.b. basis, the property in the goods passed only on shipment when the goods were in the stream of export. Fourthly, it was argued that even if the appellant did not have any contract with the foreign buyer and had no privity, the said rule of privity could be relaxed on considerations of equity and justice. It was held by the majority consisting of Ray, C.J., Mathew, Beg and Chandrachud, JJ. (as they then were), (Khanna, J., dissenting) that the corporation alone agreed to sell the goods to the foreign buyer and was the exporter of the goods. There was no privity of contract between the appellant and the foreign buyer. The privity was between the corporation and the foreign buyer. The immediate cause of the movement of the goods and export was the contract between the foreign buyer who was the importer and the corporation who was the exporter and shipper of the goods. All relevant document were in the name of the corporation whose contract of sale was the occasion of the export. The expression "occasions" in section 5 of the C.S.T. Act means the immediate and direct cause and, but for the contract between the corporation and the foreign buyer, there was no occasion for export. The circumstance that the appellant sold the goods directly to the corporation to facilitate the performance of the contract between the corporation and the foreign buyer on terms which were similar, did not make the contract between the appellant and the corporation, the immediate cause of the export. The appellant was under no contractual obligation to the foreign buyer either directly or indirectly. The rights of the appellant were against the corporation. Similarly, the obligations of the appellant were to the corporation. The foreign buyer could not claim any right against the appellant nor did the appellant have any obligation to the foreign buyer. There was no relationship of principal and agent between the appellant and the corporation and they were, in fact, acting as two principals in the two contracts. The mention of f.o.b. price in the contracts between the appellant and the corporation, did not render the contracts f.o.b. contracts with the foreign buyer. The shipment of the goods by the corporation to the foreign buyer was the f.o.b. contract to which the appellant was not a party. The directions given by the corporation to the appellant to place the goods on board the ship were pursuant to the contract between the appellant and the corporation. These directions were not in the course of export because the export sale was an independent one. The taking of goods from the appellant's place to the ship was separate from the transit pursuant to the export sale. The fact that the export could be made only through the State Trading Corporation, it was held, did not have the effect of making the appellant the exporter where there was direct contract between the corporation and the foreign buyer. Restriction on the export that it could be made only through the State Trading Corporation was a reasonable restriction and was valid. Khanna, J., however took the view that although there were two agreements, they were part of one integrated transaction which resulted in the export of goods. The interconnection between the two agreements was so intimate that one could not stand without the other. Moreover, the S.T.C. could not divert the goods for any other purpose. A branch of the appellant's obligation under the contract with the corporation would result in a situation in which the S.T.C. would not be able to export the mineral ore to the foreign buyer. There is nothing in law to rule out two sales qualifying for exemption if they were so interlinked with the export. It will be noted that the majority placed strong reliance on the observations of Hidayatullah, C.J., in Coffee Board v. Joint Commercial Tax Officer wherein it was held that introduction of a third party dealing independently with the seller on the one hand and with the importer on the other, breaks the link between the two, bringing in two sales one to the intermediary and the other to the importer, and that two or more sales could not simultaneously be export sales.
32. The case decided by the Supreme Court in 1985 on this subject is the one in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Indian Explosives Limited [1985] 60 STC 310. This was a case of import of the goods by the assessee on the strength of actual user's import licences that were obtained by its customers and supplied to them for use by the latter in their factories. The local purchaser placed orders with the assessee quoting his import licence number, quantity of goods, rate, etc., as agreed with the assessee. The assessee then placed orders with the foreign supplier for the supply of goods and in such orders, the name of the local purchaser who required the goods as also the licence number were specified. The actual import was done on the strength of two documents (a) the actual user's import licence and (b) letter of authority issued by the Chief Controller of Imports and Exports whereunder the local purchaser was authorised to permit the assessee on his behalf to import the goods. The import licence contained two conditions - (1) that the goods imported would be the property of the licence holder at the time of clearance through the customs and (2) that the goods would be utilised only for consumption as raw material or accessories in the licence holder's factories and that no portion thereof should be sold or be permitted to be utilised by any other party. On receipt of the goods, the assessee used two invoices with the local purchaser. The assessee contended that those sales were in the course of import into India and therefore not taxable under article 286(1)(b). The Supreme Court held that a reading of the user's import licence and the letter of authority, it was clear that the import of the goods by the assessee was for and on behalf of the local purchaser and the assessee should not, without committing a breach of contract, divert the goods so imported for any other purpose. Therefore, there was an integral connection between the sale to the local purchaser and the actual import of the goods from the foreign supplier. In order that the sale should be one in the course of import, it must occasion the import and there must be an 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 be snapped, without committing a breach of statute. The Supreme Court applied the decision in Khosla and Co. v. Deputy Commissioner and distinguished Binani Brothers (P.) Ltd. v. Union of India .
33. The learned counsel for the petitioner also referred to the judgments of the Kerala High Court in Deputy Commissioner of Sales Tax v. I.C.I. (P.) Ltd. [1981] 47 STC 149 and of the Madras High Court in M.M.T.C. of India Ltd. v. State of Tamil Nadu [1983] 52 STC 85, State of Tamil Nadu v. Ashok Leyland Ltd. [1984] 56 STC 180, Blue Star Ltd. v. State of Tamil Nadu [1984] 56 STC 172 and State of Tamil Nadu v. William Jacks & Co. (India) P. Ltd. [1985] 59 STC 90. In our opinion, these judgments of the High Courts applied the principles laid down by the Supreme Court in one or other of the cases already mentioned and need not be separately dealt with.
34. From these eleven judgments of the Supreme Court, the following legal principles can be summarised :
(1) Under article 286(1)(b) of the Constitution of India read with section 38 of the A.P.G.S.T. Act read with section 5(1), (2) of the C.S.T. Act, sales or purchases of goods are to be deemed to be in the course of export (or import) only if the sales or purchases either "occasion" such export (or import) or are effected by a transfer of documents of title to the goods after (before) the goods have crossed the customs frontiers of India, and such sales or purchases are exempt from sales tax. The sale, to be exempt, must be integrally connected with the export (or import) and both must form part of a single transaction. The sale must not be one merely "for export" but must be one "in the course of export". A transaction of sale which is preliminary to export (or import) may be regarded as a sale "for export" but is not necessarily to be regarded as "in the course of export (or import)" unless the sale occasions export (or import). To occasion export, there must exist such a bond between the contract of sale and the actual exportation (or importation) that each link is inextricably connected with the one immediately preceding it. The connection between the sale and the export (or import) must be so integrated that the same cannot be voluntarily interrupted, without breach of the contract or compulsion arising for the nature of the transaction. There must be an obligation for export (or import) and there must be actual export (or import). The obligation may arise by reason of statute, the contract between parties or from mutual understanding or agreement or even from the nature of the transaction. It is not always necessary that the sale should have preceded (say) the import.
(2) Introduction of a third party "dealing independently" with the seller on the one hand and with (say) the importer on the other, breaks the link between the two, for then there are two sales, one to the intermediary and the other to the importer. There is no room for two or more sales being in the course of export [Coffee Board v. Joint Commercial Tax Officer and Mod. Serajuddin v. State of Orissa ]. The word "occasions" in section 5 means "immediate and direct cause". There must be a contractual obligation directly or indirectly between the assessee and (say) the foreign buyer. The relationship of the parties must be as principals and not merely as agents. The view of Sikri, J., in Coffee Board case or Khanna, J., in Mod. Serajuddin case , that two sales could qualify for exemption if they are so interlinked with (say) export, is not accepted by the majority in those cases.
(3) The circumstance that the goods are not liable to be diverted by the purchaser may not be conclusive as in Coffee Board v. Joint Commercial Tax Officer , though it may, coupled with other facts, be relevant as in Deputy Commissioner v. Kotak & Co. .
(4) The circumstance that the sale has to be necessarily pushed through a particular agency or instrumentality may not be conclusive as in Binani Bros. (P.) Ltd. v. Union of India or as in Mod. Serajuddin v. State of Orissa if the said agency or instrumentality is acting as a principal. Such a circumstance may, however, be relevant if the said agency or instrumentality is not acting as principal but acting only as an agency.
35. Applying the above principles to the facts of the present case, it will be noted that, as found by the learned Tribunal, the contract by the predecessor-in-interest of the petitioner (viz., the S.T.C.) was an independent contract entered into by the S.T.C. as principal with the I.M.C. and there was a separate contract between the S.T.C. and the Coromandel Fertilisers. Para 13 of the contract enables the S.T.C. to purchase the commodities from the I.M.C. and supply the same to other consumers in India. Para 1 amplified this idea by stating that the S.T.C. agreed to purchase for delivery to Coromandel or other parties. It was, therefore, not obligatory on the S.T.C. to sell only to Coromandel. The letter of credit was opened by the S.T.C. and the risk, by para 20 was to be on the S.T.C., the contract being c.i.f. We agree with the Tribunal that, in those circumstances, it was difficult to conclude that the S.T.C. acted merely as an agent of Coromandel Fertilisers. We further agree with the finding that the S.T.C. and the I.M.C. were acting as principals. It was only after the title of the goods passed to the S.T.C. after the unloading at Visakhapatnam port that the sale by the S.T.C. (predecessor of the petitioner M.M.T.C.) in favour of Coromandel has taken place. On these findings, it is clear that the petitioner was not an agent but was acting as a principal and it was not also obliged to sell the goods only to Coromandel and it could sell to other party also. We, therefore, hold that the conclusions arrived at by the Tribunal and its ultimate decision regarding the applicability of the A.P.G.S.T. Act is correct and that the transactions of sale to Coromandel cannot be treated as sales which occasioned the import of the goods from the I.M.C. into India.
36. The revision is accordingly dismissed but in the circumstances without costs. Advocate's fee Rs. 200.
37. Petition dismissed.