Calcutta High Court
Louis Dreyfus And Co. Ltd. vs Assistant Commissioner Of Commercial ... on 28 February, 1990
Equivalent citations: [1990]78STC25(CAL)
JUDGMENT A. K. Sengupta, J.
1. These three writ applications have been filed by the petitioner, Louis Dreyfus & Co. Ltd., sterling company incorporated under the laws of the United Kingdom which was carrying on business as a registered dealer both under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter to be referred to as "the Bengal Act"), as also under the Central Sales Tax Act, 1956 (hereinafter to be referred to as "the CST Act"). Since common questions are involved, all these petitions have been heard together. The judgment and order made herein will govern all these petitions.
2. In C. R. No. 11287(W) of 1976, the petitioner has challenged a notice being Memo No. 3741 dated 18th June, 1976, issued by the Assistant Commissioner of Commercial Taxes whereby the said Assistant Commissioner has proposed to pass an order for the year ending 31st December, 1970, to the following effect :
"It appears that an amount of Rs. 8,08,869.78 has been wrongly allowed as a claim under Section 5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941. It is, therefore, necessary to revise the order of the Commercial Tax Officer to bring the amount of Rs. 8,08,869 under the levy of tax. A statement of sales which is proposed to be disallowed is enclosed herewith."
3. In C. R. No. 14181(W) of 1976, the petitioner has challenged a notice in form No. IX dated 28th October, 1976, issued by the Commercial Tax Officer, Radhabazar Charge, relating to the year ending 31st December, 1971, whereby the said Commercial Tax Officer has proposed to pass the following order :
"In the assessment under the Bengal Finance (Sales Tax) Act, 1941, for the year ending 31st December, 1971, a sum of Rs. 2,39,27,139.66, which represented sales to the State Trading Corporation of India was wrongly allowed as claim for export sales under Section 5(2)(a)(v) of the Act. To rectify the said mistake the assessment order will be reviewed by bringing the amount of Rs. 2,39,27,139.86 under the levy of tax."
4. In C. R. No. 11288(W) of 1976, the petitioner has challenged a notice dated 23rd April, 1976, relating to the year ending 31st December, 1972, issued by the Commercial Tax Officer, Radhabazar Charge, whereby the said Commercial Tax Officer proposed to disallow the claim made by the petitioner on account of export sales amounting to Rs. 7,55,01,310.87.
5. The common case of the petitioner in all the three writ applications is that the main business of the petitioner at all material times consisted of exporting jute goods from India to foreign countries. The petitioner also used to sell jute goods in India. The petitioner used to export jute goods to foreign countries mostly directly and sometimes through State Trading Corporation of India Ltd. (hereinafter to be referred to as "STCI"). As the other countries became strong rivals in jute goods business, with a view to helping the country's export of jute goods the Government of India allowed STCI to intervene in the export of jute goods where necessary so that Indian exporters could export jute goods through STCI who would bear the loss that would arise in meeting the said competition. The position in reality was that there was only one integrated sale by Indian exporters through STCI. Even in cases of sale through STCI the goods remained at the sellers' risk and expenses until placed on board overseas vessels at Calcutta for destination specified by the buyer. The price of the goods exported by the petitioner was fixed either f.o.b. or c.i.f. or c & f and payments were to be made against shipping documents when the property in the goods passed to the buyer at a time when the goods are already on board the vessel and in the course of exports to the foreign countries. The contracts which STCI entered into with the foreign buyers formed part of the contract which were entered into by and between the petitioner and STCI and they were integrated ones and the sales effected by the petitioner were in the course of export particularly in view of the fact that the property in the goods never intended to pass until the said goods were put on board the vessel at the Calcutta Port and the payments were made.
6. In making the assessment for the year ending 31st December, 1970, the Commercial Tax Officer allowed the claim made by the petitioner under Section 5(2)(a)(v) of the Bengal Act after he was satisfied that the goods sold by the petitioner occasioned the exports of the same and the said sales were made by the petitioner in the course of export. As the Commercial Tax Officer disallowed certain other claims made by the petitioner, the petitioner preferred an appeal before the Assistant Commissioner of Commercial Taxes which was pending at the time when the said Writ Petition being C. R. No. 11287(W) of 1976 was moved. While the said appeal was pending the Assistant Commissioner issued the Memo No. 3741 dated 18th June, 1976, proposing to revise the assessment order suo motu with the intention to disallow the claim made under Section 5(2)(a)(v) of the Bengal Act which was originally allowed.
7. As regards the year ending 31st December, 1971, the original assessment was made by one G.C. Mondal, the Commercial Tax Officer, Radhabazar Charge, who after examining the entire facts and evidence allowed the claim made by the petitioner under Section 5(2)(a)(v) of the Bengal Act including the exports made by the petitioner through STCI. The notice which is now under challenge in C.R. No. 14181(W) of 1976, however, has been issued by another Commercial Tax Officer who is successor-in-office to G.C. Mondal.
8. On the above facts the petitioner has challenged the three several notices which are the subject-matter of the above three writ applications on various grounds mentioned in the three writ petitions. One point, however, is common in all the three writ applications namely that since all the sales through STCI were sales in the course of export within the meaning of Section 5 of CST Act read with Section 2(ab) of the said Act there is no question of any levy of sales tax and the proposed action of the respondents in the writ applications are ultra vires Article 286(1)(b) of the Constitution of India.
9. The common question of law that arises in all the three writ applications is that whether in view of the admitted fact of the case all sales of goods which were effected either directly or through STCI would come under Section 5(2)(a)(v) of the Bengal Act read with Section 5(1) of the CST Act and, therefore, the said sale proceeds could not be included in the taxable turnover in view of the Article 286(1)(b) of the Constitution of India.
10. Construing the provisions of Article 286(1)(b) of the Constitution of India the Supreme Court in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory reported in [1953] 4 STC 205, laid down the test when a sale takes place in the course of the export out of or import into the territory of India.
11. The Supreme Court held as follows :
"Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State-power of taxation extends to such transactions."
12. Again in construing the provisions of Article 286(1)(b) of the Constitution of India, the Supreme Court in J.V. Gokal & Co. (Pvt.) Ltd. v. Assistant Collector of Sales Tax (Inspection) , held :
"What does the phrase 'in the course of the import of the goods into the territory of India' convey ? ............ The word 'course' means 'progress from point to point'. The course of import, therefore, starts from one point and ends at another. It starts when the goods cross the customs barrier in a foreign country and ends when they cross the customs barrier in the importing country."
13. The Supreme Court then proceeded to hold :
"These words were subject of judicial scrutiny by this Court in State of Travancore-Cochin v. Shanmugha. Vilas Cashew-nut Factory [1953] 4 STC 205 ; [1954] SCR 53. Construing these words, Patanjali Sastri, C.J., observed at page 212 of STC, 62 of SCR :
'The word "course" etymologically denotes movement from one point to another, and the expression "in the course of" not only implies a period of time during which the movement is in progress but postulates also a connected relation.'
14. As regards the limits of the course, the learned Chief Justice observed at page 216 of STC (68 of SCR) :
'It would seem, therefore, logical to hold that the course of the export out of, or of the import into, the territory of India does not commence or terminate until goods cross the customs frontier.'
15. Das, J., as he then was, in his dissenting judgment practically agreed with Patanjali Sastri, C.J., on the interpretation of the said words. The learned Judge expressed his view at page 92, thus :
'The word "course" conveys to my mind the idea of a gradual and continuous flow, an advance, a journey, a passage or progress from one place to another. Etymologically it means and implies motion, a forward movement. The phrase "in the course of" early has reference to a period of time during which the movement is in progress. Therefore, the words "in the course of the import of the goods into and the export of the goods out of the territory of India" obviously cover the period of time during which the goods are on their import or export journey.' We respectfully agree with the aforesaid observations of the learned Judges. The course of the import of the goods may be said to begin when the goods enter their import journey, i.e., when they cross the customs barrier of the foreign country and end when they cross the customs barrier of the importing country."
16. As regards the question when does the property in the goods pass, the Supreme Court after referring to English decision with approval in J.V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales Tax (Inspection) held :
"The delivery of the bill of lading while the goods are afloat is equivalent to the delivery of the goods themselves..."
17. It will, therefore, be apparent from the aforesaid two decisions of the Supreme Court that the Supreme Court has judicially interpreted when would the goods come within the mischief of Article 286(1)(b) of the Constitution of India. According to the Supreme Court as soon as the goods cross the "customs barrier" of the seller country and do not cross the customs barrier of the purchaser country, it is in the export or import stream and the same will come under Article 286(1)(b) of the Constitution of India and will be entitled to exemption from the levy of sales tax.
18. The principles enunciated by the Supreme Court in the aforesaid two decisions apply with full force in the facts of the present case. Under the contracts with STCI the petitioner is under an obligation to export the goods and the price is paid and the property in the goods passes after the goods cross the customs barrier. The turnover in question, therefore, cannot be included in the taxable turnover of the petitioner and is liable to be excluded under Article 286(1)(b) of the Constitution of India read with Section 5(2)(a)(v) of the Bengal Act and Section 5 of the Central Act.
19. Apart from the aforesaid decision of the Supreme Court, even the amendment which has introduced Clause (ab) to Section 2 of the Central Sales Tax Act by the Central Sales Tax (Amendment) Act, 1976, will also apply in the facts of the present case inasmuch as the said amendment is curative and will have retrospective operation. In April, 1975, some confusion was purported to have been created in view of the decision of the Supreme Court in Mod. Serajuddin v. State of Orissa and by applying the said later decision of the Supreme Court the sales tax authorities were purporting to disallow the claim made by the dealers under Section 5(2)(a)(v) of the Bengal Act read with Section 5 of the Central Act and Article 286(1)(b) of the Constitution of India. It is in this context the Central Sales Tax (Amendment) Act, 1976, was passed by the Parliament which received the assent of the President on September 7, 1976. Section 2(a) of the said Amendment Act of 1976 inserted, inter alia, Clause (ab) to Section 2 of the CST Act which provides as follows :
"(ab) 'crossing the customs frontiers of India' means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.
Explanation.--For the purposes of this clause 'customs station' and 'customs authorities' shall have the same meanings as in the Customs Act, 1962 ;"
20. Section 2(13) of the Customs Act, 1962, defines "customs station" which means any customs port, customs airport or land customs stations. The aforesaid amendment by the Amendment Act of 1976 of the Central Sales Tax Act, therefore, is nothing but a mere clarificatory one whereby the Parliament merely clarifies the law which was earlier enunciated by the Supreme Court accepting the view which was prevailing since 1953 or even earlier. It is now well-settled by the decision of the Supreme Court in Channan Singh v, Smt. Jai Kaur , wherein the Supreme Court held as follows :
"It is well-settled that if a statute is curative or merely declares the previous law retroactive operation would be more rightly ascribed to it than the legislation which may prejudicially affect past rights and transactions."
21. In that view of the matter Section 2(ab) of the CST Act should be deemed to have retrospective operation and it will be deemed to have been in force at all material times and the confusion which has been created by the later judgment of the Supreme Court in Mod. Serajuddin's case , should be deemed to have been cleared by the Parliament and the earlier view of the Supreme Court has been accepted by the Parliament. The decision of the Supreme Court in Mod. Serajuddin v. State of Orissa , relied on heavily by the learned counsel for the respondents has no application in the facts and circumstances of the present case. Bat in Mod. Serajuddin's case , the Supreme Court on the facts of that case observed at page 149 of the report :
"But for the contract between the Corporation and me foreign buyer, there was no occasion for export. Therefore, the export was occasioned by the contract of sale between the Corporation and the foreign buyer and not by the contract of sale between the Corporation and the appellant."
22. Earlier at page 147 of the report the Supreme Court observed :
"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."
23. The aforesaid observations of the Supreme Court in Mod. Serajuddin's case , well, in my view, apply in the facts and circumstances of the present case. In the present case the export starts under the contract which the petitioner has entered into with STCI under which the price is paid and the property in the goods passes after the goods have crossed the customs barrier and entered into the export stream. Therefore, apart from the fact that the decision of the Supreme Court in Mod. Serajuddin's case , is factually distinguishable, even applying the ratio laid down by the Supreme Court in the said decision to the facts of the present case the claim made by the petitioner must be allowed.
24. In that view of the matter all the export sales including the sales made by the petitioner through STCI to foreign buyers squarely comes under Article 286(1)(b) of the Constitution of India and Section 5 read with Section 2(ab) of the CST Act and the said sale proceeds cannot be included in the taxable turnover of the petitioner under Section 5(2)(a)(v) of the Bengal Act for any of the three years concerned in the present three writ applications. The view expressed by the Commercial Tax Officer in making the original assessment accepting the claim of the petitioner under Section 5(2)(a)(v) of the Bengal Act for the years 1970 and 1971 was, therefore, a correct one which was in consonance with the law laid down by the earlier decisions of the Supreme Court in Shanmugha Vilas' case [1953] 4 STC 205 and J.V. Gokal & Co's case and the present respondents have, therefore, no competence, jurisdiction and/or authority either to review or revise the original assessment for the two years concerned. For the same reason the Commercial Tax Officer is not entitled to disallow the claim made by the petitioner under Section 5(2)(a)(v) of the Bengal Act in respect of export sales effected by the petitioner through STCI in making the assessment for the year ending 1972.
25. There is another aspect of the matter.
26. Under Section 20(3) of the Bengal Act read with Section 20(5) thereof it is incumbent upon the authority concerned to record the reasons for revising an assessment order suo motu and to communicate to the petitioner the reasons for the said action. In none of the impugned notices it has been mentioned as to why the original assessment orders require to be revised and no reason has been disclosed for revising the earlier assessment order. The impugned notices, therefore, are in clear violation not only of the provisions of the Bengal Act and the Bengal Sales Tax Rules, 1941 (hereinafter to be referred to as "the Bengal Rules") but they are also in gross violation of the principles of natural justice.
27. Apart from the common question of law, the notices being the subject-matter of C. R. No. 11287 (W) of 1976 and C. R. No. 14181 (W) of 1976 are liable to be quashed for the reasons mentioned hereinafter.
28. The original assessment in C. R. No. 11287(W) of 1976 was made by the Commercial Tax Officer whereas the suo motu revision is purported to have been made by the Assistant Commissioner, Commercial Taxes. Similarly the original assessment in C. R. No. 14181(W) of 1976 was made by one G.C. Mondal whereas the impugned notice for revision has been issued not by G.C. Mondal.
29. Under Rule 82 of the Bengal Rules no officer below the rank of Commissioner shall review any order which has been passed by any of his predecessor-in-office and if it is considered necessary to modify any such order the application for revision is to be made to the next higher authority. No such application has been made to the next higher authority. So far as the notice which is under challenge in C. R. No. 11287(W) of 1976 is liable to be quashed on another ground also. As indicated earlier against the original assessment order an appeal was filed by the petitioner which was pending. The power of revision under Section 20(3) of the Bengal Act read with Rule 80(5) of the Bengal Rules cannot be invoked when an appeal is pending.
30. Reference may be made to the decision of the Madhya Pradesh High Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Shri Amarjeet Singh reported in [1963] 14 STC 501. There the court held that the power of revision of the Commissioner under Section 22-B of the Central Provinces and Berar Sales Tax Act, 1947, can be exercised only against orders passed by the assessing authorities in cases in which no appeal is filed. Once an appeal is filed, orders prejudicial to the Revenue are intended to be corrected in appeal and the appellate authorities have been duly empowered in that behalf.
31. For the reasons aforesaid these applications arc allowed. The rules are made absolute. Let appropriate writs be issued. The Commercial Tax Officer will proceed to complete the assessment where notice had already been issued but the assessment has not been completed, in accordance with the findings and observations made in the judgment.
32. This judgment will cover C. R. 11287(W) of 1976 and C.R. 11288(W) of 1976.