Full Judgment Text
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PETITIONER:
THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX & SALES T
Vs.
RESPONDENT:
INDIAN EXPLOSIVES LTD.
DATE OF JUDGMENT19/08/1985
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
MUKHARJI, SABYASACHI (J)
MISRA RANGNATH
CITATION:
1985 AIR 1689 1985 SCR Supl. (2) 623
1985 SCC (4) 119 1985 SCALE (2)483
ACT:
Sales in the course of import of the goods into India
Whether the goods imported and supplied to customers on the
strength of Actual Users’ Import Licences of the customers
are exempt from sales tax under the Kerala General Sales Tax
Act, 1950 - Constitution of India, 1950 Article 286 (I) (b).
HEADNOTE:
The Respondent - assessee deals in chemicals, dyes etc.
import goods on the strength of the Actual Users’ Import
Licences that had been obtained by the customers and supply
the same for use by the latter in their factories. The sales
in question were put through by the respondent assessee in
the following manner. The indigenous purchaser used to place
orders with the respondent - assessee quoting his Import
Licence Number, quantity of goods, rate, etc. as agreed to
by previous correspondence with the respondent - assessee;
the respondent - assessee then placed orders with the
foreign supplier for the supply of the goods and in such
orders the name of the local purchaser who required the
goods as also its licence numbers, were specified; the
actual import was done on the strength of two documents
like, (a) The Actual Users’ Import Licence and (b) Letter of
Authority issued by Chief Controller of Imports and Exports
whereunder the local purchaser was authorised to permit the
respondent - assessee on his behalf to import the goods, to
open letters of credit and make remittance of foreign
exchange against the said licence to the extent of value
specified therein. The import licence expressly contained
two conditions (i) that the goods imported will be the
property of the licence-holder at the time of clearance
through the Customs and (ii) that the goods will be utilised
only for consumption as raw material or accessories in the
licence- holder’s factory and that no portion thereof will
be sold to or be permitted to be utilised by any other
party. On receipt of the goods the respondent - assessee
used to invoice the local purchaser.
The respondent - assessee was assessed to Sales Tax
during the assessment years 1961-62, 1962-63 and 1963-64
under the
624
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General Sales Tax Act, 1950 on the turn over of sales
effected by them in those years of goods, imported on the
strength of the customers’ Actual Users’ Import Licences and
supplied to them. Such turnover subjected to tax was to the
tune of Rs. 3,15,586.19 in the year 1961-62 and Rs.
4,03,427.72 in the year 1963-64. The respondent - assessee
contended that these sales were in the course of Article 286
(I) (b) of the Constitution. The contention was negatived by
the assessing authority as also by the Appellate Assistant
Commissioner but the Appellate Tribunal in second appeal
accepted the contention and held that the disputed turn over
in each year was not taxable. In the revisions preferred by
the Deputy Commissioner the Nigh Court confirmed the
Tribunal’s view. Hence the Revenue appeals by special leave
of the Court.
Dismissing the appeals, the Court,
^
HELD: 1.1 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 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 sapped. [628 B-C]
Ben Gorm Nilgiri Plantatioos Company, Coonoor ant Ors.
v. Sales Tax Officer, Special Circle Ernakulam & Ors. [1964]
7 SCR 706 relied on.
1.2 Reading the two documents, namely the Actual Users’
Import Licence and letter of Authority issued by the Chief
Controller of Imports and Exports together, it is clear that
the import of the goods by the respondent - assessee was for
and on behalf of the local purchaser and the respondent-
assessee could not without committing a breach of the
contract, divert the goods 80 imported for any other
purpose. Having regard to the terms and conditions on which
the respondent-assessee imported the goods and the manner in
which the transactions were put through, it is clear that
there was an integral connection between the sale to the
local purchaser and the actual import of the goods from the
foreign supplier. In other words it is clear that the
movement of the goods from the foreign country (here the
United States) to India was in pursuance of the conditions
of the
625
pre-existing contract of sale between the respondent-
assessee and local purchaser. That being so the sales in
question were in the course of import. [627 A-D]
Ben Gorm Nilgiri Plantations Company, Coonoor and Ors.
v. Sales Tax Officer, Special Circle Ernakulam & Or. [1964]
7 SCR 706 and K.G. Khosla & Co.(Pvt.) Ltd. Delhi v. Deputy B
Commissioner of Commercial Taxes, Madras Division, [1966] 3
SCR 352 followed.
Coffee Board, Bangalore v. Joint Commercial Tax
Officer, Madras & Anr. [1970] 3 SCR 147 and State of Bihar
Anr. v. Tata Engineering & Locomotive Cu. Ltd. [1971] 2 SCR
849 referred to.
M/s. Binani Bros (P) Ltd. v. Union of India & Ors.
[1974] 1 SCC 459 distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 867-
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869 1974. T.S. Krishnamurthy, T. Karunakaran Nambiar aud
P.K. Pillai for the Appellant.
F.S. Nariman, R.F. Nariman, R.Suresh and D.N. Gupta
for the Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J. The common question raised in these
appeals is whether the sales effected by the respondent -
assessee in the three concerned years of goods imported and
supplied to customers on the strength of Actual Users’
Import Licences of the customers were exempt from sales tax
under the Kerala General Sales Tax Act, 1950 on the ground
that these were sales in the course of import Or the goods
into the territory of India .
The respondent - assessee deals in chemicals, dyes,
etc. The concerned assessment years are 1961-62, 1462-63 and
1963-64. The respondent - assessee was assessed to sales tax
under the General Sales Tax Act 1950 on the turnover of
sales effected by them in those years of goods imported on
the strength of the customers’ Actual Users Import Licences
and supplied to them. Such turnover subjected to Tax was to
the tune of Rs. 3,15,586.19 in the year 1961-962, Rs.
13,40,949-98 in the year 1962-63 and Rs. 4,03,427.72 in the
year 1963-64. The respondent - assessee contended that
626
these sales were in the course of import of goods into India
and hence not taxable by virtue of Art. 286(1)(b) of the
constitution. The contention was negatived by the assessing
authority as also by the Appellate Assistant Commissioner
but the Appellate Tribunal in second appeal accepted the
contention and held that the disputed turnover in each year
was not taxable. In the revisions preferred by the Deputy
Commissioner, the High Court confirmed the Tribunal’s view.
In doing 80 the High Court considered the several decisions
that were cited before it and ultimately following the test
laid down by this Court in Ben Gorm Nilgiri Plantations
Company, Coonoor and Ors. v. sales Tax Officer, Special
Circle Ernakulam & Others [1964] 7 SCR 706, and mainly
relying upon another decision of this Court in K.G. Khosla &
CO. (Pvt.) Ltd. v. Deputy Commissioner of Commercial Tax,
Madras Division, [1966] 3 SCR 352 - AIR 1966 SC 1216, it
took the view that the sales covered by the disputed
turnover in the facts and circumstances of the case were
sales in the course of import. The Revenue has come up in
appeal to this Court.
It was not disputed that goods were imported by the
respondent - assessee in the strength of the Actual Users’
Import Licences that had been obtained by the customers and
supplied to them for use by the latter in their factories.
The sales in question were put through by the respondent-
assessee, as found both by the Tribunal and the High Court,
in the following manner. The indigenous purchaser for
example M/s. Hindustan Insecticides Limited in Kerala, used
to place orders with respondent-assessee quoting his Import
Licence Number, quantity of goods, rate, etc. as agreed to
by previous correspondence with the respondent-assessee; the
respondent-assessee then placed orders with the foreign
supplier for the supply of the goods and in such orders the
name of the local purchaser who required the goods as also
its licence numbers, were specified; the actual import was
done on the strength of two documents like (a) Actual Users
Import Licence and (b) Letter of Authority issued by Chief
Controller of Importer and Exports whereunder the local
purchaser was authorised to permit the respondent-assessee
on his behalf to import the goods, to open letters of credit
and make remittance of foreign exchange against the said
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licence to the extent of value specified therein. The import
licence expressly contained two conditions, (i) that the
goods imported will be the property of the licence-holder at
the time of clearance through the Customs and (ii) that the
goods will be utilised only for consumption as raw material
or accessories in the licence-holder’s factory and that no
portion thereof will be sold to or be permitted to be
utilised
627
by any other party. Reading these two documents together it
was clear that the import of the goods by the respondent-
assessee was for and on behalf of the local purchaser and
the respondent- assessee could not, without committing a
breach of the contract, divert the goods so imported for any
purpose. On receipt of the goods the respondent-assessee
used to invoice the local purchaser. Having regard to the
terms and conditions on which the respondent assessee
imported the goods and the manner in which the transactions
were put through, it cannot be disputed that there was an
integral connection between the sale to the local purchaser
and the actual import of the goods from the foreign
supplier. In other words it is clear that the movement of
the goods from the foreign country (here the United States)
to India was in pursuance of the conditions of the pre-
existing contract oil sale between the respondent-assessee
and the local purchaser. If that be so the view of the
Tribunal and the High Court that the sales in question were
in the course of import will have to be upheld.
The test of integral connection or inextricable link
between the sale and the actual import or export in order
that the sale could become a sale in the course of import or
export had been clearly enunciated by this Court in Ben Gorm
Nilgiri Plantations Company’s case (supra). There the
question related to sale of tea which was claimed to be in
the course of export out of the territory of India and
though by majority it was held that the sales in question
were not in the course of export , the Court at p.711 of the
Report laid down the test thus:
"A sale in the course of export predicates a
connection between the sale and export, the two y
activities being so integrated that the connection
between the two cannot be voluntarily interrupted,
without a breach of the contract of the compulsion
arising from the nature of the transaction. In
this sense to constitute a sale in the course of
export it may be said that there must be an
intention on the part of both the buyer and the
seller to export, there must be an actual export.
The obligation may arise by reason of statute,
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
628
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. Without such a bond, a
transaction of sale cannot be called a sale in the
course of export of goods out of the territory of
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India.
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 sapped.
Counsel for the appellant attempted to suggest that the
aforesaid test of integral connection or inextricable link
between the sale and the actual import or export in order
that the sale could become a sale in the course of import or
export has been diluted or deviated from in Coffee Board,
Bangalore v. Joint Commercial Tax Officer, Madras & Anr.
[1970] 3 SCR 147, but the suggestion has to be rejected. We
may point out that such suggestion was expressly rejected
and the observations regarding two independent sales in that
case were properly explained as appropriate to the facts of
that case by this Court in State of Bihar & Anr. v. Tata
Engineering Locomotive Co. Ltd. [1971] 2 SCR 849, where the
test of Integral connection or inextricable link was
reaffirmed as a correct and well-settled test to decide the
question.
Counsel for the appellant fairly conceded that the
facts in K.G. Khosla & Co.’s Case (supra) were on all fours
with the facts obtaining in the instant appeals and that the
ratio of that decision would appear to govern the question
arising in these appeals, but he contended that a different
view has been taken by this Court in M/S. Binani Bros (P)
Ltd. v. Union of India Others, [1974] 1 SCC 459, and in view
of this later decision the high Court ought not to have
applied the ratio of K.G. Khosla &. Co’s decision to this
case. It is not possible to accept this contention as in our
view Binaini Bros’s case is clearly distinguishable on two
material aspects. In that case the assessee itself held the
import licence and the goods were imported on the strength
of such import licence and not on the
629
strength of any Actual Users Licence as is the case here.
Secondly, unlike in the present case there was no term or
condition prohibiting diversion of the goods after the
import. In fact, it is these two factors obtaining in The
instant case which establish the integral connection or
inextricable link between the transactions of sale and the
actual import making the sales in the course of import. In
fact as pointed out earlier, the movement of the goods from
the foreign country to India was in pursuance of the
requirements flowing from the contract of sale between the
respondent - assessee and the local purchaser and as such
the sales in question must be held to be in the course of
import.
The view of the Tribunal and the High Court is
confirmed and the appeals are dismissed. No order as to
costs.
S.R. Appeal dismissed.
630