Full Judgment Text
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PETITIONER:
THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES
Vs.
RESPONDENT:
M/S. KOTAK & CO., BOMBAY, ETC. ETC.
DATE OF JUDGMENT03/04/1973
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
KHANNA, HANS RAJ
CITATION:
1973 AIR 2491 1973 SCR (3) 883
1974 SCC (3) 118
ACT:
Central Sales Tax Act 1956-S. 5(2) read with Art. 286 of the
Constitution. Assessee Company sold to buyer in the course
of import Whether an inter-State sale.
HEADNOTE:
The respondent was engaged in the supply of foreign cotton
to textile mills in South India on the basis of import
licences issued to the mills authorising: import of foreign
cotton by them. The, firm supplied cotton to the mills on
the basis of specific written contracts. One of the
conditions in the contract is that the goods imported should
not under any circumstances, be diverted from its determined
destination, i.e. the mills. Secondly, the relative
shipping documents were issued by the foreign seller in the
names of the respective mills and not in the name of the
assessee-firm. Again, the import licences issued to the
mill& authorise the mills to import the goods; and on the
reverse of these licences is stated that the goods for the
import of which the licences were granted should be the
property of the licensees at the time of clearance through
the customs. Still further, the letters of authorisation
issued by the Government authorising the assessee-firm to
import the cotton show that the assessee had to do it purely
as an agent of the licensees both at the time of the
clearance through the customs and’ subsequent thereto. The
firm entered into a contract with M/s. Mahalaxmi Cotton
Mills on 20-3-1964. According to the respondent, by the
contract entered into with the mills, the quantity of cotton
agreed to be supplied to the mills was specified as also its
quality and places from where it has to be imported. The
price was fixed on C.I.F. Cochin term. Payment was to be
made by the mills to the firm against the document. The
other conditions governing the contract were laid down on
the reverse of the contract form, the most important
clauses in the contract were that the contract was C.I.F. in
nature notwithstanding anything to the contrary mentioned in
the contract. The price was subject to variation depending
upon the import duty, freight rate,. insurance premium and
exchange rate. It was further provided by the Mills that
the contract was irrevocable and that any differences
between the parties had to be resolved through arbitration
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etc. The question was, whether the sales made to the mills
affected in this country occasioned the import. The Sales
Tax Officer, as well as the Appellate Assistant
Commissioner, held that the sales in question were
intrastate sales and therefore, the assessee was liable to
tax.
On appeal, the Sales Tax Tribunal held that the assessee’s
case fell within s. 5(2) of the Central Sales Tax Act, read
with Art. 286 of the Constitution and the High Court on
revision, affirmed the decision of the Tribunal. Before
this Court it was contended by the appellant that the sales
were intrastate sales and as such, the assessee was liable
to tax. Dismissing the appeals,
HELD : The present case falls within the rule laid down by
this Court in K. G. Khosla & Co. v. Deputy Commissioner of
Commercial
884
Taxes, [1966] 3 S.C R. 352, wherein it was held that the
sales in question occasioned the : import and as such it was
exempt under s. 5 (2) of the Central Sales Tax Act, 1956
which says, "A sale or purchase of goods shall be deemed to
take place in the course of the import of 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." [887G]
Coffee Board, Bangalore v. Joint Commercial Tax Officer,
Madras and Another [1970] 3 S.C.R. 147, referred to and
distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1889 to
1891 of 1970.
Appeals by certificates from the judgment and order dated
’October 28, 1969 of the Kerala High Court at. Ernakulam in
T.R.C. Nos. 40, 41 and 42 of 1968.
Civil Appeals Nos. 1892 to, 1896, of 1970
Appeals by certificates from the judgment and order dated
October 28, 1969 of the Kerala High Court at Ernakulam in
T.R.C. Nos. 43, 44, 45, 47 and 48 of 1968.
Civil Appeal No. 1897 of 1970.
Appeals by certificates from the judgment and order dated
October 28, 1969 of the Kerala High Court at Ernakulam in
T.R.C. No. 46 of 1968.
Civil Appeals Nos. 1898 to 1900 of 1970.
Appeals by certificates from the judgment and order dated
October 28, 1969 of the Kerala High Court at Ernakulam in
T.R.C. Nos. 52, 53 and 54 of 1968.
V. A. Sayed Mohammed and A. G. Pudissery, for the
appellants (in all the appeals).
G. B. Pai P C. Bhartari, O. C. Mathur and Ravinder Narain,
for the respondent (in C.A. Nos. 1889-1891 and 1897/70).
T. A. Ramachandran and K. Jayaram, for the respondent (in
,C.A. Nos. 1892-1896/70).
Ram Phal Bansal, S. P. Pande and Ganpat Rai, for the res-
pondent (in C.A. Nos. 1898-1900/70.
The judgment of the Court was delivered by
HEGDE, J.-In these appeals by certificate a common question
of law arises for decision and that question is whether the
sales effected by the respondent with which we are concerned
in these cases occasioned import of Egyptian cotton. The
Sales
885
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Tax Officer as well as the Appellate Assistant Commissioner,
rejecting the contention of the assessee came to the
conclusion that the sales in question were intrastate sales.
But, on appeal, the Sales Tax Tribunal held that the
assessee’s case fall within S. 5 (2) of the Central Sales
Tax Act 1956 read with Article 286 of the, Constitution.
The High Court on revision affirmed the decision of the
Tribunal. In support of its conclusion the high Court
observed thus
"One of the conditions in the contract is that the goods im-
ported should not under any circumstances, be diverted from
its, determined destination, i.e., the mills. Secondly, the
relative, shipping documents were, issued by the foreign
seller in the names of the respective mills and not in the
name of the assessee-firm. Again, the import licences
issued to the mills authorise the mills, to import the
goods; and on the reverse of these licences is stated that
the goods for the import of which the licences were granted.
should be the property of the licensees at the time of
clearance through the customs. Still further, the letters
of authorisation, issued by the Government authorising the
assessee-firm to import, the cotton show that the assessee
had to do it purely as an agent of the licensees and the
imported goods would be the property of’ the licensees both
at the time of the clearance through the customs. and
subsequent thereto."
The material facts of the case are fully set out in the
judgment of the Appellate Tribunal and are as follows
"The facts of the case here are not in dispute and the only
point that has to be considered here is as to whether the
sales arc in the course of import. The assessee firm
submitted before the, Sales Tax Officer a detailed note in
regard to the procedure in this matter. According to them
the firm is engaged in the supply of foreign cotton to
textile mills among other places in South India on the basis
of the import licences issued to the nulls authorising
import of foreign’ cotton by them. The details in regard to
the. procedure contained in the note submitted by the firm
are found; from page 37 onwards in the assessment files. It
is stated that the firm supplies cotton to the mills on the
basis of specific written contracts. Under the import
control regulations, import licences are necessary for
import of foreign cotton and they are issued to only actual
users like the mills. The appellant firm and the similar
concerns are not given import licences. The mills make
enquiries with the firm as regards the quality of cotton
they required, , the period during which they would be
supplied, the price and other particulars and on getting
these enquiries the appellant firm contacts the foreign
suppliers in Egypt, Sudan or America for ascer--
886
taining whether they could supply the cotton required. It
the ,offers received are found acceptable the appellant firm
enters into contract with the various mills concerned and
immediately thereafter accept the offer made by the foreign
suppliers. The supply ,of such foreign cotton to M/s.
Mahalakshmi Textiles Mills Ltd., one of the mills to whom
supply was made by the firm is detailed in the said note and
it is stated that the supply made to the other mills also
are under similar circumstances. According to the
appellant, after receiving enquiries from the mills the firm
contacts the American Suppliers in New York. The foreign
suppler agreed to supply the quantity at the price, agreed
upon. Thereafter the firm entered into a contract with the
mills dated 20-3-1964, that the import licence issued in
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favour of the mills was made available to the firm for
utilisation of the contract that the letter authority
issued, authorising the firm to import cotton was also
issued, that the bill of lading obtained by the foreign
supplier on shipment of the goods was also obtained by the
firm and the cotton is thus sent on to India. The
contention of the appellant is that under the contract
entered into with the mills the quantity of cotton agreed to
be supplied to the mills is specified as also its quality
and places from where it was to be imported. The price was
fixed on C.I.F. Cochin terms. Payment was to be made by the
mills to the firm against the document. The other
conditions governing the contract are laid down on the
reverse of the contract form. The most important clauses in
the contract -ire that the contract was C.I.F. in nature,
notwithstanding anything to the contrary mentioned in the
contract, the price was subject to variation depending upon
the import duty, freight rate, insurance premium and
exchange rate, that it was specifically provided that the
sale was subject to import licence to be provided by the
mills that the contract was irrevocable and that any
difference between the parties had to be resolved through
the arbitration machinery provided in the contract itself,
that under the import control regulations, the importer is
the mill, the auhorisation and ,he import licence are issued
to the mills only, that even under the letter of authority
although the firm was authorised to import the goods the
mills remained the importer and they were liable as
importer, ,that the particulars necessary for inclusion in
the bill of lading are furnished by the firm to the foreign
suppliers before the shipment is effected, that after the
goods were shipped at the foreign Port the bill of lading is
forwarded along with the invoice and other connected
documents of title through their Bank to India, that these
documents are received by the firm after due payment of the
value to the Agent Bank, that after receiving this document,
information is given to the mill when they made the payment
in accordance with the contract, that thereafter the goods
were cleared and delivered to the mills by clearing agents
at Cochin and forwarded to the mills".
887
In another portion of its Order the tribunal stated that
"the goods could not in any circumstances be diverted from
its determined destination, once it is shipped from the
foreign country."
The facts set out by the Tribunal, quoted above, are stated
by the Tribunal as admitted facts. Hence we cannot go into
the correctness of those facts. Dr. Sayed Mohammed, the
learned counsel for the department contended that the
observation of the High Court that "one of the conditions in
the contract is that the goods imported should not in any
circumstance be diverted from its determined destination,
i.e., the mills" is incorrect as there is no such term in
the contract entered into between the respondents and the
mills. This submission, though in a technical sense may be
correct, has really no substance because, as could be seen
from the letter of authority issued by the Government that,
one of the conditions of the letter of authority was, to
quote the words of that letter "The person or firm in whose
favour it has been issued, will act purely as an agent of
the licensee and the goods imported will be the property of
the licence-holder both at the time, of clearance through
the Customs and subsequent thereto. The licence-holder will
have to ensure that the goods on importation will be
delivered to him and shall not be disposed of otherwise.
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The licensee shall not cause or permit the holder of the
letter of authority to dispose of the goods."
This clause must be read as a part of the contract entered
into between the respondents and the mills. Even if this
clause had not been there, there would have been no
difficulty in coming to the conclusion that the respondents
were precluded from selling the goods to anybody other than
the mills to whom the users import licence had been granted.
From the facts set out above it is obvious that the
respondents could not have sold the goods to anybody other
than the, licence-holders.
From the facts set out above it is clear that this case
clearly falls within the rule laid down by this Court in K.
G. Khosla & Co. v. Deputy Commissioner of Commercial
Taxes(1). The appellant therein, imported certain goods
from Belgium in order to fulfil contracts with certain
buyers in India. The question arose whether the, sales
effected in this country occasioned the import. This Court
came to the conclusion that the sales in question occasioned
the import and as such it is exempt under Sec. 5(2) of the
Central Sales Tax Act, 1956, which says "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".
(1) [1966] 3 S. C. R. 3 52.
8 88
Dr. Sayed Mohammed tried to distinguish Khosla’s case from
the present case on the plea that in Khosla’s case there was
only one sale whereas in the present case there were two
sales. We are unable to accept this contention as correct.
From the facts set out above, it is clear that the facts of
this case are similar to those found in Khosla’s case.
Reliance was placed by Dr. Sayed Mohammed on the decision of
this Court in Coffee Board, Bangalore v. Joint Commercial
Tax Officer, Madras and Another(1). The facts of that case
briefly stated, are as follows :
The Coffee Board auctioned certain quantities of coffee for
the purpose of being sold in foreign countries. The
purchasers of those lots were required to export that
quantity of coffee to one or the other of the foreign
countries mentioned in the sale notice. They were precluded
from selling the same inside India. The question arose
whether the purchases made by, them occasioned export. This
Court came to the conclusion that the purchases in question
were purchases for the purpose of export and the same did
not occasion export. This Court did not differ from the
view taken in Khosla’s case. On the, other hand it
distinguished that decision. Hence the rule laid down in
the Coffee Board’s case is inapplicable to the present case.
For the reasons mentioned above these appeals fail and they
are dismissed with costs. There are four sets of
respondents. Hence four hearing fees--One set of hearing
fee for each set of respondents.
S.C. Appeals dismissed.
(1) [1970] 3 S. C. R. 147.
889