Full Judgment Text
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PETITIONER:
K. GOPINATHAN NAIR & ETC.
Vs.
RESPONDENT:
STATE OF KERALA
DATE OF JUDGMENT: 21/03/1997
BENCH:
CJI, S. B. MAJMUDAR
ACT:
HEADNOTE:
JUDGMENT:
W I T H
[Civil Appeal No. 1167-71/92: 1546/93: and 3647-52/86]
J U D G M E N T
S.B. Majmudar, J.
According to our esteemed colleague Sujata v. Manohar,
J., these appeals are required to be allowed. With orofound
respect, it is not possible for us to agree with her
findings and the conclusions in so far as it is held bu her
that section 5 sub-section (2) of the Central sales Tax Act,
1956 will cover the transactions in question. We, however,
agree with her so far as it is held that section 2(ab) of
the central sales Tax Act has no retrospective effect and
that there is no evidence on record to attract the second
part of section 5(2) which deals with sale on high seas. We,
therefore, record our separate reasons for confirming the
decisions impugned in these appeals.
In Civil Appeal Nos. 4953-77 of 1991 a common question
falls for consideration. It is to the following effect:
"Whether the purchases of African
raw cashewnuts made by the
assessees from the cashew
corporation of India (for short
’CCI’) are in the course of import
and, therefore immune from
liability to tax under Kerala
General sales Tax Act, 1963
(hereinafter referred to as ’the
Act’)."
Appellants in these cases are engaged in the purchase
of raw cashewnuts and export of cashew kernels after
processing. The assessments relate to Years 1970-71 to
1973-74. It is the case of the appellants that they had
placed orders for import of raw cashewnuts from African
countries through the CCI had imported these raw cashewnuts
and made them available to the assessees. Consequently these
transactions would be styled as purchases by the assessees
in the course of import and were outside the sweep of the
Act. This contention of the assessees was rejected by the
Kerala sales Tax Appellate Tribunal, Addl. Bench, Ernakulam.
Their Tax Revision cases were also dismissed by a Division
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Bench of the Kerala High Court and that is how the
appellants have preferred these appeals by obtaining special
leave to appeal from this Court.
In Civil Appeal Nos. 3647-52 (NT) of 1986 CCI is the
assessee. The sale of imported raw cashewnuts from African
countries to the local purchasers by the CCI have been
brought to tax under the provisions of the Karnataka sales
Tax Act, 1957. The appellant is a private company
registered under the companies Act and is said to be a
subsidiary of the state Trading corporation wholly owned by
the Government of India. The appellant company, the
registered office of which is at Cochin in Kerala, imports
raw cashew from East African countries under licences issued
by the controller of imports and Exports, and allots such
cashew to the actual users for being processed and for
export of a certain percentage of the raw cashew allotted.
In this process the appellant had not got itself registered
as a dealer in the Karnataka state nor had it filed returns
for the years 1970-71 to 1975-76. The contention of the
appellant- company before the Taxing Authority was to the
effect that the transaction of sale by the company to the
actual users was in the course of import and, therefore ,
the state sales Tax Act could not encompass such a
transaction. The Taxing Authority in Karnataka on the other
hand sought to levy sales tax on the appellant on the basis
that it was a non-resident dealer. The contention of the CCI
was negatived bu Karnataka Appellate Tribunal, Bangalore.
The appellant’s Revision before the High court came to be
dismissed by a Division Bench of the High Court by its order
dated 3rd march 1986 and that is how the CCI is before us on
special leave.
It becomes, therefore, clear that a common question
arises for our determination as to whether the import of raw
cashewnuts by the CCI from African exporters and its
purchase by actual users in India could be said to be a
transaction in the course of import and, therefore, eligible
for exemption under section 5(2) of the Central sales Tax
Act, 1956. Both the Kerala High court as well as the
Karnataka High court have taken the view that these
transaction are not saved by section 5(2) of the central
sales Tax Act, 1956 and they are exigible to local sales
tax. It is this view that has been seriously brought in
challenge by Shri Poti, learned senior counsel appearing for
the appellants in civil Appeal Nos. 4955-77 of 1991 and
Shri Hegde, learned senior counsel appearing for the
appellant CCI in Civil Appeal Nos. 3647-52 of 1986. The
learned counsel appearing for the respondent-state of Kerala
and state of Karnataka on the other hand have supported the
decisions of these High Courts.
In order to resolve this controversy it is necessary at
the outset to look at the relevant constitutional and
statutory provisions. under Article 286 of the constitution
of India restrictions have been place on the power of a
state to tax Sales. Articles 286(1) and 286(2) lay down as
under:
"286. Restrictions as to imposition
of tax on the sale or purchase of
goods. -
(1) No law of a state shall
imposed, or authorise the
imposition of , a tax on the sale
or purchase of goods where such
sale or purchase takes place-
(a) outside the state; or
(b) in the course of the import of
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the goods into, or export of the
goods out of. the territory of
India.
(2) Parliament may by law formulate
principles for determining when &
sale or purchase of good takes
place in any of the ways mentioned
in clause (1)."
Parliament in exercise of its powers under Article 286
sub-Article (2) enacted central sales Tax Act, 1956. As laid
down by section 3 thereof , a sale or purchase of goods
shall be deemed to take place in the course of inter-state
trade or commerce if the sale or purchase- (a) occasions the
movement of goods from one state to another; or (b) is
effected by a transfer of documents of title to the goods
during their movement from one state to another. Under
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 it effected by a transfer of
documents of title to the goods after the goods have crossed
the customs frontiers of India. under sub-section (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. It, therefore, becomes a moot question
as to whether the sale of raw cashewnuts into the course of
import of these raw cashewnuts into the territory of India.
For deciding this question the provision of sub-section (2)
of section 5 will have to be kept in view. As per the said
provision the sale of imported raw cashewnuts shall be
deemed to take place in course of import only if such sales
by CCI to the local actual users or conversely the
purchases of such imported raw cashew by the local users
from the CCI have occasioned such import of raw cashew. The
second part of sub-Section (2) of section 5 is not attracted
on the facts of the present cases as factually it is not
found in these cases that such sales were effected by
transfer of documents of title to goods, namely. the raw
cashewnuts before they crossed the customs frontiers of
India. The entire controversy., therefore, centers round the
short question, namely, whether the sales of these imported
cashewnuts by CCI to local users were in the course of
import of these cashewnuts and whether such sales had
occasioned the import.
There are various decisions of the constitution Benches
of this Court which have laid down clear parameters for
answering this question. In the case of Ben Gorm Nilgiri
Plantations Company, Coonoor and Ors. v. Sales Tax Officer,
special circle. Ernakulam and ors. [1964] 7 SCR 706 a
majority of the constitution Bench of this court speaking
through shah, J., had an occasion to consider the question
whether sale of tea by the assessee-appellants to local
agents of foreign buyers would earn exemption under Article
286(1) (b) of the constitution of India by being treated as
sale in the course of exports. It is trite to observe that
the phraseology ’sale or purchase in the course of export’
as employed by section 5(1) of the Central sales Tax Act is
in pari materia with the phraseology employed by section 5
sub-section (2) dealing with ’sale or purchase in the course
of import’. In the aforesaid case the appellants were
carrying on business of growing and manufacturing tea in
their estates. They sold tea to the local agents of foreign
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buyers. The sales were effected by public auction at Fort
Cochin. These Tax officer assessed the appellants to pay
sales tax on transaction of auction held at Fort Cochin. It
was contended by the appellant-assessees that purchase by
local agents of foreign buyers were for their principals
abroad and the goods were in fact exported out of the
territory of India and therefore, the sales by appellants
were in the course of export out of the territory of India
and were thus exempt from tax under article 286(1) (b) of
the constitution. The aforesaid contention of the appellants
was negatived by all the authorities under the sales Tax
Act. They thereafter also failed before the High Court. The
majority of the constitution Bench also dismissed their
appeal. Shah, J., speaking for the majority held that the
transaction of sale which is preliminary to export for 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. Etymologically the
expression ’in the course of export’. contemplates an
integral relation or bond between the sale and the export.
In general where a sale is effected by the seller, and the
seller is not connected with the export which actually takes
place, it is sale for export. Where the export is the result
of the sale, the export being inextricably linked up with
sale so that the bond cannot be dissociated without a breach
of the obligations arising by statue or contract of mutual
understanding between the parties arising from the nature of
the transaction, the sale is in the course of export. it was
further laid down as under:
" A sale in the course of export
predicates a connection between the
sale and export, the two activities
being so integrated that the
connection between the two cannot
be voluntarily interrupted, without
a breach of the contract or the
compulsion arising from the nature
of the transaction. In the present
case 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 dingle 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 cannot be said that the
said that the said sales occasioned
export and not in the course of
export. Therefore the sales bu the
appellants to the agents of foreign
buyers do not come with the purview
of Act. 286(i) (b) of the
constitution."
As per the aforesaid decision of the constitution Bench
before a sale can be said to have taken place in the course
of export the export must have a direct nexus with the sale
and the activity of sale and export must be completely
inter-linked. On the same reasoning as in the aforesaid
case, therefore, a sale in the course of import and the sale
and the import must have an integrated and intertwined
connection. If that is not so it would not be sale in the
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course of import but it would be as sale by import or
because of import. In the case of K.G. Khosla & co. v.
Deputy commissioner of commercial Taxes [1966] 3 SCR 352 a
latter constitution Bench of this court had to deal with the
question whether sales in that case were in the course of
import. Section 5 sub-section (2) directly fell for
consideration of the constitution Bench. In that case the
appellant-assessee had entered into a contract with the
Director General of supplies. New Delhi for supply of axle
bodies manufactured by its principals in Belgium. The goods
were inspected on behalf of the buyers in Belgium but under
the contract they were liable to rejection after further
inspection in India. In pursuance of the contract the
appellant supplied axle bodies to the southern Railway at
parambur and Mysore. It was the contention of the appellant
that the sales effected by them in favour of Director
General of Supplies. New Delhi were in the course of import.
That contention was rejected by the Joint commercial Tax
officer, Madras who held that these were intra-state sales
because the seller was the consignee of the goods and the
buyer had reserved the right to reject the goods even after
their arrival in India. Accordingly assessment was made
under Madras General Sales Tax Act in respect of supplies at
Mysore. The appellant lost before the Appellate Assistant
commissioner but partially succeeded before the Tribunal
which held that part of the goods were sold in the course of
import. Both the parties filed two Revision Application in
the High court. The High court allowed the Revision
Application of the state and rejected that of the assessee.
The appellant thereafter approached this Court by special
leave. Allowing the appeal of the assessee it was held by
the constitution Bench of this court speaking through Sikri,
J., that section 5 sub-section (2) of the central sales Tax
Act does not lay down any condition that before a sale could
be said to have occasioned import it is necessary that the
sale should have preceded the import. That it was quite
clear on the facts that it was incidental to the contract
that the axle-box bodies would be manufactured in Belgium,
inspected there, and imported into India for the consignee.
Movement of goods from Belgium to India was in pursuance of
the conditions of the contract between the assessee for any
other purpose. Consequently the sales took place in the
course of import of goods within Section 5(2) and, therefore
case indicate that the assessee was the agent of the foreign
seller. The principles were in Belgium. They exported the
goods through the agency of the appellant and sold them to
the Director General of civil supplies. New Delhi who was
the consignee. Thus the entire transaction was an integrated
transaction by which a foreign seller through its Indian
agent, namely, the assessee sold the goods to Indian
purchaser, namely, the Director General of civil supplies.
Consequently it was treated as one integrated transaction of
sale by a foreign exporter of goods to Indian importer,
namely, the Director General of civil supplies, New Delhi
through the agency of its local agent, namely, the assessee
and, therefore, the transaction was treated by the
constitution Bench as representing sale in the course of
import. The third constitution Bench judgment is found in
the course of import. The third constitution Bench judgment
is found in the case of coffee Board, Bangalore v. Joint
Commercial Tax officer. Madras and Another (1969) 3 SCC 349.
In that case the coffee Board had sold coffee at the export
auctions with a view that the coffee may get exported
through these auction purchasers to outside countries. it
was the contention of the coffee Board that these sales were
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in the course of export of coffee out of the territory of
India since the sales themselves occasioned the exports of
coffee and coffee so sold was not intended for use in India
or for sale in Indian markets. This contention canvassed in
the writ petition under Article 32 of the constitution by
the coffee Board was rejected by the majority of the
constitution Bench speaking through Hidayatullah, CJ. It was
held that the petitioners cannot claim exemption from tax.
The phrase ’sale in the course of export’ comprises in
itself three essentials : (i) that there must be sale; (ii)
that goods must actually be exported and (iii) that the sale
must be a part and parcel of the export. Therefore either
the sale must take place when the goods are already in the
process of being exported which is established by there
having already crossed the customs frontiers, or the sale
must occasion the export. The phrase 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. The tests are
that there must be a single sale which itself causes the
export or is in progress or process of export. There is no
room for two or more sales in the course of export is the
sale which itself result in the movement of the goods from
the exporter to the importer. Sale must be an integral part
of the precise export before it can be said to have
occasioned that particular export. Applying the aforesaid
test laid down by majority in that decision to ’sales in the
course of import’ three essentials would obviously be
required to be met before the sale can be said to be in the
curse of import, (i) there must be sale: (ii) the goods must
actually be imported; and (iii) the sale must be part and
parcel of the import. Consequently it must be shown by the
appellants that the sale by CCI to the local users of
imported raw cashewnuts had occasioned the import and such a
sale was a part and parcel of the import. If there are two
independent sales, one by a foreign exporter to CCI and
second sale by CCI to the local users, the link between the
import of raw cashewnuts and their actual delivery to their
actual users would be broken. The integrated course of
import would then be found wanting. The next constitution
Bench judgments rendered in the case of The state of Bihar
and Another v. Tata Engineering and Locomotive co. Ltd.
(1970) 3 SCC 697. In that case the constitution found in
Article 286(2) of the constitution dealing with sales in the
course of inter-state trade or commerce. Hegde, J., speaking
for the Constitution Bench made the following pertinent
observation in para 14 of the Report :
"The decided cases establish that
sales will be considered as sales
in the course of export or import
or sales in the course of inter-
state trade and commerce under the
following circumstances :
(1) When goods which are in export
or import stream are sold;
(2) When the contract of sale or
law under which goods are sold
require those goods to be exported
or imported to a foreign country or
from a foreign country as the case
may be or are required to the state
other than the state in which the
delivery of goods takes place; and
(3) Where as a necessary incidence
of the contract of sale goods sold
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are required to be exported or
imported or transported out of the
state in which the delivery of
goods takes place."
This takes us to yet another constitution Bench
judgment of this court in the case of M/s Binani Bros. (P)
Ltd. etc. etc. V. Union of India & Ors. (1974) 1 SCC 459. In
this court in this Court specking through Mathew, J., had an
occasion to once again examine the question whether the
sales on that case were in the course or import of goods so
as to be covered by the Article 286 (1) (b) of the Central
sales Tax Act, 1956. In that case 5(2) of the central sales
Tax Act, 1956. In that case the petitioner under Article 32
before this court was a dealer in non-ferrous metals. He was
supplying the same to the Directorate General of supplies &
Disposals (DGS & D). The petitioner used to import these
metals. The petitioner had sold the imported material as
principal to the DGS & D For effecting these sales it had
purchased the goods from foreign sellers and these purchases
form the foreign sellers occasioned the movement of goods in
the course of import. It was held by the constitution Bench
that the movement of goods was occasioned by the contracts
for purchase which the petitioner entered into which the
foreign sellers. No movement of goods in the course of
import took place pursuant to the contracts of sales to DGS
& D were distinct and separate from his purchase from
foreign sellers. To put it differently the sales by the
petitioner to the DGS & D did not occasion the import. On
the contrary purchases made by the petitioner from the
foreign sellers occasioned the import of the goods. There
was no privity of contract between DGS & D and the foreign
sellers. The foreign sellers did not enter into any contract
by themselves or through the agency of the petitioner with
the DGS & D and movement of goods from the foreign
countries was not occasioned on account of the sales by the
petition to DGS & D. It was further held that through under
the contract DGS & D undertook to provide all facilities for
that import of the goods for fulfilling the contracts
including an Import Recommendation certificate, there was no
absolute obligation on the DGS & D to procure these
facilities. And it was the obligation of the petitioner to
obtain the import licence. Therefore, even if the contracts
envisaged the import of goods and their supply to the DGS &
D from out of the goods imported, it did not follow that the
movement of the goods in the course of import was occasioned
by the contracts of sale by the petitioner with DGS & D AS
we will presently show, the ratio of the decision of the
aforesaid constitution Bench directly gets attracted on the
facts of the present cases. Substituting DGS & D for local
users and the petitioners in that case by the CCI it
becomes clear that on the same reasoning by which the
constitution Bench held in the aforesaid case that the sale
by petitioner to DGS & D was not in the course of import it
will have to be held that the sales by CCI in the course or
import. Another Constitution Bench judgment which also gets
squarely attracted on the facts of the present cases is
rendered in the case of MD. Serajuddin & Ors. etc. etc. V.
The state of Orissa (1975) 2 SCC 47. In the aforesaid case
this was concerned with the interpretation of the term ’in
the course of export’ as found in section 5(1) of the
central sales Tax Act. However, while interpreting the said
phraseology the constitution Bench also construed identical
phraseology found in section 5(2) dealing with in the course
of import’. In that case the appellant before this court was
assessee who was registered dealer under the central sales
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Tax Act, 1956, carrying on business of mining and exporting
mineral ores to foreign countries. He had entered into four
contracts for sale of chrome concentrates. Two of them were
directly with foreign buyers. The other two were directly
with the state Trading corporation (STC) ever since export
of mineral ores was canalise through it. The STc in turn
entered into contracts with foreign buyers. The High court
held sales under the first two contracts directly with
foreign buyers exempt from sales tax being in the course of
export. But it held sales under the contract with STC not
exempt from sales tax under the contract with STC not exempt
from sales tax under Article 286(1) (b) of the constitution
read with section 5(1) of the central sales tax Act. The
majority of the constitution Bench speaking through Ray,
CJ., upheld the decision of the High court against the
assessee. It was held that section 5 of the central sales
Tax Act has given a legislative meaning to the expression
’in the course of export’ and ’ in the course of import’.
The expression ’in the course’ implies not only a period of
time during which the movement is in progress but postulates
a connected relation. Sale in the course of export out of
the territory of India means sale in the course of export
out of the territory of India means sale taking place not
only during the goods out of the country but also as part of
or connected with such activities. In paragraph 18 of the
Report the following pertinent observation were made:
" A sale in the course of export
predicates a connection between the
sale as decisive for determining
that question. Each case must
depend upon its facts. But it does
not mean that distinction between
transaction which may be called
sales for export and sales in the
course of export is not real. Where
the sale is effected by the seller
and the seller is not connected
with the a sale for export. Where
the export is the result if sale,
the export being inextricably
linked up with sale so that the
bond cannot be dissociated without
a breach of the obligations arising
by stature, contract, or mutual
understanding between the parties
arising from the nature of the
transaction the sale is in the
course of export."
While considering the question whether the sale is in
the course of export, the Constitution Bench considered the
further question further there should be a single sale or
there can be two or more independent cases. In this
connection, it was observed that there must be a single sale
which itself causes the export and there is no room for two
or more sales in the course of export. The sale which is to
be regarded as exempt is a sale which causes the export to
take place or is the immediate case of the export. 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 breads 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
because the export commences with the intermediary. The
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tests are that there must be a single sale which itself
causes the export. The only sale which can be said to cause
the export is the sale which itself result in the movement
of the goods from the exporter to the importer. So the test
is whether there were independent transactions or only one
transaction which occasioned the movement of the goods in
the course of export. Applying this principle to the facts
of the case it was held that the sale by the assessee to the
STC which was the canalising agency for exports had no
connection with the export by STC of the purchased goods to
the foreign buyers and, therefore, the sale by the assessee
in favour of the canalising agency , namely, STC was held
not to be a sale for export. In this connection the
following pertinent observation were made in paragraphs 25
and 26 of the Report:
" Hence the contention on behalf of
the appellant that the contract
between the appellant and the
corporation and the contract
between the corporation and the
foreign buyer formed interacted
activities in the course of export
is unsound. The pre-eminent
question is as to which is the sale
or purchase which occasions the
export. The distinction between
sales for export cannot be
disregarded.
The features which point with
unerring accuracy to the contract
between the appellants and the
corporation on the one hand and the
contract between the corporation
and the foreign buyer on the other
as two separate and independent
contracts of sale are : There was
no privity of contract between the
appellant and the foreign buyer.
The privity of contract is between
the corporation and the foreign
buyer. The privity of contract is
between the corporation and the
foreign buyer. The immediate cause
of the movement of 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 documents 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 Act
means the immediate and direct
cause. But for the contract and
direct cause. But for the contract
between the corporation and the
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.
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The appellant sold the goods
directly to the corporation. The
circumstance that the appellant did
so 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."
Sales or purchases through canalising agencies who
export or import goods were also considered paragraph 28 of
the Report. It was held that system of canalisation of
exports or imports through the state Trading corporation is
constitutionally valid. The broad reasons for the system of
canalisation are control of foreign exchange ad prevention
of abuse of foreign exchange. Counsel for Minerals and
metals Trading co. which became the successor to the
corporation did not contend that the successor to the
corporation did not contend that the corporation is and
agency. Agency is created by actual authority given by
principal to the agent or principal’s ratification of
contract entered into by the agent on his behalf but without
his authority. Agency arises by an ostensible authority
conferred by the principal on the agent or by an implication
of law in cases of necessity. The contention on behalf of
the appellant that STC was an agent of necessity because the
STC was a special agency to carry out certain public
policies, was turned down. It was held that the sale by the
assessee to the canalising agency which exported the goods
was a sale transaction between two principal and agent.
Applying the ratio of the aforesaid constitution Bench
decision to sale or purchase in the course of import as
envisaged by section 5(2) which is pari materia provision
and is almost a mirror image of the provision of section
5(1) dealing with converse type of cases it has, therefore,
to be held that any purchase of goods imported by canalising
agency like CCI which is the importer of such goods and
which sells them to the actual users would also partake the
character of a sale between principal wherein the foreign
seller would be out of picture and such transactions between
all the three of them so as to make the transaction one of
sale or purchase in the course of import. But it may as well
be a transaction because of or by import carried out by the
canalising agency like CCI. It is also pertinent to note
that the constitution Bench in Serajuddin’s case (supra) has
heavily relied upon other constitution Bench judgment in the
case of Binani Bros. (Supra) which was directly concerned
with the interpretation of section 5(2) of the central sales
Tax Act as we have seen earlier.
Learned senior counsel for the appellants invited our
attention to a decision of a Bench of two learned Judges of
this Court in the case of The Deputy Commissioner of
Agricultural Income Tax and sales Tax. Central Zone.
Ernakulam v. M/s Kotak & co.. Bombay. etc. etc. (1974) 3 SCC
148. The said decision was rendered in the light of the
peculiar facts of the case which came up for consideration
of this court. The Bench speaking through Hegde, J., noted
the fact that the assessee-firm before them had imported
cotton against actual user’s import licence granted to the
mills concerned and was selling the cotton to them. That the
assessee was also precluded from selling to anybody other
than the mills to whom the user’s import licence had been
granted. It was also noted that the assessee-firm had
entered into contract with the mills, dated March 20, 1964,
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that the import licence issued in favour of the mills was
made available to the firm for utilisation of the contract,
that the letter of authority 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 was thus sent to India.
On the peculiar facts of that case, therefore, it was held
that the assessee-firm was acting on behalf of the Indian
importer mills concerned. In the light of the aforesaid
peculiar facts of the case, therefore, the Bench applied the
ratio of the decision of this court in the case of K.G.
Khosla & Co. (supra) . It is difficult to appreciate how the
said decision can be of any avail to the appellants on
entirely different set of facts which have remained will
established on record and which will be adverted to by us in
the latter part of this judgment.
It is time for us now to refer to two other judgment of
this court rendered by Benches of three learned Judges and
on which strong reliance was placed by the learned senior
counsel for the appellants. In the case of Deputy
Commissioner of Agricultural Income Tax and sales Tax.
Eranakulam v. Indian Explosive Ltd. (1985) 4 SCC 119 this
court dealt with the question whether the respondent-
assessee was concerned with sale transaction in the course
of import of chemicals, dyes etc. The modus operandi
assessee in that case was to the effect that local
purchasers used to place orders with the respondent. The
respondent 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 Authority issued by
chief controller of Import the goods, to open letters of
credit and make remittent of foreign exchange against the
said license to the extent of value specified therein. The
impost licence expressly contained two conditioned, (i) that
the goods imports 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 a 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. In the light of these facts the
decision of the Kerala High court that respondent-assessee
had effected sales in the course of import, was upheld by
this Court. Tulzapurkar, J., speaking for this court
observed that there was an integral connection between the
sale to the local purchase and the actual import of the
goods from the foreign supplier. The movement of goods from
foreign country like United states to India was in pursuance
of the conditions of the pre-existing contract of sale
between the respondent-assessee and the local purchaser. 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 other purpose. In
paragraph 4 of the Report it was further observed in the
light of various decisions of this court to which we have
made a reference earlier, that in order that the sale should
be one in the course of import it must occasion the import
there must be integral connection or inextricable link
between the first sale following the import 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
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mutual understanding, be snapped.
The aforesaid decision obviously was rendered in the
light or the peculiar facts of the case before the court. In
that case that case the respondent-assessee was acting on
behalf of the local importers and was almost as good as
their agents for importing the goods on their behalf from
foreign countries. The goods imported had to be the property
of the licence-holder at the time of clearance from the
custom and it was on the basis of the actual user’s licence
that the goods were imported by the respondent-assessee and
, therefore, it was held on the facts of that cause that
there was an integral connection or inextricable link
between the first sale following the import arising from
contract or mutual understanding or nature of the
transaction which linked the sale to import which could not,
without committing a breach of contract or mutual
understanding be diverted elsewhere. As we will presently
see no such conclusion is possible on the facts of these
appeals and in the light of salient features emerging on the
record of these cases. On the contrary the decisions of the
constitution Benches of this court in Serajuddin’s case
(supra) and in the case of Binani Bros. (supra) get squarely
attracted. The other decision on which strong reliance was
placed by the learned senior counsel for the appellants was
rendered by a Bench of three learned Judges in the case of
Consolidated coffee Ltd. and Anr. etc. V. Coffee Board.
Bangalore etc. etc. (1980) 3 SCR 625 which is called the
second coffee Board case. In that case Tulzapurkar, J.
speaking for the Bench had to consider the constitution
validity of section 5 sub-section(3) of the central sales
Tax Act which was brought on the statute Book in the light
of the earlier coffee Board case judgment of the
constitution Bench in Coffee Board, Bangalore (supra). By
the said amendment to section 5(3) the legislature thought
it fit to grant exemption also to the penultimate sales
prior to the sales in the course of export by the canalising
agency. That was with a view to boost up foreign exchange
earnings. While upholding the said amendment it was held
that section 5(3) of the Central sales Tax Act has been
enacted to such penultimate sale as satisfies the two
conditions specified therein, namely, (a) that such
penultimate sale must take place (i.e. become complete)
after the agreement or order under which the goods are to be
exported and (b) it must be for the purpose of complying
with such agreement or order and it is only then that such
penultimate sale is deemed to be a sale in the course of
export. The aforesaid decision, therefore, is confined to
the validity of the amended provision which itself
postulates that but for such amendment the penultimate sale
would have remained outside the sweep of Section 5 sub-
section(1) of the Central sales Tax Act and such penultimate
sale could not have been treated as sale in the course of
export. Even that apart for interpreting the identical
phraseology " in the course of" found both in section 5(1)
and section 5(2) this decision by three learned Judges’
Bench could not have laid down anything contrary to what the
constitution Benches in Serajuddin’s case (supra) and in the
case of Binani Bros. (supra) had laid down on the true
construction of the provision of section 5(1) and 5(2) while
interpreting the words ’in the course of export’ or ’ in the
course of import’ as found in these provisions.
Reliance placed by our esteemed colleague Sujata V.
Manohar, J. on the judgments of this court in the cases of
Indian Explosives Ltd. and M/s. Kotak & co. (supra) for
taking the view that ratio of the constitution Bench
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judgment in Md. Serajuddin case (supra) would not be
applicable as the legislature had amended the relevant
provisions of section 5, in our view, is not apposite. In
the first place, as noted earlier, the decisions of smaller
benches of learned Judges of this court that decided Indian
Explosives and M/s. Kotak & Co.’s case (supra ) cannot be
pressed in service by the appellants when on facts of the
present cases the contrary ratio of the decisions of the
constitution Benches which decided MM. Serajuddin’s case
(supra) and M/s. Binani Bros.’s case (supra) squarely get
attracted. Even that apart, with great respect to our
esteemed colleague Sujata V. Manohar, J., it could not
assumed that the legislature by inserting sub-section (3) of
section 5 had in any way departed from the ratio of the
aforesaid constitution Bench decisions on the statutory
scheme as was then existing.. it is trite to observe that
the legislature is competent to remove the substratum of the
earlier judgment or this court by inserting s new provision.
It is necessary to visualise that but for sub-section (3) of
section 5 as introduced by the latter amendment, the
penultimate transactions would have remained outside the
sweep of the phrase ’sale in the course of export’. It is
only because of the latter amendment that by a legislative
fiction even the penultimate sales were sought to be covered
by the said phrase. It is pertinent to observe in this
connection that there is no such amendment introduced by the
legislature for extending the sweep of the phrase ‘sale in
the course of import ’.
In the light of the aforesaid settled legal position
emerging from the constitution Bench decisions of this court
the following propositions clearly get projected fro
deciding whether the concerned sale or purchase of goods can
be deemed to take place in the course of import as laid down
by section 5(2) of the central sales Tax Act:
(1) The sale or the purchase, as
the case may be, must actually
take place.
(2) Such sale or purchase in India
must itself occasion such
import, and not vice versa
i.e. import should not
occasion such sale.
(3) The goods must have entered
the import stream when they
are subjected to sale or
purchase/.
(4) The import of the concerned
goods must be effected as a
direct of the concerned sale
or purchase transaction.
(5) The course of import can be
taken to have continued till
the imported goods reach the
local users only if the import
has commenced through the
agreement between foreign
exporter and an intermediary
who does not act on his own in
the transaction with the
foreign exporter and who in
his turn does not sell as
principal the imported goods
to the local users.
(6) There must be either a single
sale which itself causes the
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import or is in the progress
or process of import or
through there may appear to be
two sale transactions they are
so integrally enter-connected
that they almost resemble one
transaction so that the
movement of goods from a
foreign country to India can
be ascribed to such a
composite well integrated
transaction consisting of two
transactions dovetailing into
each other.
(7) A sale or purchase can be
treated to be in the course of
import if there is a direct
privity of contract between
the Indian importer and the
foreign exporter and the
intermediary through which
such import is effected merely
acts as an agent or a
contractor for and on behalf
of Indian importer.
(8) The transaction in substance
must be such that the
canalising agency or the
intermediary agency through
which the imports are effected
into India so as to reach the
ultimate local users appears
only a as mere name lender
through whom it is the local
importer-cum-local user who
masquerades.
If the aforesaid conditions are satisfied then
obviously the transaction of sale or purchase would be in
the realm or sale or purchase in the course of import
entitling it to earn exemption under section 5(2) of the
central sales Tax Act. But if on the contrary the
transactions between the foreign exporter and the local user
in India get transmitted through an independent canalising-
import agency which enters into back to back contracts and
there is no direct linkage or caudal connection between the
export by foreign exporter and the receipt of the imported
goods in India by the local users, the integrity of the
entire transaction would be disrupted and would be
substituted by two independent transactions. one between the
canalising agency the owner of the goods imported and the
other between the import canalising agency and the local
users for whose benefit the goods were imported by the
wholesale importer being the canalising agency. In such a
case the sale by the canalising agency to the local users
would because of or by import which would not be covered by
the exemption provision of section 5 sub-section (2) of the
central sales Tax Act.
On the facts of these cases and in the light of the
propositions enumerated above it is impossible to accept the
contention of learned senior counsel for the appellants that
the sales in the present cases effected by the CCI in favour
of the local users were in course of import of raw cashew
from African countries.
We may state that a clear finding of fact is reached by
the tribunal in cases arising out of Revisions before the
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Kerala High court and also by the Karnataka High Court in
the appeals by CCI that neither the CCi nor the assessee had
led any evidence to show that goods were sold by transfer of
documents of title on high seas, and hence it had to be held
that CCI had not sold the goods crossed the customs
frontiers of India and resultantly the latter part of
section 5(2) is not attracted on the facts of these aspects
any further.
Now is these time for us to take stock of the situation
and to see whether the aforesaid requirements for the
applicability of section 5(2) have been met in the present
cases or not.
Prior to September 1970 the assessees imported raw
cashewnuts from African countries under an open General
Licence. After processing these cashewnuts the assessees
exported cashewnut kernels to other countries. By a
Notification issued under bearing No.3-1970 dated 31st of
August 1970, " cashewnuts" were deleted from the schedule of
items which could be imported under an open General Licence.
Instead they were now required to be imported through a
canalising agency, namely, the CCI. As a result, for the
relevant assessment years 1970-71 to 1972-73 the assessee
imported their requirement of cashewnuts from African
countries through the CCI. As the CCI is acting as a
canalising agency, it after collecting the information
regarding the requirements of actual users in connection
with the import of raw cashew is found to have acted on its
own in this dealing with the foreign exporter. Therefore,
CCI cannot be said to be an agent of the local users. it has
been found as a fact that CCI deals with the foreign
exporter on its own though while so acting it may be keeping
in view its further obligation to sell the imported cashew
to there concerned private local users who have to process
the same for exporting the processed cashewnuts ultimately.
It is also well established on record that on account of the
demands by local users and the agreement to sell the
imported cashew by CCI to the local users the CCI undertakes
the task of imparting cashew on wholesale basis from the
foreign exporters by entering into independent contracts
with the foreign exporters by entering into independent
contracts with the foreign exporters. The following salient
features of the transaction which remain well established on
record and which have been enumerated by the Kerala High
court deserve to be noted at this stage :
(a) There was a direct, distinct
and independent contract of
purchase between the CCI on
the one hand and the foreign
sellers in Africa on the
other.
(b) The transactions under which
the CCI sold the imported raw
cashewnuts to the assessee on
payment of the price thereof
are wholly unconnected with
the contract of purchase, the
CCI had entered into with the
foreign sellers.
(c) There is no privity of
contract between the assessees
and the foreign sellers.
(d) The assessees remained
undisclosed to the foreign
sellers.
(e) The foreign sellers know
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nothing of the understanding
between CCI and the assessees,
discernible from the various
orders and agreements executed
between them in connection
with the distribution of the
raw cashewnuts.
(f) The bills of lading were
undisputable made out in the
name of the CCI and the CCI
therefore had obtained a
complete and indefeasible
title to the goods purchased
by them from foreign sellers.
(g) The transaction under which
the raw cashewnuts were put on
board the ship did not create
any real rights and
obligations as between the
foreign sellers and the
assessees although the raw
cashewnuts are supposedly
imported for their benefit.
(h) The circumstance that the
contract between CCI and the
foreign sellers was in the
CIF form strengthens the
position that there were two
distinct, independent and
unconnected purchases.
(i) Sale prices for distribution
of goods to actual users will
be determined by the public
sector agency concerned
subject to the guidance and
general control of the
Ministry of Foreign Trade.
In this connection it will so be profitable to keep in
view the findings recorded by the Kerala Appellate Tribunal
based on relevant evidence on record. At page 88 of the
paper books is found a letter dated 4.11.1970 addressed by
CCI to one similarly situated local users Bakul Cashew Co.,
Quilon. The said letter calls upon the local users to
furnish requisite bank guarantee for the entire value of the
goods allotted to it or in the alternative open a letter of
Credit in favor of the cashew corporation of India,
Cochin/state Trading corporation of India, Cochin through
the cochin Branch of its bankers in Quilon. The letter
further recites that clearance of respective quantity of
cashewnuts would be done by executing a bond with customs
with the help of following documents :
1. Provisional invoice to be issued
by CCI in the absence of original
supplier’s invoice.
(2) No. and date of sub-licence
issued in its favour.
(3) Delivery order in local user’s
favour issued by the steamer agent.
The Tribunal also noted the further fact that the
foreign exporter issues invoice of the exported commodity to
India in favour of CCI Ltd. whose import licence is also
mentioned at the top of the invoice. That licence is in
favour of Cashew corporation of India. A copy of such
invoice is found at page 94 of the paper Book. This invoice
leaves no room for doubt that the privity of contract
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between the foreign exporter and the Indian importer is
between the foreign exporter and the Indian importer is
between the CCI as importer and the foreign exporter at the
other end which would clearly pre-suppose that the goods
moved in the import stream on account of the purchase by
CCI, the Indian importer, which places order for import of
cashew with the foreign exporter. The local users are
nowhere in the picture at that stage. It may be that the CCI
acting as a wholesale importer places the orders for import
of cashew in the light of theses prior agreements with the
local users. But that would make it a wholesale importer
acting upon the requirements of the local users who would
remain local purchasers through the wholesale seller-cum-
importer CCI. At page 95 of the paper Book is also found
CCI’s invoice in turn issues for a users quantity of .p161
imported material in favour the sub-licence in issued. At
page 96 is found a copy of the Bill of Lading which also
shows that the foreign exporter has exported the goods in
favour of the CCI, Cochin through the concerned ship. It is
also found established on record that the goods could be
cleared through customs by the locals users after making
full payment of the goods to the CCI. Thus ownership of the
goods remains with the CCI till the concerned documents are
cleared through the bankers of the local users a copy of
which is found as Annexure ’I’ at page 99 of the paper Book
shows that the goods for the import of which the licence has
been granted shall be the property of the license t the time
of clearance through the customs. It was submitted by the
learned senior counsel for the appellants that was a
mistaken condition imposed in the subsidiary licence. Be
that as it may, during the relevant period of assessment
such subsidiary licence clearly showed that the main licence
to import was in favour of CCI and the sub-licence was
available to the local users who could become the owner of
the goods imported only after making full payment of the
goods to the CCI and after getting clearance of the goods
through the customs. " Even the Letter of Authority given by
the Ministry of Foreign Trade to CCI as importer of the
goods to permit the indenter to clear imported goods through
the customs also reflects the same position. The Kerala
Tribunal in paragraph 21 of its judgment has found that the
allottees cannot claim absolute ownership of the goods
before customs clearance as it is evidenced from a letter
dated 29.2.1971 sent by the cashew corporation of India to
certain allottees, wherein it has been specifically stated
that if steps are not taken by the allottee to take delivery
of the goods that reached the port immediately, the
corporation of the corporation to the allottes would go to
show undoubtedly that the goods remain the property of the
corporation with specific right to re-allot or re-sell the
same to other parties until the goods are cleared through
customs. so, the allottees cannot claim ownership of
property in the goods before they clear the goods through
customs. It was submitted that the CCI was under an
obligation to allot the requisite quantity of imported
Cashewnuts to the local users for whose benefits the goods
were imported. But that will not reflect that local user was
the importer. Agreement between CCI and local user may give
a contractual right to the local users to enforce its
demands against CCI and in a given case it may be enforced
by specific performance against CCI. That claim, however ,
has nothing to do with foreign exporter who only deals with
CCI as bulk importer of the goods and
against whom the local user cannot have any legally
enforceable right. All the aforesaid features which are well
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established on record leave no room for doubt that it is on
account of the sale to CCI by foreign exporter that the raw
cashew get imported the canalising agency like CCI to place
orders for import of the concerned quantities. But CCI by
the foreign exporter on its own and gets bulk imports of
cashewnuts. It is the sale to the CCI buy the foreign
exporter that occasions the movement of raw cashew from
African countries to India. The imported cashew remains of
the ownership of the importer CCI and only on retirement of
documents on payment of value of the allotted cashew by the
local users and on their getting the goods cleared from
customs that the properly in the concerned imported goods
would pass from CCI to the local users. Thus there are two
clear transactions. One transaction is import of raw cashew
by CCI from foreign exporters The second transaction which
is back transaction which is back to back transaction is of
sale by the canalising agency like CCI which is the
wholesale importer in favour of the local users for whom the
goods are indented. That independent sale which may be based
even on a prior agreement of sale by CCI to local users
would remain an independent transaction between importer CCI
and the local purchaser, namely the local user. There is no
privity of contract between the local users on the one hand
and the foreign exporter on the other. These two
transactions cannot be said to be so integrally
interconnected as to represent one composite transaction in
the course of import of raw cashewnuts as tried to be
submitted by learned senior counsel for the appellants. On
the facts of these cases, therefore, the decisions of the
constitution Benches of this Court in Serajuddin’s case
(supra) and in the case of Binani Bros. (supra) get squarely
attracted and as a result these sales by the CCI to the
local users go out of the sweep of the exemption provisions
engrafted by section 5(2) of the Central sales Tax Act. The
conclusion to which the Kerala and Karnataka High court
reached, therefore, cannot be faulted.
The alternative contention canvassed on behalf of the
appellant by learned senior counsel Shri Poti based on
section 2(ab) of the central sales Tax Act which defines
’crossing the customs frontiers of India’ as crossing the
limits of the area of a custom station in which imported
goods or exported goods are ordinarily kept before clearance
by customs authorities. also cannot be of any avail to the
appellants fore the simple reason that this amendment was
brought on the statute Book much after the relevant
assessment years. This amendment which sought to confer a
substantial benefit to the local users cannot be said to be
a procedural amendment which could have any retrospective
provision is of a remedial nature and it cannot be said to
be a procedural amendment which could have any retrospective
effect. On the contrary this substantive prevision is of a
remedial nature and it cannot have any retrospective effect
by implication. The provision is also not expressly made
retrospective. As laid down by a three member Bench of this
court in the case of R. Rajagopal Reddy (Dead) by LRs. &
Ors. V. Padmini Chandrasekharan (Dead) by LRs (1995) 2 SCC
630 wherein one of us, S.B. Majmudar, J., spoke for the
Bench, that it is now well settled that where a statutory
provision which is not expressly made retrospective by the
legislature seeks to affect vested rights and corresponding
obligations of parties, such provision cannot be said to
have any retrospective effect by necessary implication. In
para 15 of the Report reliance was placed on an earlier
decision of this court in the case of Garikapai Veeraya V.
N. Subbiah Choudhry Air 1957 SC 540 wherein chief Justice
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S.R. Das speaking for this court had made following
pertinent observations:
" The golden rule of construction
is that in the enactment to show
that it is to have retrospective
operation, it cannot be so
construed as to have the effect of
altering the law, applicable to a
claim in litigation at the time
when Act was passed."
Consequently it cannot be said that the enactment of a
new definition regarding crossing the customs frontiers of
India a said down by section 2(ab) of the Central sales Tax
Act for considering the liability to pay sales tax could be
legitimately pressed in service for deciding the question of
sales Tax liability of appellants during the assessment
years when such definition was not on the statute book. For
all these reasons no case is made out by the appellants for
our interference in these cases. With grate respect to our
esteemed colleague Sujata V. Manohar, J., it is not possible
to agree with her conclusion that there is a direct and
inseverable link between the transaction of sale and the
import of goods on account of the nature of the
understanding between the parties as also by reason of the
canalising scheme pertaining to the import of cashewnuts.
Nor it is possible for us to agree with her finding that
these transactions are covered by the exemption provisions
of Section 5(2) of the central sales Tax Act. In view of our
findings that these transaction are not covered by the
exemption provisions of section 5(2) all the appeals are
liable to fail and are accordingly dismissed, however, with
no order as to costs.