By TIOL News Service

NEW DELHI, AUG 03, 2014: THE issue before the Bench is - Whether a transaction has to be treated as export of goods where the sale or purchase either occasions such export or when transfer of documents of title of the goods takes place after they have crossed the Customs frontiers. YES is the High Court's answer.

Facts of the case

The assessee is a company registered under the local and central sales tax Act. In respect of assessment year 2000-01, the assessing authority made an additional demand on the ground that the assessee had not been able to show and prove that they had exported consignments covered by Invoice No.171 and No. 209. The reason given was that the assessee had failed to furnish requisite certificates of the Indian Customs authorities for clearing the goods for export to Nepal. The aforesaid finding was affirmed in the first appeal.

In second appeal, Tribunal held that the goods receipts brought on record do not show that assessee was a consignee. It was held that the assessee had brought on record material to show that there was a sale of goods to the named buyer and that there was an import of such goods into Nepal, it had not been shown that the transfer of property in the goods from the assessee company to the buyer took place after and not before the goods were cleared for export out of India.

Having heard the parties, the Court held that,

+ Sales tax cannot be imposed and levied on sale or purchase of goods in the course of the import of the goods into or export of goods outside, the territory of India. The expression “in the course of” was elucidated and explained by the Supreme Court way back in the year 1964 in Ben Gorm Nilgiri Plantations Co-Conoor (Nilgiris) Vs. Sales Tax Officer, Special Circle, Ernakulum, [1964] 51 ITR 345, where question arose regarding taxability on auction of tea chests to the bidder who was an agent of a foreign buyer, under Travancore-Cochin General Sales Tax Act, 1125 and it was held:-

“23. As preliminary to the discussion of the question involved, we shall put aside certain types of transactions as regards which there is no dispute that they clearly fall on one side of the line or the other. On the one side of the line would be the case where a seller in pursuance of a contract of sale with a foreign buyer puts the goods sold on board a ship bound for a foreign destination. Such a sale would be an “export sale” which would undoubtedly be within the constitutional protection of Article 286(1)(b). In regard to this type, however, we would make this observation. In such a case we consider that it would be immaterial whether or not with reference to the provisions of the Sale of Goods Act, read in conjunction with the terms and stipulations of any particular contract, the property in the goods passes to buyer on the Indian side of the customs frontier or beyond it. In either event the sale would have occasioned the export, for the sale and the export form one continuous series of transactions, the one leading to the other - not merely in point of time but integrated by reason of a common intention which is given effect to. In such a case it would be seen that there is but one sale - to the foreign buyer “which occasions the export”, and which is implemented in accordance with the terms of the contract by an actual export which is the sine qua non of “a sale in the course of export”…

28. But the question is, do not these sales also “occasion the export” and in that sense sales “in the course of export” The test which has been laid down by this Court for determining the proximity of the connection between the sale and the export so as to bring the sale within the constitutional exemption in Article 286(1)(b) is the integrality of the two events - the sale and the export. The question to be answered is therefore whether the sales now under consideration do not form part and parcel of a single integrated transaction with the export or are they distinct, distant and mediate, the sale and the export being related to each other only in the sense of one leading to the other or the one succeeding the other merely in point of time. If the former, the sales are within Article 286(1)(b), but if the connection between the two is as described latter, they are outside the exemption…

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33. When counsel says that there was no term in the contract between the seller and the buyer that the goods purchased were not to be sold locally but have to be exported, he is right only in the sense that it is not any express term of the contract. But could it be said that that was not the implicit common understanding on which the entire transaction was concluded. The buyer was not interested in the purchase except on terms of the export quota rights being transferred to him and that was why the transfer of the export right was affected or contracted to be effected as part and parcel of the sale of the goods. Again, the buyer was an agent, who as we have stated earlier was not free to deal with the tea purchased by effecting a local sale, but was under an obligation to his foreign principal to export the goods purchased to a foreign destination. It was with such a buyer that the assessee entered into the transaction of sale. On these facts we are satisfied that it was part of the understanding between the seller and the buyer, inferrable from all the circumstances attendant on the transaction that the buyer was bound to export. Pausing here, we would add that, we understand that importance is attached in this context to the need of a term in the sale contract laying an obligation on the part of the buyer to export only for the purpose of demonstrating the intimate connection between the sale and the support for establishing that it was the sale that occasioned the export. If we are right, then what is of significance is the real and common intention of the two parties to the transaction - whether they contemplated the goods purchased being sold locally, or whether they intended the goods sold being only exported and not whether there is such a term in the contract between the parties.”

++ we also have a Division Bench’s decision of Delhi High Court in the case of Sita Juneja and Associates Vs. Commissioner of Sales Tax, 38 DSTC J-60, wherein it has been observed:-

“13. The expression “in the course of export or import” as referred to in Article 286 means any sale or purchase which itself occasions the export or import of the goods, as the case may be, out of or into the territory of India. A sale by way of export involves a series of integrated activities commencing from the agreement of sale with the foreign buyer, ending in the delivery of goods to any carrier for transport out of the country by land or sea and resulting in transfer of title in the goods beyond the borders. Such kind of sale cannot be disassociated from the export without which it cannot be effectuated and the sale and the resultant export from part of a single transaction. The liability to tax flows from the charging section of the taxing statute. The export sale of commodities to foreign buyer on CIF or FOB basis fall within the scope of the exemption.”

++ in Commissioner of Sales Tax Vs. Aero Traders (P) Ltd., (2007) 9 ILR 170 (Delhi), reference was made to Section 5(1) of the Central Sales Tax Act, 1956, which reads as under:-

“5. When is a sale or purchase of goods said to take place in the course of import or export,--(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.”

Thereafter, it has been observed as under:-

“A reading of Section 5(1) clearly suggests that the export of goods, for the purposes of the Act shall be deemed to take place if the sale or purchase of the goods either occasions such export or is effected by a transfer of documents of title to the goods after they have crossed the custom frontiers. Insofar as the present case is concerned, the facts on record show that the sale of the goods by the assessed (sic) through STC had taken place after the goods had crossed the custom frontiers both by ship as well as by aircraft.”

++ thus in either case i.e. when the sale or purchase either occasions such export or secondly when transfer of documents of title of the goods is after they have crossed the customs frontiers, it is treated as export of goods;

++ decision of Supreme Court in Monga Rice Mill and Others Vs. State of Haryana and Another, (2004) 6 SCC 101, is pertinent in context of Section 5(3) of Central Sales Tax Act, 1956, wherein it has been held:-

“5. In these civil appeals, we are not concerned with imports and, therefore, in the course of our judgment we have only emphasised the concept of sale or purchase in the course of export. Section 5 of the 1956 Act lays down principles for determining as to when a sale or purchase takes place in the course of export. It defines constitutional inhibition of Article 286(1)(b), namely, that no law of a State shall impose tax on sale or purchase which takes place in the course of import of goods into or export of goods out of India. Section 5(1) covers direct export sale, whereas Section 5(3) applies to penultimate sale or purchase, which is deemed to be sale or purchase in the course of export and consequently falls under Section 5(1) of the 1956 Act. Therefore, in cases where a sale is not directly connected with exports and where between the seller and the ultimate buyer, intermediaries are involved, such a sale, if not covered under Section 5(3), cannot occasion any export and, therefore, such transaction would not fall under Section 5(1). There is a difference between sale for export and sale which occasions export. When the assessee buys paddy and converts it into rice which is sold to the exporter, although purchase of paddy is a transaction for export, such transaction does not occasion export and consequently it does not fall within Section 5(3). Under Section 5(3), a penultimate local sale is deemed to be an export sale under Section 5(1) only if such local sale occasions export."

++ the question of law mentioned above has to be answered in favour of the assessee and against the responden revenue. However, we pass an order or remit as in the second paragraph noted above the tribunal had made some observations in favour of the assessee, but no affirmative final conclusion, it appears, has been made. As the tribunal was unclear on the legal position, it would be proper and appropriate to find out the exact and true facts and then apply the legal ratio. We feel that the issue should be examined afresh in the light of the aforesaid decisions.

(See 2014-TIOL-1275-HC-DEL-CT)