BY TIOL News Service

MUMBAI, DEC 10, 2018: THE issue before the bench is whether an assessee can claim exemption from VAT for supplying goods to the WHO in India, where such goods had not been sold by the assessee itself & where there was no export sale of such goods. NO is the answer.

Facts of the case

The assessee-company is a major manufacturer of medicines & pharmaceutical products. During the relevant AY, it sold batches of a drug to its sister unit located in the UK. Under directions from this unit, the goods were supplied to the WHO & the billing was done in the name of the UK unit. Such drugs had been supplied to the WHO in India. However, the medicines supplied had been manufactured by a sister unit of the assessee. On such transaction, the assessee claimed exemption from payment of sales tax. Such exemption was denied by the Revenue and the disallowance was sustained by the Tribunal on grounds that the sale had been made to the WHO, due to which no exemption u/s 6(3) of the CST Act could be given. The Tribunal also held that to be an export sale, the goods must leave the country for export which in the present case had not happened.

On appeal, the High Court held that,

++ subsection 1 of Section 6 as can be seen is a charging provision. Proviso to subsection 1 provides that a dealer shall not be liable to pay tax under the Act on any sale of goods which in accordance with the provisions of subsection 3 of Section 5 is a sale in course of export of goods out of the territory of India. Subsection 3 of Section 6 starts with non-obstantive clause and provides that notwithstanding anything contained in the Act, no tax under the Act shall be payable by any dealer in respect of the sale of any goods made by such dealer in the course of interState trade or commerce to any official, personnel, consular or diplomatic agent, the United Nations or any other similar International body entitled to privileges under any convocation or agreement to which India is a party or under any law for the time being in force. For the purpose of this appeal, this court accepts the assessee's contention that if the sales had been made to WHO, the exemption from payment of tax in terms of subsection 3 of Section 6 would have been available. In the present case, as a matter of fact concurrently and if it may be added correctly the Revenue Authorities and the Tribunal have come to the conclusion that the sale was not made by the assessee to WHO. Subsection 3 of Section 6 of the CST Act, therefore, would not apply;

++ reference to the proviso to subsection 1 of Section 6 also would not help the assessee. As per the proviso, irrespective of the provisions contained in subsection 1 a dealer would not be liable to pay tax on any sale of goods on sale in course of export of the goods out of the territory of India. In order to claim this benefit, therefore, the sale had to be export sale of goods travelling out of territory of India. The Tribunal, therefore, correctly did not accept this contention;

++ the counsel for the assessee may be correct in contending that the interplay of the provisions of the subsection 3 and subsection 1 of Section 6, in the present case would lead to some what harsh consequences. However, when the provisions of law are clear, the consequences cannot be avoided. Contrary to what was canvassed, this is not a case of any ambiguity in the the statutory provision giving rise to the concept of the benefits flowing to the assessee in such a situation.

(See 2018-TIOL-2560-HC-MUM-VAT)