1966 (1) TMI 54 - SC - VAT and Sales Tax

Supreme Court Reverses High Court, Exempts Sales from Tax

KG. Khosla and Co. (P.) Ltd. Versus Deputy Commissioner of Commercial Taxes, Madras Division, Madras

The Supreme Court allowed the appeals, reversed the High Court's judgment, and quashed the assessment orders. It held that the sales were in the course of ... Whether on a proper interpretation of the terms of the contract, there was or was not involved therein any sale in the course of import? Held that:- Appeal allowed. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within section 5(2) of the Act, and are, therefore, exempt from taxation. Issues Involved:1. Whether the sales were in the course of import.2. Whether the property in the goods passed in Belgium.3. Interpretation of Section 5(2) of the Central Sales Tax Act.Issue-wise Detailed Analysis:1. Whether the sales were in the course of import:The primary contention was whether the sales by the assessee to the Government department had occasioned the import of goods and thus were exempt from sales tax under Section 5(2) of the Central Sales Tax Act. The High Court held that before a sale can be said to have occasioned the import, it is necessary that the sale should have preceded the import. The Supreme Court disagreed with this interpretation, stating that the movement of axle-box bodies from Belgium to India was incidental to the contract and thus the sales took place in the course of import. The Court emphasized that 'the movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies,' and there was no possibility of these goods being diverted for any other purpose. Consequently, the sales were exempt from taxation.2. Whether the property in the goods passed in Belgium:The High Court rejected the contention that the property in the goods passed to the purchaser at the stage when the goods were approved by the representative in the factory of the manufacturers in Belgium. The Court noted that the contract contained provisions for the inspection and approval of the goods in Belgium, but also included clauses that allowed the ultimate consignee to reject the goods upon arrival in India. This indicated that the property in the goods did not pass to the purchaser in Belgium. The Supreme Court, agreeing with this view, held that the property in the goods did not pass in Belgium and thus the sales were not outside the State within the meaning of Article 286(1)(a) of the Constitution.3. Interpretation of Section 5(2) of the Central Sales Tax Act:Section 5(2) of the Act states that 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. The Supreme Court interpreted this section in light of previous judgments, stating that the expression 'occasions the movement of goods' must have the same meaning as in Section 3(a) of the Act. The Court cited Tata Iron and Steel Co. Ltd. v. S. R. Sarkar, which held that a sale occasions the movement of goods when the movement is the result of a covenant or incident of the contract of sale. Applying this interpretation, the Court concluded that the movement of axle-box bodies from Belgium to India was the result of a covenant in the contract of sale, and thus the sales were in the course of import under Section 5(2) of the Act.Conclusion:The Supreme Court allowed the appeals, reversed the judgment of the High Court, and quashed the assessment orders. The Court held that the sales were in the course of import and thus exempt from taxation under Section 5(2) of the Central Sales Tax Act. The appellant was awarded costs for the proceedings in both the Supreme Court and the High Court.