1969 (10) TMI 58 - SC - VAT and Sales Tax

Court clarifies sales tax exemption criteria for exports, dismisses petition challenging assessment

The court dismissed the preliminary objection on the maintainability of the petition under Article 32, allowing the petitioner to challenge the assessment ... Fundamental right to property under Articles 31 and 32 - scope of Article 286(1)(b) - sale in the course of export - statutory definition of 'in the course of export' in section 5(1) of the Central Sales Tax Act, 1956 - distinction between a sale 'for export' and a sale 'in the course of export'Fundamental right to property under Articles 31 and 32 - competence of a statutory corporation to invoke Article 32 to challenge a sales tax demand and whether resort to statutory remedies bars such petition - HELD THAT: - The Court held that a corporation is not excluded from invoking Article 32 where a demand for tax threatens the fundamental right to property guaranteed by Article 31. Following Ujjam Bai and related precedent, relief under Article 32 is available when the impugned demand is not backed by a valid law, when action is without jurisdiction, or when principles of natural justice are violated; mere errors of law or fact in the exercise of jurisdiction founded on a valid statute must be corrected by statutory remedies. Consequently the petitioner was entitled to raise before this Court the contention that the tax demand infringed fundamental rights and need not be confined to the appellate or revisional remedies under the Sales Tax Act, subject to the limitation that Article 32 cannot be used as a substitute for ordinary appeals absent a clear fundamental rights infringement.Preliminary objection dismissed in part; petitioner may invoke Article 32 to challenge the tax demand insofar as a fundamental rights breach or lack of valid law is allegedScope of Article 286(1)(b) - sale in the course of export - statutory definition of 'in the course of export' in section 5(1) of the Central Sales Tax Act, 1956 - distinction between a sale 'for export' and a sale 'in the course of export' - whether sales by the Coffee Board at 'export auctions' to registered exporters are 'sales in the course of export' and thus exempt from State sales tax - HELD THAT: - Applying the legislative definition in section 5(1) and this Court's precedents, a sale qualifies as 'in the course of export' only where (a) the goods are already in the process of export (e.g., transfer of documents after crossing customs frontiers) or (b) the sale itself occasions or immediately causes the export so that the sale and the export form an integrated single transaction between exporter and importer. The Court emphasised that the exemption covers only sales integrally bound up with a particular export; introduction of an independent intermediary or a separate subsequent sale severs that link. On the facts the Board's auction sales to registered exporters constituted an initial, independent sale (a sale for export) which was not inextricably linked to any particular export transaction by the buyer to a foreign importer. Contractual conditions (including export guarantees and penalties) which enable or compel subsequent export did not make the Board's sale itself the sale that occasions a specific export. Accordingly those transactions did not fall within Article 286(1)(b) read with section 5(1).Sales at the Coffee Board's export auctions are sales for export, not sales in the course of export; exemption under Article 286(1)(b) and section 5(1) does not applyFinal Conclusion: The Court (by majority) rejected the Coffee Board's claim to exemption: the petitions were dismissed with costs. The Board was, however, entitled to invoke Article 32 to challenge the tax demand where a fundamental rights breach or lack of valid law is alleged. Issues Involved:1. Preliminary Objection on the Maintainability of the Petition under Article 32.2. Interpretation of 'in the course of export' under Article 286(1)(b) and Section 5(1) of the Central Sales Tax Act, 1956.3. Whether the sales by the Coffee Board to registered exporters are exempt from sales tax as sales in the course of export.Detailed Analysis:1. Preliminary Objection on the Maintainability of the Petition under Article 32:The respondents raised a preliminary objection questioning the maintainability of the petitions under Article 32 of the Constitution, arguing that no fundamental right was involved. The objection was twofold: (i) the petitioner, being a corporation, could not claim the right to hold, acquire, and dispose of property under Article 19, as it is available only to citizens; and (ii) there were adequate remedies available under the Sales Tax Act to challenge the assessment.The court addressed the first part by referring to previous judgments, including the State Trading Corporation case, which held that corporations are not citizens under Article 19 but can claim protection under Article 31(1) as it applies to 'persons,' including corporations. The court thus rejected the argument that the petitioner lacked standing.Regarding the second part, the court held that a demand for tax not backed by a valid law constitutes a threat to property, giving rise to a right to move the Supreme Court under Article 32. The court emphasized that this remedy is not absolute and should be limited to establishing a breach of fundamental rights, not serving as an appeal mechanism. The preliminary objection was thus dismissed, allowing the petitioner to raise the jurisdictional point.2. Interpretation of 'in the course of export' under Article 286(1)(b) and Section 5(1) of the Central Sales Tax Act, 1956:The court examined the term 'in the course of export' as defined in Section 5(1) of the Central Sales Tax Act, 1956. According to this section, a sale or purchase is deemed to take place in the course of export if it either occasions such export or is effected by a transfer of documents of title to the goods after they have crossed the customs frontiers of India.The court referred to previous rulings, including State of Travancore-Cochin v. Bombay Co. Ltd. and State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, which established that sales occasioning the export of goods fall within the exemption. The court emphasized that the sale must be integrally connected with the export, meaning the movement from an exporter to an importer as a result of the sale.The court clarified that the phrase 'occasions the export' means that the sale must cause the export to take place or be the immediate cause of the export. The sale must be a link in the export chain, with no room for multiple sales in the course of export.3. Whether the sales by the Coffee Board to registered exporters are exempt from sales tax as sales in the course of export:The court analyzed the procedure followed by the Coffee Board for selling coffee intended for export. The Coffee Board conducts export auctions where registered exporters bid for the coffee. The conditions of the auction mandate that the coffee must be exported within three months, with penalties for non-compliance.The court concluded that the sales by the Coffee Board to registered exporters did not qualify as sales in the course of export. The court reasoned that there were two independent sales: the first between the Coffee Board and the export promoter, and the second between the export promoter and the foreign buyer. The first sale was not integrally connected with the export, as the Coffee Board had no control or knowledge of the subsequent export.The court held that the first sale was a sale for export, not in the course of export, and thus subject to sales tax under the Madras General Sales Tax Act. The petitions were dismissed with costs.Separate Judgment by SIKRI, J.:Justice Sikri disagreed with the majority opinion, arguing that the sales in question were made in the course of export. He emphasized the broader meaning of the term 'occasion' and the economic importance of export trade. He argued that the conditions imposed by the Coffee Board created a bond between the sale and the eventual export, making the sales part of an integrated transaction. He concluded that the sales were exempt under Article 286(1)(b) and Section 5 of the Central Sales Tax Act, 1956, and would have allowed the petitions.Order:In accordance with the majority judgment, the petitions were dismissed with costs.