1973 (4) TMI 79 - SC - VAT and Sales Tax

Sales Tax Exemption for Import Transactions Upheld

The Supreme Court upheld the Appellate Tribunal's decision that the sales in question were in the course of import, exempting them from sales tax under ... Whether the sales effected by the respondent in these cases occasioned import of Egyptian cotton? Held that:- Appeal dismissed. This court came to the conclusion that the purchases in question were purchases for the purpose of export and the same did not occasion export. This court did not differ from the view taken in Khosla's case [1966 (1) TMI 54 - SUPREME COURT OF INDIA]. On the other hand, it distinguished that decision. Hence the rule laid down in the Coffee Board's case [1969 (10) TMI 58 - SUPREME COURT OF INDIA] is inapplicable to the present case. Issues Involved:1. Whether the transactions under which the foreign cotton was passed on to the mills were sales or agency agreements.2. Whether such transactions, if deemed sales, were exempt from sales tax under Article 286(1)(b) of the Constitution and Section 5(2) of the Central Sales Tax Act, 1956.Detailed Analysis:1. Nature of Transactions: Sales vs. Agency AgreementsThe firm contended that the transactions were not sales but agency agreements, thus not assessable to sales tax. The assessing authority and the appellate authority rejected this contention, but the Appellate Tribunal accepted it. The Supreme Court, however, did not make a definitive ruling on this issue, stating, 'We feel that the assessee-firm is entitled to succeed on the second question even if the firm does not succeed on the first question.' Consequently, the Court proceeded to consider the transactions as sales without deciding definitively on the nature of the transactions.2. Exemption from Sales Tax under Article 286(1)(b) and Section 5(2) of the Central Sales Tax Act, 1956Constitutional and Statutory Provisions:Article 286(1)(b) of the Constitution provides that no State law shall impose a tax on the sale of goods when such sale takes place in the course of import into India. Section 5(2) of the Central Sales Tax Act, 1956, states that a sale of goods shall be deemed to take place in the course of import if the sale occasions such import.Appellate Tribunal's Reasoning:The Tribunal concluded that the sales by the assessee-firm to the mills were in the course of import, thus exempt from sales tax. The Tribunal's reasoning was based on several contractual provisions indicating that the import was necessitated by the contracts between the assessee-firm and the mills.Supreme Court's Analysis:The Supreme Court examined the contractual provisions and previous case law, particularly the judgment in K.G. Khosla & Co. (P.) Ltd. v. The Deputy Commissioner of Commercial Taxes, Madras Division, Madras [1966] 17 S.T.C. 473 (S.C.). The Court noted that, according to Khosla's case, a sale occasioning import does not need to precede the import; it is sufficient if the import is a result of a covenant in the contract of sale.Contractual Provisions:- The goods imported could not be diverted from their determined destination (i.e., the mills).- Shipping documents were issued in the names of the mills, not the assessee-firm.- Import licenses were issued to the mills, and the goods were to be the property of the mills at the time of customs clearance.- Letters of authorization indicated that the assessee-firm acted purely as an agent of the mills.These provisions led the Court to conclude that the imports were occasioned by the contracts between the assessee-firm and the mills, falling within the scope of Section 5(2) of the Central Sales Tax Act.Distinguishing from Coffee Board Case:The Court distinguished the present case from the Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 25 S.T.C. 528 (S.C.), where the purchases were for the purpose of export and did not occasion export. The Court reaffirmed the applicability of the Khosla case to the present facts.Conclusion:The Supreme Court agreed with the Appellate Tribunal's conclusion that the sales in question were in the course of import and thus exempt from sales tax under Section 5(2) of the Central Sales Tax Act, 1956, and Article 286(1)(b) of the Constitution. The appeals were dismissed with costs, affirming the Tribunal's decision.