1975 (4) TMI 113 - SC - VAT and Sales Tax

Supreme Court: Sales not exempt from tax under Article 286(1)(b)

The Supreme Court held that the sales in question did not occasion the export or were effected by transfer of documents of title after the goods crossed ... Whether the sales in question made by the assessee were sales effected in the course of export of goods out of the territory of India and as such were exempt from imposition of sales tax under article 286(1)(b) of the Constitution? Held that:- Allow these appeals, set aside the judgment of the High Court, and dismiss the writ petitions filed by the assessee. Respectfully following the ratio and reasoning of this court in the above-quoted observations in Serajuddin's case [1975 (4) TMI 109 - SUPREME COURT OF INDIA] by which we are bound, we accept the contentions canvassed on behalf of the appellant and negative those advanced by the assessee. Issues Involved:1. Whether the sales in question made by the assessee were sales effected in the course of export of goods out of the territory of India and as such were exempt from imposition of sales tax under Article 286(1)(b) of the Constitution.Detailed Analysis:Issue 1: Whether the sales in question made by the assessee were sales effected in the course of export of goods out of the territory of India and as such were exempt from imposition of sales tax under Article 286(1)(b) of the Constitution.Background and Facts:The assessee, New Rajasthan Mineral Syndicate, was assessed to tax under Section 9 of the Central Sales Tax Act, 1956, for the assessment years 1957-58, 1958-59, and 1959-60. The Sales Tax Officer assessed the firm on turnovers of Rs. 3,18,757.6, Rs. 3,99,948.93, and Rs. 5 lakhs, respectively. The assessee contended that the sales were in the course of export and thus exempt from tax under Article 286(1)(b) of the Constitution and Section 5(1) of the Act.Assessee's Argument:The assessee argued that the export of iron-ore had been nationalized, and only the State Trading Corporation (S.T.C.) was authorized to export iron-ore. The assessee had agreements with Shri Narayan & Co. (N. & Co.), nominated by S.T.C., to procure iron-ore for export. The assessee claimed that the sales were in the course of export as the iron-ore was meant for export to Japan, and the property in the goods did not pass to N. & Co. or S.T.C. before the goods crossed the customs frontiers of India.Revenue's Argument:The revenue contended that the sales in question did not occasion the export and were not effected by transfer of documents of title after the goods had crossed the customs frontiers of India. They argued that the movement of goods was the result of an agreement between the assessee and N. & Co., not between the assessee and the foreign buyer, and there was no privity of contract between the assessee and the foreign buyer.High Court's Findings:The High Court allowed the writ petitions, holding that the assessee was engaged in the export of iron-ore to Japan through S.T.C., with N. & Co. acting as a broker. The court found that the property in the goods did not pass to N. & Co. or S.T.C. at any point.Supreme Court's Analysis:The Supreme Court examined whether the sales in question occasioned the export or were effected by transfer of documents of title after the goods had crossed the customs frontiers of India. The court referred to the tests prescribed in Section 5(1) of the Central Sales Tax Act, 1956, and previous judgments, including Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras, and Binani Bros. v. Union of India.Key Points Considered:1. Privity of Contract: The court noted that there was no privity of contract between the assessee and the foreign buyer. The contracts were between the assessee and N. & Co., and between N. & Co. and S.T.C.2. Integrated Transaction: The court found that the sales did not constitute a single unbroken transaction leading to export. The intervention of N. & Co. and S.T.C. indicated separate transactions.3. Transfer of Property: The court observed that the property in the goods passed to N. & Co. and S.T.C. before the goods crossed the customs frontiers of India. The payment terms and the right to reject the goods before shipment further supported this.Conclusion:The Supreme Court, following the ratio of Serajuddin's case and other relevant judgments, held that the sales in question did not occasion the export and were not effected by transfer of documents of title after the goods had crossed the customs frontiers of India. The sales were thus not exempt from sales tax under Article 286(1)(b) of the Constitution.Judgment:The appeals were allowed, the judgment of the High Court was set aside, and the writ petitions filed by the assessee were dismissed. The parties were directed to bear their own costs.Appeals allowed.