1996 (10) TMI 394 - SC - VAT and Sales Tax

Tea purchases exempt from sales tax as penultimate sale in export course

CT. Ltd. and Another Versus Commercial Tax Officer and Others (and other appeals)

The court found that the purchase of tea by the appellants at auctions was exempt from sales tax under Section 5(3) of the Central Sales Tax Act, 1956, as ... Liability for sales tax - Held that:- Appeal allowed. There is no endorsement on the bill of lading in favour of STC that would suggest transference to it of title in the tea. There is, therefore, nothing in the contract between the appellants and STC or in the manner of its execution that establishes that there was a transfer of the property in the tea by the appellants to STC before it was transferred to the Iranian buyer. Hence, the purchase of the tea by the appellants at the auctions in fulfilment of the export obligation to the Iranian buyer was the penultimate sale in the course of export and covered by the terms of section 5(3). It was, accordingly, exempt from the payment of sales tax. Issues Involved:1. Whether the sale of tea by auction brokers to the appellants is exempt from sales tax under Section 5(3) of the Central Sales Tax Act, 1956.2. The nature of the relationship between the appellants and the State Trading Corporation (STC) - whether it is that of principal and agent or buyer and seller.3. The applicability of previous judgments to the present case.Issue-wise Detailed Analysis:1. Exemption from Sales Tax under Section 5(3) of the Central Sales Tax Act, 1956:The appellants argued that the sale of tea by auction brokers to them should be exempt from sales tax under Section 5(3) of the Central Sales Tax Act, 1956. Section 5(3) states: 'the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.'The court found that the purchase of tea by the appellants at the auctions was indeed the penultimate sale in the course of export and thus covered by the terms of Section 5(3). Consequently, it was exempt from the payment of sales tax.2. Relationship Between Appellants and STC:The appellants contended that under the contract with STC, STC acted merely as their agent and there was no sale of tea by the appellants to STC. The sale was directly from the appellants to the Iranian buyer. The court examined the terms of the contract and found that no term clearly contemplated a sale, i.e., the transfer of property in the tea from the appellants to STC.The contract required the appellants to prepare all documents for negotiation and marked 'A/c STC,' which was merely to identify the tea with the contract between STC and the Iranian buyer. The tea export license was held by the appellants, the invoice showed the Iranian buyer, and the duty drawback benefit accrued entirely to the appellants. The bill of lading issued by the Irano-Hind Shipping Co. Ltd. showed the Iranian buyer's Teheran Bank as the consignee of the tea shipped by the appellants, with no endorsement suggesting transference of title to STC.3. Applicability of Previous Judgments:The appellants cited the case of Bhopal Sugar Industries Ltd. v. Sales Tax Officer, Bhopal [1977] 40 STC 42, where the court emphasized looking at the substance rather than the form of the agreement to determine the true relationship between the parties. The court also referred to Commissioner of Sales Tax, U.P. v. Bishamber Singh Layaq Ram [1981] 47 STC 80, which discussed the crucial test of whether the agent has any personal interest in the transaction.The respondents referred to Mod. Serajuddin v. State of Orissa [1975] 36 STC 136, where the Indian company had sold goods to STC. However, the court noted that the situation in Mod. Serajuddin was different and not applicable to the present case, where STC was argued to be an agent.Conclusion:The court concluded that there was no transfer of property in the tea from the appellants to STC before it was transferred to the Iranian buyer. Therefore, the purchase of tea by the appellants at the auctions in fulfillment of the export obligation to the Iranian buyer was the penultimate sale in the course of export and exempt from sales tax under Section 5(3) of the Central Sales Tax Act, 1956. The appeals were allowed, the judgment and order of the Tribunal were set aside, and the rule in the writ petitions filed by the appellants was made absolute. There was no order as to costs. Appeals allowed.