Sale in the course of import applies where goods are imported for named buyers through an intermediary, defeating local tax liability.

Goods imported for identified allottees under a prior arrangement were treated as a direct sale by the foreign seller to the allottees through the society as an intermediary, because the society had no independent right of disposal and acted only under the bulk licence arrangement. The movement of the goods from abroad was occasioned by that pre-existing contract, so the transaction was characterised as a sale in the course of import and fell outside the taxing power under the Madras General Sales Tax Act, 1959. As the turnover was not taxable, the related penalty also had no basis and could not survive.

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Issues: (i) Whether the society was a dealer who effected a taxable sale when importing copra for named allottees, or whether the transaction was a direct purchase by the allottees from the foreign seller through the society as an intermediary. (ii) Whether the transaction was a sale in the course of import and therefore outside the taxing power under the Madras General Sales Tax Act, 1959. (iii) Whether any penalty could survive if the transaction was not taxable.

Issue (i): Whether the society was a dealer who effected a taxable sale when importing copra for named allottees, or whether the transaction was a direct purchase by the allottees from the foreign seller through the society as an intermediary.

Analysis: The purchase orders were signed by the foreign seller, the petitioner-society, and the allottee, showing direct privity between the foreign seller and the allottee. The goods were imported only for the named allottees, the society had no right of disposal, and the insurance and import arrangements were made for the allottees' account. The society functioned only as an authorised intermediary under the bulk licence arrangement and not as a trader buying and selling on its own account.

Conclusion: The society was not a dealer effecting two independent sales; the transaction was in substance a direct sale by the foreign seller to the allottees through the society as an agent or intermediary.

Issue (ii): Whether the transaction was a sale in the course of import and therefore outside the taxing power under the Madras General Sales Tax Act, 1959.

Analysis: The agreement with the allottees preceded the import, the goods were ordered to the allottees' specifications, and the import from Ceylon was undertaken only in pursuance of that arrangement. The movement of goods from abroad was therefore occasioned by the contract and was incidental to it. On that footing, the transaction fell within the principle that a sale occasions import when the import is the direct result of the contract between the parties, even though the sale precedes actual shipment or the importer acts through an intermediary.

Conclusion: The transaction was a sale in the course of import and was not liable to tax under the Madras General Sales Tax Act, 1959.

Issue (iii): Whether any penalty could survive if the transaction was not taxable.

Analysis: Once the underlying turnover was held not taxable, there remained no basis for the penalty imposed in relation to that turnover.

Conclusion: The penalty could not survive.

Final Conclusion: The assessment could not stand, the transaction was treated as non-taxable under the State sales tax law, and the ancillary penalty was also unsustainable.

Ratio Decidendi: Where goods are imported only for identified local purchasers under a prior arrangement, and the foreign seller ships the goods with knowledge of the ultimate buyers, the transaction occasions import and is a sale in the course of import rather than a local taxable sale by the intermediary.

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