1988 (6) TMI 315 - HC - VAT and Sales Tax

Sales to dealers not ultimate in export chain don't qualify for exemption under Central Sales Tax Act

The court held that the sales by the respondent to the dealers did not qualify as ultimate or penultimate in the export chain, thus not meeting the ... - Issues:- Entitlement to exemption from tax under section 5 of the Central Sales Tax Act, 1956 for sales in the course of export.Analysis:The judgment in question revolves around the interpretation of section 5(3) of the Central Sales Tax Act, 1956, specifically regarding the exemption from tax for sales in the course of export. The respondent, a manufacturer of hessian/gunny bags, made sales to dealers who used the bags for packing barytes powder for export. The respondent claimed that these sales were in the course of export, falling under section 5(3). The assessing authority rejected the claim, leading to an appeal and subsequent Tribunal decision in favor of the respondent, prompting the State's revision.The crux of the matter lies in determining whether the sales by the respondent to the dealers qualify as penultimate sales occasioning the export, as required by section 5(3). The State argued that these sales were not ultimate or penultimate in the export chain, thus not eligible for the exemption. Conversely, the respondent contended that the dealers were the exporters, and their sales to the foreign buyer were the ultimate ones, making the respondent's sales penultimate and falling under section 5(3). The judgment draws parallels with a Supreme Court case where the privity of contract between specific entities was crucial in defining the ultimate and penultimate sales in an export transaction.The court delved into the concept of agency, emphasizing that the system of canalization of exports through specific bodies can be valid. However, in this case, the court found no evidence of agency between the dealers and the entity responsible for the final export. The judgment highlighted that the legislative amendment introducing section 5(3) aimed to extend the benefit of exemption to not just ultimate but also penultimate sales in the export process, ensuring broader applicability.Furthermore, the respondent's argument regarding the passing of property in the goods sold was refuted, as the sales to the entity responsible for the final export were considered crucial for invoking the exemption under section 5. Ultimately, the court held that the sales by the respondent to the dealers did not meet the criteria of being ultimate or penultimate in the export chain, thereby disqualifying them from the exemption under section 5. The revision was allowed, setting aside the Tribunal's decision, with no costs imposed.