Penultimate sale exemption fails where tea is sold to an intermediary, not directly in a foreign buyer-linked export transaction.

For exemption under section 5(3) of the Central Sales Tax Act, 1956, the penultimate sale must be integrally linked to a foreign buyer's agreement or order and form part of a direct export transaction. On the substance of the arrangements, the applicants sold tea to the State Trading Corporation, which contracted with the foreign buyer in its own name and handled the export documents; the applicants had only a limited shipping role. There was no privity with the foreign buyer, so the purchases from tea brokers did not qualify as exempt penultimate sales and remained liable to tax.

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Issues: Whether the applicants' purchases of tea for export through the State Trading Corporation were exempt as penultimate sales in the course of export, or whether the agreements with the State Trading Corporation created a sale to that Corporation and only a limited agency for shipment.

Analysis: The agreements had to be construed by their substance and not their form. The applicants were described as shipper or supplier, the State Trading Corporation entered the foreign export contracts on its own, the foreign buyer paid the Corporation, the Corporation retained a service charge, and the shipping documents were prepared and negotiated through the Corporation. The use of the applicants' export licences did not by itself establish direct export by them. On the terms of the arrangements, the applicants sold the tea to the Corporation and undertook shipment only for that limited purpose. There was no privity of contract between the applicants and the foreign buyer, and no agreement or order from the foreign buyer to the applicants as required for exemption under section 5(3) of the Central Sales Tax Act, 1956.

Conclusion: The transaction was a sale by the applicants to the State Trading Corporation and not a direct export sale by the applicants. The purchases from the tea brokers were therefore not exempt under section 5(3) of the Central Sales Tax Act, 1956 and were liable to tax. The decision was against the applicants.

Ratio Decidendi: For exemption under section 5(3) of the Central Sales Tax Act, 1956, the penultimate sale must be linked to a foreign buyer's agreement or order and must form part of a direct export transaction by the assessee; a local sale to an intermediary with only a limited shipping arrangement does not qualify.

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