Export sales and "last sale" under CST Act s.5(3) versus s.3(4) tax on interstate dispatches; assessee wins.

The dominant issue was whether export sales, including the last sale deemed to be in the course of export under s.5(3) CST Act, could be taxed under s.3(4) TNGST Act. The HC held that once the conditions in Explanation 3(a)(i) were satisfied (specific/ascertained goods existing when the export contract was made), the transaction was a "sale" within s.2(n) TNGST Act, and therefore did not fall within the exclusionary expressions in s.3(4). Applying ejusdem generis, s.3(4) was confined to dispatches outside the State by branch/agent transfer "for sale or otherwise," not export sales. Consequently, s.3(4) was inapplicable and the writ petitions were allowed in favour of the assessee.

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Issues: (i) Whether Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959 applies to export sales of goods manufactured in Tamil Nadu when, applying Section 2(n) read with Explanation 3(a) and Section 5 of the Central Sales Tax Act, 1956, the situs of such export sales is within the State?

Analysis: Relevant provisions include Section 2(n) and Explanation 3(a) to the Tamil Nadu General Sales Tax Act, 1959 which deem a sale to have taken place in the State where the goods are within the State at the relevant time; Sections 3(3) and 3(4) of the Tamil Nadu General Sales Tax Act, 1959 which grant concessional tax on inputs used for manufacture inside the State and impose a surcharge where the manufactured goods are not sold in the State but are despatched outside by branch transfer or to an agent (subject to exceptions for inter-State trade or commerce); Section 5(3) of the Central Sales Tax Act, 1956 which deems the last sale preceding export to be in the course of export; and Article 286(1) of the Constitution which prohibits States from imposing tax on sales in the course of export. Applying these provisions together: where Explanation 3(a) conditions are satisfied (goods are specific or ascertained and within the State at the relevant time), the export transaction is deemed a sale within the State for the purposes of the TNGST Act. Section 3(4)'s liability arises only when the purchaser "does not sell the goods so manufactured" and instead effects disposal outside the State by branch transfer or to an agent except as a direct result of inter-State trade or commerce; an export sale that is a deemed sale under Explanation 3(a) and covered by Section 5 of the CST Act falls outside the category that Section 3(4) seeks to tax. Further, imposing Section 3(4) on deemed export sales would conflict with Article 286(1) and the statutory scheme that promotes export by excluding export sales from State taxation. The maxim Ejusdem Generis and established principles of construing taxing statutes in favour of the taxpayer support exclusion of export sales from Section 3(4) liability.

Conclusion: Section 3(4) of the Tamil Nadu General Sales Tax Act, 1959 does not apply to export sales which, under Section 2(n) read with Explanation 3(a) and Section 5 of the Central Sales Tax Act, 1956, have their situs within the State; the petitioners' export sales are excluded from liability under Section 3(4), and the question is answered in favour of the assessee.

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