2010 (9) TMI 879 - SC - VAT / Sales Tax

Exemption under s.5(3) CST Act upheld for bus body supplier in penultimate sale linked to export

SC (LB) upheld the HC's decision granting exemption under s.5(3) CST Act to the assessee, a local manufacturer supplying bus bodies to an exporter. The ... Eligibility of exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956 - scope of the Amending Act 103 of 1976, by which section 5(3) of the CST Act was added - whether an assessee (local manufacturer) is eligible to get exemption under sub-section (3) of section 5 of the Central Sales Tax Act, 1956 ('the CST Act'), if the penultimate sale effected in favour of the exporter is inextricably connected with the export of goods outside the territory of India. - HELD THAT:- The Constitution Bench judgment of this court in K. Gopinathan Nair [1997 (3) TMI 513 - SUPREME COURT], the court held that the sale by the canalizing agency to the local users would not be a sale in the course of import but would be a sale because of or by import which would not be covered by the exemption provision of section 5(2) of the Central Sales Tax Act. The court further noticed that a sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer. When we analyse the decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on section 5(3) of the CST Act, the following principles emerge: The test to be applied is, whether there is an inseverable link between the local sale or purchase on export and if it is clear that the local sale or purchase between the parties is inextricably linked with the export of the goods, then a claim under section 5(3) for exemption from State sales tax is justified, in which case, the same goods theory has no application. The facts of this case clearly reveal that the transaction between the assessee and the exporter is inextricably connected with the export of the goods to Sri Lanka. The communication between the foreign buyer and the exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the assessee under the specifications stipulated by the foreign buyer. The bus bodies constructed and manufactured by the assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer. In the purchase order placed on the assessee by the exporter, it is specifically indicated that the bus bodies have to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order. The assessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the 'same goods' theory has no application. We may also indicate that the burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and to establish that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer, which in this case the assessee has succeeded in establishing. Thus, we are satisfied that the assessee has succeeded in satisfying those tests and hence, eligible for exemption under sub-section (3) of section 5 of the CST Act. We, therefore, find no error in the decision rendered by the High Court in declaring that the assessee is entitled to exemption under section 5(3) of the CST Act. The reference is accordingly answered and the appeals stand dismissed. Issues: (i) Whether an assessee (local manufacturer) is eligible for exemption under section 5(3) of the Central Sales Tax Act, 1956 where the penultimate sale to the exporter is inextricably connected with the export of goods out of India.Analysis: Section 5(3) deems the last sale or purchase preceding the sale occasioning export to be in the course of export if it took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. Constitutional parameters under Article 286 and earlier decisions (including tests applied in Sterling Foods, Vijayalaxmi Cashew Company and K. Gopinathan Nair) establish that exemption depends on an inseverable, inextricable link between the penultimate domestic transaction and the eventual export. The court identified essentials: (i) a sale, (ii) actual export, and (iii) the sale must be part and parcel of the export; the sale must occasion the export by being the immediate cause or being inextricably linked with the export obligation arising from statute, contract, mutual understanding or the nature of the transaction. Where such an inextricable connection exists, the 'same goods' test does not apply.Conclusion: The penultimate sale of bus bodies to the exporter was inextricably connected with the export order and thus eligible for exemption under section 5(3) of the Central Sales Tax Act, 1956; the assessee is entitled to the exemption.