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 Court held that the penultimate sale qualified as a sale "in the course of export" because it was inextricably linked to the export transaction: the foreign buyer specified that the assessee must manufacture bus bodies to its precise requirements; the goods were not marketable locally; and non-compliance could lead to cancellation of the export order. Rejecting the "same goods" theory in such circumstances, SC ruled that the assessee had discharged the burden of proving this inseverable export nexus and dismissed the revenue's appeals.

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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.

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