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 ... Sale in the course of export - penultimate sale - inextricably connected with the export - same goods theory - obligation to export / privity of contractPenultimate sale - inextricably connected with the export - sale in the course of export - Penultimate sale qualifies for exemption under section 5(3) of the Central Sales Tax Act if it is inextricably connected with the export. - HELD THAT: - The Court held that section 5(3) deems the last sale preceding export to be in the course of export where that last sale took place after, and for the purpose of, complying with the agreement or order for or in relation to such export. The determinative test is whether there is an inseverable link between the local sale and the export such that the local sale is part and parcel of the exportation-i.e., the sale must occasion the export by reason of obligation arising from statute, contract, mutual understanding or the nature of the transaction. Applying these principles to the facts, the Court found that the assessee manufactured bus bodies to the foreign buyer's specifications, the sale was specially tailored to the export order and failure to comply could cancel the export; thus the penultimate sale was inextricably connected with the export and attracted exemption under section 5(3). [Paras 23, 24, 25, 26, 29]The penultimate sale in this case is inextricably connected with the export and is therefore exempt under section 5(3) of the CST Act.Same goods theory - sale in the course of export - The 'same goods' theory does not apply where the penultimate sale is inextricably linked with the export. - HELD THAT: - While earlier decisions invoked the 'same goods' test (asking whether goods purchased retain identity as those exported), the Court clarified that where transactions are inextricably connected such that the penultimate sale occasions the export, the 'same goods' theory is inapplicable. The Court reviewed precedents (Sterling Foods, Vijayalaxmi Cashew) and held that those cases turn on whether processing or change of identity occurred; however, when an inseverable contractual and transactional link to export exists, exemption under section 5(3) is justified irrespective of a rigid same-goods analysis. [Paras 19, 20, 25, 26]Where a penultimate sale is inextricably connected with export, the same-goods test does not defeat exemption under section 5(3).Obligation to export / privity of contract - sale in the course of export - Burden lies on the assessee to establish the inextricable link (obligation/privity) between the penultimate sale and the actual export. - HELD THAT: - The Court reiterated that the assessee must prove the requisite link-an obligation to export or privity of contract, or an integrated transaction-so that the local sale occasions the export. The connection must be real, intimate and inter-linked, not casual or fortuitous. On the facts, the assessee discharged this burden by showing contractual specifications from the foreign buyer, the exporter's purchase order requiring compliance, and that the bus bodies were manufactured specifically for export. [Paras 23, 27, 28]The assessee bears the onus to prove the inextricable link; here that burden was satisfied.Final Conclusion: The appeals are dismissed. The High Court's decision holding that the assessee is entitled to exemption under section 5(3) of the Central Sales Tax Act is affirmed on the facts: the penultimate sale of bus bodies was inextricably connected with the export and the assessee discharged the burden of proof. 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.