Purchase tax on Exim scrips fails where bank receives licences only for cancellation and destruction, not market transfer.

Exim scrips and replenishment licences are treated as goods only when transferred or assigned as marketable instruments for consideration; the original grant is not a sale, though a market transfer may attract sales tax. Where the designated bank receives the instruments merely as agent of the Reserve Bank of India for cancellation and destruction, the purpose is only to extinguish the rights created by the licence and remove the instrument from the market. In that situation, the instrument loses its commercial character and ownership is not transferred in the sense required for purchase tax. The State Bank of India was therefore not liable to purchase tax under Section 4(6)(iii).

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Issues: Whether the designated branches of the State Bank of India were liable to purchase tax under Section 4(6)(iii) of the Bengal Finance (Sales Tax) Act, 1941 on receipt of Exim scrips for cancellation at the direction of the Reserve Bank of India.

Analysis: Exim scrips and replenishment licences are goods only when they are transferred or assigned as marketable instruments for consideration. The earlier grant of the licence is not a sale, and a subsequent transfer in the market may attract sales tax. But where the instruments are taken back through the bank as agent of the Reserve Bank of India solely for cancellation and destruction, the object is to extinguish the rights created by the licence, not to purchase goods for commercial use. In that situation, the instrument ceases to retain its commercial character and is removed from the market. The ownership in goods is not transferred to the bank in the relevant sense, and the transaction falls outside the mischief of purchase tax under Section 4(6)(iii).

Conclusion: The State Bank of India was not liable to purchase tax on the Exim scrips received for cancellation.

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