REP licences and Exim scrips sent for cancellation are not sold goods; premium received is outside sales tax.

Transfer of REP licences or Exim scrips to designated State Bank of India branches for onward forwarding to the licensing authorities on receipt of premium did not constitute a sale of goods. Although such licences are goods when assigned to a third party for consideration, a different position applies when they are returned to the grantor or sovereign authority for cancellation or extinction, because they then cease to be marketable commodities and lose value for market purposes. The bank acted only as an agent in the cancellation process, and the object was extinction of the rights embodied in the licences rather than purchase of goods; accordingly, the premium was not liable to sales tax.

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Issues: Whether the transfer of REP licences/Exim scrips to designated State Bank of India branches for onward forwarding to the licensing authorities on receipt of premium constituted a sale of goods exigible to sales tax.

Analysis: The issue was already concluded by the Supreme Court. Replenishment licences or Exim scrips are goods when transferred or assigned by the holder to a third party for consideration, but a different position applies where they are returned to the grantor or sovereign authority for cancellation or extinction. In that situation, the instrument ceases to be a marketable commodity and becomes valueless for market purposes. The bank acted only as an agent of the Reserve Bank of India in the process of cancellation, and the object was to extinguish the rights embodied in the licences, not to purchase goods.

Conclusion: The tender of REP licences/Exim scrips in the stated circumstances did not amount to a sale of goods and the premium was not liable to sales tax.

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