1985 (8) TMI 72 - SC - VAT and Sales Tax

Imported Goods Sales Tax Ruling: Actual Users' Licences Criteria Clarified

DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, ERNAKULAM Versus INDIAN EXPLOSIVES LIMITED

The Supreme Court upheld the decision of the High Court and Appellate Tribunal, ruling that sales of goods imported and supplied to customers on the basis ... Whether the sales effected by the respondent-assessee in the three concerned years of goods imported and supplied to customers on the strength of Actual Users' Import Licences of the customers were exempt from sales tax under the Kerala General Sales Tax Act, 1950, on the ground that these were sales 'in the course of import of the goods into the territory of India'? Held that:- Having regard to the terms and conditions on which the respondent-assessee imported the goods and the manner in which the transactions were put through, it cannot be disputed that there was an integral connection between the sale to the local purchaser and the actual import of the goods from the foreign supplier. In other words it is clear that the movement of the goods from the foreign country (here the United States) to India was in pursuance of the conditions of the pre-existing contract of sale between the respondent-assessee and the local purchaser. If that be so the view of the Tribunal and the High Court that the sales in question were in the course of import will have to be upheld. Appeal dismissed. Issues:Whether sales of goods imported and supplied to customers on the strength of Actual Users' Import Licences are exempt from sales tax under the Kerala General Sales Tax Act, 1950.Analysis:The case involved the question of whether sales tax was applicable on the turnover of sales of goods imported and supplied to customers on the basis of Actual Users' Import Licences. The respondent-assessee contended that these sales were in the course of import of goods into India and hence not taxable under Art. 286(1)(b) of the Constitution. The assessing authority and the Appellate Assistant Commissioner ruled against the assessee, but the Appellate Tribunal and the High Court accepted the contention, citing relevant legal precedents. The High Court, following the test laid down by the Supreme Court in previous cases, held that the sales were in the course of import, leading to the Revenue appealing to the Supreme Court.The goods were imported by the respondent-assessee on the strength of Actual User's Import Licences obtained by the customers and supplied to them for use in their factories. The transactions were conducted in a manner that demonstrated an integral connection between the sale to the local purchaser and the actual import of goods. The import was done on behalf of the local purchaser, and the goods were to be utilized only by the licence-holder as raw material. The Court found that there was an inextricable link between the sale and the actual import, supporting the argument that the sales were in the course of import.The Supreme Court reiterated the test of integral connection between the sale and the actual import/export to determine if a sale can be considered in the course of import/export. The Court clarified that for a sale to be in the course of import, there must be an obligation to import arising from statute, contract, or mutual understanding, which cannot be voluntarily interrupted without breaching the contract or statute. The Court rejected attempts to dilute or deviate from this test, reaffirming its importance in deciding such matters.The Court distinguished a previous decision where a different view was taken, emphasizing that the facts of the present case established an integral connection between the transactions of sale and the actual import, making the sales in the course of import. The movement of goods from the foreign country to India was in line with the contract of sale between the respondent-assessee and the local purchaser, supporting the conclusion that the sales were in the course of import. Ultimately, the Supreme Court upheld the view of the Tribunal and the High Court, dismissing the appeals and confirming that the sales were not taxable.