Deduction under Section 5(2) Central Sales Tax Act allowed without requiring privity between foreign supplier and Indian consumer

Calcutta HC allowed petitioner's writ petition challenging disallowance of deduction under Section 5(2) of Central Sales Tax Act, 1956. Court held that privity of contract between foreign supplier and ultimate consumer in India is not required for Section 5(2) application, citing SC precedent. The relevant consideration is whether goods movement was integrally connected with supply contract. Matter remanded for reconsideration through affidavit exchange, particularly regarding whether import was inextricably bound with local sale, after Board found otherwise.

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Issues:
Challenge to order disallowing deduction under Section 5(2) of the Central Sales Tax Act, 1956
Interpretation of whether sale of medical equipment can be considered in the course of import
Prima facie case for interim protection against coercive measures

Analysis:
The petitioner challenged an order disallowing a deduction under Section 5(2) of the Central Sales Tax Act, 1956, for the assessment period 2016-17. The issue was whether the sale and purchase of medical equipment by the petitioner could be considered as taking place in the course of import into India. The petitioner argued that even without a direct contract between the foreign seller and local buyers, the import of goods exclusively for local purchasers should qualify for the deduction. The petitioner relied on judgments emphasizing the integral connection between the movement of goods and the contract for their supply. The Board found two separate sales transactions, denying the benefit of Section 5(2) to the petitioner. The High Court noted that privity of contract between the foreign supplier and local consumer was not a requirement for the application of Section 5(2), as established in previous judgments. The Court directed the petitioner to deposit a portion of the taxed amount as a condition for interim protection against coercive measures.

The Board's findings were based on the petitioner's agreements with local customers for the supply of medical equipment procured from foreign sellers. The Board concluded that the import was not inseparably linked to local sales, denying the petitioner the benefit of Section 5(2). The Court reiterated that privity of contract between the foreign supplier and the end consumer was not mandatory for Section 5(2) to apply. The Court emphasized the need to ascertain if the sale or purchase occasioned the import, especially when the Board found the import not integrally connected with local sales. The Court granted interim protection to the petitioner, considering the revenue implications and directed a partial deposit of the taxed amount.

The Court acknowledged the factual complexity of the case and allowed the respondents to file an affidavit-in-opposition. The Court decided to hear the writ petition based on the petitioner's prima facie case and the need for further consideration through exchange of affidavits. The Court restrained the respondents from taking coercive measures for a specified period and directed the petitioner to deposit a sum with the Court for the interim protection to remain in effect. The matter was scheduled for a hearing in September 2024, and all parties were instructed to act based on the official copy of the order from the Court's website.

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