2026 (2) TMI 327 - HC - VAT / Sales Tax

Sale for export versus sale in the course of export: court finds export nexus determines tax exemption and sets aside revision order.

Whether a sale qualifies as a sale in the course of export or merely a sale for export turned on the export nexus: where export is inextricably linked to ... Sale for export - goods sent outside India and consideration received in foreign exchange - amounts to a sale in the course of export, as defined in Section 5 of the CST Act Or Not - exemption from tax - words “in the course of export” - exemption from State sales tax under Article 286(1)(b) - transfer of documents of title after the goods have crossed the customs frontiers - Scope of Section 5(1) of the Central Sales Tax Act - HELD THAT:- The 2nd respondent appears to have understood the words “in the course of export” to mean that the sale of goods carried out by the petitioner would not meet the requirement in Section 5(1), on the basis of the dictum laid down by the Hon’ble Supreme Court in the case of Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964 (4) TMI 90 - SUPREME COURT] In this case, a manufacturer of processed tea, had sold it’s tea, by way of public auction, to an agent or an intermediary of foreign buyers. The issue that came up for consideration, before the Hon’ble Supreme Court, was whether such sales would come within the ambit of sales described in Section 5(1) of the CST Act, held that; ' Each case must depend upon its facts. But that is not to say that the distinction between transactions which may be called sales for export and sales in the course of export is not real. In general where the sale is effected by the seller, and he is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising by statute, contract or mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of export' In the present case, the 2nd respondent holds that the goods moved out of India, as a result of the sales to the foreign buyers and that the petitioner received the sale consideration, in foreign currency. It is not clear as to whether the 2nd respondent has deliberately misunderstood these provisions or he genuinely did not understand the meaning of the term “in the course of export” in Section 5(1) of the CST Act. It is unfortunate that an officer who has been in the department and was holding the post of an Additional Commissioner of Commercial Taxes could come up with an order of this nature. In any event, this was an unnecessary burden cast on this Court, to correct a palpably illegal order. In the circumstances, this Writ Petition is allowed, setting aside the impugned Order of revision. Issues: Whether the turnover from sales by the petitioner, where goods were sent outside India and consideration received in foreign exchange, constitutes a 'sale in the course of export' within the meaning of Section 5(1) of the Central Sales Tax Act, 1956 and is therefore exempt from tax.Analysis: The Court examined Section 5(1) of the Central Sales Tax Act, 1956 and the constitutional principle in Article 286(2). The Court relied on the established distinction between a 'sale for export' and a 'sale in the course of export' as articulated by the Supreme Court: a sale in the course of export requires an integral, inextricable link between the sale and the export such that the sale occasions the export (including transfer of documents of title after crossing customs frontiers or an obligation/contractual bond to export). The impugned revision order accepted that goods had been sent out of India and foreign exchange was received but concluded that these facts did not satisfy Section 5(1). On the facts before it, the Court found that the revision order misinterpreted the statutory test and failed to treat the turnover as falling within Section 5(1) where the requisite connection between sale and export was established.Conclusion: The writ petition is allowed; the impugned order of revision dated 28.06.2019 is set aside and the petitioner's turnover in respect of the exported goods is to be treated as sales in the course of export under Section 5(1) of the Central Sales Tax Act, 1956 (decision in favour of the assessee).