TaxTMI 
TaxTMI 
1986 (3) TMI 304
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....of Karnataka State. The Corporation imports cashew from East African countries under licences issued by the Controller of imports and Exports and allots the imported cashew to actual users for being processed and for export of certain percentage of the raw cashew so allotted. One of the conditions of the import licence granted to the Corporation is that it should remain as the owner of the cashew imported under the licence up to the time of clearance through customs. Prior to the coming into existence of the Corporation in the year 1970, the users of raw cashew were themselves importing raw cashew from East African countries. The Corporation ascertains the requirements of the users, takes letters of acceptance from them and thereafter places orders for the supply of cashew with the foreign exporters. Separate bills of entry are drawn, each lot is separately marked and after the ship arrives at the Mangalore Harbour, the Corporation gives letters of authority to the captain of the ship authorising the delivery of the goods earmarked to the allottees. The letters of authority are sent through banks and the allottees receive the same after making payments. The allottees pay customs d....
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....ments was after the ship crossed the customs frontiers within the meaning of this expression prior to the amendment, the Corporation was not an agent of the allottees, there were two transactions one by the Corporation with the foreign suppliers and the other by the Corporation with the allottees and the importer was the Corporation and there was no appropriation as claimed, the sales were within the State and therefore taxable. 8.. The CST Act of 1956 was enacted, as is clear from the preamble, to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. Section 2(ab) of the CST Act defines the "customs frontiers of India" and the expression means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept b....
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.... is said to take place in the course of import and export so as to attract the constitutional inhibitions. The term "the customs frontiers of India" came to be defined by introducing sub-section (ab) (of section 2) by section 2(a) of the Central Sales Tax (Amendment) Act, 1976, with effect from 7th September, 1976. Prior to introduction of sub-section (ab) this term "customs frontiers of India" was not defined in the CST Act. 11.. The meaning of the expression "customs frontiers of India" in section 5 of the CST Act, prior to the introduction of section 2(ab) came up for consideration before the Supreme Court in State of Madras v. Davar and Co. [1969] 24 STC 481 (SC). In this case the ships carrying the goods in question were all in the respective harbours in the State of Madras when the sales were effected by the assessees by transfer of documents of title to the buyers. The question for consideration before the court was whether the sales were effected before the ships crossed the customs frontiers of India and therefore the sales were in the course of import. The Supreme Court held that the expression "customs frontiers" in section 5(2) of the CST Act, did not mean "customs b....
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.... exposition by the legislature itself of its intent contained in the earlier provision. As a result of the amendment the legislature has clarified what was implicit in the provisions as they existed earlier. The court further held that an amendment which is by way of clarification of an earlier ambiguous provision can be a useful aid in construing the earlier provision even though such an amendment is not given retrospective effect. 15.. Let us therefore examine whether there was any ambiguity in the meaning of the expression "customs frontiers of India" used in section 5(2) of of the CST Act. As pointed out by the Supreme Court in Davar's case [1969] 24 STC 481 (SC) the President of India has issued a proclamation dated 22nd March, 1956, and that contains a declaration as to the extent of territorial waters of India and the Central Government in exercise of the powers conferred by section 3-A of the Sea Customs Act, 1878, in supersession of the earlier notification dated 1st April, 1950, has defined the "customs frontiers of India" as the boundaries of the territory, including territorial waters of India. When the CST Act was enacted Parliament was aware of the notifications refe....
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....ills are drawn, each lot is separately marked and the allottees collect the goods on the authority of letters given by the Corporation and on payments of customs duty, etc., made on behalf of the Corporation. The relative documents are in the name of the Corporation. The order for the supply of cashew is placed by the Corporation with the foreign suppliers. The contract to supply is only between the Corporation and the foreign suppliers and the allottees are not parties to that contract. The goods are insured by the Corporation. The allotment of cashew is not by the suppliers, but by the Corporation. The foreign suppliers have no claim against the allottees and similarly the allottees have no claim against the suppliers. The right of the allottees is only against the Corporation. The privity of contract is only between the Corporation and the foreign suppliers and not between the allottees and the foreign suppliers. These facts according to Mr. Srinivasan clearly establish that the cause of movement of goods from the foreign country is the contract between the allottees and the Corporation. While according to Sri Rajendra Babu these facts clearly establish that it is the contract b....
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....On these facts the Supreme Court held that the sales effected by the assessee were in the course of import. In this case the Supreme Court followed Khosla's case [1966] 17 STC 473 (SC) and distinguished Binani Bros. (P.) Ltd. v. Union of India [1974] 33 STC 254 (SC). 20.. But the cases before us are distinguishable both on facts and the questions that arose for consideration in Khosla's case [1966] 17 STC 473 (SC) and Indian Explosives Limited's case [1985] 60 STC 310 (SC); (1985) 4 SCC 119. The licence in these cases before us was issued in the name of the Corporation with an express condition that the Corporation should be the owner of the goods imported under the licence up to the time of clearance through customs. The allottees were not entering with any agreement for the supply of goods with the foreign suppliers. The Corporation was not acting as an agent of the allottees in importing cashew from foreign countries. The Corporation imported cashew for effecting the sales in favour of the allottees. The foreign suppliers did not enter into any contract with the allottees for the supply of cashew. The sale by the foreign suppliers to the Corporation and the sale by the Corporat....
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....icences to supply non-ferrous metals. The Government agreed to pay to the petitioner sales tax under the Central Sales Tax Act or the West Bengal Sales Tax Act, whichever was applicable in terms of the contract. After the decision of the Supreme Court in Khosla's case [1966] 17 STC 473 (SC) the revenue authorities issued an order directing that sales tax should not be allowed in respect of supply of stores which have been imported against import licences for supplies under contracts placed by the DGS & D. On the basis of that direction the Government deducted in respect of sales tax certain sums of money which had been paid as sales tax in respect of supplies already made. The Supreme Court after discussing the Travancore-Cochin's cases [1952] 3 STC 434 (SC) and [1953] 4 STC 205 (SC), the Nilgiri Plantations Co.'s case [1964] 15 STC 753 (SC) and the Coffee Board's case [1970] 25 STC 528 (SC) held "that there was no obligation under the contract on the part of the DGS & D to procure import licences for the petitioner. It was the obligation of the petitioner to obtain the import licence. Even if the contracts envisaged the import of goods and their supply to the Director General of....
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....hip was that of two principals. The movement of the goods in the course of export began when the corporation shipped the goods and the fact that the export could be made only through the corporation did not make the appellant the exporter. The Supreme Court therefore held that the sales by the appellant to the corporation were not sales in the course of export and therefore exigible to tax. 24.. In Batliboi & Company Pvt. Ltd. v. State of Maharashtra (Bombay) [1981] 47 STC 321 (Bom) also, a similar question came up for consideration on these facts: The assessee, a private limited company holding an import licence, entered into a contract with K to sell a double column vertical turning and boring mill manufactured in a foreign country. Prior to this contract, the assessee had already placed an order for the same machine with the foreign manufacturers. In their letter to K, the assessee had stated that the machine was under offer to the defence department and that they could sell the machine to K provided the defence department released the same. The assessee had also accepted a stipulation in the purchase order by K that the property in the machine offered by it should stand transf....
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....o each of them distinctly and separately under separate shipping documents. The facts of this case are distinguishable and of no assistance to Sri Srinivasan. 27.. The goods in question-Sri Srinivasan submitted being unascertained future goods-were appropriated by the Corporation to the contract of sale with the allottees, the sale was complete even before the goods were shipped and no sale having taken place within the State, the provisions of the KST Act are not attracted. According to him, the drawing of separate bills, in favour of the allottees, the marking of goods separately to the allottees establish appropriation of goods to the contract of sale outside the State and therefore the State has no competence to levy tax even though payments are made and delivery is taken within the State. It is his further case that the appropriation need not be un- conditional and transfer of title has no relevance. He placed reliance on explanation (3) to section 2(t) of the KST Act and section 23 of the Sale of Goods Act, 1930, and the decision of the Delhi High Court in Indian Wood Products Company Ltd. v. Sales Tax Officer [1968] 21 STC 437. 28.. Section 2(t) of the KST Act in so far as....
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....far as the seller or buyer as the case may be who makes the appropriation. The Supreme Court in Carona Sahu Co. Private Ltd. v. State of Maharashtra [1966] 17 STC 348 (SC); AIR 1966 SC 1153 has observed "the law is well-established that in the case of contract for sale of unascertained goods the property does not pass to the purchaser unless there is unconditional appropriation of the goods in a deliverable state to the contract". 30. The decision of the Delhi High Court in Indian Wood Products' case [1968] 21 STC 437 that the appropriation need not be an unconditional appropriation is opposed to the language of section 23 of the Sale of Goods Act. It is clear from the decision of the Supreme Court in Carona Sahu Co.'s case [ 1966] 17 STC 348 (SC); AIR 1966 SC 1153 and the decision of the Madras High Court in Larsen and Toubro Ltd.'s case [1967] 20 STC 150 that appropriation is required to be an unconditional appropriation. Sri Rajendra Babu is therefore right in his submission that the appropriation must be unconditional and final and it must not be possible to divert the goods. 31.. In this case even assuming that separate bill of entry was drawn and each lot was separately mar....
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....ers to the Corporation that has occasioned the import. A person importing and a person exporting are necessary elements and the course of import is between them. The introduction of the Corporation dealing independently with the exporters and the purchasers, breaks the link between the two and there are two sales, one by the exporter to the Corporation and the second by the Corporation to the purchasers. The first sale is in the course of import because the import commences because of that sale. The second sale to the purchasers is not in the course of import because the import has already commenced with the sale to the Corporation. Therefore the only sale which caused the import is the sale by the foreign suppliers to the Corporation and not the sale by the Corporation to the allottees. The fact that the import was made for selling the imported cashew to the allottees for complying with the existing contract with them will not make the import itself having been caused by the contract entered into by the Corporation with the allottees. The Supreme Court in Coffee Board, Bangalore v. joint Commercial Tax Officer, Madras [1970] 25 STC 528 (SC) has held that there must be a single ....