TaxTMI 
TaxTMI 
2016 (2) TMI 988
X X X X Extracts X X X X
X X X X Extracts X X X X
....t) in the transaction of lease effected during the periods of 2006-07 to 2010-11 and other consequential directions were also issued. 3. The short cut of the case appears to be that as per the petitioner during the periods of 2004-11, the Master Lease Agreements (hereinafter referred to as 'MLA' for short) with its customers were entered into and the goods were leased by procuring from the vendors within the State of Karnataka. As per the petitioner, the operandi was that after the 'MLA' entered into between the petitioner and the customers, the purchase order was being placed by the customers directly on the foreign vendors. As per the purchase order, the goods are to be shipped to the customers, but the invoice has to be raised in the name of the petitioner. The shipping authorization letter is issued by the petitioner to the vendors. As per the petitioner, after the goods are sold to the petitioner, but shipped to the customers, the invoice is raised by the vendors on the petitioners, but the bill of entry has to be filed by the customers clearing the goods from custom authorities and the goods are taken thereafter to the customers' location. As per the petitioner, after the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt. 5. As said, common questions arise for consideration and as the period relates to the year 2006-07 to 2010-11, the same are separately numbered as per their respective span of tax period. 6. We have heard Mr.K P Kumar, learned Senior Counsel with Mr.Vikram Huilgol appearing for the petitioner and Mr.T K Vedamurthy, learned Counsel appearing for the respondents. 7. Section 5(2) of the CST Act, 1956, which is relevant for the purpose of present petitions, can be reproduced as under: "Section 5. When is a sale or purchase of goods said to take place in the course of import or export. (1) xxxxxxxx. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. 8. The aforesaid shows that if the sale or purchase of goods has occasioned by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India, the sale or purchase of goods shall be deemed to have taken place and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t being claimed by the appellant on the leased equipments. Per contra, the appellant has submitted that it is an integrated transaction and not two independent transactions to fasten the tax liability and as the integrated transaction is in the course of import falls under the purview of Section 5(2) of the CST Act and has given his submission by rebutting on each point raised by the AA and the FAA by relying on the propositions laid down by the Hon'ble Apex Court in The Indure Limited, Embee Corporation and K.G.Khosla & Co.Pvt.Ltd., cases cited supra. 9. In order to appreciate the rival contentions of the petitioner as well as the respondent, it is first of all necessary to look into Section 5 in general and Sub-Section 5(2) in particular as well as Section 3 and definition of Sale u/s. 2(g) of the Central Sales Tax Act, 1956. "Section 5. When is a sale or purchase of goods said to take place in the course of import or export. (1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasion such export or is effected by a transfer of documents of title to the g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsequent to the amendment of the Article 366 (29-A) of the Constitution of India. This fact is not being disputed either by the appellant or the respondent. The respondent views the transaction as the sale within the State amounting to the leasing of imported equipments whereas, the appellant has taken the defense, the same is in the course of import. For this purpose, Section 5(2) of the CST Act need to be analyzed. The Said sub- section has two limbs. The first limb envisages the sale or purchase in the course of import if such sale or purchase occasions such import. The second limb envisages the sale or purchase in the course of import when it is effected by transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. This type of transaction is usually termed as "High-Seas Sales". The transactions before us does not fall under the second limb of the Section 5(2) of the Act since, the transfer of documents of title to the goods has not taken place on High-Seas. Therefore, the issue which is to be resolved in these appeals is whether the transactions under dispute falls under the first limb of the Section 5(2) of the CST Act or not. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch; 12. In the above decisions Ben Gorim Nilgiri Plantations Co. and Mohammed Serajuddin cases are related to the interpretation of Article 286(1)(b) of the Constitution prior to amendment and after amendment to the Constitution (Sixth Amendment) w.e.f. 01.11.1956 and prior to insertion of sub-section (3) of Section 5 of the CST Act respectively. J.V.Gokal & Co. Pvt. Ltd. And Devar & Co. cases are related to High-Seas sales i.e. sale in the course of import by the transfer of doucuments to the title of goods before the goods crossing the customs frontiers of India. Binani Brother Pvt. Ltd., Indian Explosives Ltd., Minerals & Metals Trading Corporation of India Ltd., and Kotak Co. cases are related to sale in the course of import based on the actual users import licenses being used. Thus, the case laws having a direct bearing on the factual matrix of the present appeals are K.G.Khosla & Co. (P) Ltd., Embee Corporation, The Indure Ltd. And K.Gopinathan Nair/Cashew Corporation of India cases cited supra. The Hon'ble Apex Court in K.Gopinathan Nair vs. State of Kerala/Cashew Corporation of India vs. State of Karnataka reported together in [1997] 105 STC 580 (SC) (three members bench....
X X X X Extracts X X X X
X X X X Extracts X X X X
....through whom it is local import- cum-local user who masquerades." 13. The concept of integrated transactions is prominent in case of imports and exports, as these involve a triangular transaction much in the same way as a lease does. The importing agent normally makes an import on the basis of an order of a local buyer. Similarly, an exporter gets an export order and makes purchase for that reason. Further, the word "occasions" has also been used in Section 5 of the CST Act. The Hon'ble Supreme Court has held in K.G.Khosla & Co. (P) Ltd., vs. Deputy Commissioner of Commercial Taxes" cited supra as under:- "Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of those goods being diverted by the assessee for any other purpose. Consequently the sales took place in the course of import of goods within Section 5(2) of the Act and were therefore exempt from taxation." If the aforesaid conditions are satisfied, then the transaction of sale or purchase will fall within the sale of purchase in the course of import and accordingly will earn exemption under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asing schedule will prevail over the provisions of the MLA to the extent of any inconsistency between them. It is also to be noted that the description of the equipment and financed items in a schedule differs from the description in the related acceptance certificate, then the appellant has the liberty to amend the schedule so that the description of the equipments and the financed items in the schedule and the acceptance certificate are consistent. Thus, it is acceptance certificate which is the ultimate document for the purpose of entering into the leasing schedule as per Clause 2 of the MLA by the appellant. Clause 3 of the MLA defines the acceptance certificate and the same has to be issued to the appellant in the format of Exhibit - B as prescribed in the MLA. Only after issuance of acceptance certificate, the 'Lease Schedule' comes into existence. The end customer places purchase order not on the appellant but on the foreign vendor and in the case of Logica CMG, who being the end customer has placed purchase order on M/s. Tech Pacific (India) Exports Private Limited, 60, Alexandra Terrace, 61-01, The Comtech, Singapore - 118502 wherein the description of the equipments are p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issuance of acceptance certificate, lease acceptance and financing acceptance, Master Rental and Financing Agreement (MR & FA) as supplementary agreement to the MLA comes into existence. This fact is evident from the definition/interpretation of the expression 'purchase documents' appearing under Clause 26 of the MLA which defines the same as any agreement or other documentation between the end customer and the supplier of equipment relating to the purchase, ownership, use or warranty of equipment to be subject to a lease. The relevant clauses are selectively picked up from the MLA and reproduced hereunder:- xxx xxx xxx Thus, the right on the goods lies with the end customer till the acceptance certificate is issued followed by the novation notice. By virtue of acceptance certificate and novation notice, the rights on the goods gets transferred to the appellant and till then the rights over the goods wrests with the end customer only. In-fact in the MLA as pointed out by the FAA and AA, the description of leased equipments are not forthcoming and the appellant is not aware of the goods to be leased till the purchase order is placed by the end customer on the foreign vendor. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y her lordship at paragraphs Nos. 10 and 11 of the said decision. The comparative matrix is distinct from the present case. In order to illustrate the same, the chronological events vis-à-vis prevailing in the present case is analyzed hereunder:- (A). Karnataka Bank Limited case factual matrix: (i). Hindustan Power Plus Ltd. - Lessee - purchase order on foreign vendor dated 14th July 1997; (ii). Lessee requests to place PO on overseas supplier and assessee placing PO on foreign vendor on 05th April 1998; (iii). Letter correspondence with the assessee i.e. Karnataka Bank for finance dt. 10th April 1998; (iv). Master Lease Agreement entered between the Karnataka Bank and the lessee is dated 17th April 1998; (v). Supplementary lease agreement dated 31st July 1998. (B). Factual matrix prevailing in the present appeals: (i). Lessee M/s. Logica CMG Pvt. Ltd - PO placed on foreign vendor namely M/s. Tech Pacific, Singapore is dated 28th October 2005. (ii). Letter correspondence with the appellant for finance - Not revealed/Not available. (iii). Lessee's request to place PO on overseas supplier - No such request is made and PO by the appellant is not pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whenever the local seller imports the goods as per the specification of a specific local buyer and on the mutual understanding between the local buyer and the local seller that the goods so imported by the local seller will be purchased by the local buyer. There is in such cases, a direct link between the local sale and the import. In fact it is this mutual understanding between the local buyer and the local seller which occasions the import". Proceeding further it was opined by her lordship as under: "If we apply this test of inseverable link between the local sale and import to the transaction in the present case, it is clear that the local sale which is between the assessee and the cashew corporation of India is inextricably linked with the import of cashewnuts by the cashew corporation of India. In the first place, the very scheme of canalization in the present case envisages that the cashew corporation of India ascertains the exact requirements of the former importer who are now required to secure their supplies through the canalizing agent. Orders of import which are placed by the cashew corporation of India are in exact terms of the requirements of each of the allo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l during the impugned tax periods of April 2005 to March 2013. This fact has been admitted under the sequence of the events available on STA No.2063/2014. The relevant paragraph is reproduced hereunder: "The appellant, during a periodic review of returns filed, observed that lease transactions were inadvertently not disclosed the returns. In relation to the same, a letter was filed with the Assessing Authority stating that the turnover pertaining to the several types of transactions were inadvertently not disclosed in the returns filed for the relevant period. A copy of the letter is enclosed as Annexure-2 (the appellant's letter dated 19^th June 2013 running from page Nos.101 to 122). Based on such a review, the appellant suio- moto discharged the output tax of Rs. 6,55,52,252/- along with applicable interest of rs.2,00,49,695/- for the period of April 2005 to March 2013. The appellant requested the same be considered as voluntary disclosure in compliance with the provisions of the KVAT Act as the time limit for filing a revised return as per Section 35(4) had expired. Based on the above submiss....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the reliance is placed on the decisions of the Hon'ble Supreme Court rendered in the cases of Guljag Industries vs. Commercial Tax Officer reported in (2007) 09 VST 1 (SC) and Assistant Commercial Tax Office vs. Bajaj Electricals Limited reported in (2008) 18 VST 436 (SC). Infact, the Hon'ble Supreme Court has distinguished the D.P.Metals case (2001) 124 STC 611) in Guljag Industries case cited above. In view of the above facts, the levy of interest and penalty has to be held as correct." 22. In view of the above detailed discussion, it has to be held that the orders of the AA and FAA are correct and thereby Point No.1 is answered in the negative." 11. We may record that in the above referred portion, we have extracted only the observations made by the Tribunal and excluded the reproduction of conditions of MLA so as not to burden the record. However, at the appropriate stage, the same shall be referred by us. 12. The above referred observations made by the Tribunal more particularly the factual matrix of the present petitions referred to by the Tribunal and thereafter, findings recorded by the Tribunal shows that the Tribunal found that the requirement for getting exempt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refore, the learned counsel submitted that such being the situation, the judicial scrutiny would be available to this Court in the present petition. 15. He submitted, under these circumstances, this Court may further examine and thereafter, if the only one view is available or only one possible view is available then, the finding of the Tribunal can also be said to be perverse which may be interfered with by this Court. 16. In order to consider the aspects as to whether the view or decision or the only one view is possible and the view taken by the Tribunal can be said to be perverse or not, we have permitted the learned counsel appearing for the petitioner as well as for the respondent to make the relevant record of the case available for supporting the contention. 17. It is true that, master lease agreement is entered into between the petitioner and the customer. The Tribunal in para.14 of the Judgment has reproduced the master lease agreement but, nothing is paid by the customer to the appellant by way of part consideration or by way of advance in furtherance to the master lease agreement or even at the time when master lease agreement is entered into. We are conscious ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licable Scheme and all applicable laws in India that apply in respect of the import of the Equipment as describedin paragraph (a) above. You acknowledge and agree that you will have sole responsibility to administer the import of the Equipment into India and shall comply with all applicable laws in the course of such import. (c) Without limiting the generality of clause 15 of the Master Agreement you unconditionally undertake to indemnify us for any claim arising directly or indirectly out of or in connection with any matter involving this clause. (d) You additionally undertake to pay any duty that becomes payable in respect of the Equipment immediately upon the liability to pay that duty arising. We may (but are not required to) pay such duty onyour behalf in the event that you fail to do so. You unconditionally indemnify us against any Claim that we suffer or incur as a result of exercising our rights under this clause or otherwise in respect of the payment or non- payment of customs duty. (e) In the event that, under the Master Agreement, you are obliged to return the Equipment to us or we are entitled to repossess the Equipment from you, you will cooperate with us and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... imported the goods. We may not be understood to mean that we have expressed any view on the aspects of liability to pay any customs duty for the entitlement of exemption of the duty as the case may be. But in order to test the submission as to whether indivisible link of the transaction is broken or divided or the relationship as that of lessee or lessor is defeated or not the aforesaid observations are made. Even if we proceed on the basis that master lease agreement was entered into may be in the absence of any advance payment made or any part consideration paid, then also, so far as Customs Act is concerned, the relationship is severed in as much as, the customer is shown as the owner and only the payee of the consideration is shown as that of the petitioner. 21. Apart from the above, the documents which are made available by the Revenue which, as per him were also part of the record pertaining to the transaction by the petitioner with IGS Imagining Services (India) Pvt. Ltd., shows that the purchase order is placed by the customer i.e. IGS imaging Services (India) Pvt. Ltd., and in the payment terms it has been mentioned as under: "Payment through H.P.Financial Services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le. As such, as observed by us hereinabove, if we consider the material produced taking a lenient view that it was mixed question of law and fact, therefore, wider scrutiny, then also in our view it can be said to be a finding of fact by the Tribunal which cannot be said to be impermissible view but rather can be said to a possible view. 25. We may now consider the decision upon which the reliance has been placed by the learned counsel for the petitioner. In the case of State of Tamil Nadu Vs.. Karnataka Bank Ltd., the decision of Madras High Court reported at (2012) 50 VST 93 (Madras), the Court had no occasion to consider the division of the relationship and the link between the assessee and the customer when the goods were imported. The Court had no occasion to consider the aspects of entrustment of the ownership by novation of the contract as in the present case. Therefore, we find that the said decision is of no help to the petitioner. 26. Learned counsel for the petitioner also relied upon the decision of a co-ordinate Bench of this Court in case of Canara Bank vs. State of Karnataka in STRIP 82/05 decided on 24.11.2006. In the said case also, as observed by us hereinab....