(with S.L.P. (C) No. 6771/94)
The short question that arises for consideration in this appeal is whether the expression "sale or purchase occasions such import" occurring in sub-section (2) of Section 5 of the Central Sales Tax Act (in short the Act) requires that a completed sales should precede the import.
The material facts which have given rise to the aforesaid question are these:
In response to the tender invited by the Directorate General of Supplies and Disposal (for short ‘DGS&D’), Government of India, New Delhi, the respondent M/s. Embee Corporation, Bombay (hereinafter referred to as the ‘assessee’) who carries on the business of buying and selling chemicals, had submitted a tender for supply of Carbamite for use in the manufacture of different types of propellant explosive as per specifications. The assessee in its tender mentioned the name of M/s. Chemiches Werk Lowi, West Germany as the supplier and from whom the materials were to be imported for which necessary import recommendation certificate was to be provided by the DGS&D for the value of the material to be imported. The total price quoted in the tender was Rs. 23.50 per kg. F.O.R. Bombay and the full break-up thereof was disclosed therein. The DGS&D accepted the tender of the assessee vide letter dated May 29, 1991 subject, inter alia, to the condition that the contract would be governed by the conditions of the contract as contained in form DGS&D-68 (revised) including clause 24 thereof as amended upto-date. it was also a condition that the contracted material was to be inspected by the Chief Inspector, C.I.M.S., Kirkee, Pune at Bombay Port and the General Manager, Cordite Factory, Aruvankadu was mentioned as the indentor. The assessee thereafter requested the DGS&D to furnish the import recommendation certificate to enable it to import the material as Carbamite was a strategic material which also required an export permit to be granted by the West Germany Government to the assessee’s principal. The DGS&D issued the import recommendation certificate in favour of the assessee for procuring the aforesaid material from West Germany and recommended that the import licence might be issued as per particular. Against the said order of the DGS&D, the Controller (Import Trade Control) issued licence as requested for. One of the conditions of the licence was that the goods imported shall be utilised or disposed of in the manner stipulated in DGS&D letter dated June 17, 1971 and the imported materials shall not be utilised or disposed of in any other manner. the DGS&D had also furnished end-use certificate to the effect that Carbamite be allowed to be imported by the Indian Government as it was intended for consumption in India and not re-exported or re-utilised for any purpose other than consumption by the Government factory. In the Bill of lading the name of assessee was shown as a party to be notified and the General Manager, Cordite Factory Aruvankadu was described as the consignee of Carbamite. After the consignment arrived, the same was forward to the consignee named in the contract, viz., Cordite Factory, Aruvankadu.
After the goods were supplied to DGS&D, the assessee claimed exemption before the Sale Tax Officer from levy of sales tax as, according to it, the supply under the contract was as sale in course of import of the goods into India. This plea of the assessee was rejected by the Sale Tax Officer and the same was upheld in appeal. The tribunal also substantially rejected the second appeal of the assessee. At the instance of the assessee, the tribunal referred three question to the High Court at Bombay for answer. The High Court while answering the question referred to it held that in the present case there were two sales viz., the sale between the assessee and DGS&D and the foreign supplier and the assessee, but both the sales were integrated or interlinked so as to form one transaction and, as such, the sale had occasioned that import of material liable for exemption from sales tax under the Act.
In this appeal learned counsel appearing for the appellant referred to Section 4-5 and 10-24 of the Sale of Goods Act and argued that the expression "sale occasions such import" occurring in sub-section (2) of Section 5 of the Act means a completed sale and it should precede the import, and in the present case since there was no sale in terms of the Sale of Goods Act, the sale has not occasioned the import and as such the respondent assessee is not entitled to any exemption from Central Sales Tax.
Article 206 of the Constitution forbids a State from imposing or authorising the imposition of a tax on the sale or purchase of goods when such sale or purchased takes place (a) outside the State or (b) in the course of the import of goods into or export of goods outside the territory of India. The Parliament had passed the Act with to formulate the principles for determining as to when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside the State or in the course of import into or export from India, to provided for levy of collection and distribution of taxes or commerce. Section 5 of the Act defines what Article 206 of the Constitution forbids and by virtue of clause 2 of Art. 286 the Parliament by enacting Section 3 of the Act has laid down the principle when a sale or purchase of goods takes place in the course of the import into or export of the goods outside India. Since a controversy has arisen as to the interpretation of principles embodied in Section 5 of the Act, it is necessary to examine the provisions of the Act. Section 3 provides -
When is a sale or purchase of goods
said to take place in the course of
inter-State trade or commerce. The
relevant provisions of section 3
are extracted below:-
(a) occasions the movement of goods
from one State to another; or
(b) is effected by a transfer of
documents of title to the goods
during their movement from one
State to another.
Section 4 lays down when is a sale
or purchase of goods said to take
place outside a State. Sub Section
(2) of Section 4 is extracted as
follows:-
"A Sale or purchase of goods shall
be deemed to take place inside a
State, if the goods are within the
State-
(a) in the case of specific or
ascertained goods, at the time of
contract of sale is made ; and
(b) in the case of unascertained or
future goods, at the time of their
appropriation to the contract of
sale by the seller or by the buyer,
whether assent of the other party
is prior or subsequent to such
appropriation".
Again Section 5 of the Act provides
When is a sale or purchase of goods
said to take place in the course of
import or export. Sub-section (2)
of Section 5 is extracted below:-
(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
occasion 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."
On perusal of the aforesaid provision of the Act, the question that arises for consideration herein is, what meaning should be given to the expression "sale occasions import". It is almost settled by numerous decision of the Supreme Court that the expression "sale occasions import" is to be interpreted in the same manner in which the expression "occasions the movement of goods" occurring in Section 3(a) of the Act has received interpretation. In other words, the expression "sale occasions import" has to be given the same meaning which the expression "occasions the movement of goods" has received by the Courts. In the light of aforesaid settled legal position emerging from the Constitution Bench decision, we will now examine the meaning of "sale" as defined in the Act. Section 2(g) of the Act defines "sale" thus:-
"sale, with its grammatical
variations and cognate expressions,
means any transfer of property in
goods by one person to another for
cash or for deferred payment or for
any other valuable consideration,
and included a transfer of goods on
the hire purchase or other system
of payment by instalment, bu does
not include a mortgage or
hypothecation of or a charge or
pledge on goods;"
The above definition of "sale" in the Act shows that the word "sale" has been given a very wide meaning so as to include not only the sale of goods, but also the transaction, namely, a transfer of goods or hire purchase system. Further, the use of words "sale of goods" in Section 3 of the Act and the words "contract of sale" occurring in Section 4(2) of the Act have been assigned the same meaning which is wider to the meaning of sale in the general law. In such a situation the word "sale" defined in Section 2(g) of the Act and employed in Section 3 and other sections of the Act would embrace not only completed contract, but also the contract of sale or agreement of sale if such contract of sale or agreement of sale provides for movement of goods or movement of goods is incident of the contract of sale. This matter may be examined from another angle. An agreement to transfer goods to the buyer for a price is an important element of sale and the same is also borne out from Section 4 of Sale of Goods Act. If Section 4 of the Sale of Goods Act is read along with Section 3 and 4 of the Act, it would mean an agreement to sell would also be a sale stipulates for transfer or movement of goods or movement of goods is incident of the contract of sale an in that case, such movement of goods would be deemed to be occasioned by the sale. It is immaterial that actual sale does not take place at the time of movement of goods and takes place later on. This interpretation of Section 3(a) of the Act if applied to Sub-section (2) of Section 5 of the Act, would mean that if an agreement for sale stipulates import of goods or import of goods is incident of contract of sale and goods have entered the import stream, such import would fall within the expression "sale occasions import". In the present case, the import of carbamite is direct result of the contract of sale and as such it can be safely held in the present case that sale has occasioned the import.
The argument of learned counsel for the appellant that sale should precede the import came up for consideration in the case of K.G. Khosla & Co. Pvt. Ltd. vs. Dy. Commissioner of Commercial Taxes [(1966) 17 STC 473]. The constitution bench of this Court in the said case held thus:-
"The question then is, did the
sales occasion the movement of
cement from another State into
Mysore within the meaning of the
definition? In Tata Iron and Steel
Co. Ltd. v. S.R. Sarkar, it was
held that the sale occasions the
movement of goods from one State to
another within section 3(a) of the
Central Sale Tax act, when the
movement is the result of a
convenant or incident of the
contract of sale’. That the cement
concerned in the disputed sales
was actually moved from another
State into Mysore is not denied.
The respondents only contend that
the movement was not the result of
a covenant in or an incident of the
contract of sale.
This Court then, on the facts, of
the case, found that the movement
of cement from another State into
Mysore was the result of a covenant
in the contract of sale or incident
of such contract. This Court did
not go into the question as to
whether the property had passed
before the movement of the goods or
not, and this was because according
to the decision in Tata Iron and
Steel Co. v. S.R. Sarkar, it did
not matter whether the property
passed in one State or the other.
Tata Iron and Steel Co. case was
again followed by this Court in
Singareni Colleries Co. v.
Commissioner of Commercial Taxes,
Hyderabad.
The learned counsel for the
respondent Mr. A. Ranganadham
Chetty, invited us to hold that the
observation of Shah, J., in Tata
Iron and Steel Co. case were
obiter, and to consider the
question afresh. We are unable to
reopen the question at this stage.
Shah, J., was interpreting section
3 of the Act and although, the
Court was principally concerned
with the interpretation of section
3(b), it was necessary to consider
the interpretation of section 3(a)
in order to arrive at the correct
interpretation of Section 3(b).
Further these observation were
approved in Cement Marketing Co. of
India v. The State of Mysore, State
of Mysore and Singareni Colleries
Co. v. Commissioner of Commercial
Taxes, Hyderabad. In the State
Trading Corporation case in so far
as the assessment for the
assessment year 1957-58 was
concerned, this Court applied the
principles laid down in Tata Iron
and Steel Co. case. Accordingly we
hold that the High Court was wrong
in holding that before as sale
could be said to have occasioned
import it is necessary that the
sale should have preceded the
import."
In this case, the Constitution Bench specifically held that sale need not precede the import and this decision is complete answer to the argument advanced by the learned counsel for the appellant.
Learned counsel then tried to argue that the decision of the Constitution Bench in Khosla’s case (supra) is not applicable to the present case as in the said case, the materials were to be inspected at Belgium and London and thereafter the goods were to enter into India. This argument is not correct. In Khosla’s case (supra), the inspection of goods was to be carried out in Belgium as well as on arrival into India. In the present case, the inspection was to be done on arrival of goods into India and as such, there is no distinction on facts between the present case and that of Khosla’s. Learned counsel then urged that the decision of the Constitution Bench in Khosla’s case (supra) has not been correctly decided and as such this case be referred to a larger Bench. We have considered the matter and found that Khosla’s case (supra) has held the field nearly more than three decades and its correctness has not been doubted so far. We, therefore, reject the prayer of learned counsel for the appellant.
Learned counsel then urged that this case is covered by decision of this Court in the case of Binani Bros. (P) Ltd. & Anr. v. Union of India & Ors. (33) STC 254, Md. Serajuddin v. State of Orissa (36 STC 136) and K. Gopinathan Nair etc. v. State of Kerala [1997 (2) Scale 252]. The decision of this Court in the case of Binani Bros.(supra) is distinguishable as in that case no obligation was imposed on the appellant to supply the imported goods to DGS&D after they had been imported and the same could be directed to other channels. Similarly, the decision of this Court in the case of Md. Serajuddin (supra) is not applicable to the present case as in that case it was found that the appellant in the said case sold the goods directly to the Corporation who entered into a contract with a foreign buyer and it was found that the immediate cause of export was the contract between the foreign buyers who was importer and the corporation who was the exporter. Such sales were described as back to back contract. This decision rested on the peculiar facts of that case. We are, therefore, of the view that the appellant cannot derive any assistance from the said decision. The last case which was brought to our notice was K. Gopinathan Nair etc. v. State of Kerala (supra). In the said case, on facts, it was found that on account of the sale to CCI by foreign exporter raw cashew nuts were imported into India. The importer being the CCI and not the local user, this Court held that principles evolved by it in para 12 of the judgement were not applicable to that case. We do not, therefore, find that this decision is helpful to the appellant’s case.
The result of the aforesaid discussion is that while interpreting the expression "sale occasions import" occurring in sub-section (2) of Section 5 of the Act, it is not necessary that a completed sale should precede the import.
For the foregoing reasons, we do not find any merit in the appeal and the same is accordingly dismissed. There shall be no order as to costs. In view of the decision in Civil Appeal No. 2872 of 1991, the S.L.P. stand dismissed.