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The Deputy Commissioner (C.T) Coimbatore v. Vasantha Mills Ltd. Coimbatore.
Factual and Procedural Background
The matter was referred to a Full Bench by V. Ramaswami and Sethuraman JJ. because they doubted the correctness of a Division Bench decision in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd. in light of the later Supreme Court decision in Md. Sirajudeen v. State of Orissa.
The assessee is a dealer in cotton and cotton yarn. For the assessment year 1966–1967 the assessee reported a total turnover of Rs. 2,83,45,614.33, claiming Rs. 1,23,362.40 of that as sales of cotton yarn in the course of export. The Assessing Authority and the Appellate Assistant Commissioner held that those sales were intra-State sales. The Sales Tax Appellate Tribunal allowed the assessee's appeal and held the turnover in question represented export sales and should be excluded from taxable turnover. The State Government challenged the Tribunal's decision in a Tax Case, which led to the present Full Bench hearing.
The operative factual findings (as stated by the Tribunal) were: the assessee sold yarn to a local dealer (Keshavlal Thalakchand & Co. (P) Ltd., Madras) on f.o.b. terms, earmarked for export; the assessee despatched the yarn directly to purchasers in Colombo, shipment was at the assessee's hands (bills of lading showed goods shipped from the Port of Tuticorin and the assessee actually shipped the goods), and A.R. No. 4 forms were in the assessee's name. The Assessing Authority and the Appellate Assistant Commissioner considered these as two distinct sales (local sale and subsequent export sale), whereas the Tribunal treated the assessee as the exporter on the basis that the assessee actually shipped the goods and had the relevant forms in its name.
Legal Issues Presented
- Whether the sales by the assessee to a local purchaser (though on f.o.b. terms and with shipment by the assessee) can be treated as sales in the course of export (and therefore excluded from taxable turnover) under S.5 of the Central Sales Tax Act?
- Whether the Division Bench decision in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd., which treated similar transactions as sales in the course of export, remains good law in view of the Supreme Court's decision in Md. Sirajudeen v. State of Orissa?
Arguments of the Parties
Appellant (State) — Main Contentions
- The State relied on the Supreme Court decision in Md. Sirajudeen v. State of Orissa to contend that the transactions in question cannot be treated either as export sales or as sales in the course of export.
- The State argued that the Division Bench decision in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd. is no longer correct in view of Md. Sirajudeen, and that even if there is integration between local sale and export, under the definition of sale in the course of export the local sale cannot be said to have occasioned the export.
Respondent (Assessee) — Main Contentions
- The assessee relied on the Division Bench decision in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd., which held that similar transactions amounted to sales in the course of export.
- The assessee further relied on earlier Supreme Court decisions (cited in the opinion) that had held that sales which are so interconnected as to form part of one integrated transaction could be treated as sales in the course of export, and argued that the Md. Sirajudeen decision should be confined to its facts.
Tribunal's Findings (as described in the opinion)
- The Tribunal found that although bills of lading named the local purchaser as exporter, the goods were actually shipped by the assessee from Tuticorin and the A.R. No. 4 forms were in the assessee's name; on that basis the Tribunal treated the assessee as the exporter and held the sale by the assessee to the local purchaser to be an export sale.
- By contrast, the Assessing Authority and the Appellate Assistant Commissioner had treated the transactions as two distinct sales — the first an intra-State sale by the mills to the local purchaser, and the second a sale by the local purchaser to the foreign buyer.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Md. Sirajudeen v. State of Orissa (Supreme Court) | Principle that only the sale between the exporter and the foreign buyer can "occasion" the export for the purposes of S.5(1) of the Central Sales Tax Act; the notion that there can be only one sale which occasions an export; an intermediary/local sale cannot be treated as a sale in the course of export even if interlinked. | The Full Bench accepted and applied the majority view in Md. Sirajudeen as laying down the law on the point, and held that the assessee's local sale could not be treated as a sale in the course of export in light of that authority. |
| State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd. (Division Bench of this Court) | Held, on similar facts, that sales by a local mill to a local buyer which were interconnected with export could be treated as sales in the course of export (i.e., treated as integrated transactions for exemption purposes). | The Full Bench concluded that this Division Bench decision runs counter to the Supreme Court's decision in Md. Sirajudeen and cannot be accepted as laying down the correct position; the Full Bench followed the Supreme Court majority instead. |
| State of Travancore Cochin v. Shanmugha Vilas Cashewnut Factory (earlier Supreme Court decision) | Characterized among earlier authorities as having laid down that sales interconnected as part of one integrated transaction could be treated as sales in the course of export. | The Full Bench noted this as one of the earlier decisions relied upon by the assessee, but held that the Supreme Court in Md. Sirajudeen had explained earlier decisions and laid down the applicable law, which the Full Bench was bound to follow. |
| Bencorn Nilgiri Plantations Co. v. Sales Tax Officer (earlier Supreme Court decision) | Regarded in the opinion as an earlier authority supporting the integrated-transaction approach to sales in the course of export. | The Full Bench recorded that these earlier decisions existed and were relied upon by the assessee, but treated Md. Sirajudeen as the controlling authority. |
| Coffee Board v. Joint Commercial Tax Officer (earlier Supreme Court decision) | Another earlier decision said to have supported the proposition that interconnected sales could be treated as sales in the course of export. | The Full Bench acknowledged the decision among prior authorities but applied Md. Sirajudeen as the binding statement of the law. |
| Dinanl Bros. P. Ltd. v. Union of India (earlier Supreme Court decision) | Listed as one of the earlier decisions that had been taken to permit treating interconnected sales as part of a single export-linked transaction. | The Full Bench noted it among earlier authorities relied upon by the assessee but found Md. Sirajudeen to displace the integrated-transaction approach for the purposes of S.5(1). |
Court's Reasoning and Analysis
The Full Bench proceeded by first setting out the facts as found by the Tribunal and the contrasting findings of the Assessing Authority and the Appellate Assistant Commissioner. The Tribunal treated the assessee as exporter because the assessee had actually shipped the goods and the A.R. No. 4 forms were in its name; the lower authorities treated the transaction as two distinct sales.
The Court then examined the Supreme Court's decision in Md. Sirajudeen v. State of Orissa. It summarized the facts and the majority's reasons in that case: the majority held that (i) the mere mention of f.o.b. price in the contract does not make it an export contract with the foreign buyer; (ii) where an intermediary (the State Trading Corporation) entered into independent f.o.b. contracts with foreign buyers, it was the Corporation's sale that occasioned the export; (iii) the local seller's contract with the intermediary was not the direct cause of the export; (iv) performance steps taken at the instance of the intermediary (including placing goods on board) did not make the local seller an exporter; and (v) the statutory position of the intermediary and its earning of commission did not make the local seller an exporter.
The opinion also set out the dissent of Khanna, J. in Md. Sirajudeen, who would have treated the local sale as integrated with export where the local seller had effectively contracted on f.o.b. terms and there was no real chance of diversion, and who argued for relaxing privity and treating the transaction as an integrated transaction resulting in export.
Weighing these authorities, the Full Bench concluded that it was bound by the majority view in the Supreme Court decision. The Court stated that the majority had explained and distinguished earlier authorities and had adopted the position that S.5(1) of the Central Sales Tax Act contemplates only one sale which occasions an export — namely, the sale between an exporter and a foreign buyer. Consequently, even if local sales are interconnected or integrated with the export sale, they cannot be treated as sales in the course of export under the Supreme Court's majority view.
Applying that principle to the facts of the present case, the Full Bench held that the Tribunal's ground for treating the assessee's sale as an export sale (the fact that the assessee had shipped the goods and AR No. 4 forms were in its name) could not be sustained in view of Md. Sirajudeen. The Court refused to confine the Md. Sirajudeen decision to its facts and treated it as laying down the applicable law.
Holding and Implications
Holding: The Tax Case was ALLOWED in favour of the State. The Full Bench held that the assessee's claim that the disputed sales were sales in the course of export cannot succeed.
Implications:
- Direct effect on the parties: The Tribunal's decision to treat the disputed turnover as export sales was overturned; the assessee's claim to exclude the disputed sales from taxable turnover fail. The opinion records that there will be no order as to costs.
- Broader legal implication: The Full Bench followed the Supreme Court's majority decision in Md. Sirajudeen, adopting the principle that only the sale between the exporter and the foreign buyer can be said to occasion the export under S.5(1) of the Central Sales Tax Act. The Full Bench declined to treat intervening local sales as falling within "sale in the course of export" even if they are interconnected or form part of an integrated transaction. The Court expressly held that the earlier Division Bench decision in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd. cannot be accepted as laying down the correct position in view of Md. Sirajudeen.
No costs were ordered.
V.C.S
Ramanujam J.
1. This matter has come before the Full Bench on an order of reference made by V. Ramaswami and Sethuraman JJ. as they had felt that the correctness of the decision of the Division Bench in State of Tamilnadu v. Cauveri Spinning and Weaving Mills Ltd.(1) is open to doubt in view of the later decision of the Supreme Court in Md. Sirajudeen v. State of Orissa(2)
2. The assessee in this case is a dealer in cotton and cotton yarn. For the assessment year 1966—1967 it had reported a total turnover of Rs. 2,83,45,614.33 and out of the total turnover, a sum of Rs. 1,23,362.40 was claimed to represent sales of cotton yarn in the course of export. This claim was not accepted by the Assessing Authority who held that the said turnover represented intra-State sales. On appeal, the Appellate Assistant Commissioner also upheld the view of the Assessing Authority. On a further appeal to the Sales Tax Appellate Tribunal, it was held that the said disputed turnover of Rs. 1,23,362.40 represented export sales and as such it should be excluded from the taxable turnover. The State Government has challenged the decision of the Tribunal in this Tax Case.
3. Reliance was placed by the State on the decision of the Supreme Court in Md Sirajudeen v. State of Orissa support of its stand that the transactions in question cannot be treated either as export sales or as sales in the course of export. The assessee, however, relied on the decision of a Division Bench of this court in State of Tamil Nadu v. Cauvert Spinning and Weaving Mills Ltd. to which one of us was a party, where in similar transaction of sale have been held to be sales in the courses of export. V. Ramaswami and Sethuraman, JJ. who heard the tax case in the first instance felt that in view of the later decision of the Supreme Court in Md. Sirajudeen v. State of Orissa the earlier Bench decision of this court in State of Tamilnadu v. Cauvert Spinning and Weaving Mills Ltd. may not be correct and, therefore, referred the matter to a Full Bench.
4. The nature of the transactions in this Case as has been found by the Tribunal is as follows: The assessee mills sold cotton yarn to a local dealer, Messrs. Keshavlal Thalakchand and Co. (Pe) Ltd. Madras, hereinafter referred to as the ‘local purchaser’. These are first sales of cotton in the states of Tamil Nadu taxable at the hands of the mills at single point. The purchaser company has in its turn effected sales of yarn it had purchased from the mills to certain purchasers in Colombo. The sales between the asses see mills and the local purchaser were on f.o.b terms, and the yarn purchased were earmarked for export only. The assessee mills have to despatch the yarn directly to the purchasers at Colombo though such despatch was to be on account and risk of the local purchaser. The relevant bills of lading show that the assesee mills had actually shipped the goods in the Port of Tuticorin, though the name of the local purchaser had been shown therein as the exporter. On these facts the assessing as well as the Appellate Authorities held that there are two distinct transactions of sale, one by the assessee mills to the local purchaser and other by the local purchaser to the National Textile Corporation, Colombo, that the former sale having nothing to do with export is an intra-State sale and that the latter sale alone is a sale in the course of export. The Tribunal, however, held on the same facts that though in the bill of lading the name of the local purchaser is mentioned as exporters the goods having been shipped by the assessee, it should be taken as an exporter as it had actually shipped the goods, and as the A.R No. 4 forms are in its name. Thus the only ground on which the Tribunal held that the sales effected by the assessee to the local purchaser to be export sales is that the assessee has exported the goods in pursuance of its sale to the purchaser. The question, therefore, is whether the said ground relied on by the Tribunal for holding the assessee's sales to be export sales could be sustained.
5 The learned Counsel for the Revenue submits that, in view of the recent decision of the Supreme Court in Md. Sirajudeen v. State of Orlssa the sales in question cannot be treated either as export sales or as sales in the course of export. In the case before the Supreme Court, the assessee has entered into two contracts with State Trading Corporation for the sale of mineral ore. The Corporation in its turn entered into contracts with foreign buyers for the sale of the identical goods purchased from the assessee. The terms of contract between the assessee and the Corporation were as follows—The price expressed in U.S Dollers for long ton is to be f.o.b Calcutta. The goods should be ready in Calcutta harbour for shipment by a particular steamer. The final sampling and moisture determination and the final ascertainment of weight and price should he done at the foreign port of discharge by certain named persons, and their certificate is to be final and binding on both the buyer and the seller. 90% payment is to be made against shipping documents. The Corporation will assign the relevant foreign letter of credit which is to be opened in its name by the foreign buyer. The Corporation is to endorse the bill of lading and deliver it to the assessee the balance to be paid after the destination al weight and analysis on the basis of the terms mentioned in the corresponding sale contract with foreign buyers. It was claimed by the assessee in that case in proceedings under the Central Sales Tax Act 1956, that his sales of mineral ore to the State Trading Corporation were sales in the course of export and, therefore, exempted from tax under S. 5 of that Act. The High Court had held that the Sales were liable to tax. When the matter was taken to 1 the Supreme Court it was urged that the assessee originally entered into negotiations with foreign purchasers and settled all the conditions of contract, that it is only thereafter the Corporation entered into f.o.b contracts with the assessee, and with the foreign buyer on identical terms, that all the necessary steps including the payment of customs duty for shipment and export have been taken by the assessee, that the Corporation could not have diverted the goods to a buyer in India without violating the expert and Import Control Order, that the contract between the assessee and the Corporation being on f.o.b basis, the property in the goods passed only on shipment when the goods were in the stream of export, that having regard to the necessity of entering into contracts with foreign buyers through the channel of the Corporation, the rigid role of privily of contract should be relaxed in consideration of equity and justice and that the presumption of the Corporation being an agent of the assessee in the export of mineral ore should be raised especially when the Corporation is Interested only in the commission of one dellor per long on from the assessee. The assessee also claimed that his sale to the State Trading Corporation constituted one integrated transaction resulting in the ultimate export of the goods and, therefore, it should be treated as a sale in the course of export. It was held by a majority, after considering the relative scope of Art. 286(1)(b) of the Constitution, and S. 5 of the Central Sales Tax Act, with reference to almost all the earlier decisions rendered by the Supreme Court, that the assessee was not entitled to claim exemption under S. 5(1) of the Central Sales Tax Act in relation to the said contracts. The main reasons given by the majority for taking that view are: (1) the mention of f.c b. price in the contracts between the assessee and the Corporation does not render them f.o.b contracts with the foreign buyer. (2) The Corporation had entered into independent contracts with the foreign buyers on f.o.b basis which alone occasioned the export of the goods. (3) The Corporation having purchased the goods from the assessee in order to fulfil its contract with the foreign buyer, the assessee's contract with the Corporation is not the direct cause for nor has it occasioned the export. (4) Though the assessee had been required under the contract entered into with the Corporation to bring the goods to a named ship, his sale cannot be said to have caused the export and the export was actually the result of the sale by the Corporation to the foreign buyer. (5) The mete carrying out the directions given by the Corporation to the assessee to place the goods on beard the ship as a term of the contract of sale, the assessee cannot be taken to be an exporter and (6) The fact that exports can be made only through the State Trading Corporation and that the State Trading Corporation is interested in getting only a commission does net have the effect of making the assessee an exporter when there is direct export contract only with the Corporation and the foreign buyer.
6. Khanna, J. had dissented and has taken the view that as the goods of the assessee had been sold on f.o.b basis without any chance of the goods being diverted, his sale should be taken to be interlinked with the export as to form an integrated transaction that the position of the State Trading Corporation under its contract with the assessee was not that of a purchaser in the ordinary sense of the term, that the introduction of a statutory intermediary like the State Trading Corporation which it entitled only to a commission would not affect the real nature of the transaction, that it was the assessee who was to export the goods to the foreign buyer through the State Trading Corporation a statutory intermediary, because of the legal requirements under the Export Control Order, that there is nothing in S. 5 of the Central Sales Tax Act to restrict the exemption from payment of tax to only one sale, that the use of the word singular in S. 5 and not in plural would not make much material difference in view of S. 13 of the General Clauses Act, and that there is nothing in law to rule out two or more sales qualifying for exemption if the sales are so inter-linked with the export of the goods so as to form one integral transaction.
7. Though the minority view of Khanna, J. purports to follow the earlier decisions of the Supreme Court on the point, the majority has, after explaining the earlier decisions, struck a different note and according to them, it is only the sale between the exporter and the foreign buyer, which has a defect nexus with the export, that can be said to occasion the export. Under S. 5 of the Central Sales Tax Act, there can be only one sale which occasions an export and if the local sellers have no concern with the actual export of the goods under the terms of their contract, the mere fact that they had snipped the goods in pursuance of a term of the contract of sale will not make their transaction of sale an integrated transaction with the export. Though the earlier view was that more than one sale could occasion in export if they are so interconnected as to form an integrated transaction, the latest view of the Supreme Court in the above case is that there can be only one sale which can occasion the export and that sale can only be with a foreign buyer.
8. It is urged by the Revenue that in the face of the above decision of the Supreme Court, the decision of the court in State of Tamilnadu v. Cauvery Spinning and Weaving Mills Ltd. cannot be accepted as laying down the correct position, that it is no longer necessary to go into the question as to whether a sale between two local dealers is inter-connected with the export, that even if there is an inter-connection or an integration with the export, still under the definition of sale in the course of export, it cannot be taken to have been a cause or occasion for the export. It is also said that the decision in State of Tamil Nadu etc.,(1) is in accord only with the said minority view.
9. In State of Tamilnadu v. Cauvery Spinning and Weaving Mills Ltd. the assessee, a spinning and weaving mill entered into contracts of sale of cotton yarn with a buyer at Madras who had in turn contracted to sell the same to a buyer in Ceylon. The sales were on f.o.b terms. Under the contract the assessee should put the goods free on board and payments should be made against delivery of documents. The bill of lading showed the assessee as consignor and the foreign buyer or his nominee in Ceylon as consignee. The goods were released under A.R 4 forms without payment of Central excise duty as they bad been earmarked for export. On those facts, a Division Bench held that the contracts did not make the assessee an agent for the purpose of export, that the property in the goods sold passed only on delivery of the documents after the goods joined the export stream, that the sales by the assessee and the export of the goods were so interconnected as to justify the inference that the sale and the export were integrally connected and that, therefore, the tranactions were sales in the course of export.
10. This decision runs counter to the decision of the Supreme Court in Md Slra-judeen v. State of Orlssa holding that the shipment of the goods at the instance of the exporter in pursuance of the terms of the contract between him and the exporter cannot make the local seller an exporter, that whatever be the connection between the local sale and the export sale and however much they are integrated with the actual expert, it is only the sale between the exporter and the foreign buyer which can occasion the export of the goods, that a transaction of sale between the local seller and the exporter can never become a sale in the course of export and that S. 5 of the Central Saks Tax Act comprehends only one sale occasioning the export and that sale is the one between the local exporter and the overseas importer.
11. The learned counsel for the assessee contends that the earlier decisions of the Supreme Court in State of Travancore Cochin v. Shanmugha Vilas Casbewnut Factory(3), Bencorn Nilgirt Plantations Co. v. Sales Tax Officer(4). Coffee Board v. Joint Commercial Tax Officer(5) and Dinanl Bros. P. Ltd. v. Union of India(6) have all laid down that not only an export sale between local exporter and the overseas importer, but also every sale so interconnected as to form part of one integrated transaction, could be tread as a sale in the course of export, that those decisions have not been held to be incorrect in the latest decision of the Supreme Court, and therefore, that decision should be confined to the facts of that case alone. According to the learned counsel even after the said decision of the Supreme Court, the correct legal position is that in addition to the actual export sale, sales which form one integrated transaction with the export would also come under the definition of tale in the course of export under S. 5 of the Central Sales Tax Act.
12. We are not inclined to agree with the counsel for the assessee that the said decision of the Supreme Court should be confined to the facts of that case. In fact, the Supreme Court had referred to the earlier decisions on the point and had explained the same. We have, therefore, to take the latest decision of the Supreme Court as laying down the law on the point. May be there is much to be said in favour of the dissenting view set out by Khanna, J, in the light of the precedents, but this court is bound by the decision as expounded by the majority view. On the principles laid down by the Supreme Court In the said case, there is no question of two sales coming within the scope of S. 5(1), and it is only an export sale, i.e a sale between an exporter and the foreign buyer that will come under the definition of sale in the course of export, and all other sales even if interconnected or integrated with the export cannot be treated as sales in the course of export. There being no room for two or more sales being in the course of export and the only sale which can be said to occasion the export being the sale which itself results in the movement of the goods from the exporter to the importer, the theory of integrated activity cannot any longer be invoked to make the sale between two local dealers a sale in the course of export. Therefore, the assessee in this case cannot succeed in his claim that the disputed sales are sales in the course of export.
13. The Tax case is, therefore, allowed. There will, however, be no order as to costs.
V.C.S
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