Nair Vs. State of Kerala  INSC 324 (21 March 1997)
CIVIL APPEAL NOS. 1167-71/92, 1546/93, 3647-52/86)
V. Manohar, j.
APPEAL S NOS. 4955-77/91, 1167-71/92 & 1546/93 The assessees are processors
of cashewnuts in kerala.
to September 1970 the assessees imported raw cashewnuts from African countries
under an open general licence. After processing these cashewnuts the assessees
exported cashewnut kernel to other Notification issued under the Import Trade
(control) order bearing No. 3-1970 and dated 31st of August, 1970, " cashewnuts"
were deleted from the schedule of items which could be imported under an open
general licence. Instead they were now required to be imported through a canalising
agency, namely, the cashew corporation of India Ltd. As a result, for the
assessment years 1971-71 to 1972-73 the assessees imported their requirement of
cashewnuts from African countries through the cashew Corporation of India Ltd.
The assessees were called upon to pay sales tax under the Kerala General sales
Tax Act in respect of the caswhewnuts purchased by them from the canalising
agency. According to the assessees, the sales effected by the cashew
corporation of India to them are not exigible to tax under the Kerala General
are not exigible to tax Act since these are sales in the course of import and
hence are sales in the course of import and hence are exempt from the state
sales tax under section 5(2) of the central sales Tax Act, 1956, This
contention of the assessees has been negatived by the dales tax authorities in Kerala.
In a revision which was filed by the assessees before the Kerala High Court the
Kerala High Court remanded the matters to the sales Tax Tribunal to consider
the following question.
the purchases of African nuts made by the assessees from the cashew corporation
of India are in the course of import
eligible for exemption under section 5(2) of the central sales Tax Act?"
The Tribunal after re-considering the matter answered the question against the assessees.
This finding of the Tribunal has been upheld by the Kerala High court in
revision. Hence these appeals have come before us.
APPEALS NOS. 3647-52/86 This group of appeals also deals with the import of cashewnuts,
but in the state of Karnataka, by the Cashew corporation of India Ltd. which is
a canalising agency for the import of cashewnuts for sale to the processors of cashewnuts
in Karnataka. The processors, after processing cashewnuts , export cashew
Kernel. However, which under the Kerala General sales Tax Act, 1965, cashew was
assessable at the last point of purchase in the state under the Karnataka sales
Tax Act, 1957 cashes is assessable at the first point of purchase in the state.
Hence, in these appeals, assessment of sales tax by the state of Karanataka is
sought to be made on the cashew corporation of India in respect of aspect of cashew imported by it at the
instance of the processor and sold to the processor . The transaction which are
the subject-matter of controversy in these appeals, however, are identical with
the transactions which are the subject-matter of appeals in the Kerala matters.
we decide whether the import of cashew nuts by the cashew corporation of India
and the purchase of cashewnuts by the assessees/processors from the cashew
corporation of India is in the course of import or whether it is the local sale
liable to tax under the Kerala or Karnataka General sales Tax Act, it is
necessary to set out the exact nature of the transaction in question.
Import Trade (control) policy for April 1971-March 1972, in part B, paragraph
51 deals with import through public sector Agencies. Under the sub-heading "
Canalisation of Import", it states only through public sector Agencies.
The canalising agency in the case of cashewnuts is the cashews corporation of
India Ltd. Under the Import Trade (control) Handbook of Rules and procedures
1970 the procedure for imports through public sector Agencies is set out. It,
inter alia, states that the canalising agency will pool the import requirements
of actual users and import will be arranged in bulk through the agency
concerned. It also provides that consolidated import licences/release orders
will be issued in such cases to the importing agency concerned. The value of
the consolidate licence/release order to be issued will be equal to the
aggregate value of all the licence/release orders which could have been issued
to the individual actual users had they applied separately. Such licences/release
orders will be subject to the condition, inter alia, that the imported goods
shall be distributed by the licensee to the actual users whose particulars are
shown in the relevant import application for use in their respective factories.
the quantity imported, the specifications of the goods imported and the place
from which they are imported are all as per requirements of the local
present case, litters were issued by the state Trading corporation of which the
cashew corporation of India was a subsidiary, informing the
processors regarding canalisation of import of cashewnuts through the cashew
corporation of India and requesting the processors to
apply in proforma for the allotment of raw cashewnuts. Based on these applications,
the cashew corporation of India obtained
from the Government of India a bulk licence for the import of raw cashewnuts.
Necessary orders were placed with foreign dealers for supply of cashewnuts by
the cashew corporation of India. The cashewnuts
to be imported were marked in separate lots in respected of each allotted
before shipment from the foreign port. Allotment orders in respect of each
marked lot were made in favour of the concerned processor by the cashew
corporation of India and the shipment was effected only
on the basis of the acceptance of such an allotment order by the concerned
processor. The cashew corporation of India prepared separate invoices in the name of each allotted in respect of
each separate and marked shipment. A separate bill of lading was prepared in
respect of goods pertaining to each allotted. The insurance premium for this
lot was also charged by the cashew corporation of India from the allotted. For the
clearance of these goods from the customs, separate documents of title
pertaining to each processor were prepared and subsidiary import licences were
also issued in the name of each allottee by the cashew corporation of India in respect of their earmarked lots.
a simultaneous letter of authority was also issued bu the chief controller of
Imports and Exports in favour of the allottee in respect of the lot concerning
which the allottee was given a sub- licence. On the marine insurance taken by
the cashew corporation of India a separate endorsement was taken in the name of
each allottee and the premium was include in the C.S.F. value of the goods so despatched.
The steamer agent issued a delivery order to the processors clearing agent and
the goods were accordingly cleared by the clearing agents of the processors.
The cashew corporation of India charged
to the assessee the price which it had paid to the foreign seller and a
commission for their work as a canalising agency.
it is clear that although the canalising agency placed a bulk order for the
import of cashewnuts and opened a letter of credit in favour of the foreign
sellers, the bulk order so placed was a sum total of the requirements of all
the processors of cashewnuts in whose favour allotment orders were issued. The
cashew corporation of India had from the inception marked
separately each lot imported by it in favour of each allottee. It had also in
turn, prepared a corresponding set of documentation in favour of the allottee
and the allottee was required to open a corresponding letter of credit in favour
of the cashew corporation of India in favour
of the cashew corporation of India in
respect of the lot being imported on its behalf. The allottees also paid the
corresponding insurance premium for the marine insurance taken out by the
cashew corporation of India pertaining to the import of cashewnuts.
have to consider whether the transaction between the cashew corporation of India and each of the processors can be
considered as a sale by the cashew corporation of India to the processor in the course of
import. Under Article 286 of the constitution of India, restriction have been placed on the power of the state of
tax sales. Article 286 (1) and (2) provide as follows:- "286(1) : No law
of a state shall impose, or authorise the imposition of, a tax on the sale or purchase
of goods where such sale or purchase takes place- (a) outside the state; or (b)
in the course of the import of the goods into, or export of the goods out of,
the territory of India;
Parliament may by law formulate principles for determining when a sale or
purchase of good takes places in any of the ways mentioned in clause (1)."
Article 296(1) (g) and (3) provides as follows:
(1) ; The following duties and taxes shall be levied and collected by the
Government of India but shall be assigned to the states in the manner provided
in clause (2), namely- (g) taxes on the sale or purchase of goods other than
newspapers, where such sale or purchase takes place in the course of Inter
state Trade or commerce;
Parliament may by law formulate principles for determining when a sale of
purchase of, or consignment of, goods takes placed in the course of inter-state
trade or commerce." Accordingly, the Central sales Tax Act, 1956 in
Section 3 and 5 lays down principle for deciding whether a sale or purchase
takes place in the course of inter-state trade or commerce or in the course of
import or in the course of import or export:
When is a sale or purchase of goods said to take place in the course of
inter-State trade or commerce- A sale or purchase of goods shall be deemed to
take place in the course of commerce if the sale or purchase- (a) occasions the
movement of goods from one sate to another; or (b) is effected by transfer of
documents of little to the goods during their movement from one state to
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 occasions such export or is effected by a transfer of
documents of title to the goods after the goods have crossed the customs
frontiers of India.
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 before the goods have crossed the customs
frontiers of India.
Notwithstanding anything contained in sub-section (1), the last sale or
purchase of any goods preceding the sale or purchase occasioning the export of
those goods out of the territory of India shall also be deemed to be in the
course of such export, if such last sale or purchase took place after, and was
for the purpose of complying with, the agreement or order for or in relation to
such export." Clearly, therefore, the language of section 3, 5(2) is
similar, and the requirements in each of these provisions for considering
whether a sale or purchase of goods can be said to take place in the course of
inter-state trade or commerce or export or import are similarly worded. Under
the first requirement so specified, in each of the three cases the sale or
purchase in question should occasion the requisite movement of goods. This
movement may be either from one state to another or it may be from India to another country, as the case may
be. We from India to another country, as the case may
be. We must, therefore, consider whether the sale or purchase which is before
us, that is to say, the transaction between the cashew corporation of India and the assessees/processors, has
occasioned the import of cashewnuts from Africa into the territory of India.
does one determine whether a sale has occasioned the movement of goods either
from a foreign country into India or from India to a foreign country or from one
state in India to another state in India? This court has, in the course of
several decisions that I shall refer to, laid down some basic tests to
determine whether the sale in question has occasioned the requisite movement of
goods. These are:
There should be a direct connection between the sale and the import or export
of goods or their being sent to another state.
Such movement should be inextricably linked with the sale so that the bond
between the sale transaction and movement cannot be severed without a breach of
his obligation by the seller or the purchaser, as the case may be.
This obligation (to import, export etc.) May arise by statute, by contract or
even by mutual understanding between the parties, from the very nature of the
transaction. It is immaterial whether the sale has preceded such movement or
succeeded such movement. So long as there is an unbreakable chain linking the
sale and the movement of goods, it will be covered by section 5 or section 3,
as the case may be.
such an unbreakable chain is forged by the terms of the contract of sale, or
from operation of statute or even from an understanding between the local buyer
and the local seller. Of course where there is only one sale-- between a local
buyer and a foreign seller or a local seller and a foreign buyer, the contract
or import. But the application of section 5 is not confined to such contracts
alone as the cases cited hereafter will show. If only a one-sale test were to
be applied, these would be the only contracts qualifying for exemption. Such is
not the interpretion put on sections 3 and 5 because in several cases this
court has considered even a sale other than an import or export if there is a
direct connection between the sale and the import or the export.
distinction between an independent sale and a linked sale is clearly brought
out by a constitution Bench of this court in the case of Ben Gorm Nilgiri
Plantations company, Coonoor & ors. V. sale Tax Officer, special circle, Ernakulam
& ors. (1964 (3) SCR 706 at 711) which decided the requirements of a sale
in the course of export (two Judges dissenting). In this case, the appellants
carried on the business of growing and manufacturing tea. The purchasers were
local agents of foreign buyer. The sales were by public auction. It was the
common case of all the appellants that the purchases by the local agents of the
foreign buyers were with a view to export the goods to their principal abroad
and in fact the tea was exported. The appellants contended that sales of tea to
the local agents were in the course of export. There Judges, out of the five
Judges concerned, held that this was not a sale in course of export. They said
that the transaction of sale which is a preliminary to export may be regarded
as a sale for export but it is not necessarily to be regarded as one in the
course of export.
test laid down in this case is: in order that the sale should be in the course
of export, the export must be inextricably linked with the sale so that the
bond cannot be severed without a breach of the obligation arising by statute ,
contract or mutual understanding between the parties arising from the nature of
the transaction; so that export cannot be interrupted without a breach of the
contract between the local buyer and the local seller. In that case the local
seller had no interest in the export of tea. Hence the sale was not in the course
test is reiterated in the subsequent decisions dealing with exports and
imports. In the case of K.G. Khosla & co. V. Deputy Commissioner of
Commercial Taxes (1966 (3) SCR 352) , another constitution Bench of this court
interpreted section 5(2) of the central sales Tax Act, 1956 and held that
section 5(2) does not lay down any condition that before a sale could be said
to occasion the imports, it is necessary that the sale should precede the
this is one the earliest cases dealing with a sale in the course of import, I
refer briefly to its facts.
entered into a contract with the Director General of supplies and Disposal, New Delhi for the supply of axle-box bodies.
According to the contract the goods were to be manufactured in Belgium and D.G.I.S.D., London or its representative, was entitled
to inspect the goods in Belgium. It was the assessee's
responsibility to get the goods manufactured in Belgium and import them into India.
the assessee supplied axle-box bodies to the Southern Railway at Perambur
worked after importing them from Belgium. The question was whether this was a sale in the corse of import. The
court said that the sale e the assessee to the Railways need not have the
movement of goods from Belgium to India was in pursuance of the condition of 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.
the sales took place in the course of imports.
next important case decided by this court deals with a sales in the course of
export of goods. This is the case of coffee Board, Bangalore V. Joint
commercial Tax officer, Madras & Anr. (1969 (3) SCC 349). It is a decision
of a constitution Bench of this court with one Judge dissenting. In this case,
the coffee Board had sold coffee which was to be exported out of India. Such Coffee for export was
specially screened and selected. Auctions were held known as "Export
Auctions" for sale of this coffee.
purchasers at such auctions subsequently exported the coffee. The question was
whether the sale by the coffee Board to the local purchaser would be considered
as a sale in the course of export. The court said that in order that the sale
may occasion the immediate cause of export.
the introduction of a third party dealing independently with the seller on the
one hand and with the foreign importer on the other hand, broke the link
between the sale and the export. It, therefore, held that such a sale was not
in the course of export.
this case a special emphasis has been laid on the fact that there were two sale--one
sale to the intermediary, and the other sale to the importer. The court
observed that there must be a single sale which should course the export.
said that there is no room for two or more sales in the course of export. The
court was clearly impressed by the fact that when the coffee Board sold the
coffee to a purchase locally, there was no stipulation that the purchaser was
bound to export the coffee. Obviously if the coffee Board had sold the coffee
to a foreign buyer, the export of coffee would have followed. This is what a
one- sale test amounts to. But section 5(1) does not say that only a sale by a
local purchaser to a foreign buyer is a sale test in the course of export. The
language of section 5(1) is much wider. Any sale which occasions the export is
a sale in the course of export. A literal adoption of a one- sale test would
result in ignoring earlier decisions of the constitution Bench where two sales
were involved and a sale subsequent to the sale between a local buyer and a
foreign seller was held to be a sale in the course of import when it was
established that there was a firm link between the subsequent sale and the
one-sale test must be understood in the context of the facts which the court
was required to consider. The sale prior to export. Hence in that case, the
earlier sale had not occasioned the export.
fact, these observations in the coffee Board's case (supra) have been explained
in The Deputy commissioner of Agricultural Income Tax and sales Tax, Central
Zone, Ernakulam V. M/s. Kotak & co., Bombay etc. (1974 (3) SCC 148) and in
Deputy commissioner of Agriculture Income Tax & Sales Tax , Ernakulam V.
Indian Explosives Ltd. (1985 (4) SCC 119) on the basis that in the coffee
Board's case (supra) there was no inextricable link between the local sale and
the export, while in the cases of Indian Explosives and Kotak & co. (supra)
there was such an inextricable link between the import of the goods the local
case of M/s. Kotak & Co. (supra) the assessee- firm was engaged in the
supply of foreign cotton to textile mills on the basis of actual user's import licences
issued to the textile mills. The assessee-firm contacted the foreign suppliers
and id the offers received were found acceptable to the mills , and on that
basis , accepted the offer made by the foreign supplier . The textile mill
issued a letter of authority authorising the assessee-firm to import cotton.
One of the terms of the letter of authority was that the person or firm in
whose favour it has been issued will purely act as an agent of the licensee and
the licence holder will have to ensure that the goods on importation will be
delivered to him and shall not be disposed of otherwise. This clause was read
as part of the contract entered into between the assessee and the textile
mills. This Court held that from the facts as set out above it was clear that
the case fell within the rule laid down by this court in K.G. Khosla's case
(supra) . The sales was in the course of import although there were two sales,
one entered into by the assessee with the foreign supplier and the other sale
by the assessee with the textile mills.
same year in the case of M/s. Binani Bros. (p) Ltd. V. Union of India &
Ors. (1974 (1) SCC 459) , a constitution Bench of this court considered section
5(2) of the central sales Tax Act. In this case the assessee was a registered dealer
in non-ferrous metals. The assessee was also an importer of these metals. The assessee
was on the approved list of registered supplier to the Directorate General of
supplies and Disposals, for whom it had imported and supplied non-ferrous
metals for several years. In order to get import licences the petitioner user
to get Import Recommendation Certificates issued by the D.G.S. & D. or
other authorities like the state trading corporation. The assessee claimed that
the imports had been occasioned by their contractual obligations to D.G.S.
& D. This court , however, negatived the contention. It said to the
petitioner by the foreign seller and the sale by the petitioner to the D.G.S.
& D under the import licences granted to it, the assessee was entitled to
import the goods any person or country and the import licences issued to it
imposed no obligation on the petitioner to supply the goods only to D.G.S &
D after the goods were imported. Hence there were two independent sales and the
sale transaction between the assessee and the D.G.S.& D. Cannot be
considered as having occasioned the import.
judgment has been explained and distinguished in the subsequent case of Indian
Explosives Ltd. (supra). In this case, the local purchaser used to place order
with the assessee quoting their import licence numbers. The assessee then
placed orders with the foreign supplier for the supply of goods. In such orders
the name of the local purchaser who required the goods as also its imports licence
numbers were specified. On receipt of the goods, the assessee used to invoice
the local purchaser. This court held that the sale effected by the assessee to
the local purchaser was in the course of import as there was an integral
connection between the sale to the local purchaser and the actual import of
goods from the foreign supplier. This court cited with approval the ratio laid
down in K.G. Khosla'a case (supra) .
distinguished Binani Brother's Case (supra) on two material aspects; (1) In
that case the assessee itself held the import licence and the goods were
imported on the strength of such an import licence and (2) There was no term or
condition prohibiting diversion of the goods after the import. However, in the
case before them, the integral connection or inextricable link between the
transaction of sale and the actual import were established.
case of The State of Bihar & Anr. V. Tata Engineering & Locomotive Co.
Ltd. (1970 (3) SCC 697) , A constitution Bench of this court considered the
provisions of section 3 of the central sales Tax Act, 1956, to decide what can
be considered as a sale in the course of inter- state or commerce. Noting the
similarity in language between section 3 and 5, the court relied upon there
decision of this court dealing with section 5(1) and 5(2). In the case before
the court the assessee sold their trucks, buses, chassis and spare parts to the
appointed dealers for the purpose of being sold their trucks, buses, chassis
and spare parts to the appointed dealers for the purpose of being sold in the
territories outside the stat assigned to these dealers under the dealership
agreement. The court held that the sales were in the course of inter-state
trade or commerce. Dealing with the expression "in the course of", it
observed that sales or purchase which themselves occasion the export or import
or movement of goods from one state to another come within the exemption. If
the sale cannot be dissociated from the export or import or movement of goods
from one state to another, then the sale and the resultant export or import or
movement of goods must be considered as forming part of a single transaction.
case of Md. Serajuddin & Ors. V. The state of Orissa (1975 (2) SCC 47) ,
however , the one-sale test appears to have been applied in isolation. The assessee
entered into two contracts with the state Tradition Corporation for supplying
mineral ore for export since the export of Mineral ore was canalised through
the state Trading corporation. The state Trading corporation, in turn, entered
into contracts with foreign buyer. By a majority of four to one, this court
held that the sale by the assessee to the state Trading corporation was not a
sale in the course of export even though it was a canalising agency for export.
This was because it felt that introduction of a third party dealing
independently with the seller on the one hand and with the importer on the
other broke the link between the two because, now instead of one there were two
sales -- one to the intermediary albeit a canalising agency, and the other to
the importer. It was this emphasis on one sale which led the court into not
placing sufficient emphasis on the test propounded in Ben Gorm Nilgiri
Plantation's case (supra) although this test was affirmed by it as valid.
decision led to the amendment of section 5 by parliament by the addition of
sub-section (3) which makes a sale preceding the export sale also a sale in the
course of export in circumstances set out therein, thus obviating any
difficulties which may arise in the case of sales in the course of export by virture
of this emphasis on a single sale in the case of Md. Serajuddin (supra).
it a little differently, when there is a local sale followed by export of the
goods sold; or import of goods followed by a local sale, one must examine
whether the export or the import of goods is an essential ingredient of the
local sale. In some cases dealing with exports, the court found that the local
dale lacked this essential ingredient because the local seller of the goods had
no interest in seeing that the goods were exported, although the local
purchaser may have bought the goods for export. To the local seller, it was
immaterial whether the goods were in fact exported or not. so that there was no
understanding between the local seller and the local buyer that the goods must
seldom happens in the case of imports 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. That is why the cases dealing with imports have not
resorted to differentiating between one sale or two sales. They have applied
the test as prescribed by section 5 : whether the import is a result of
understanding/contract between the local buyer and local seller. It it is , the
local buyers and local sale falls under Section 5. If it is not -- as may well
happen if the importer seller his goods after they arrive to the best available
offeror in the market, then the sale is not covered by section 5. That is why
there has been no need to amend section 5 to expressly cover a local sale
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 canalisation in the present case envisages that the cashew
corporation of India ascertains the exact requirements of the former importers
who are now required to secure their supplies through the canalising agent.
Orders of import which are placed by the cashew corporation of India are in
exact terms of the requirements of each of the allottees and are a sum total of
these requirements. There is specific allocation of each lot before it is
shipped from the foreign port, in favour of each of the allottees. The local
purchaser has to clear the allocated goods on their arrival. Even a subsidiary licence
is issued in favour of the local purchaser. The price of imported cashewnuts is
paid by the local purchaser. The cashewnuts is paid by the local purchaser. The
cashew corporation of India is only paid a commission. There is thus a clear
allocation of the goos being imported in favour of the local purchaser and
there can be no question of the diversion of the import to anybody else . The
cumulative effect of this arrangement is : it is the specific requirement of
local purchaser which has led to the specific requirement of local purchaser
which has led to the specific import . Whether the actual sale takes place
before the import or after the import is irrelevant in this context (vide K.G. Khosla's
that arrangement between the local buyer and the local seller which has
occasioned the import.
respondents drew our attention to the fact that in the case of any default by
the local purchaser, the canalising agency would be entitled to sell the goods
elsewhere. This , however , in my view , does not detract from the fact that
the import is as per the requirements of the local purchaser and is directly
linked with it. A specific allocation is made in favour of each of the local
purchasers. the orders for import are placed to comply with the specific
requirements of the local purchasers. A default clause cannot alter the nature
of the transaction between the local purchaser and the canalising agency. The
very term 'canalising agency' in the context of the canalisation scheme as set
out earlier strengthens the agruments that the imports were effected on behalf
of and/or for the benefit of the local purchaser who had agreed to purchase
these cashewnuts. the fact that only a commission is charged by the canalising
agency from the local puchasers also reinforces this conclusion. In these
circumstance, the fact that a bulk order is placed by the canalising agency
with the foreign supplier does not snap the link between the transaction of
sale by the cashew corporation of India to the assesses and the import of cashewnuts
by the cashew corporation of India. It is the local sale which has given rise
to the import. It will qualify as a sale in the course of import.
respondent- state has placed strong reliance on the case of Md. Serajuddin
(supra). It was contended that in the light of the observation made there,
unless there is only one sale --the sale which results in import -- the sale
cannot be considered as causing the import. The real test, in my view, is of inseverable
linkage. This is how observation regarding the need for one sale in the earlier
coffee Board's case (supra) have been explained by this court in the cases of
Indian Explosives and Kotak & co. (supra). In the case of consolidated
coffee ltd. & Anr. etc. v. Coffee Board, Bangalore etc. etc. (1980 (3) SCR
625 ) also , this court has observed that section 5(1) was construed by this
court in the two sales rather very strictly in the two cases, namely, the
Coffee Board and Md.
cases (supra). Referring to the statement of objects and Reasons in respect of
the amending Act which brought about the introduction of sub-section (3) in
section 5, this court observed that from the statement of objects and Reasons,
it is clear that Md. Serajuddin's decision (supra) is specifically referred to
as having necessitated the amendment. Secondly, from the statement of objects
and Reasons, it is clear that penultimate sales made by small and medium scale
manufactures to an export canalising agency or private export house to enable
the latter to export those goods in compliance with existing contracts or
orders, are regarded as inextricably connected with the export of the goods and
hence earmarked for conferral of the benefit of exemption.
contend that in any event, the test of one sale laid down in the cases of
coffee Board and Md. Serajuddin (supra) should be confined only to export sales
and should not be applied to imports. They further contend that even in the area
of export of export the test has now been ruled out by reason of a subsequent
amendment made to section 5 of the Central sales tax act as result of which
sub-section (3) has been introduced in section 5. Hence such a test a should
not now be applied to imports for the first time.
view similarity of language in section 5(1) and 5(2), no such distinction is
possible between imports and exports. Similar test will have to be applied to
both the sub-section. There is no express amendment as far as imports are
concerned which can assist the processor in the present case. It may be that
such an amendment was not necessary in the case of imports because the
difficulty with the penultimate sales had mainly arisen in the case of exports.
whether it is exports or imports or inter-state sales. what needs to be emphasised
is the basis requirement prescribed under section 3 and 5, namely, that the
transaction in question must occasion either the export or the import or the
movement of goods from one state to another. This clearly postulates an inseverable
link between the transaction of sale in question and the import or export or
movement of goods from one state to another, as the scale may be. The one-sale
test referred to in some cases dealing with exports is only an aspect of this
basic test. We concerned with a sale which occasions an import. Therefore, we
have to see whether there is such an inextricable and direct link between local
sales which are before us and the import of cashewnuts from African countries
into India by the cashew Corporation of India.
The facts already set out show that there is such an inserverable link as the
import made by the cashew corporation of India is a necessary consequence of
the specific requirements submitted by the processor and is a result of the
obligations which it has undertaken under its arrangements with the local
processor which has crystalised later in the form of the contract of sale. The sale
in question are, therefore, in the course of import.
also argued by Mr. Poti, learned counsel appearing for the assessees, that in
the present case, the sale by the cashew corporation of India to the assessee took places before
the goods crossed the customs frontiers of India. Hence it is a sale in the course of import. He placed reliance upon
section 2(ab) of the central sales Tax Act, 1956, which defines " crossing
the customs frontier of India" as crossing the limits of the area of a
customs station in which imported goods or export goods are ordinary kept
before clearance by customs authorities. He submitted that since the goods were
sold by the cashew corporation of India to the assessees before the goods were cleared by the customs
authorities they must be considered as having been sold in the course of import
because they were sold before the goods crossed the customs frontiers of India. This definition, however, of
crossing the customs frontiers of India has been introduced only by act 103 of 1976 long after the imports in
question took place. it would have no application to the present case. The
contention of Mr. Poti that this definition must be applied even to goods
imported prior to 1976 because it is only clarificatory in nature, cannot be
accepted. Prior to the introduction of this definition in the central sales Tax
Act of 1956, crossing the customs frontiers of India was understood as crossing
the limit of territorial waters of India. The definition, therefore, cannot be
considered in the merely clarificatory.
it came to be introduced in the central sales Tax Act after the imports in
question, it cannot be resorted to for the purposes of the present case.
next submitted by Mr. poti that the sale in the present case was effected by a
transfer of documents to title to the goods before the goods crossed the
customs frontiers of India even in the sense of crossing the
territorial waters of India. hence it was a sale in the course
of import. He relied upon the second part of section 5(2) of the Central sales
Tax Act for this purpose. The Tribunal, however, has found as a fact that there
is no clear evidence as to when the sale by transfer of document s took place.
In the absence of any factual basis , therefore, this submission also cannot be
since there is a direct and inseverable link between the transaction of sale
and the import of goods on account of the nature of the understanding between
the parties as also by reason of the canalising scheme pertaining to the import
of cashewnuts , the sales in question cannot be taxed under the Kerala General
sales Tax Act or the Karnataka General sales tax Act, as the case may be. There
will, however, be no order as to costs After submitting this judgment, I have
had the benefit of reading the judgment of my learned brother S.B. Majmudar J.
I have the highest regard for his views. I am , however, unable to agree with
him for reasons which, I hope , are clear from what I have already said.