State of Maharashtra Vs. M/S Embee Corporation, Bombay  INSC 679 (21 August 1997)
BHARUCHA, V. N. KHARE
S.L.P. (C) No. 6771/94)
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.
material facts which have given rise to the aforesaid question are these:
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.
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.
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.
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 inter- linked
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.
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.
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.
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.
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".
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.
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.
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.
respondents only contend that the movement was not the result of a covenant in
or an incident of the contract of sale.
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.
Iron and Steel Co. case was again followed by this Court in Singareni Colleries
Co. v. Commissioner of Commercial Taxes, Hyderabad.
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.
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).
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.
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.
counsel then urged that this case is covered by decision of this Court in the
case of Binani Bros. (P) Ltd.
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.
not, therefore, find that this decision is helpful to the appellant's case.
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.
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.