Alloys Corporation Ltd. Vs. Union of India
& Ors  INSC 607 (14 December 1998)
Bharacha, S. Rajendra Babu Bharucha.J.
appeals by special leave questions the correctness of the judgment and order of
a Division Bench of the High Court of Orissa dismissing writ petitions filed by
the appellants. Until the Assessment year 199--91, one respondents accepted the
position that the states made by the appellants were sales in the course of
export and, therefore, exempt from the levy of sales tax. For the Assessment
Years 1990-91 and 1991-92 the respondents found that these sales were
intra-State sales subject to the levy of tax under the Orissa Sales Tax Act.
The writ petitions filed by the appellants there against were dismissed.
appellants are an export oriented unit set up pursuant to the resolution of the
Government of India dated 31st Dec. 1980.
That resolution decided to give 100% export oriented units certain concessions
to enable them to meet the rigors of foreign demands in terms of pricing,
quality, precision, etc. According to the resolution, "(a) 100% export
oriented unit would imply an industrial unit offering for exports its entire
production, excluding permitted levels of rejects". A unit approved by the
Board set up under the resolution was required to undertake to manufacture in
bond and export its entire production for a period of 10 years and the finished
products were exempt from excise and other central levies. Only rejects, upto
5% or such other percentage as the Board might fix, were allowed to be sold in
the domestic tariff area. The application of the appellants that its charge
chrome project be approved as a 100% export oriented unit was granted by the
Government of India on 24th
15th Sept., 1981 the appellants entered into an agreement, called the Off-Take
Agreement, with M/s. Marc Rich & Co., AG, (now called "Richco"),
a corporation having its registered office at Zug, Switzerland. The agreement
recited that the appellants intended to construct and were in the course of
constructing a new charge chrome plant in the State of Orissa, utilising chrome ore from mines in
that State, as a 100% export oriented unit offering for export its entire
production. Richco was an international marketing organisation that was specialised
and experienced in the distribution and handling of ferry alloys, ferrous and
non-ferrous ores and concentrate and steel related commodities wouldwide with
associated companies and or offices in over 30 countries, including associated
representative offices in New Delhi, Calcutta and Bombay, with personnel experienced in the marketing of charge
chrome. Richco had been a major exporter of Indian ferry alloys and maintained
well-extablished connections with major consumers of charge chrome throughout
the would and was well placed and highly experienced in the marketing and
transportation of charge chrome and it sought additional material "for the
purpose of re-sale to its major consumers". The recitals added that the
appellant "destres to appoint Richco as its exclusive purchaser worldwide
for the re-sale of charge chrome produced by the new Orissa plant and Richco
desires to accept such appointment". The Off-Take Agreement defined for
its purposes, the term "the Agreed Rate" to mean "5% on F.O.B.S.T.
Indian Port price" relished by the appellants. (S.T.stands for
"stored and trimmed"). Clause 2 of the agreement stated that the
appellants appointed "Richco as the sole and exclusive purchaser worldwide
for all the charge chrome produced at the plant during the run-up and
throughout the contract period and Richco shall be entitled to re-sell the same
for its own account". The appellants undertook with Richco that in each
year the aggregate quantity of charge chrome available for sale to Richco would
not be less than the export minimum. Richco in turned undertook "with
Factor (the appellants) to purchase at regular intervals in each year the
charge chrome ........ equal to the export minimum at the prices agreed from
time to time (as market conditions may require) by the parties hereto
.......... ". It was acknowledged that the market for which the charge
chrome was earmarked was primarily Japan and any balance would be earmarked for consumers in the rest of the
world. For long term contracts with major consumers the appellants would have
the right to participate in negotiations so as to enable them to plan their
production programma and delivery schedule. Clause 3 stated, "The price
for charge chrome to be sold and purchased hereunder shall be that agreed
between Factor and Richco from time to time based on prevailing international
prices as established by the major producer exporters of charge chrome (taking
into account the quality of the charge Chrome) for those areas to which the
charge chrome shall be destined ....... ". It also stated, "The
prices to be established shall be no a F.O.B.S.T. Indian Port basis C+F or CIF
Discharge Port basis as required by Richco from time to time and shall be
expressed in dollars or if the parties so agree in any other currency".
The appellants were required to pay to Richco a discount at the agreed rate on
all charge chrome purchased by Richco. It was to be allowed by the appellants
on each shipment and be paid in dollars to the account of Richco "within
thirty days from receipt of the final sale proceeds for the charge chrome in
question provided that if the final sale proceeds for any charge chrome shall
be withheld for quality and/or quantity reasons then Factor shall pay the
discount on the provisional payment within ninety days of the date of arrival
of the vessel at Richco's nominated. port and the balance of such discount
shall be paid when the final payment is settled". Clause 4 of the
agreement, dealing with payments, stated, "Payment of the price by Richco
in respect of each consignment shall be made by letters of credit for the full
value providing for 90% provisional payment against shipping documents and the
balance upon receipt of final certificates of assay and weight at load
port/discharge port". The appellants warranted that they would "be
the sole and absolute owner (free from any adverse interests) of all charge
chrome exported to Richco hereunder". Title and risk to each consignment
of the charge chrome would pass to Richco as agreed from time to time. Clause 5
required the charge chrome to be sold thereunder to be shipped in bulk. Clause
13 recorded, "This Agreement ......... have been entered into pursuant to
the approval granted by the Govt. of India....... ".
to the Off-Take Agreement Charge Chrome Agreements were entered into from time
to time. A sample of such agreements placed on the record states that, in terms
of the Off-Take Agreement, the appellants, described as the
"sellers", had agreed to sell charge chrome to Richco, described as
the "buyers", on the terms and conditions therein stated. The
quantity stated, specifications and price were stated, the last being so many
U.S. cents per pound "of chrome content FOBST Paradeep, India in bulk
payable 30 days from Bill of Lading date". The shipping date was stated
and the destination, being Japan for supply to Messrs. Nippon Steel
Corporation, Tokyo. The agreement signed on behalf of the buyers and sellers.
Standard terms and conditions were annexed to the agreement. Thereunder Richco
was required to arrange for the issuance of a certificate pertaining to the
discharge of the charge chrome at the discharging port. The standard terms
stated that the "final settlement will be based on weight determined at
port of discharge or ultimate buyers' works and analysis mentioned in the
certificate". The payment would be made by confirmed irrevocable letter of
credit in favour of appellants as therein set out. Clause 4 of the standard
terms stated :
Should any consignments shipped under this contract fall below the contractual
specifications, the buyers reserve the right to reject and revert the material
to the sellers or to accept such consignment or consignments at reduced price
as may be mutually agreed to between the buyers and sellers.
buyers shall pay all customs duties as well as any other duties and taxes
payable in Japan at the time of or by reason of the importation".
in respect of goods was stated to pass to Richco "from the time when the
goods shall have effectively passed the ship's rail at the port of
shipment". Title in respect of the charge chrome would pass to Richco from
the appellants "when the sellers have received the proceeds of the goods
from the negotiating bank without recourse to the sellers".
are placed on record which show how the Off Take and Charge Chrome Agreements
were worked. All that need be referred to is the shipping bill, which shows
that it was the appellants who were the exporters because no export licence was
required under "Clause 15(j) of Export Trade Control 1988-91".
counsel for the appellants submitted that the sales effected by the appellants
to Richco were sales in the course of export to Richco. The agreements,
particularly, the Charge Chrome Agreements, left no doubt in this behalf.
Learned counsel for the respondents submitted that the sale to Richco was under
the Off-Take agreement and that the Charge Chrome Agreements were only delivery
orders there under. The export had been occasioned, in his submission, by
reason of the agreements that were entered into between Richco and the ultimate
buyers, which agreements, clearly, preceded the Charge Chrome Agreements.
5 of the Central Sales Tax Act, 1956, so far as it is relevant, reads thus :
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.
Notwithstanding anything contained in sub-sention (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
analyses these provisions to the extent relevant here, the sale of goods is
deemed to take place in the course of their export out of the territory of
India only if (1) the sale occasions the export, (2) the sale is effected by a
transfer of documents of title to the goods after the goods have crossed the
customs frontiers of India; and (3) the last sale of goods preceding the sale
occasioning the export of the goods is deemed to be in the course of such
export if it has taken place after and for the purpose of complying with the
agreement or order relating to such export.
appellants have based their case on all the aforesaid three limbs of Section 5.
We shall deal with the argument on the first of the aforesaid three limbs
we do so, we should make reference to the judgment of this Court upon which
both sides have relied, namely, the Constitution Bench judgment in Md. Serajuddin
was the judgment that occasioned the amendment of Section 5 so as to introduce
sub-section (3) therein. Analysing earlier decisions of this Court, various
principles were laid down in Serajuddin' case to ascertain which was the sale
which occasioned the import. It was said that the sale which was to be regarded
as exempt was the sale which caused the export to take place or was the
immediate cause of the export. To establish an export, a person exporting and a
person importing were necessary elements and the course of export was between
them. The 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 for then there were two sales, one to the intermediary and the other to the
importer. The first sale was not in the course of export because the export
commenced with the intermediary. The expression "sale" in Section 5
of the Central sales Tax Act had the same meaning as in the sale of Goods Act.
The expression "in the course" implied not only a period of time
during which the movement was in progress but postdated a connected relation.
Sale in the course of export out of the territory of India meant a sale taking
place not only during the activities directed to the end of exportation of the
goods out of the country but also as part of or connected with such activities.
Directions given to place the goods on board a ship pursuant to the contract of
sale were not in the course of export because, in the given case, the export
sale was an independent one with a foreign buyer. In such cases, the taking of
goods from the appellant's place to the ship was completely separate from the
transit pursuant to the export sale.
view, the first question to answer is :
is the contract of sale of the charge chrome to Richco? Is it, as is contended
by learned counsel for the respondents the Off-Take Agreement? Or is it, as is
contended by learned counsel for the appellants that the Off-Take Agreement is
only the agreement of sale to Richco and the contracts of sale are the Charge
Chrome Agreements? Section 4 of the Sale of Goods Act, 1930 states :
Sale and agreement to sell (1) A
contract of sale of goods is a contract whereby the seller transfers or agrees
to transfer the property in goods to the buyer for a price. There may be a
contract of a contract of sale between one part-owner and another.
Where under a contract of sale the property in the goods is transferred from
the seller to the buyer, the contract is called a sale but where the transfer
of the property in the goods is to take place at a future time or subject to
some condition thereafter to be fulfilled, the contract is called an agreement
to sell." While on the Sale of Goods Act reference may also be made to
Section 9, which states that the price in a contract of sale may be fixed by
the contract or may be left to be fixed in the manner thereby agreed or it may
be determined by the course of dealing between the parties. Where the price is
not determined as aforestated, the buyer must pay the seller a reasonable
Off-Take Agreement was executed when the appellants were still in the course of
constructing the charge chrome plant, that is to say, well before the
production of any of the charge chrome that was to be sold thereunder. The
agreement was to operate in respect of the charge chrome that was produced at
the plant during the run-up and throughout the contract period. Richco
undertook to purchase the same at regular intervals in each year, equal to the
export minimum. The price was to be that which was agreed between the
appellants and Richco from time to time "based on prevailing international
prices as established by the major exporter producers of charge chrome (taking
into account the quality of charge chrome) for those areas to which the charge
chrome shall be destined." The agreement, therefore, did not relate to a
specified quantity of charge chrome nor was the price agreed to there under.
agreement did not even state with any precision how the price of the charge
chrome was to be determined. The agreement, therefore, was no more than an agreement
so, there are clear indications in the Off-Take Agreement that the sales that
were to be effected pursuant thereto were sales to Richco abroad. Richco was to
be the exclusive purchaser of the charge chrome "world-wide". The
entire quantity of charge chrome that the appellants were required to export by
reason of their obligations as an 100% export oriented unit was covered by the
agreement. The price thereof was to be paid in dolla's. The agreement spoke of
"charge chrome exported to Richco".
Charge Chrome Agreements were entered into between the appellants as
"sellers" and Richco as "buyers" and were signed on their
behalf. The quantity of charge chrome sold there under, its specifications and
the price therefor was specified. The price was counted in US cents.
destination mentioned therein was a foreign port. Under the Standard Terms and
Conditions annexed to the Charge Chrome Agreements Richco was required to
arrange for a certificate pertaining to the discharge of the charge chrome at
the discharging port. The final settlement of the price was to be based on the
weight of the charge chrome determined either at the port of discharge or at
the works of the ultimate buyer and the analysis mentioned in the certificate. Richco
was entitled to reflect charge chrome which fell below the contractual
specifications. Whether the charge chrome fell below the contractual
specifications could only be determined by the assay carried out at the port of
discharge. The title to the charge chrome passed to Richco from the appellants
when the appellants received full consideration for the charge chrome
"from the negotiating bank, without recourse to the sellers", that is
to say, only when the charge chrome was found to have met the contractual specifications,
which was abroad. These provisions in the Charge Chrome Agreements indicate not
only that they were the contracts of sale of the charge chrome but also that
the sale of charge chrome thereunder was a sale to Richco abroad and therefore,
that the export of the charge chrome was occasioned by the Charge Chrome
was not an intermediary in the sense that it was not the contract of sale of
the charge chrome by Richco to the ultimate buyer which occasioned the export.
The charge chrome having been exported by the appellants to Richco abroad, Richco
resold it to the ultimate buyers.
relating to situations where there were intermediaries who purchased goods from
Indian sellers in India and then exported them to foreign
buyers are, therefore, not relevant to the present case.
therefore, hold that the High Court and the authorities below were in error in
concluding that the sales made by the appellants were not sales in the course
of export and, therefore not exempt from the levy of sales tax.
now having decided the issue on merits, take notice of an affidavit filed in
this Court on behalf of the Union of India. The affidavit supports the stand of
the appellants. It annexes letters written by the Union of India on 6th November, 1995 and 29th April, 1998 to the respondents. The letters state that since the
appellants charge chrome plant was Customs bonded it was not possible for the
appellants to make any domestic sale thereof without the approval of the
competent authority and the Customs and Central Excise authorities had
certified that the appellants had not sold any quantity of charge chrome in India. In view thereof, and keeping in
view the fact that all export sales were exempt from the payment of State and
Central Sale Tax, the respondents were requested to ensure that the production
and export programme of the appellants' plant was not adversely affected. The
respondents did not reply to the said two letters, nor to the affidavit on
behalf of the Union of India.
appeals are allowed. The judgment and order under appeal is set aside. The writ
petitions filed by the appellants are allowed and the assessment orders
impugned thereby quashed.
respondents shall pay to the appellants the costs of the appeals.