and Metals Trading Corporation of India Ltd. Vs. Sales Tax Officer & Ors
 INSC 488 (25 September 1998)
following Judgment of the Court was delivered:
appeal impugns the correctness of a judgment of a Division Bench of the High
court of Orissa dismissing the writ petitions filed by the appellant.
appellant is a Government of India undertaking.
functions as a canalising agent for the purpose of import and export of
minerals and metals. It had, for this purpose, issued guidelines to actual
users in the matter of applications for the import of iron and steel items to
be canalised through it. Thereby the actual user was informed that the formal
purchase order on the foreign exporter would be released by the appellant after
the actual user had made financial arrangements to cover the purchase. The
actual user had the option to open either a domestic letter of credit in favour
of the appellant or a direct letter of credit in favour of the exporter, but
the facility of opening a direct letter of credit was to be given only on the
merits of the case and provided an undertaking in the stated proforma was
given. In other cases a back-to-back letter of credit favouring the appellant
had to be established. On 31st March, 1991,
the Steel Authority of India Limited (hereinafter referred to as 'SAIL')
requested the appellant to register the import of 15,000 MT of tin mill black
plate (TMBP) coils. An application was enclosed.
applicants stated that the said coils were required for production by them of
electrolytic tin plates. The said coils would be utilised in their factory for
their purposes and no portion thereof would be sold to or be permitted to be
used by any other party or for any other purpose. On 14th July, 1991, SAIL opened a letter of credit
directly in favour of the exporter, M/s. Samsung Co. Ltd., Seoul, South Korea, in the sum of US $ 1,895,475.00. The consignee therein was
shown as SAIL. On 2nd
August, 1991, the
appellant placed a purchase order with the exporter for on behalf of SAIL. On 16th August, 1991, the appellant wrote to SAIL
enclosing a copy of its purchase order. The letter stated:
shall arrange delivery of the material to you on 'high-seas' basis by
endorsement and transfer of shipping documents in your favour after the
documents have been paid for by your banker against L/C established by
you." SAIL was requested to make arrangements for clearing the cargo,
including arrangements for clearance thereof from customs. The letter stated
that the responsibility for "payment of Import duties, Port charges and
other expenses subsequent to sale on 'high seas' also will be to your
account." On 23rd
October, 1991, the
appellant sent to SAIL its invoice, adjusting the amount that had already been
paid by SAIL through its bankers. On 28th October, 1991, the appellant wrote to SAIL
stating that it had decided to make a high seas sale of the said coils to SAIL.
Accordingly, documents with due endorsement thereon were sent to SAIL to get
the said coils cleared. The documents that were enclosed included the original
bill of lading dated 30th
September, 1991, for
the said coils, duly endorsed in favour of SAIL. On the same day the appellant
wrote to Assistant Collector of Customs, Paradeep Port, Cuttack, where the consignment of the said coils would arrive on
the vessel M.V. State of Tripura. The letter stated that the said coils had been
imported by the appellant and had been sold to SAIL on high seas basis and SAIL
would process the bill of entry and the pay the customs duty. The vessel
arrived at Paradeep Port on 11th
November, 1991 and
breathed on 30th
November, 1991. On 18th November, 1991, the bill of entry in respect of
the said coils was submitted and processed by SAIL.
On 31st December, 1994, the Sales Tax Officer levied sales
tax on the aforesaid sale. He rejected the appellants case that no sales tax
was payable, this being a sale in the course of import covered by Section 5(2)
of the Central Sales Tax Act. 1956. He held that there had been two sales, one
between the exporter and the appellant and the other between the appellant and
SAIL and that the sale to SAIL had not occasioned the import.
regard to the sale made by the appellant to Paradeep Phosphates ltd., the facts
appellant filed writ petitions in the High Court of Orissa challenging the levy
of sales tax on the aforesaid sales. The High Court noted the argument that the
aforesaid sales on high seas basis had been effected prior to the imported
goods "crossing the customs frontier of India", which expression was
defined in Section 2 (ab) of the Central Sales Tax Act by an amendment which
had taken place prior to the aforesaid sales. The High Court, however, relying
upon the judgment of the Karnataka High Court in the case of cashew Corporation
of India vs. State of karnataka, (1986) 63 STC 90, held that the appellant was
liable to sales tax and dismissed the writ petitions.
reason of the provisions of Article 286(1)(b) no law of a State shall impose,
or authorised the imposition of, a tax on the sale or purchase of goods where
such sale or purchase takes place in the course of import of the goods into, or
export of the goods out of the territory of India. Section 5 of the Central Sales Tax
Act deals with this : "When is sale or purchase of goods said to take
place in the course of import or export." Sub-section (1) thereof deals
with exports and sub-section (2) with imports. Sub-section (2) reads thus:
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 have crossed the customs frontiers of India.
definition in Section 2 (ab) of the phrase "crossing the customs frontiers
of India" reads thus:
the customs frontiers of India means crossing the area of a
customs station in which imported goods or export goods are ordinarily kept
before clearance by customs authorities." It was inserted by an amendment
in 1976. The Objects and reasons of the amendment were that the phrase had been
interpreted to mean, coterminous with the extent of the territorial waters.
This had given rise to practical difficulties as it was difficult to determine
whether, at the time of the sale or purchase, the goods had entered or crossed
the territorial waters. The actual checking of thee goods took place in the
customs station and not at the edge of the territorial waters. It was,
therefore, necessary to so define the expression. A customs station has, by
reason of the Explanation to Section 2 (ab), the same meaning as in the Customs
Act, 1962, and that is : "any customs port, customs airport or land
customs station". A customs port is any port appointed under Clause (a) of
Section 7 of the Customs Act to be a customs port. (That Paradeep Port is a customs port is not in dispute.) Section 5,
sub-section 2 has two parts. 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 if the sale or purchase either
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, that is to say, before the goods
have crossed the limits of the area of the customs station in which they are
kept before clearance by the customs authorities.
judgment of a Constitution Bench of this Court in J.V. Gokal & Co.
(Private) Ltd. vs. The Assistant Collector of Sales Tax (Inspection) & Ors.
1960(2) SCR 852, has set out the legal position of import sales thus:
legal position vis-a-vis the import-sale can be summarized thus:
The course of import of goods starts at a point when the goods cross the
customs barrier of the foreign country and ends at a point in the importing
country after the goods cross the customs barrier,
sale which occasions the import is a sale in the course of import;
purchase by an importer of goods when they are on the high seas by payment
against shipping documents is also a purchase in the course of import and
sale by an importer of goods, after the property in the goods passed to him
either after the receipt of the documents of title against payment or
otherwise, to a third party by a similar process is also a sale in the course
of import." The judgment states that it is well settled in the commercial
world that a bill of lading represents the goods and the transfer of it operates
as the transfer of goods.
delivery of the bill of lading while the goods are afloat is equivalent to the
delivery of the goods themselves.
facts afforested, based upon documents, show that the bill of lading had been
endorsed in favour of SAIL while the consignment of the said coils was still
upon thee high seas. The sale, therefore, was a sale in the course of the
import of the said coils into the territory of India; it was effected by transfer of the
documents to the said coils before they had crossed the limits of the customs
station at Paradeep Port. The position would be the same in respect of the goods sold
to Paradeep Phosphates Ltd., The High Court noticed the argument based on the
latter part of Section 5 but did not address it. It relied upon the judgment of
the Karnataka High Court in the case of Cashew Corporation of India. That was a case where notice was
taken of the amendment introducing Section 2 (ab) into the Central Sales Tax
Act in 1976. It was held to be prospective in operation and, therefore, of no
assistance in constructing the meaning of the expression 'customs frontier of India' prior thereto. The High Court
failed to notice that in the case in hand the aforesaid sales had taken place
long after the introduction of Section 2 (ab) and, therefore, the question
whether they were sales in the course of import had to be judged on the basis
of its provisions.
aforesaid sales being covered by the provisions of the latter part of Section
5(2) read with Section 2(ab) of Central Sales Tax Act, they are sales in the
course of import and not liable to sales tax.
now not necessary to consider the argument that, in any event the provisions of
the earlier part of Section 5(2) apply.
appeals are allowed. The judgment under appeal is set aside. The writ petitions
filed by the appellants in the High Court are made absolute.
order as to costs.