Report No. 61
3.55. Binani Brothers' case.-
Import sales came up before the Supreme Court in a recent case,-Binani Bros. (P.) Ltd. v. Union of India, (W.P. No. 39 of 1969) (11-12-1973) (Ray, C.J. Khanna, Mathew, Alagiriswami and Bhagwati, JJ.) Judgment by Mathew, J., (1974) SCT 29, item 17: (1974) 1 SCC 459 (474) (SCC 1st April, 1974). The question related to sales tax in respect of stores supplied to the Director-General of Supplies and Disposals which had been specifically imported against licences issued by the Chief Controller of Imports and Exports, on the basis of the import recommendation certificate issued by the Director-General of Supplies and Disposals (or other authority like the State Trading Corporation). The transaction was held not to be exempt as a sale in the course of import.
3.55A. The facts in detail were as follows:-
The petitioner was an importer and a dealer in non-ferrous metals (zinc, lead, copper, tin etc.), and was on the approved list of registered suppliers to the D.G.S.&D. The petitioner had been importing and supplying non-ferrous metals to respondents Nos. 1, 2 and 3 during the past several years. The Government of India, in placing an order with the petitioner, used to grant import licences in terms of the contracts. On the basis of the judgment of the Supreme Court in K.G. Khosla v. Dy. C.C.I., supra. the respondent No. 2, issued an order to all the authorities concerned, including respondent No. 4 (namely, the Pay and Accounts Officer, Ministry of Works, Housing and Supply) directing that sales tax should not be allowed in respect of supplies/stores which had been specifically imported against licences issued by the Chief Controller of Imports and Exports on the basis of import recommendation certificate issued by the D.G.S.&D. (or other authority like the S.T.C.) for supplies against contracts.
The respondent No. 4, in pursuance of the said order, deducted a sum of Rs. 66,780 from the amount payable to the petitioner in respect of pending bills, and also threatened to recover Rs. 235, Rs. 130, being the amount paid by respondent No. 2 as sales tax, in respect of contracts which had already been executed. The petitioner contended that the transactions in question, namely, the sales which the petitioner made to he D.G.S.&D., were not sales which occasioned the movement of the goods in the course of imports, and were separate and distinct from the contracts of purchases made by the petitioner with the foreign sellers. The later alone occasioned the movement of the goods in the course of import and the decision in Khosla's case was not applicable.
3.56. It was held that the transactions in question which the petitioner entered into with the D.G.S.&D. were not "sales in the course of import," but were separate and distinct from the contract of purchases made by the petitioner with the foreign sellers. The latter alone occasioned the movement of the goods in the course of import. Khosla's case was distinguished, apparently on the ground that in that case there was an obligation to import, while there was, in the present case, no obligation regarding import. The court made these points in arriving at its conclusion:-
(a) In the case under consideration, the court was concerned with sales made by the petitioner as principal to the D.G.S.&D. No doubt, for effecting these sales, the petitioner had to purchase goods from foreign sellers and it was these purchases from the foreign sellers which occasioned the movement of goods in the course of import.
(b) The petitioner's sales to the D.G.S.&D were, however, distinct and separate from his purchases from foreign sellers. To put it differently, the sales by the petitioner to the D.G.S.&D. did not occasion the import. It was purchases made by the petitioner from the foreign sellers which occasioned the import of the goods.
(c) The foreign sellers did not enter into any contract, by themselves or through the agency of the petitioner, with the D.G.S.&D., and the movement of goods from the foreign countries was, therefore, not occasioned on account of the sales by the petitioner to the D.G.S.&D.
(d) There was no obligation under the contracts on the part of the D.G.S.&D. to procure import licences of petitioner. On the other hand, the recommendation for import licence made by D.G.S.&D., did not carry with it any imperative obligation upon the Chief Controller of Imports and Exports to issue the import licence. It may appear from this judgment that Khosla's case will, in future, be strictly limited to cases where there is an obligation to import.
3.57. The following observations distinguishing Khosla's case are of importance.
"In Khosla's case, it might be recalled that Khosla and Co. entered into the contract of sale with the D.G.S.&D. for the supply of axle bodies manufactured by its principal in Belgium and the goods were to be inspected by the buyer in Belgium but under the contract of sale the goods were liable to be rejected after a further inspection by the buyer in India. It was in pursuance of this contract that the goods were imported into the country and supplied to the buyer at Perambur and Mysore. From the statement of facts of the case as given in the judgment of the High Court it is not clear that there was a sale by the manufacturers in Belgium to Khosla & Co., their agent in India. It would seem that the only sale was the sale by Khosla & Co. as agent of the manufacturer in Belgium.1
In the concluding portion of the judgement of this Court, it was observed as follows:
"It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle-box bodies would be manufactured in Belgium, inspected there and imported into India for the consignee. Movement of goods from Belgium to India was in pursuance of the conditions of the contracts between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within section 5(2) of the Act, and are, therefore, exempt from taxation. As already stated, there was to be an inspection of the goods in Belgium by the representative of the D.G.S&D., but there was no completed sale in Belgium as, under the contract, the D.G.S.&D. reserved a further right of inspection of the goods on their arrival in India."
1. Emphasis supplied.