1997 Supreme(SC) 551

1997(5) Supreme 420
SUPREME COURT OF INDIA
A.M. Ahmadi, C.J.I., S.B. Majmudar and Mrs. Sujata V. Manohar, JJ.
K. Gopinathan Nair & etc.     —Appellants
versus
State of Kerala —Respondent
Civil Appeal Nos. 4955-77 of 1991
with
(Civil Appeal Nos. 1167-71/92, 1546/93 and 3647-52/86)
Decided on 21-3-1997
Counsel for the Parties :
For the Appearing Parties : P.S. Poti, R.F. Nariman, N. Santosh Hegde, T.L. Viswantha Iyer, Sr. Advocates, S. Prasad, S. Balakrishnan, M.K.D. Nambordiri, E.M.S. Anam, Fazlin Anam, G.V. Chandra Sehkar, A.D.N. Rao, A. Subba Rao, M.T. George, Kh. Nobin Singh and M. Veerappa, Advocates.

IMPORTANT POINT
For deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by Section 5(2) of the Central Sales Tax Act, such sale or purchase in India must itself occasion such import, and not vice versa and the import of the concerned goods must be effected as a direct result of the concerned sale or purchase transaction.

Headnote:Sales Tax—Central Sales Tax Act, 1956—Section 5(2)—Assessment years 1970-71 to 1973-74—Appellants, engaged in purchase of raw cashewnuts and export of cashew kernels after processing—They placed orders for import of raw cashewnuts from African countries through CCI, a canalising agency—CCI imported these cashewnuts—Sale of imported raw cashewnuts to local purchasers by CCI held liable to tax under local Sales Tax Acts — Challenged—Whether import of raw cashewnuts by CCI from African exporters and its purchase by actual users in India could be said to be a transaction in course of import and, therefore eligible for exemption u/s 5(2) of the Act?—(No)—They are exigible to local sales tax (per Majority).

       Held : As per Majority Opinion (S.B. Majmudar, J. and A.M. Ahmadi, CJI); the following propositions clearly get projected for deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by Section 5(2) of the Central Sales Tax Act :

       (1) The sale or the purchase, as the case may be, must actually take place.

       (2) Such sale or purchase in India must itself occasion such import, and not vice versa i.e. import should not occasion such sale.

       (3) The goods must have entered the import stream when they are subjected to sale or purchase.

       (4) the import of the concerned goods must be effected as a directed result of the concerned sale or purchase transaction.

       (5) The course of import can be taken to have continued till the imported goods reach the local users only if the import has commenced through the agreement between foreign exporter and an intermediary who does not act on his own in the transaction with the foreign exporter and who in his turn does not sell as principal the imported goods to the local users.

       (6) There must be either a single sale which itself causes the import or is in the progress or process of import or though there may appear to be two sale transactions they are so integrally inter-connected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well integrated transaction consisting of two transactions dovetailing into each other.

       (7) A sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer.

       (8) The transaction in substance must be such that the canalising agency or the intermediary agency through which the imports are effected into India so as to reach the ultimate local users appears only as a mere name lender through whom it is the local importer-cum-local user who masquerades. (Para 11)

       If the aforesaid conditions are satisfied then obviously the transaction of sale or purchase would be in the realm of sale or purchase in the course of import entitling it to earn exemption under Section 5(2) of the Central Sales tax Act. But if on the contrary the transactions between the foreign exporter and the local users in India get transmitted through an independent canalising-import agency which enters into back to back contracts and there is no direct linkage or causal connection between the export by foreign exporter and the receipt of the importer goods in India by the local users, the integrity of the entire transaction would get disrupted and would be substituted by two independent transactions, one between the canalising agency and the foreign exporter which would make the canalising agency the owner of the goods imported and the other between the import canalising agency and the local users for whose benefit the goods were imported by the wholesale importer being the canalising agency. In such a case the sale by the canalising agency to the local users would not be a sale in the course of import but would be a sale because of or by import which would not be covered by the exemption provision of Section 5 sub-section (2) of the Central Sales Tax Act. (Para 12)

       Further held : The following salient features of the transactions which remain well established on record and which have been enumerated by the Kerala High Court deserve to be noted at this stage :

       (a) There was a direct, distinct and independent contract of purchase between the CCI on the one hand and the foreign sellers in Africa on the other.

       (b) The transactions under which the CCI sold the imported raw cashewnuts to the assessees on payment of the price thereof are wholly unconnected with the contract of purchase, the CCI had entered into with the foreign sellers.

       (c) There is no privity of contract between the assessees and the foreign sellers.

       (d) The assessees remained undisclosed to the foreign sellers.

       (e) The foreign sellers know nothing of the understanding between CCI and the assessees, discernible from the various orders and agreements executed between them in connection with the distribution of the raw cashewnuts.

       (f) The bills of lading were undisputably made out in the name of the CCI and the CCI therefore has obtained a complete and indefeasible title to the goods purchased by them from foreign sellers.

       (g) The transaction under which the raw cashewnuts were put on board the ship did not create any real rights and obligations as between the foreign sellers and the assessees although the raw cashewnuts are supposedly imported for their benefit.

       (h) The circumstance that the contract between CCI and the foreign sellers was in the CIF form strengthens the position that there were two distinct, independent and unconnected purchases.

       (i) Sale prices for distribution of goods to actual users will be determined by the public sector agency concerned subject to the guidance and general control of the Ministry of Foreign Trad (Para 16)

       On the facts of these cases, therefore, the decisions of the Constitution Benches of this Court in Serajuddin’s case (supra) and in the case of Binani Bros. (supra) get squarely attracted and as a result these sales by the CCI to the local users go out of the sweep of the exemption provisions engrafted by Section 5(2) of the Central Sales Tax Act. The conclusions to which the Kerala and Karnataka High Courts reached, therefore, cannot be faulted. (Para 16)

       For all these reasons no case is made out by the appellants for our interference in these cases. With great respect to our esteemed colleague Sujata V. Manohar, J., it is not possible to agree with her conclusion that 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. Nor it is possible for us to agree with her finding that these transactions are covered by the exemption provisions of Section 5(2) of the Central Sales Tax Act. (Para 17)

       As per Sujata V. Manohar, J.—(Dissenting)

       The local sale which is between the assessees 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 Cashew Corporation of India is only paid a commission. There is thus a clear allocation of the goods 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 import. Whether the actual sale takes place before the import or after the import is irrelevant in this context (vide K.G. Khosla’s case (supra)). It is the arrangement between the local buyer and the local seller which has occasioned the import. (Para 37)

        However, 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. (Para 44)

       (ii) Central Sales Tax Act, 1956—Section 2(ab)—Provision has no retrospective effect—There being no evidence on record to attract second part of Section 5(2) which deals with sale on high seas.

       Held that a clear finding of fact is reached by the Tribunal in cases arising out of Revisions before the Kerala High Court and also by the Karnataka High Court in the appeals by CCI that neither the CCI nor the assessee had led any evidence to show that goods were sold by transfer of documents of title on high seas, and hence it had to be held that CCI had not sold the goods to local users on high seas and before the goods to local users on high seas and before the goods crossed the customs frontiers of India and resultantly the latter part of Section 5(2) is not attracted on the facts of these cases. (Para 14)

       Consequently it cannot be said that the enactment of a new definition regarding crossing the customs frontiers of India as laid down by Section 2(ab) of the Central Sales Tax Act for considering the liability to pay sales tax could be legitimately pressed in service for deciding the question of sales tax liability of appellants during the assessment years when such definition was not on the statute book. (Para 17)