IMPORTANT POINT
State has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter while the sale by the exporter is exempt under Section 5(1) of Central Sales Tax Act.

Headnote:Central Sales Tax Act, 1956-Section 5(3) rw/s 15(ca) and 14-Haryana General Sales Tax Act, 1973-Sections 6, 17, 25, Schedule D-Constitution of India-Article 286-Tax levied on purchase value of paddy-Validity challenged-Whether State has power and competency to levy tax on paddy, purchased by miller for sale of rice to exporter-(Yes)-Appellant, the miller produces paddy, processes it and sells rice to the exporter who exports it out of India-Appellant s claim that State was not competent to levy purchase tax on paddy purchased by it for sale of rice to the exporter-Whether High Court was justified in holding that purchase of paddy by the appellant for sale of rice to the exporter is exigible to levy of purchase tax under the 1973 Act-(Yes).
       Held : Section 5(1) of 1956 Act exempts export sales. There are three categories of sales, namely, local sale, inter-State sale and export sale. Section 5(1), therefore, covers direct export whereas section 5(3) covers last sale or purchase preceding direct export which is deemed to be in the course of export. The last sale or purchase preceding the direct export is deemed to be in the course of export as the two are so closely connected that breach of one may result in breach of the composite contract. It is for this reason that section 5(3) inter alia requires such sale or purchase transaction being entered into after and in compliance with the export order being placed by the foreign buyer. The underlying rationale of section 5(3) is that such penultimate sale or purchase must occasion export in order to constitute sale or purchase in the course of export. Section 5(3) does not cover the penultimate transaction which occasions sale in the local market, nor does it cover sale for export. In the present case, appellant is a miller within the State; it buys paddy and procures rice therefrom within the State and sells it to the exporter within the State and as such it is a local sale which does not fall under section 5(3). It is a sale for export and not a sale which occasions export. There is one more way of looking at the question in hand. Under section 15(a) of 1956 Act, as it stood at the material time, the State could levy tax either at the sale end or purchase end of the transaction in case of declared goods. Consequently, under sections 6 and 17 read with schedule-D of 1973 Act, we have single point levy of tax and not tax at multiple points. It is the last purchase of paddy which is made taxable under 1973 Act. The single point levy envisages tax at either ends of the same transaction provided that the identity of the goods remains unchanged. It is a tax on one single commodity. Section 15(a) inter alia states that the tax payable under the State law shall not be levied at more than one stage. The word "stage" in section 15(a) refers to stages of successive sales and purchases and not to stages, which raw material undergoes, resulting in the manufacture of a different commercial commodity. (Para 10)
       In the present matter, we are concerned with levy of purchase tax under section 17 read with schedule-D of 1973 Act. Schedule-D was introduced by notification dated 1.8.1988 in line with the provisions of section 5(3) of 1956 Act, which as stated above, defines last sale or purchase preceding export sale, as sale or purchase in the course of export. Schedule-D refers to levy of tax on "last purchase", an expression which is borrowed from section 5(3) of 1956 Act. Schedule-D of 1973 Act is, therefore, in-conformity with the provisions of section 5 of 1956 Act. So read, it is clear that the words "last purchase" in schedule-D connotes purchase which occasions export and not purchase of paddy for export. (Para 10)
       Clause (ca) of section 15 inter alia states that where a tax on purchase of paddy is leviable under the State law and the rice procured out of such paddy is exported, then for the purposes of section 5(3), paddy and rice shall be treated as a single commodity. As stated above, clause (ca) contains a limited deeming fiction, which only applies to sale of rice by the exporter. This fiction is attached to the purchased commodity which is paddy from which rice is procured and not the exported commodity. Clause (ca) equates the two commodities only in cases where rice procured from paddy is exported and not to any other case. Accordingly, we hold that the purchase of paddy by the appellants in these cases is not exempt from the levy of a tax. Such purchases do not fall within section 5 of 1956 Act. The sale by the exporter is, however, exempt under section 5(1) and the purchase of paddy by the miller-cum-exporter is covered under section 5(3) of 1956 Act. (Para 11)

JUDGMENT

Kapadia, J.-Leave granted.

2. These civil appeals by special leave involve common question of law as to whether the State has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter, in view of section 5(3) read with section 15(ca) of Central Sales Tax Act, 1956 (hereinafter referred to as "the 1956 Act").

3. For the sake of convenience, we may refer to the facts of Civil Appeal Nos. 3674-3710 of 2002. Appellant is the miller. It produces paddy, processes it and sells rice to the exporter who exports it out of India. In the assessment proceedings, the appellant claimed that in view of Article 286 of the Constitution and section 5(3) and 15(ca) of the 1956 Act, the State was not competent to levy purchase tax on the paddy purchased by it for sale of rice to the exporter. The appellant filed sales tax returns for four assessment years 1996-1997 to 1999-2000 in accordance with section 25 of the Haryana General Sales Tax Act, 1973 (hereinafter referred to as "the 1973 Act"). On August 16, 1999, the sales tax tribunal accepted a similar claim of dealer M/s Veerumal Monga & Sons vide sales tax appeal No. 698 of 1998-99. Later in review by the State, the tribunal held that the assessee was not entitled to exemption from payment of purchase tax on paddy. In pursuance of the order passed by the tribunal, the assessing authority issued notice to the appellant herein to show cause why purchase tax be not levied. The appellant appeared before the assessing authority and produced the necessary forms to show that the rice had been actually exported out of India by the exporter who had a prior order from the foreign buyer. The appellant claimed that no tax was, therefore, leviable. While the matter was pending before the assessing authority, the appellant approached the High Court through writ petition No. 8532 of 2000. In the writ petition, the appellant challenged the order of assessment. The department filed its reply. It was averred that the purchase of paddy by the miller-cum-exporter, by virtue of legal fiction in section 15(a), became purchase in the course of export under section 5(3) of 1956 Act, but the legal fiction does not extend to the case of the appellant who purchased the paddy from the market for sale of rice to the exporter. By the impugned judgment and order dated 28.8.2001, the High Court held that the purchase of paddy by the appellant for sale of rice to the exporter is exigible to the levy of purchase tax under the 1973 Act. Hence, these civil appeals.

4. Before dealing with the arguments advanced by the learned counsel for the parties, four concepts arising from sections 5 and 15 of 1956 Act are required to be understood. These are - local sale, sale in the course of exports, export sale and single point levy of tax for declared goods. These are inbuilt in sections 6 and 17 read with schedule-D to the 1973 Act. For sake of convenience, we quote hereinbelow sections 5 and 15 of the 1956 Act along with sections 6 and 17 read with schedule D of 1973 Act:-

Sections 5 and 15 of the 1956 Act :

Section 5. 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.

(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 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.

(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods o

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2004 Supreme(SC) 470

IMPORTANT POINTState has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter while the sale by the exporter is exempt under Section 5(1) of Central Sales Tax Act.

Cases Referred (2)

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IMPORTANT POINT
State has power and competency to levy tax on paddy, purchased by the miller for sale of rice to the exporter while the sale by the exporter is exempt under Section 5(1) of Central Sales Tax Act.