1. Sales tax dispute regarding whether sales of textile goods to licensed exporters are exempt as sales in the course of export under Article 286(1)(b) of the Constitution. (Para 2 , 6 , 7 )
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1958 Supreme(SC) 9
SUPREME COURT OF INDIA
11th February, 1958
S.R. DAS, C.J.I., T.L. VENKATARAMA AYYAR, S.K. DAS, A.K. SARKAR AND VIVIAN BOSE, JJ.
State of Mysore and another, Appellants
Versus
Mysore Spinning and Manufacturing Co. Ltd. and others, Respondents.
Civil Appeals Nos. 66 to 73 of 1957.
Advocates appeared
Mr. C. K. Daphtary, Solicitor-General of India, (M/s. H. J. Umrigar and T. M. Sen, Advocates with him), for Appellants; Mr. V. L. Narasimhamoorty, Advocate and M/s. J. B. Dadachanji, S. N. Andley and Rame Shwar Nath, Advocates of M/s. Rajinder Narain and Co., for Respondents
Advocates:
C.K.DAFTARY, H.J.Umrigar, J.B.DADACHAN, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY, T.M.SEN, V.L.NARASIMHAMURTY
C.K.DAFTARY, H.J.Umrigar, J.B.DADACHAN, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY, T.M.SEN, V.L.NARASIMHAMURTY
Sales made to an exporter who then exports the goods are not "in the course of export" under Article 286(1)(b) of the Constitution. Only the sale that directly occasions the export is exempt; preceding sales remain taxable regardless of the intention for export.
Headnote:(A) Constitution - Article 286(1)(b) - Sales in the course of export - Only the sale that occasions the export is exempt from sales tax; sales preceding the one that occasions the export are taxable, even if made for the purpose of export. (Paras 9, 10, 19, 20)
(B) Agency - A purchase by an exporter from a manufacturer does not create an agency relationship between the exporter and the foreign buyer or the manufacturer; the exporter acts as a principal. (Paras 15, 16, 17, 19)
(C) Government Regulations - Compulsion to sell through licensed exporters due to government orders does not transform a taxable internal sale into an exempt export transaction. (Paras 11, 12, 14)
Facts of the case:
Two textile mills sold goods to licensed exporters who subsequently exported them to foreign buyers. The mills had no direct contact with foreign buyers. The State imposed sales tax, which the mills challenged, claiming the sales were in the course of export and thus exempt under the Constitution.
Findings of Court:
The sales to the exporters were not the sales that occasioned the export. The exporters were not agents of the foreign buyers. The fact that goods were marked for export or manufactured with the intention for export does not make the preceding sale exempt.
Issues: Whether sales made by manufacturers to licensed exporters, who then export the goods, are exempt from sales tax as sales "in the course of export" under Article 286(1)(b) of the Constitution.
Ratio Decidendi: Only the sale that directly occasions the export is exempt under Article 286(1)(b). Any sale preceding the final sale to the foreign buyer is taxable, regardless of the intention for export or government mandates requiring the use of licensed exporters.
Result: Case remanded to the High Court for final disposal.
Legal Category Hierarchy
Table of Contents
2. Whether sales to licensed exporters occasion export or are internal sales, and whether exporters act as agents for foreign buyers or as principals. (Para 2 , 8 , 11 , 14 , 15 , 18 )
3. Sales made for the purpose of export are taxable unless they occasion the export; government licensing requirements do not transform internal sales into export transactions. (Para 9 , 10 , 12 , 13 , 14 , 16 , 17 , 19 , 20 )
4. Only the sale that occasions the export is exempt; preceding sales to exporters, even if made for the purpose of export, are taxable. (Para 9 , 10 , 19 , 20 )
5. Appeal allowed on the first point; matter remanded to the High Court to determine if sales were made outside the state under Article 286(1)(a). (Para 23 , 28 , 29 )
6. What constitutes a sale in the course of export for tax exemption purposes?
Only the sale that actually occasions the export is exempt from tax. Sales made to an exporter for the purpose of subsequent export are considered internal sales and remain taxable, regardless of whether the goods are intended for export. (Para 9 , 10 , 19 , 20 )
7. Does a government mandate requiring export through licensed agents make preceding sales exempt?
No. Government regulations requiring the use of licensed exporters do not change the legal nature of the transaction. A sale that would be taxable without such a mandate remains taxable despite the legal disability preventing direct export. (Para 12 , 13 , 14 )
8. Can a court deem an exporter as an agent of a foreign buyer to exempt a sale?
No. Courts cannot create legal fictions of agency; only the legislature can. If an exporter purchases goods as a principal, they cannot be deemed an agent of the foreign buyer to exempt the preceding sale from tax. (Para 15 , 16 , 17 , 19 )
9. Does manufacturing goods with the primary intention for export exempt the sale to the exporter?
No. The intention behind manufacturing or marking goods for export does not exempt the sale to the exporter. Only the final sale that occasions the export is protected from taxation. (Para 20 )
Judgment
VIVIAN BOSE, J. : This judgment will govern Civil Appeals Nos. 66 to 73 of 1957. They arise out of a certificate granted by the High Court of Mysore against a judgment of that Court delivered on 29-9-1955.
2. The appellant is the State of Mysore. The respondents are the Mysore and Minerva Mills respectively. The appellant sought to impose a sales tax on certain sales made by the two respondents between 31-3-1950, and 31-3-1951. The respondents contended, and still contend that these sales are not taxable because they were made in the course of export and so are exempt under Art. 286(1) (b) of the Constitution. The Sales Tax Officer rejected this contention and imposed the tax. Appeals were filed and failed, and also review petitions to the Commissioner of Sales Tax. The matter then came up to the High Court in the following ways.
3. The assessments were in respect of five quarters. The Commissioner made two references in respect of the first two quarters ending 31-3-1950, and 30-6-1950, respectively. These are Civil Petitions Nos. 110 of 1954 and 112 of 1954. The first related to the Minerva Mills and the second to the Mysore.
4. Writ petitions were filed in the Mysore High Court in respect of the remaining quarters in dispute. Petitions Nos. 26 and 28 of 1954 are against the assessments for the quarter ending 30-9-1950. The former is by the Mysore Mills and the latter by the Minerva. Similarly, Writ Petitions Nos. 27 and 29 were in respect of the quarter ending 31-12-1950, and Nos. 30 and 31 in respect of the one ending 31-3-1951.
5. All these eight petitions were heard together and were disposed of by one judgment, the one under appeal. The High Court held that the sales are not taxable but granted the State of Mysore a certificate to appeal here.
6. The facts are not in dispute. Both Mills are two sister textile mills under a common management. They have their registered offices in Bombay and their factories at Bangalore in the State of Mysore. They carry on business at Bangalore as manufacturers and sellers of textile goods, such as cotton and yarn. The bulk of their trade is with exporters at Bombay & other ports such as Calcutta and Madras, that is, the Mills sell to licensed export dealers who export the goods to foreign buyers. In a few cases, the Mills entered into direct contracts with foreign buyers and exported the goods directly. They have not been taxed on those sales and there is no dispute about them. In the rest of the cases, the Mills had no direct contact with any foreign buyer. The licensed exporters at the ports dealt with them and the Mills dealt with the exporters
7. The procedure for export was as follows. During the period in dispute, only duly licensed exporters were allowed to export. We presume that in the few cases in which the Mills exported direct they had a licence to do so. But we are not concerned with those sales and will limit ourselves to the other kind made through duly licensed exporters whom we shall refer to as exporters. In those cases, the first step was for these exporters to obtain a firm offer from a buyer overseas specifying the quality and quantity of cloth or yarn required by the buyer. The second step was for the exporter to produce this offer before the Export Controller and obtain a provisional export licence from him in respect of the goods ordered. The third step was for the exporter to enquire from the Mills whether they could sell, or manufacture, within a reasonable time, goods of the quality and quantity required by the overseas buyer. If the Mills said "yes", the fourth step was for the exporter to enter into a firm contract with the foreign purchaser and the fifth step was for the exporter to enter into a contract with the Mills for the sale of those goods. The contract had to be marked "for export only" and the prices fixed had to be higher than the inland prices. The specifications and details of the goods had also to be entered. The sixth step was for the exporte
