IMPORTANT POINT
Tests for applicability of section 5(3), CST Act, 1956 stated.

Headnote:(a) Constitution of India – Article 286(1)(b) – Article 286(2) prohibits imposition of sales tax on import and export by the State Government – If as a result of some processing the identity and character of the goods change, then it will not be a case of export of the same goods – In order to claim exemption there must be integral connection or inextricable link between export and local sale or purchase between the parties. (Paras 18 and 25)
        (1985) 4 SCC 119; (1997) 10 SCC 1 – Relied upon
        (1986) 3 SCC 469 – Impliedly distinguished
        (1996) 1 SCC 468 – Distinguished
        (1975) 2 SCC 47; (1974) 1 SCC 459; (2003) 1 SCC 561; (1969) 3 SCC 349 – Referred
        (b) Central Sales Tax Act, 1956 – Section 5(3) – Tests for applicability of the provision stated. (Paras 23 and 24)
        (c) Central Sales Tax Act, 1956 – Section 5(3) – The ingredients of section 5(3) viz. there must be a sale; goods must actually be exported and sale must be a part and parcel of the export having been satisfied in the instant case, assessee entitled to exemption u/s 5(3). (Para 26)
        (1996) 1 SCC 468 – Distinguished
       Facts of the case:
        The issue in the appeal is whether an assessee (local manufacturer) is eligible to get exemption under sub-section (3) of Section 5 of the Central Sales Tax Act, 1956, if the penultimate sale effected in favour of the exporter is inextricably connected with the export of goods outside the territory of India.
       Finding of the Court:
        The assessee is entitled to exemption under Section 5(3) of the CST Act.
       Result : Appeals dismissed.

JJUDGMENT

K. S. Radhakrishnan, J. —

The question that falls for consideration in this case is whether an assessee (local manufacturer) is eligible to get exemption under sub-section (3) of Section 5 of the Central Sales Tax Act, 1956 (for short ‘CST Act’), if the penultimate sale effected in favour of the exporter is inextricably connected with the export of goods outside the territory of India.

2. This Court in Md. Serajuddin & Others v. State of Orissa,1 (1975) 2 SCC 47, held that, under Article 286 of the Constitution, the sale which was not liable to tax under the State Sales Tax was only the actual sale by the exporter, but the benefit of export sale did not extend to the penultimate sale to the Indian exporter for the purpose of export. This led to the insertion of sub- section (3) of Section 5 of the CST Act by the Amending Act 103 of 1976 with effect from 1.4.1976, whereby the last sale or purchase occasioning the export of goods was granted exemption from the State levy.

Central Sales Tax Act, 1956 – Section 5(3) – a

3. The scope of the Amending Act later came up for consideration before a Constitution Bench of this Court in Consolidated Coffee Ltd. & Another v. Coffee Board, Bangalore,2 (1980) 3 SCC 358 and a contention was raised that sub-section (3) of Section 5 of the CST Act was ultra vires Article 286(2) of the Constitution of India and that the expression “shall also be deemed to be in the course of such export” occurring in Section 5(3) was intended to convey that the penultimate sale shall also be regarded as being in the course of such export. The Court held that the above expression intends to convey that the penultimate sale shall also be regarded as being in the course of such export and held that sub- section (3) of Section 5 is intra vires Article 286(2) of the Constitution. A three Judges Bench of this Court in Sterling Foods, A Partnership Firm represented by its Partner Shri Ramesh Dalpatram v. State of Karnataka & Another,3 (1986) 3 SCC 469, also examined the scope of the above mentioned provision. The question raised in that case was whether the assessee was entitled to exemption from tax under Section 5(3) of the CST Act in respect of purchase of shrimps, prawns and lobsters, the purchase being of the same commodities which were exported. The Court held that in order to attract sub-section (3) of Section 5 of the CST Act it is necessary that the goods which are purchased by an assessee for the purpose of complying with the agreement or order for or in relation to export, must be the same goods which are exported out of the territory of India. The Court further held that the test which has to be applied for the purpose of determining whether a commodity subjected to processing retains its original character and identify is as to whether the processed commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity or it is regarded, commercially and in the trade, the same as the original commodity.

4. In Vijayalaxmi Cashew Company & Others v. Deputy Commercial Tax Officer & Another,4 (1996) 1 SCC 468, the question raised was whether the export of cashew kernels obtained out of raw cashew nuts would amount to export of those goods which had been purchased. The Court held that, since the raw cashew nuts can be used for so many purposes and the process of extracting the kernels so elaborate, it cannot be said that the goods (raw cashew nuts) purchased in the penultimate sale were the same goods (cashew nut kernels) which were sold to the exporter. The Court, therefore, concluded that cashew nut kernels are not the same goods as raw cashew nuts.

5. Sterling Foods (supra) and Vijayalaxmi Cashew Company (supra) were essentially advocating the “same goods” theory of course in different fact situations. Later, in K. Gopinathan Nair & Others v. State of Kerala,5 (1997) 10 SCC 1, a three Judges Bench of this Court examined the question whether the purchase of A