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PETITIONER: MINERAL AND METAL TRADING CORPORATION

       Vs.

RESPONDENT: R. C. MISHRA AND ORS.

DATE OF JUDGMENT07/04/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J) MOHAN, S. (J)

CITATION:  1994 AIR 1523            1993 SCR  (3)  12  1993 SCC  Supl.  (3)  29 JT 1993 (4)   222  1993 SCALE  (2)643

ACT: Income  tax  Act,  1961/ Tax  credit  Certificate  (Exports) Scheme 1965: Section         280ZC/Paragraph        9--Tax         credit Scheme--Objective--providing    additional   incentive    to exporter--System barter--Real exporter--Who is.

HEADNOTE: The  Second Respondent (Ferro Alloys Corporation),  manufac- turer-exporter  of ferro-maganese and  chrome  concentrates, entered into a number of agreement-. with foreign buyers for sale  of the said commodity.  The export was routed  through the  appellant  to  bring it within the  system  of  private barter introduced by the Government of India with a view  to encourage exports.  The main objective of barter system  was to  provide  a  mechanism which would  result  in  increased export  of  particular  commodities  which  were  ordinarily difficult  to sell abroad where the selling  countries  were not  able to get a foot-hold.  This objective was sought  to he  achieved by linking them to exports of an equivalent  or lesser value of essential commodities which in any event had to he imported.  As for as purchase and sale contracts  were concerned,  M.M.T.C.  insisted  that  there  should  be  one contract of sale between the local supplier and the M.M.T.C. and another contract of sale by the M.M.T.C. to the  foreign buyer on principal to principal basis. It was agreed that Ferro Alloys should intimate the  foreign buyer to enter into a direct contract with M.M.T.C. treating it  as the seller., Also, the G.R.I. form prescribed by  the Reserve Bank of India under the Rules framed under FERA  was to  be  signed by M.M.T.C. showing it as  the  exporter  and seller.   Letters  of  credit  was opened  in  the  name  of M.M.T.C.  which was to be assigned to Ferro Alloys  so  that Ferro  Alloys  could receive the payment directly.  for  the goods supplied to 13 M.M.T.C. The shipping documents also showed M.M.T.C. as  the exporter. The  transactions were gone through.  Dispute arose  between the  parties  when the question of issuance  of  Tax  Credit

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Certificate  u/S  280ZC of the Income tax arose  as  to  who could  be said to have exported the goods and  received  the sale proceeds in the shape of foreign exchange.  The  matter was taken in appeal before the Government of India.  It held that  M.M.T.C. was the exporter for the purpose of  S.280ZC. Ferro Alloys challenged the said order before the High Court by way of a Writ Petition.  The High Court allowed the  Writ Petition,  and held that the real exporter was Ferro  Alloys which earned and received the foreign exchange and  M.M.T.C. got  only its commission of 2% and nothing more.   Aggrieved by  the judgment of the High Court, M.M.T.C.  preferred  the present appeal. Allowing the appeal. this Court, HELD:     1. The entire export was done through M.M.T.C.  in accordance with the system of barter.  There is no  half-way house; either it is not barter system or it is in accordance with the system of barter.  This is an undisputed fact  as-, are the several statutory documents made out in the name  of M.M.T.C.  Thus M.M.T.C. is the exporter for the  purpose  of Section  280ZC  of  the Income tax Act,  1961.   The  entire system of barter and the several documents executed in  that behalf  including  those required  by  statutory  provisions cannot  be  explained away as mere  "external  appearances". Ferro-alloys  cannot come to M.M.T.C. when it is  profitable to  it and disavow it when it is not profitable to  it.   It cannot  have  it, both ways.  The title to goods  passed  to M.M.T.C by virtue of the several documents executed  between the  parties.   Indeed,that was the fulcrum  of  the  entire scheme of Barter. (19-E-F). 2.   This  Court  is  not  convinced  with  the  alternative reasoning of the High Court  that even if it is viewed that the title to the goods passed to M.M.T.C., even so   Ferro- alloys must be held to be the real exporter, in view of  the objective   underlying  Section  280ZC.   If  M.M.T.C.   has acquired the title to the goods and is the exporter for  all other purposes it is equally the exporter for the purpose of Section 14 280ZC.   There can be no dichotomy of the nature  propounded by the High Court. (19-H, 20-A).

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 372 of 1979. From  the Judgement and Order dated 25.5.1978 of  the  Delhi High Court in Civil Writ Petition No. 1494 of 1973. Dr. N.M. Ghatate and D.N. Mishra (for J.B.D. & Co.) for  the Appellant. V.C.  Mahajan, C. Ramesh and C.V. Subba Rao for the  Respon- dents. The Judgment of the Court was delivered by B.P.  JEEVAN REDDY, J. The appeal is preferred  against  the judgment of the Delhi High Court allowing the writ  petition filed by the second respondent-M/s Ferro Alloys  Corporation Ltd.   The writ petition was directed against  the  judgment and  order of the Government of India, Ministry of  Finance, dated  September  19,  1973 in  an  appeal  preferred  under paragraph  (9)  of  the  Tax  Credit  Certificate  (Exports) Scheme, 1965. The second respondent is the manufacturer-cxportcr of ferro- manganese and chrome-concentrates.  During the year  1964-65 (from  February  28,  1965  to  June  5,  1965)  the  second respondent  entered  into a number of  agreements  with  the foreign   buyers   for  the  sale  of  the   aforesaid   two

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commodities.  The export was routed through the M. M.T.C. the  appellant  herein,  to bring it within  the  system  of private barter introduced by the Government of India with  a view  to  encourage  exports.  It would  be  appropriate  to notice the essential features of the barter system in  vogue during  the  relevant  period  at  this  stage.   The   main objective behind the system was to provide a mechanism which would  result in increased export of particular  commodities which  were  ordinarily  difficult to  sell  abroad  and  to destinations,  in which the selling countries were not  able to  _Pet  a  foot-hold.  This objective  was  sought  to  be achieved by linking them to imports of an equivalent or 15 lesser value of essential commodities, which, in any  event, the  country  had  to import.   All  barter  proposals  were scrutinized  in the first instance by the M.M.T.C. and  then by the Barter Committee.  The essential stipulations were:               "(i) All imports made under barter deals  were               subject  to such sale price  and  distribution               control  as were laid down by  the  Government               and               (ii)All barter deals were to be routed through               S.T.C./ M.M.T.C. unless otherwise decided upon               by barter committee." As and when approval was given by the Government of India, a letter  of indent used to be issued by the M.M.T.C.  to  the bartering  firm or the local supplier, as the case  may  be. (In  this case, there was no bartering firm.   Ferro  Alloys was  directly  sending the goods).  As far as  purchase  and sale  contracts were concerned, the M.M.T.C.  insisted  that there  should  be  one contract of sale  between  the  local supplier  and the M.M.T.C. and another contract of  sale  by the M.M.T.C. to the foreign buyer on principal to  principal basis.   The  foreign  exchange  so  generated  under   this arrangement  was  the basis for issue  of  import  licences, which were issued in the name of M.M.T.C. with the letter of authority  in  favour  of the bartering firm  or  the  local supplier,  as the case may be.  This enabled  the  bartering firm/local  supplier to import the approved commodity  under its approval barter and thus he in a position to recoup  the losses  incurred  by  it  in  arranging  the  supply-or   in supplying,  as the case may be of export commodities to  the M.M.T.C. It was agreed and understood that the ferro  alloys should  intimate  the foreign buyer to enter into  a  direct contract  with the M.M.T.C. treating it as the  seller.   It was also agreed that G. R.I. Form prescribed by the  Reserve Bank  of  India  under the Rules framed  under  the  Foreign Exchange  Regulation  Act  (for accounting  the  receipt  of foreign  exchange) was to be signed by the M.M.T.C.  showing it  as the exporter and seller vis-a-vis the foreign  buyer. Letters  of  credit  was also to be opened in  the  name  of M.M.T.C.?  which  was to be assigned  to  the  Feffo-alloys. This  was  done with a view to enable  the  Ferro-alloys  to receive  the  payment  directly for the  goods  supplied  to M.M.T.C.. The Shipping Bill, which is a document  prescribed under the Customs Act, was also to be made out 16 showing M.M.T.C. as the exporter. The  transactions were gone through.  Dispute arose  between the  parties when the question of issuance of a  tax  credit certificate under Section 280 (Z) (C) of the Income Tax  Act arose.  Sub-section (1) of section 280 (Z) (C), as in  force at the relevant time, read as follows               "Tax Credit Certificate in relation to exports               (1)   Subjects  to  the  provisions  of   this

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             section.  a  person who exports any  goods  or               merchandise out of India after the 28th day of               February, 1965, and receives the sale proceeds               thereof  in  India  in  accordance  with   the               Foreign  Exchange Regulation Act, 1947  (7  of               1947), and the rules made thereunder, shall be               granted a tax credit certificate for an amount               calculated at a rate not exceeding fifteen per               cent on the amount of such sale proceeds.  " A  reading  of  the sub-section shows that  the  tax  Credit Certificate  is issued to the person "who exports any  goods or merchandise out of India after the 28th day of  February, 1965,  and  receives the sale proceeds thereof in  India  in accordance  with the Foreign Exchange Regulation  Act,  1947 and  the Rules made thereunder." Question, therefore,  arose who is the person, in the case of this transaction, who  can be  said  to have exported the goods and received  the  sale proceeds  in the shape of foreign exchange.  The matter  was taken  in  appeal  before  the  Government  of  India  under paragraph (9) of the Tax Credit Certificate Exports  Scheme, 1965.  On an elaborate consideration of the bartering scheme and  the  several  documents which came  into  existence  in connection  with the transactions between the  parties,  the Government  of India held that the M.M.T.C. must be held  to be  the exporter for the purpose of Section.280(Z)(C)   and not  the Ferro-alloys.  This order was challenged by  Ferro- alloys by way of a writ petition in the High Court. The  High Court allowed the writ petition on  the  following reasoning:               "While  the terms of the scheme of barter  and               the               17               arrangement  between  the  exporter  and   the               Corporation  visualizes  in  theory  that  the               contracts  to  be  entered  into  between  the               exporter and the foreign buyers would be  duly               substituted   by   principal   to    principal               contracts  between the foreign buyer  and  the               Corporation as well as the Corporation and the               Indian  supplier  of the goods,  so  that  the               Corporation virtually gets substituted for the               exporter  for  all  external  appearance,   in               actual practice, however, it appears that  the               substituted contracts are rarely executed  and               were,  in  any  event,  not  executed  in  the               present  case  at  either  of  the  two   ends               although the letter of credits were opened  by               the  foreign  buyers in favour of  the  Corpo-               ration  and  the shipments were made  in  some               cases  in  the  name  of  the  Corporation  on               account of the exporter while in the others in               the  name  of the exporter on account  of  the               Corporation.    No   consideration,   however,               passed   between  the  Corporation   and   the               exporter  on  account  of  any  sale  of   the               commodity to the Corporation.  The letters  of               credit   being   transferable   are   endorsed               immediately  on  receipt  in  favour  of   the               exporter  by  the  corporation  and  the  sale               proceeds   are   directly  realized   by   the               exporters   through  their  bankers  and   the               commission  of  the Corporation agreed  to  is               paid by the exporter to the Corporation.   The               declaration  under Section 12 of  the  Foreign               Exchange  (Regulations)  Act  in  Form  GR-  I

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             contains  the name of the Corporation  as  the               exporter.  But the form lists the name of  the               exporters’ banker as the banker concerned." In other words, the High Court’s approach was that while for external  appearances, the corporation was given out as  the exporters,  Ferro-alloys  was  the  real  exporter  for  all purposes  and it was Ferro-alloys which earned and  received the  foreign exchange.  M.M.T.C. got only its commission  of 2%  and  nothing more.  Alternatively  held the  High  Court even  if it is held that the documents executed between  the parties  had the legal effect of transferring title  in  the goods  to  and in favour of the Corporation, even  so  Ferro alloys must be deemed to be 18 the  real  exporter for the purposes of  Section  280(Z)(C), having  regard to the objective underlying the said  section viz.,   providing  an  additional  incentive  to  the   real exporter.  The correctness of the said view is questioned in this  appeal.   Though the second  respondent,  Ferro-alloys Corporation  Ltd.,  has been served, no one appears  on  its behalf.   We  are,  therefore, obliged to  dispose  of  this appeal  only  with  the assistance of the  counsel  for  the M.M.T.C. May  be that there are factors in this case  supporting  the contentions of both the parties.  In such a case, we have to decide  the  question  on a  totality  of  relevant  factors applying the test of predominance.  It  is  true that  there was initially an agreement or contract between  Ferro-alloys and  the  foreign buyer for export of  manganese  and  other goods  but  that was substituted and superseded by  the  two contracts entered into with respect to the very same  goods. One contract was between Ferro-alloys and M.M.T.C. for  sale of the said goods to and in favour of M.M.T.C. and the other was  a  sale  by  M.M.T.C. to  the  foreign  buyer.   It  is significant to notice that these contracts were on principal to principal basis.  Apart from this fact all the  statutory documents  viz., G. R.I. Form prescribed under  the  Foreign Exchange   Regulation  Act,  1947  and  the  shipping   bill prescribed  by the Customs Act were made out in the name  of M.M.T.C.  showing it as the exporter.  We have  perused  the Form-G.R.I.Column-1 pertains to exporter’sname.Against  this column  is shown-Minerals and Metals Trading Corporation  of India  Limited’.   The  Form contains a  declaration  to  be signed   by   the  exporter  declaring  that   he   is   the seller/consignor  of  goods and a further  undertaking  that they  will deliver to the Bank mentioned in the  said  Form, the foreign exchange resulting from the export of the  goods mentioned therein.  It was signed by the M.M.T.C. Letters of credit were opened in the name of M.M.T.C. All this was done as  required by the system of barter.  Ferro-alloys  availed of  this system presumably because it was to its  advantage. In  fact, it appears that it was not able to sell  the  said goods  otherwise.  Be that as it may, whether by  choice  or for lack of alternative, it chose to route its goods through M.M.T.C. Is it open to the Ferro-alloys now to say that  all this  must be ignored in the name of "external  appearances" and it must be treated as the real exporter for the purposes of Section 280(Z)(C).  It wants to be the gainer in both the events.  A case of "heads I win, tails you lose." As against the above circumstances, the factors appearing in favour  of the 19 Ferro-alloys  are  the following: The contract  between  the parties spoke of "commission" of two per cent payable to the M.M.T.C.  Use of the expression "commission", it is  pointed

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out,  is indicative of the fact that M. M.T.C. was  only  an agent.   For the M.M.T.C., it is explained that it  was  one way  of describing the difference between the  export  price and  the sale price.  It is submitted that the said  feature must  be  understood in the context of the totality  of  the scheme, which was not a mere commercial scheme but a  scheme conceived  in  the interest of foreign  trade,  economy  and balance  of  payments.   Ferro-alloys  also  relied  upon  a certificate  given  by the foreign buyer  stating  that  the goods  in question were sold to it by Ferro-alloys.  But  as rightly  pointed  out  by  the  Government  of  India,  this certificate   was   obtained   long   after   the   relevant transactions  were over and evidently to buttress  its  case with  respect  to  the tax  credit  certificate.   Not  much significance  can be attached to it, also because it  is  in the teeth of the contracts signed by the foreign buyer  with the  M.M.T.C.  with  respect to the very  same  It  is  also pointed  out  that  some of the  documents  required  to  be executed according to (he system of barter were not actually executed  between  the parties.  May be so.   The  fact  yet remains that the entire export was done through M.M.T.C.  in accordance with the system of barter.  There is no  half-way house; either it is no’? barter system or it is. This is  an undisputed fact as are the several statutory documents  made out in the name of M.M.T.C., referred to here in before. On   a  consideration  of  all  the  relevant  factors   and circumstances, we are of the opinion that the M.M.T.C.  must be  held  to  be the exporter for  the  purpose  of  Section 280(Z)(C).   The  entire system of barter  and  the  several documents  executed in that behalf including those  required by  statutory  provisions cannot be explained away  as  mere "external  appearances".   The Ferro-alloys cannot  come  to M.M.T.C. when it is profitable to it and disavow it when  it is not profitable to it.  It cannot have it both ways.   The title  to goods passed to M.M.T.C. by virtue of the  several documents  executed between the parties.  Indeed,  that  was the fulcrum of the entire scheme of Barter.  We are also not convinced with the alternative reasoning of the High Court that  even if it is held that the title to the goods  passed to  M.M.T.C., even so  Ferro-alloys must be held to be  the real  exporter, in view of the objective underlying  Section 280(Z)(C).  If M.M.T. C. has acquired the title to the goods and  is the exporter for all other purposes it  equally  the exporter 20 for  the  purposes  Section  280(Z)(C).   There  can  he  no dichotomy of the nature propounded by the High Court. We are, therefore of the opinion that the High Court was not right  in holding to the contrary.  The appeal  is  allowed. The  judgment  and order of the High Court of Delhi  is  set aside  and  the  order  of the  Government  of  India  dated September 19, 1973 is restored.  The writ petition filed  by the second respondent in the Delhi High Court is dismissed.  No costs. G. N. Appeal allowed. 21