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PETITIONER: THE STATE OF MAHARASHTRA

       Vs.

RESPONDENT: M/S EMBEE CORPORATION, BOMBAY

DATE OF JUDGMENT:       21/08/1997

BENCH: S. P. BHARUCHA, V. N. KHARE

ACT:

HEADNOTE:

JUDGMENT:                (with S.L.P. (C) No. 6771/94)                       J U D G M E N T V.N. Khare, J.      The short  question that  arises for  consideration  in this appeal  is whether  the expression  "sale  or  purchase occasions such  import" occurring   in  sub-section  (2)  of Section 5  of the  Central Sales  Tax Act (in short the Act) requires that a completed sales should precede the import.      The  material  facts  which  have  given  rise  to  the aforesaid question are these:      In response  to the  tender invited  by the Directorate General  of  Supplies  and  Disposal  (for  short  ‘DGS&D’), Government of  India, New  Delhi, the  respondent M/s. Embee Corporation,  Bombay   (hereinafter  referred   to  as   the ‘assessee’) who  carries  on  the  business  of  buying  and selling chemicals,  had submitted  a tender  for  supply  of Carbamite for  use in  the manufacture of different types of propellant explosive  as per specifications. The assessee in its tender  mentioned the  name of M/s. Chemiches Werk Lowi, West Germany  as the  supplier and  from whom  the materials were   to   be   imported   for   which   necessary   import recommendation certificate  was to  be provided by the DGS&D for the  value of  the material  to be  imported. The  total price quoted  in the  tender was  Rs. 23.50  per kg.  F.O.R. Bombay and  the full break-up thereof was disclosed therein. The DGS&D  accepted   the tender of the assessee vide letter dated May  29, 1991  subject, inter  alia, to  the condition that the contract would be governed by the conditions of the contract as  contained in  form DGS&D-68 (revised) including clause 24  thereof as  amended  upto-date.  it  was  also  a condition that  the contracted  material was to be inspected by the  Chief Inspector,  C.I.M.S., Kirkee,  Pune at  Bombay Port and  the General  Manager, Cordite  Factory, Aruvankadu was mentioned  as  the  indentor.  The  assessee  thereafter requested the  DGS&D to  furnish the  import  recommendation certificate to enable it to import the material as Carbamite was a  strategic material  which  also  required  an  export permit to  be granted  by the West Germany Government to the assessee’s  principal.   The   DGS&D   issued   the   import recommendation certificate  in favour  of the  assessee  for

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procuring the  aforesaid  material  from  West  Germany  and recommended that  the import  licence might be issued as per particular.  Against  the  said  order  of  the  DGS&D,  the Controller  (Import   Trade  Control)   issued  licence   as requested for. One of the conditions of the licence was that the goods  imported shall  be utilised or disposed of in the manner stipulated  in DGS&D  letter dated  June 17, 1971 and the imported  materials shall not be utilised or disposed of in any  other manner.  the DGS&D  had also furnished end-use certificate to  the effect  that Carbamite  be allowed to be imported by  the Indian  Government as  it was  intended for consumption in  India and not re-exported or re-utilised for any  purpose   other  than  consumption  by  the  Government factory. In  the Bill  of lading  the name  of assessee  was shown as  a party  to be  notified and  the General Manager, Cordite Factory Aruvankadu was described as the consignee of Carbamite. After  the  consignment  arrived,  the  same  was forward to  the  consignee  named  in  the  contract,  viz., Cordite Factory, Aruvankadu.      After the  goods were  supplied to  DGS&D, the assessee claimed exemption  before the  Sale Tax Officer from levy of sales tax as, according to it, the supply under the contract was as  sale in  course of  import of  the goods into India. This plea  of the  assessee was  rejected by  the  Sale  Tax Officer and the same was upheld in appeal. The tribunal also substantially rejected the second appeal of the assessee. At the instance  of the  assessee, the  tribunal referred three question to  the High  Court at  Bombay for answer. The High Court while  answering the question referred to it held that in the  present case  there were  two sales  viz., the  sale between the  assessee and DGS&D and the foreign supplier and the assessee,  but both  the sales were integrated or inter- linked so  as to form one transaction and, as such, the sale had occasioned  that import of material liable for exemption from sales tax under the Act.      In  this  appeal  learned  counsel  appearing  for  the appellant referred   to Section 4-5 and 10-24 of the Sale of Goods Act  and argued  that the  expression "sale  occasions such import"  occurring in  sub-section (2)  of Section 5 of the Act  means a  completed sale  and it  should precede the import, and  in the  present case since there was no sale in terms of  the Sale of Goods Act, the sale has not occasioned the import  and as  such  the  respondent  assessee  is  not entitled to any exemption from Central Sales Tax.      Article 206  of the  Constitution forbids  a State from imposing or  authorising the imposition of a tax on the sale or purchase of goods when such sale or purchased takes place (a) outside  the State or (b) in the course of the import of goods into  or export  of goods  outside  the  territory  of India. The  Parliament had  passed the Act with to formulate the principles for determining as to when a sale or purchase of goods  takes place  in the course of inter-State trade or commerce or  outside the  State or  in the  course of import into  or   export  from  India,  to  provided  for  levy  of collection and  distribution of taxes or commerce. Section 5 of the  Act defines  what Article  206 of  the  Constitution forbids and by virtue of clause 2 of Art. 286 the Parliament by enacting Section 3 of the Act has laid down the principle when a  sale or  purchase of goods takes place in the course of the  import into  or export  of the  goods outside India. Since a  controversy has  arisen as to the interpretation of principles embodied in Section 5 of the Act, it is necessary to examine the provisions of the Act. Section 3 provides -      When is a sale or purchase of goods      said to take place in the course of

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    inter-State trade  or commerce. The      relevant provisions  of  section  3      are extracted below:-      (a) occasions the movement of goods      from one State to another; or      (b) is  effected by  a transfer  of      documents of  title  to  the  goods      during  their   movement  from  one      State to another.      Section 4  lays down when is a sale      or purchase  of goods  said to take      place outside  a State. Sub Section      (2) of  Section 4  is extracted  as      follows:-      "A Sale  or purchase of goods shall      be deemed  to take  place inside  a      State, if the goods are within  the      State-      (a) in  the  case  of  specific  or      ascertained goods,  at the  time of      contract of sale is made ; and      (b) in the case of unascertained or      future goods,  at the time of their      appropriation to  the  contract  of      sale by the seller or by the buyer,      whether assent  of the  other party      is  prior  or  subsequent  to  such      appropriation".      Again Section 5 of the Act provides      -      When is a sale or purchase of goods      said to take place in the course of      import or  export. Sub-section  (2)      of Section 5 is extracted below:-      (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      occasion 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."      On perusal  of the  aforesaid provision of the Act, the question that  arises  for  consideration  herein  is,  what meaning should  be given  to the  expression "sale occasions import". It  is almost  settled by  numerous decision of the Supreme Court that the expression "sale occasions import" is to be interpreted in the same manner in which the expression "occasions the  movement of goods" occurring in Section 3(a) of the  Act has received interpretation. In other words, the expression "sale  occasions import" has to be given the same meaning which  the expression  "occasions  the  movement  of goods" has received by the Courts. In the light of aforesaid settled legal  position emerging from the Constitution Bench decision, we  will now  examine the  meaning  of  "sale"  as defined in  the Act.  Section 2(g) of the Act defines "sale" thus:-      "sale,   with    its    grammatical      variations and cognate expressions,      means any  transfer of  property in      goods by  one person to another for      cash or for deferred payment or for      any other  valuable  consideration,

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    and included a transfer of goods on      the hire  purchase or  other system      of payment  by instalment,  bu does      not   include    a   mortgage    or      hypothecation of  or  a  charge  or      pledge on goods;"      The above  definition of  "sale" in  the Act shows that the word  "sale" has been given a very wide meaning so as to include  not   only  the   sale  of   goods,  but  also  the transaction, namely,  a transfer  of goods  or hire purchase system. Further, the use of words "sale of goods" in Section 3 of  the Act  and the words "contract of sale" occurring in Section 4(2)  of the Act have been assigned the same meaning which is wider to the meaning of sale in the general law. In such a  situation the word "sale" defined in Section 2(g) of the Act  and employed in Section 3 and other sections of the Act would  embrace not only completed contract, but also the contract of  sale or  agreement of  sale if such contract of sale or  agreement of sale provides for movement of goods or movement of  goods is incident of the contract of sale. This matter may  be examined  from another angle. An agreement to transfer goods  to the  buyer for  a price  is an  important element of sale  and the same is also borne out from Section 4 of  Sale of  Goods Act.  If Section 4 of the Sale of Goods Act is  read along with Section 3 and 4 of the Act, it would mean an  agreement to  sell would  also be a sale stipulates for transfer  or movement  of goods  or movement of goods is incident of  the contract  of sale  an in  that  case,  such movement of  goods would  be deemed  to be occasioned by the sale. It  is immaterial that actual sale does not take place at the  time of  movement of goods and takes place later on. This interpretation of Section 3(a) of the Act if applied to Sub-section (2)  of Section 5 of the Act, would mean that if an agreement  for sale  stipulates import of goods or import of goods  is incident  of contract  of sale  and goods  have entered the import stream, such import would fall within the expression "sale occasions import". In the present case, the import of carbamite is direct result of the contract of sale and as  such it  can be safely held in the present case that sale has occasioned the import.      The argument  of learned counsel for the appellant that sale should  precede the import came up for consideration in the  case     of  K.G.  Khosla  &  Co.  Pvt.  Ltd.  vs.  Dy. Commissioner of  Commercial Taxes  [(1966) 17  STC 473]. The constitution bench  of this  Court in  the  said  case  held thus:-      "The  question  then  is,  did  the      sales  occasion   the  movement  of      cement from  another    State  into      Mysore within  the meaning  of  the      definition? In  Tata Iron and Steel      Co. Ltd.  v. S.R.  Sarkar,  it  was      held that  the sale  occasions  the      movement of goods from one State to      another within  section 3(a) of the      Central  Sale  Tax  act,  when  the      movement  is   the  result   of   a      convenant  or   incident   of   the      contract of  sale’. That the cement      concerned in  the disputed    sales      was  actually  moved  from  another      State into  Mysore is  not  denied.      The respondents  only contend  that      the movement  was not the result of      a covenant in or an incident of the

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    contract of sale.      This Court  then, on  the facts, of      the case,  found that  the movement      of cement  from another  State into      Mysore was the result of a covenant      in the contract of sale or incident      of such  contract. This  Court  did      not go  into  the  question  as  to      whether  the  property  had  passed      before the movement of the goods or      not, and this was because according      to the  decision in  Tata Iron  and      Steel Co.  v. S.R.  Sarkar, it  did      not  matter  whether  the  property      passed in  one State  or the other.      Tata Iron  and Steel  Co. case  was      again followed  by  this  Court  in      Singareni    Colleries    Co.    v.      Commissioner of  Commercial  Taxes,      Hyderabad.      The   learned   counsel   for   the      respondent   Mr.   A.   Ranganadham      Chetty, invited us to hold that the      observation of  Shah, J.,  in  Tata      Iron  and   Steel  Co.   case  were      obiter,   and   to   consider   the      question afresh.  We are  unable to      reopen the  question at this stage.      Shah, J.,  was interpreting section      3 of  the  Act  and  although,  the      Court  was   principally  concerned      with the  interpretation of section      3(b), it  was necessary to consider      the interpretation  of section 3(a)      in order  to arrive  at the correct      interpretation  of   Section  3(b).      Further  these   observation   were      approved in Cement Marketing Co. of      India v. The State of Mysore, State      of Mysore  and Singareni  Colleries      Co. v.  Commissioner of  Commercial      Taxes,  Hyderabad.   In  the  State      Trading Corporation  case in so far      as   the    assessment   for    the      assessment   year    1957-58    was      concerned, this  Court applied  the      principles laid  down in  Tata Iron      and Steel  Co. case. Accordingly we      hold that  the High Court was wrong      in  holding  that  before  as  sale      could be  said to  have  occasioned      import it  is  necessary  that  the      sale  should   have  preceded   the      import."      In this  case, the Constitution Bench specifically held that sale  need not  precede the import and this decision is complete answer  to the  argument advanced  by  the  learned counsel for the appellant.      Learned counsel  then tried  to argue that the decision of the  Constitution Bench  in Khosla’s  case (supra) is not applicable to  the present  case as  in the  said case,  the materials were  to be  inspected at  Belgium and  London and thereafter the goods were to enter into India. This argument is not  correct. In Khosla’s case (supra), the inspection of goods was to be carried out in Belgium as well as on arrival

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into India.  In the  present case,  the inspection was to be done on arrival of goods into India and as such, there is no distinction on  facts between   the present case and that of Khosla’s. Learned  counsel then  urged that  the decision of the Constitution Bench in Khosla’s case (supra) has not been correctly decided  and as  such this  case be  referred to a larger Bench.  We have  considered the matter and found that Khosla’s case  (supra) has  held the  field nearly more than three decades  and its  correctness has  not been doubted so far. We, therefore, reject the prayer of learned counsel for the appellant.      Learned counsel then urged that this case is covered by decision of  this Court in the case of Binani Bros. (P) Ltd. & Anr. v. Union of India & Ors. (33) STC 254, Md. Serajuddin v. State  of Orissa (36 STC 136) and K. Gopinathan Nair etc. v. State  of Kerala  [1997 (2)  Scale 252].  The decision of this  Court   in     the  case  of  Binani  Bros.(supra)  is distinguishable as in that case no obligation was imposed on the appellant  to supply  the imported  goods to DGS&D after they had  been imported  and the  same could  be directed to other channels. Similarly, the decision of this Court in the case of  Md. Serajuddin  (supra) is  not applicable  to  the present case as in that case it was found that the appellant in the  said case sold the goods directly to the Corporation who entered  into a contract with a foreign buyer and it was found that  the immediate  cause of  export was the contract between  the   foreign  buyers  who  was  importer  and  the corporation who  was the exporter. Such sales were described as back  to back  contract.  This  decision  rested  on  the peculiar facts  of that case. We are, therefore, of the view that the  appellant cannot  derive any  assistance from  the said decision. The last case which was brought to our notice was K.  Gopinathan Nair  etc. v. State of Kerala (supra). In the said case, on facts, it was found that on account of the sale to  CCI  by  foreign  exporter  raw  cashew  nuts  were imported into  India. The importer being the CCI and not the local user, this Court held that principles evolved by it in para 12  of the  judgement were not applicable to that case. We do  not, therefore, find that this decision is helpful to the appellant’s case.      The result  of the  aforesaid discussion  is that while interpreting  the   expression   "sale   occasions   import" occurring in  sub-section (2) of Section 5 of the Act, it is not necessary  that a  completed  sale  should  precede  the import.      For the  foregoing reasons, we do not find any merit in the appeal  and the  same is  accordingly  dismissed.  There shall be  no order  as to  costs. In view of the decision in Civil Appeal No. 2872 of 1991, the S.L.P. stand dismissed.