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PETITIONER: K. GOPINATHAN NAIR ETC.

       Vs.

RESPONDENT: STATE OF KERALA

DATE OF JUDGMENT:       21/03/1997

BENCH: SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT: (WITH CIVIL APPEAL NOS.  1167-71/92,   1546/93,  3647-52/86)                       J U D G M E N T Mrs. Sujata V. Manohar, j. CIVIL APPEAL S NOS. 4955-77/91,  1167-71/92 & 1546/93      The assessees  are processors  of cashewnuts in kerala. Prior  to   September  1970   the  assessees   imported  raw cashewnuts from  African countries  under  an  open  general licence.   After processing  these cashewnuts  the assessees exported cashewnut kernel to other Notification issued under the Import  Trade (control)  order bearing  No.  3-1970  and dated 31st  of August,   1970,   "  cashewnuts" were deleted from the  schedule of items which could be imported under an open general  licence. Instead  they were now required to be imported through  a canalising  agency, namely,  the  cashew corporation of  India Ltd.  As a  result, for the assessment years  1971-71  to  1972-73  the  assessees  imported  their requirement of cashewnuts from African countries through the cashew Corporation  of India Ltd.  The assessees were called upon to pay sales tax under the Kerala General sales Tax Act in respect  of the  caswhewnuts purchased  by them  from the canalising agency.  According to  the assessees,  the  sales effected by  the cashew corporation of India to them are not exigible to  tax under  the Kerala  General are not exigible to tax Act since these are sales in the course of import and hence are sales in the course of import and hence are exempt from the  state sales  tax under section 5(2) of the central sales Tax  Act, 1956,   This contention of the assessees has been negatived  by the dales tax authorities in Kerala. In a revision which  was filed by the assessees before the Kerala High Court  the Kerala  High Court   remanded the matters to the sales  Tax Tribunal  to consider the following question. namely :      "Whether the  purchases of  African      nuts made by the assessees from the      cashew corporation  of India are in      the course  of import  eligible for      exemption under section 5(2) of the      central sales Tax Act?"      The Tribunal  after re-considering  the matter answered the question  against the  assessees. This  finding  of  the

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Tribunal has  been  upheld  by  the  Kerala  High  court  in revision. Hence these appeals have come before us. CIVIL APPEALS NOS. 3647-52/86      This group  of appeals  also deals  with the  import of cashewnuts, but  in the  state of  Karnataka, by  the Cashew corporation of  India Ltd.  which is a canalising agency for the import  of cashewnuts   for  sale to  the processors  of cashewnuts in  Karnataka. The  processors, after  processing cashewnuts ,  export cashew Kernel. However, which under the Kerala General sales Tax Act, 1965, cashew was assessable at the last  point of purchase in the state under the Karnataka sales Tax  Act, 1957 cashes is assessable at the first point of  purchase   in  the   state.  Hence,  in  these  appeals, assessment of sales tax by the state of Karanataka is sought to be  made on the cashew corporation of India in respect of aspect of  cashew imported   by  it at  the instance  of the processor and  sold to the processor . The transaction which are the  subject-matter of  controversy  in  these  appeals, however, are  identical with  the transactions which are the subject-matter of appeals in the Kerala matters.      Before we  decide whether  the import of cashew nuts by the  cashew   corporation  of  India  and  the  purchase  of cashewnuts  by  the  assessees/processors  from  the  cashew corporation of  India is  in the course of import or whether it is   the  local sale  liable to  tax under  the Kerala or Karnataka General  sales Tax Act, it is necessary to set out the exact nature of the transaction in question.      The Import  Trade (control) policy for April 1971-March 1972, in  part B,  paragraph 51  deals with  import  through public  sector   Agencies.  Under     the   sub-heading    " Canalisation of  Import",  it  states  only  through  public sector Agencies.  The  canalising  agency  in  the  case  of cashewnuts is  the cashews  corporation of  India Ltd. Under the Import  Trade (control) Handbook of Rules and procedures 1970  the   procedure  for  imports  through  public  sector Agencies is  set  out.  It,  inter  alia,  states  that  the canalising agency  will  pool  the  import  requirements  of actual users and import will be arranged in bulk through the agency concerned.  It also provides that consolidated import licences/release orders  will be issued in such cases to the importing agency  concerned. The  value of  the  consolidate licence/release   order to  be issued  will be  equal to the aggregate value  of all  the  licence/release  orders  which could have  been issued  to the  individual actual users had they applied  separately.  Such licences/release orders will be subject  to the  condition, inter alia, that the imported goods shall  be distributed  by the  licensee to  the actual users whose  particulars are  shown in  the relevant  import application  for   use  in   their   respective   factories. Therefore, the  quantity imported, the specifications of the goods imported  and the  place from  which they are imported are all as per requirements of the local processors.      In the  present case,  litters were issued by the state Trading corporation of which the cashew corporation of India was  a   subsidiary,  informing   the  processors  regarding canalisation of  import of  cashewnuts  through  the  cashew corporation of  India and requesting the processors to apply in proforma  for the  allotment of  raw cashewnuts. Based on these applications, the cashew corporation of India obtained from the  Government of  India a bulk licence for the import of raw cashewnuts. Necessary orders were placed with foreign dealers for  supply of  cashewnuts by the cashew corporation of India.  The cashewnuts  to be  imported  were  marked  in separate lots  in respected of each allotted before shipment from the  foreign port.  Allotment orders in respect of each

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marked lot were made in favour of the concerned processor by the  cashew  corporation  of  India  and  the  shipment  was effected only  on the  basis of  the acceptance  of such  an allotment order  by  the  concerned  processor.  The  cashew corporation of  India prepared separate invoices in the name of each  allotted in  respect of  each separate  and  marked shipment. A  separate bill of lading was prepared in respect of goods  pertaining to each allotted. The insurance premium for this  lot was  also charged by the cashew corporation of India from  the allotted.  For the  clearance of these goods from the  customs, separate documents of title pertaining to each processor  were prepared and subsidiary import licences were also  issued in the name of each allottee by the cashew corporation of  India in  respect of their earmarked lots. a simultaneous letter  of authority  was also  issued  bu  the chief controller  of Imports  and Exports  in favour  of the allottee in respect of the lot concerning which the allottee was given  a sub-  licence. On the marine insurance taken by the cashew  corporation of  India a separate endorsement was taken in  the name  of each  allottee and  the  premium  was include in  the C.S.F. value of the goods so despatched. The steamer agent  issued a  delivery order  to the   processors clearing agent and the goods were accordingly cleared by the clearing agents of the processors. The cashew corporation of India charged to the assessee the price which it had paid to the foreign  seller and   a  commission for  their work as a canalising agency.      Thus it  is clear  that although  the canalising agency placed a bulk order for  the import of cashewnuts and opened a letter  of credit  in favour  of the  foreign sellers, the bulk order  so placed was a sum total of the requirements of all the  processors of cashewnuts  in whose favour allotment orders were issued. The cashew corporation of India had from the inception  marked separately  each lot imported by it in favour of  each allottee.  It had  also in  turn, prepared a corresponding set of documentation in favour of the allottee and the allottee was required to open a corresponding letter of credit  in favour  of the  cashew corporation of India in favour of  the cashew corporation of India in respect of the lot being  imported on  its behalf.  The allottees also paid the corresponding insurance premium for the marine insurance taken out  by the  cashew corporation of India pertaining to the import of cashewnuts.      We have to consider whether the transaction between the cashew corporation  of India  and each of the processors can be considered  as a  sale by the cashew corporation of India to the processor in the course of import.  Under Article 286 of the  constitution of  India, restriction have been placed on the  power of the state of tax sales. Article 286 (1) and (2) provide as follows:-      "286(1) :  No law  of a state shall      impose, or authorise the imposition      of, a  tax on  the sale or purchase      of  goods   where  such   sale   or      purchase takes place-           (a)  outside the state; or           (b)  in   the  course  of  the                import of the goods into,                or export  of  the  goods                out of,  the territory of                India;      (2)  Parliament    may    by    law      formulate      principles       for      determining when a sale or purchase      of good  takes places in any of the

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    ways mentioned in clause (1)."      Article 296(1) (g) and (3) provides      as follows:      "269 (1) ; The following duties and      taxes shall be levied and collected      by  the  Government  of  India  but      shall be  assigned to the states in      the manner  provided in clause (2),      namely-      (g) taxes  on the  sale or purchase      of  goods  other  than  newspapers,      where such  sale or  purchase takes      place in  the course of Inter state      Trade or commerce;      (3) Parliament may by law formulate      principles for  determining when  a      sale of purchase of, or consignment      of,  goods   takes  placed  in  the      course  of   inter-state  trade  or      commerce."      Accordingly, the Central sales Tax Act, 1956 in Section 3 and  5 lays down principle for deciding whether  a sale or purchase takes  place in  the course of inter-state trade or commerce or  in the  course of  import or  in the  course of import or export:      "3. When  is a  sale or purchase of      goods said  to take  place  in  the      course  of   inter-State  trade  or      commerce- A  sale  or  purchase  of      goods shall be deemed to take place      in the  course of  commerce if  the      sale or purchase-      (a)  occasions  the   movement   of           goods   from   one   sate   to           another; or      (b)  is  effected  by  transfer  of           documents  of  little  to  the           goods  during  their  movement           from one state to another.      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 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

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    preceding  the   sale  or  purchase      occasioning  the  export  of  those      goods out of the territory of India      shall also  be deemed  to be in the      course of such export, if such last      sale or  purchase took place after,      and  was   for   the   purpose   of      complying with,  the  agreement  or      order for  or in  relation to  such      export."      Clearly, therefore,  the language of section 3, 5(2) is similar, and  the requirements  in each  of these provisions for considering  whether a  sale or purchase of goods can be said to  take place  in the  course of  inter-state trade or commerce or export or import are similarly worded. Under the first requirement  so specified,  in each of the three cases the  sale  or  purchase  in  question  should  occasion  the requisite movement  of goods.  This movement  may be  either from one state to another or it may be from India to another country, as  the case  may be.  We  from  India  to  another country, as  the case  may be.  We must, therefore, consider whether the  sale or purchase which is before us, that is to say, the transaction between the cashew corporation of India and the  assessees/processors, has  occasioned the import of cashewnuts from Africa into the territory of India.      How does  one determine  whether a  sale has occasioned the movement  of goods  either from  a foreign  country into India or  from India  to a foreign country or from one state in India  to another  state in India? This court has, in the course of several decisions that I shall refer to, laid down some basic  tests to  determine whether the sale in question has occasioned the requisite movement of goods. These are: (1)  There should  be a  direct connection  between the sale and the  import or  export of  goods or  their being sent to another state. (2)  Such movement  should be  inextricably linked  with the sale so  that the  bond between  the  sale  transaction  and movement  cannot   be  severed   without  a  breach  of  his obligation by  the seller  or the purchaser, as the case may be. (3)  This obligation  (to import,  export etc.) May arise by statute, by contract or even by mutual understanding between the parties,  from the very nature of the transaction. It is immaterial whether  the sale  has preceded  such movement or succeeded such  movement. So long as there is an unbreakable chain linking the sale and the movement of goods, it will be covered by  section 5  or section  3, as  the case  may  be. Usually such  an unbreakable chain is forged by the terms of the contract  of sale,  or from operation of statute or even from an  understanding between the local buyer and the local seller. Of  course where  there is only one sale-- between a local buyer  and a  foreign seller  or a  local seller and a foreign buyer,  the contract  or import. But the application of section  5 is not confined to such contracts alone as the cases cited  hereafter will  show. If  only a  one-sale test were to  be applied,  these  would  be  the  only  contracts qualifying for  exemption. Such  is not the interpretion put on sections 3 and 5 because  in several cases this court has considered even  a sale  other than  an import  or export if there is a direct connection between the sale and the import or the export.      The distinction  between  an  independent  sale  and  a linked sale  is clearly  brought out by a constitution Bench of this  court in  the case  of Ben Gorm Nilgiri Plantations company, Coonoor & ors. V. sale Tax Officer, special circle,

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Ernakulam & ors. (1964 (3) SCR 706 at 711) which decided the requirements of  a sale  in the course of export (two Judges dissenting). In  this case,  the appellants  carried on  the business of  growing and  manufacturing tea.  The purchasers were local agents of foreign buyer. The sales were by public auction. It  was the  common case of all the appellants that the purchases by the local agents of the foreign buyers were with a  view to  export the  goods to their principal abroad and in  fact the  tea was exported. The appellants contended that sales  of tea to the local agents were in the course of export. There Judges, out of the five Judges concerned, held that this was not a sale in course of export. They said that the transaction of sale which is a preliminary to export may be regarded  as a  sale for export but it is not necessarily to be regarded as one in the course of export.      The test  laid down  in this case is: in order that the sale should  be in  the course of export, the export must be inextricably linked with the sale so that the bond cannot be severed without  a  breach  of  the  obligation  arising  by statute ,   contract  or mutual  understanding  between  the parties arising  from the nature of the transaction; so that export  cannot  be  interrupted  without  a  breach  of  the contract between  the local  buyer and  the local seller. In that case  the local seller had no interest in the export of tea. Hence the sale was not in the course of export.      This test  is reiterated  in the  subsequent  decisions dealing with exports and imports. In the case of K.G. Khosla & co.  V. Deputy  Commissioner of Commercial Taxes (1966 (3) SCR  352)   ,  another  constitution  Bench  of  this  court interpreted section  5(2) of the central sales Tax Act, 1956 and held  that section  5(2) does not lay down any condition that before  a sale   could be said to occasion the imports, it is necessary that the  sale should precede the import.      Since this  is one  the earliest  cases dealing  with a sale in the course of import, I refer briefly to its facts.      The assessee  entered into a contract with the Director General of  supplies and  Disposal, New Delhi for the supply of axle-box bodies. According to the contract the goods were to be  manufactured in Belgium and D.G.I.S.D., London or its representative,  was   entitled  to  inspect  the  goods  in Belgium. It  was the  assessee’s responsibility  to get  the goods manufactured  in Belgium  and import  them into India. Accordingly the  assessee supplied  axle-box bodies  to  the Southern Railway  at Perambur  worked after  importing  them from Belgium.  The question  was whether  this was a sale in the corse  of import.  The court  said that  the sale  e the assessee to the Railways need not have the movement of goods from Belgium  to India  was in pursuance of the condition of contract between  the assessee  and the  Director General of Supplies. There  was no  possibility of  those  goods  being diverted  by   the   assessee   for   any   other   purpose. Consequently, the sales took place in the course of imports.      The next  important case  decided by  this court  deals with a  sales in  the course of export of goods. This is the case of  coffee Board,  Bangalore V.  Joint  commercial  Tax officer, Madras  & Anr. (1969 (3) SCC 349). It is a decision of a  constitution  Bench  of  this  court  with  one  Judge dissenting. In  this case,  the coffee Board had sold coffee which was  to be  exported out  of India.  Such  Coffee  for export was  specially screened  and selected.  Auctions were held known  as "Export  Auctions"   for sale of this coffee. The purchasers  at such  auctions subsequently  exported the coffee. The  question was  whether the  sale by  the  coffee Board to  the local purchaser would be  considered as a sale in the  course of  export. The court said that in order that

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the  sale  may  occasion  the  immediate  cause  of  export. Therefore  the   introduction  of   a  third  party  dealing independently with  the seller  on the one hand and with the foreign importer  on the  other hand, broke the link between the sale  and the  export. It,  therefore, held  that such a sale was not in the course of export.      In this  case a  special emphasis  has been laid on the fact that there were two sale--one sale to the intermediary, and the  other sale to the importer. The court observed that there must  be a single sale which should course the export. It said  that there  is no room for two or more sales in the course of  export. The  court was  clearly impressed  by the fact that  when the  coffee  Board  sold  the  coffee  to  a purchase  locally,   there  was   no  stipulation  that  the purchaser was  bound to  export the coffee. Obviously if the coffee Board  had sold  the coffee  to a  foreign buyer, the export of  coffee would  have followed.  This is what a one- sale test  amounts to.  But section  5(1) does  not say that only a  sale by  a local  purchaser to  a foreign buyer is a sale test  in the  course of export. The language of section 5(1) is much wider. Any sale which occasions the export is a sale in  the course  of export. A literal adoption of a one- sale test  would result in ignoring earlier decisions of the constitution Bench  where two sales were involved and a sale subsequent to  the sale  between a local buyer and a foreign seller was  held to  be a sale in the  course of import when it was  established that  there was  a firm link between the subsequent sale and the prior import.      The one-sale  test must be understood in the context of the facts which the court was required to consider. The sale prior to  export. Hence  in that  case, the earlier sale had not occasioned the export.      In fact,  these observations in the coffee Board’s case (supra) have  been explained  in The  Deputy commissioner of Agricultural  Income   Tax  and  sales  Tax,  Central  Zone, Ernakulam V.  M/s. Kotak  & co.,   Bombay etc. (1974 (3) SCC 148) and  in Deputy commissioner of Agriculture Income Tax & Sales Tax  , Ernakulam  V. Indian  Explosives Ltd. (1985 (4) SCC 119)  on the  basis that  in  the  coffee  Board’s  case (supra) there  was no  inextricable link  between the  local sale and the export, while in the cases of Indian Explosives and Kotak  & co. (supra) there was such an inextricable link between the import of the goods the local sale.      In the  case of  M/s. Kotak & Co. (supra) the assessee- firm was  engaged in the supply of foreign cotton to textile mills on  the basis  of actual user’s import licences issued to  the  textile  mills.  The  assessee-firm  contacted  the foreign suppliers  and id  the offers  received  were  found acceptable to  the mills  , and on that basis , accepted the offer made  by the  foreign supplier  . The    textile  mill issued a  letter of  authority authorising the assessee-firm to import  cotton.  One  of  the  terms  of  the  letter  of authority was that the person or firm in whose favour it has been issued  will purely act as an agent of the licensee and the licence  holder will  have to  ensure that  the goods on importation will  be delivered  to  him  and  shall  not  be disposed of  otherwise. This clause was read as part  of the contract entered  into between  the assessee and the textile mills. This  Court held that from the facts as set out above it was clear that the case fell within the rule laid down by this court  in K.G. Khosla’s case (supra) . The sales was in the course  of import  although there  were two  sales,  one entered into  by the  assessee with the foreign supplier and the other sale by the assessee with the textile mills.      In the  same year  in the case of M/s. Binani Bros. (p)

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Ltd. V.  Union of  India &  Ors. (1974  (1)  SCC  459)  ,  a constitution Bench  of this court considered section 5(2) of the central  sales Tax  Act. In this case the assessee was a registered dealer  in non-ferrous  metals. The  assessee was also an  importer of  these metals.  The assessee was on the approved list  of registered  supplier  to  the  Directorate General of  supplies and Disposals, for whom it had imported and supplied  non-ferrous metals for several years. In order to get  import licences  the petitioner  user to  get Import Recommendation Certificates  issued by  the D.G.S.  & D.  or other authorities  like the  state trading  corporation. The assessee claimed  that the  imports had  been occasioned  by their contractual  obligations to  D.G.S. &  D. This court , however, negatived the contention. It said to the petitioner by the  foreign seller and the sale by the petitioner to the D.G.S. &  D under  the import  licences granted  to it,  the assessee was  entitled to  import the  goods any  person  or country and  the import  licences issued  to it  imposed  no obligation on  the petitioner  to supply  the goods  only to D.G.S &  D after  the goods  were imported. Hence there were two independent  sales and  the sale transaction between the assessee and  the D.G.S.&  D. Cannot be considered as having occasioned the import.      This judgment  has been  explained and distinguished in the subsequent  case of  Indian Explosives Ltd. (supra).  In this case,  the local purchaser used to place order with the assessee quoting  their import licence numbers. The assessee then placed  orders with the foreign supplier for the supply of goods. In such orders the name of the local purchaser who required the  goods as also its imports licence numbers were specified. On  receipt of  the goods,  the assessee  used to invoice the  local purchaser.  This court held that the sale effected by  the assessee  to the local purchaser was in the course of import as there was an integral connection between the sale  to the  local purchaser  and the  actual import of goods from  the foreign  supplier.  This  court  cited  with approval the ratio laid down in K.G. Khosla’a case (supra) . It  distinguished  Binani  Brother’s  Case  (supra)  on  two material aspects;  (1) In that case the assessee itself held the import  licence and  the  goods  were  imported  on  the strength of such an import licence and (2) There was no term or condition  prohibiting diversion  of the  goods after the import. However,  in the  case  before  them,  the  integral connection or  inextricable link between the  transaction of sale and the actual import were established.      In the  case of  The State  of Bihar  &  Anr.  V.  Tata Engineering &  Locomotive Co.  Ltd. (1970  (3) SCC  697) , A constitution Bench  of this  court considered the provisions of section  3 of  the central sales Tax Act, 1956, to decide what can  be considered  as a  sale in  the course of inter- state or commerce. Noting the similarity in language between section 3  and 5,  the court  relied upon  there decision of this court  dealing with  section 5(1) and 5(2). In the case before the  court the  assessee sold  their  trucks,  buses, chassis and  spare parts  to the  appointed dealers  for the purpose of being sold their trucks, buses, chassis and spare parts to the appointed dealers for the purpose of being sold in the  territories  outside  the  stat  assigned  to  these dealers under the  dealership agreement. The court held that the sales  were  in  the  course  of  inter-state  trade  or commerce. Dealing with the expression "in the course of", it observed that  sales or  purchase which  themselves occasion the export  or import or movement of goods from one state to another come  within the  exemption. If  the sale  cannot be dissociated from  the export  or import or movement of goods

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from one  state to  another, then the sale and the resultant export or  import or movement of goods must be considered as forming part of a single transaction.      In the  case of  Md. Serajuddin  & Ors. V. The state of Orissa (1975  (2) SCC  47) ,  however ,  the  one-sale  test appears to  have been  applied in  isolation.  The  assessee entered  into   two  contracts   with  the  state  Tradition Corporation for  supplying mineral  ore for export since the export of  Mineral  ore  was  canalised  through  the  state Trading corporation. The state Trading corporation, in turn, entered into  contracts with foreign buyer. By a majority of four to  one, this  court held that the sale by the assessee to the  state Trading  corporation was  not a  sale  in  the course of  export even though it was a canalising agency for export. This  was because  it felt  that introduction  of  a third party dealing independently with the seller on the one hand and  with the  importer on  the other  broke  the  link between the  two because,  now instead of one there were two sales -- one to the intermediary albeit a canalising agency, and the  other to  the importer. It was this emphasis on one sale  which  led  the  court  into  not  placing  sufficient emphasis  on   the  test  propounded  in  Ben  Gorm  Nilgiri Plantation’s case (supra) although this test was affirmed by it as valid.      This decision  led to  the amendment  of section  5  by parliament by  the addition of sub-section (3) which makes a sale preceding  the export sale also a sale in the course of export in  circumstances set out therein, thus obviating any difficulties which  may arise  in the  case of  sales in the course of  export by  virture of  this emphasis  on a single sale in the case of Md. Serajuddin (supra).      To put  it a  little differently, when there is a local sale followed  by export  of the  goods sold;  or import  of goods followed by a local sale, one must examine whether the export or  the import of goods is an essential ingredient of the local  sale. In  some cases  dealing with  exports,  the court found  that  the  local  dale  lacked  this  essential ingredient because  the local  seller of  the goods  had  no interest in  seeing that  the goods  were exported, although the local purchaser may have bought the goods for export. To the local  seller, it  was immaterial whether the goods were in fact  exported or not. so that there was no understanding between the  local seller and the local buyer that the goods must be exported.      This seldom happens in the case of imports whenever the local seller imports the goods as per the specification of a specific local buyer and on the mutual understanding between the local  buyer and  the local  seller that  the  goods  so imported by  the local seller will be purchased by the local buyer. There  is in  such cases,  a direct  link between the local sale  and the  import.  In  fact  it  is  this  mutual understanding between  the local  buyer and the local seller which occasions  the import.  That is  why the cases dealing with imports  have not  resorted to  differentiating between one sale  or two  sales.  They  have  applied  the  test  as prescribed by  section 5 : whether the import is a result of understanding/contract between  the local  buyer  and  local seller. It  it is  , the  local buyers  and local sale falls under Section  5. If  it is not -- as may well happen if the importer seller  his goods  after they  arrive to  the  best available offeror  in the  market,  then  the  sale  is  not covered by  section 5. That is why there has been no need to amend section  5 to  expressly cover  a local sale following import.      Now , If we apply this test of inseverable link between

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the local  sale and import to the transaction in the present case, it  is clear  that the local sale which is between the assessee and the cashew corporation of India is inextricably linked  with  the  import  of  cashewnuts    by  the  cashew corporation of  India. In  the first place , the very scheme of canalisation   in  the present  case envisages  that  the cashew   corporation   of   India   ascertains   the   exact requirements of the former importers who are now required to secure their  supplies through  the canalising agent. Orders of import  which are  placed by  the cashew  corporation  of India are  in exact terms of the requirements of each of the allottees and  are a  sum total of these requirements. There is specific allocation of each lot before it is shipped from the foreign  port, in  favour of  each of the allottees. The local purchaser  has to  clear the  allocated goods on their arrival. Even  a subsidiary  licence is  issued in favour of the local  purchaser. The  price of  imported cashewnuts  is paid by  the local  purchaser. The cashewnuts is paid by the local purchaser.  The cashew  corporation of  India is  only paid a  commission. There  is thus a clear allocation of the goos being  imported in  favour of  the local  purchaser and there can  be no  question of the diversion of the import to anybody else  . The cumulative effect of this arrangement is : it  is the  specific requirement  of local purchaser which has led to the specific requirement of local purchaser which has led  to the  specific import  . Whether  the actual sale takes place  before  the  import  or  after  the  import  is irrelevant in this context (vide K.G. Khosla’s case [supra]. It is that arrangement between the local buyer and the local seller which has occasioned the import.      The respondents  drew our attention to the fact that in the  case  of  any  default  by  the  local  purchaser,  the canalising agency  would  be  entitled  to  sell  the  goods elsewhere. This  , however  , in  my view , does not detract from the  fact that the import is as per the requirements of the local  purchaser and  is  directly  linked  with  it.  A specific allocation  is made  in favour of each of the local purchasers. the  orders for import are placed to comply with the specific requirements of the local purchasers. A default clause cannot  alter the  nature of  the transaction between the local purchaser and the canalising agency. The very term ’canalising agency’  in  the  context  of  the  canalisation scheme as set out earlier strengthens the agruments that the imports were effected on behalf of and/or for the benefit of the  local  purchaser  who  had  agreed  to  purchase  these cashewnuts. the  fact that  only a  commission is charged by the  canalising   agency  from   the  local  puchasers  also reinforces this  conclusion. In these circumstance, the fact that a  bulk order  is placed  by the canalising agency with the foreign  supplier does  not snap  the link  between  the transaction of  sale by  the cashew  corporation of India to the assesses  and the  import of  cashewnuts by  the  cashew corporation of  India. It  is the local sale which has given rise to  the import. It will qualify as a sale in the course of import.      The respondent- state has placed strong reliance on the case of Md. Serajuddin (supra). It was contended that in the light of  the observation  made there,  unless there is only one sale  --the sale  which results  in import  -- the  sale cannot be  considered as  causing the import. The real test, in  my   view,  is  of  inseverable  linkage.  This  is  how observation regarding  the need  for one sale in the earlier coffee Board’s  case (supra)  have been  explained  by  this court in  the cases  of Indian  Explosives   and Kotak & co. (supra). In the case of consolidated coffee ltd. & Anr. etc.

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v. Coffee  Board, Bangalore  etc. etc.  (1980 (3)  SCR 625 ) also ,  this  court  has  observed  that  section  5(1)  was construed by  this  court  in  the  two  sales  rather  very strictly in  the two cases, namely, the Coffee Board and Md. Serajuddin cases  (supra). Referring  to  the  statement  of objects and  Reasons in  respect of  the amending  Act which brought about the introduction of sub-section (3) in section 5, this  court observed  that from  the statement of objects and Reasons,  it is  clear that  Md.  Serajuddin’s  decision (supra) is  specifically referred  to as having necessitated the amendment.  Secondly, from  the statement of objects and Reasons, it  is clear  that penultimate  sales made by small and medium scale manufactures to an export canalising agency or private export house to enable the latter to export those goods in  compliance with  existing contracts or orders, are regarded as  inextricably connected  with the  export of the goods and  hence earmarked  for conferral  of the benefit of exemption.      The assessees  contend that  in any  event, the test of one sale  laid down  in the  cases of  coffee Board  and Md. Serajuddin (supra)  should be  confined only to export sales and should  not be  applied to imports. They further contend that even  in the  area of export of export the test has now been ruled  out by  reason of a subsequent amendment made to section 5  of the  Central sales  tax act as result of which sub-section (3) has been introduced in section 5. Hence such a test  a should not now be applied to imports for the first time.      In view  similarity of  language in  section  5(1)  and 5(2), no  such distinction  is possible  between imports and exports. Similar  test will  have to  be applied to both the sub-section. There is no express amendment as far as imports are concerned  which can assist the processor in the present case. It  may be that such an amendment was not necessary in the  case   of  imports  because  the  difficulty  with  the penultimate sales  had mainly arisen in the case of exports. However, whether  it is  exports or  imports or  inter-state sales. what  needs to be emphasised is the basis requirement prescribed  under   section  3   and  5,  namely,  that  the transaction in  question must  occasion either the export or the import  or the  movement of  goods  from  one  state  to another. This clearly postulates an inseverable link between the transaction of sale in question and the import or export or movement of goods from one state to another, as the scale may be.  The one-sale test referred to in some cases dealing with exports  is only  an aspect  of  this  basic  test.  We concerned with  a sale which occasions an import. Therefore, we have  to see  whether there  is such  an inextricable and direct link  between local sales which are before us and the import of  cashewnuts from  African countries  into India by the cashew  Corporation of  India. The facts already set out show that  there is  such an inserverable link as the import made by  the cashew  corporation of  India  is  a  necessary consequence of  the specific  requirements submitted  by the processor and  is a  result of  the obligations which it has undertaken under  its arrangements  with the local processor which has  crystalised later  in the form of the contract of sale. The sale in question are, therefore, in the  course of import.      It  was  also  argued  by  Mr.  Poti,  learned  counsel appearing for  the assessees,  that in the present case, the sale by the cashew corporation of India to the assessee took places before  the goods  crossed the  customs frontiers  of India. Hence it is a sale in the course of import. He placed reliance upon  section 2(ab)  of the  central sales Tax Act,

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1956, which  defines "  crossing  the  customs  frontier  of India" as  crossing the  limits of  the area  of  a  customs station in which imported goods or export goods are ordinary kept before  clearance by  customs authorities. He submitted that since  the goods were sold by the cashew corporation of India to  the assessees before the goods were cleared by the customs authorities  they must  be considered as having been sold in  the course  of import because they were sold before the goods  crossed the  customs  frontiers  of  India.  This definition, however,   of crossing the customs frontiers  of India has been introduced only by act 103 of 1976 long after the imports  in  question  took  place.  it  would  have  no application to  the present case. The contention of Mr. Poti that this  definition must be applied even to goods imported prior to  1976 because  it is  only clarificatory in nature, cannot be  accepted.  Prior  to  the  introduction  of  this definition in  the central  sales Tax  Act of 1956, crossing the customs  frontiers of  India was  understood as crossing the limit  of territorial  waters of  India. The definition, therefore, cannot be considered in the merely clarificatory. Since it  came to be introduced in the central sales Tax Act after the  imports in question, it cannot be resorted to for the purposes of the present case.      It was  next submitted by Mr. poti that the sale in the present case  was effected  by a  transfer of  documents  to title to  the goods  before the  goods crossed  the  customs frontiers of  India  even  in  the  sense  of  crossing  the territorial waters  of India.  hence it  was a  sale in  the course of  import. He relied upon the second part of section 5(2) of  the Central  sales Tax  Act for  this purpose.  The Tribunal, however,  has found  as a  fact that  there is  no clear evidence as to when the sale by transfer of document s took place. In the absence of any factual basis , therefore, this submission also cannot be accepted.      However, since  there is  a direct and inseverable link between the  transaction of  sale and the import of goods on account of  the nature  of  the  understanding  between  the parties  as   also  by   reason  of  the  canalising  scheme pertaining to  the import  of  cashewnuts  ,  the  sales  in question cannot  be taxed under the Kerala General sales Tax Act or  the Karnataka General sales tax Act, as the case may be. There will, however, be no order as to costs      After submitting  this judgment, I have had the benefit of reading  the judgment of my learned brother S.B. Majmudar J.  I have the highest regard for his views. I am , however, unable to  agree with  him for  reasons which,  I hope , are clear from what I have already  said.