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                REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1123 OF 2003

 The Indure Ltd. and Another     ....Appellants   

Versus Commercial Tax Officer and Ors.          ....Respondents

J U D G M E N T

Deepak Verma, J. 1. Following questions of law projected, are required to  be adjudicated by this Court in the aforesaid Appeal:-

(i)Whether  import  of  MS  Pipes  by  Appellants  was  pursuant to a term of contracts between Appellant  No.1  and  National  Thermal  Power  Corporation  Limited (for short 'N.T.P.C.').

(ii)Whether  import  of  said  MS  Pipes  and  supply  thereof  by  the  Appellant  No.  1  to  N.T.P.C.

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Constitutes an integral and inseparable part of  the Contracts between them.

2. Brief history of the case is as under:- Appellant  No.  1  is  a  Limited  Company  duly  

incorporated under the provisions of Companies Act, 1956,  engaged in the business of Works contract. Appellant No. 2  was working for gain as Senior Manager of Appellant No. 1  (hereinafter referred to as 'the Company'). 3. Tenders were invited by N.T.P.C on 08.01.1988 for  

submitting bids for Ash Handling Plant Package for its  Farakka Super Thermal Power Project, Stage-II, by way of  International  Competitive  Bidding,  popularly  known  as  Global Tender.

4. The scope of work involved in such package included  designing and  engineering, manufacture, inspection and  testing  at  suppliers  works,  packing,  transportation  to  site, unloading, storage and handling at site, erection,  testing and commissioning of complete Ash Handling Plant  for 2 x 500 MW Steam Generating Units (for short 'the  plant').  Such  type  of  works  contract  is  known  as  'On

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Turnkey Basis'. Bids made by bidders were to cover whole  of the work as abovementioned. Bid made by any person not  covering the entire scope of work was liable to be treated  as incomplete and could be rejected on that ground only.  The bidder was required to quote a lump sum price in its  proposal for the entire scope of work covered under the  bid  documents.  It  further  required  that  bidders  shall  indicate the bid price in their home currency or in US  dollars.  

5. The aforesaid project of Ash Handling Plant for 2 x  500 MW Steam Generating Units was to be partially financed  by  a  credit/loan  from  International  Bank  for  Reconstruction and Development (for short 'IBRD') or by  International Development Association (for short 'IDA').

6. Pursuant to issuance of notice to invite tender, the  Company  submitted  its  bid  furnishing  therein  all  the  information as required by the aforesaid notice and also  indicated its bid price inclusive of foreign expenditure.

7. Thereafter,  a  meeting  was  convened  between  the  officials of N.T.P.C. and authorized representatives of

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the Company, at N.T.P.C's Office on 21.07.1988, wherein  various terms and conditions were discussed between the  parties regarding erection of plant for which the Company  had submitted its bid.

8. Since project was partially financed by credit/loan  from IDA or IBRD and in view of the terms of Import Export  Policy,  Volume-I  (April,  1988  to  March,  1991)  supplies  made in such project under the procedure of International  Competitive  Bidding  were  to  be  treated  as  'deemed  exports'.  Suppliers  to  such  project  enjoyed  benefit  of  customs duty exemption for import and unless the part of  the  contract  involving  importation  of  equipments  and  accessories  for  use  in  such  project  is  not  separately  treated  as  a  supply  contract  such  benefit  cannot  be  availed of at all by the importer on such importation.

9. The total contract was agreed to be divided into two  separate contracts, (i) Supply Contract, and (ii) Erection  Contract, with a cross fall breach clause wherein breach  of  either  of  the  contracts  would  entitle  the  owner/  contractee (N.T.P.C) to cancel the other contract also.

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10. In the said meeting itself, it was agreed between the  Company  and  N.T.P.C  that  separate  formulae  shall  be  applicable in respect of calculation of price adjustment  for  indigenous  supplies  and  imported  supplies.  It  was,  further, agreed that if Sales Tax on imported items is  leviable due to future enactment of sale/interpretation of  law/ interpretation of law by court, the same will be  reimbursed by N.T.P.C to the Company at actuals against  documentary evidence.

11. By way of Letter of Award dated 16.08.1988, N.T.P.C  awarded two contracts to the Company for performing the  work of erection of aforesaid plant on Turnkey Basis. Even  though,  two  contracts  were  entered  into  between  the  parties but in nutshell it was only one contract for the  simple  reason  that  N.T.P.C  kept  a  right  with  it  with  regard to cross fall breach clause meaning thereby that  default in one contract would tantamount to default in  another and whole contract was liable to be cancelled.

12. In the said Letter of Award, clause 2 deals with  intent and scope of award and is reproduced hereinbelow:-

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“2.1 We confirm having accepted your proposal  dated March 28, 1988 and mentioned in at para  1.1  (ii)  above,  read  in  accordance  with  communications/  clarifications/  agreements  referred to at para 1.1 above and award on  you the 'Supply Contract' for the work of  design,  engineering,  manufacture,  shop  testing,  inspection  and  testing  of  manufacture works, inspection and testing at  manufacturer's works, packing and forwarding  from  your  manufacturing  works/  place  of  despatch  (both  in  India)  and  successful  performance testing at NTPC site and handling  over of the 2 x 500 MW Ash Handling Plant for  Farakka  STPP,  Stage-II  on  F.O.R.  place  of  despatch in India basis. The items which are  not  specifically  mentioned  in  the  specifications,  but  are  needed  to  complete  the equipment package shall also be furnished  by you unless otherwise specifically excluded  in  our  bid  documents  read  with  Agreed  Amendments.”

In clause 4.5, the exchange rate of currencies of the  various countries had been indicated.   In  clause  4.5.1  and  4.5.2,  Price  Adjustment  is  indicated  but  relevant  portion  thereof,  is  reproduced  hereinbelow:-

“4.5.1.   ….....For  equipment  of  Non-Indian  origin, you shall submit the details of the  indices  and  co-efficient  in  line  with  the  provisions  of  Bid  Documents  within  three  months of the date of this Award Letter.

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4.5.2  The list of components/ material/  equipment to be imported by you, for which  the adjustment on exchange rate variation is  to be made under US$, DM and J Yen will be  furnished by you within three months of the  date  of  this  Award  Letter.  The  items  as  declared  as  per  these  lists  shall  only  be  eligible for exchange rate variation claims.”

13. It, further, contemplated that ownership of equipment  supplied by the Company, under the supply portion of the  contract shall vest exclusively with N.T.P.C upon despatch  in  India  and  negotiation  of  despatch  document  with  N.T.P.C. Term of Contract Agreement contemplated that the  Company  guaranteed  to  the  N.T.P.C  that  the  equipment  package  under  the  contract  shall  meet  the  ratings  and  performance  parameters,  as  stipulated  in  the  Technical  Specifications  (Volume-II)  and  in  the  event  of  any  deficiencies found in the requisite performance figures,  N.T.P.C. may at its option reject the equipment package  and  recover  the  payment  already  made  or  alternatively  accept it on the terms and conditions and subject to levy  of the liquidated damages in terms of contract.

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14. Since  during  the  course  of  the  discussion  it  was  decided that project would need certain imported items to  be used exclusively for the plant, the Company had written  a letter to N.T.P.C on 02.11.1988 inviting its attention,  with regard to clause 4.5.2 of the Letter of Award, giving  details of the items to be imported for the said project.  As many as twelve different type of components were sought  to be imported for completion of the project.

15. MS Pipe to be imported from M/s. Daewoo Corporation,  South  Korea,  was  one  of  the  items  shown  in  the  list  prepared by the Company  which was subsequently presented  to N.T.P.C.

16. The  Company,  thereafter,  submitted  an  application  before  DGTD,  Import  Export  Directorate,  New  Delhi  on  23.02.1989  for  Special  Imprest  Import  License  against  Turnkey  contract  for  supply  of  complete  Ash  Handling  System to N.T.P.C's Farakka Super Thermal Power Project (2  x 500 MW).

17. Alongwith the Annexures submitted by the Company full  specifications of the MS Pipes were also given. It also

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contained details of other items required to be imported  by the Company in accordance with the list presented to  N.T.P.C., for completion of the project.

18. Necessary declaration required to be furnished by the  Company   was   complied  with,  the Licensing   Authority  clearly mentioning therein that all components sought to  be imported were to be exclusively used by it for the  aforesaid project of N.T.P.C. Accordingly, Special Import  License was granted to the Company for importing MS Pipes  of  various  diameters  upto  500  MB  with  different  wall  thickness together with other components to be imported  for usage in the said plant.

19. Admittedly, there is no dispute that MS Pipes were  imported from outside India (South Korea) and were sold to  N.T.P.C., Farakka. According to Appellant such sales were  covered under Section 5(2) of the Central Sales Tax Act,  1956 (hereinafter shall be referred as 'Act') and had been  exempted  from  imposition  of  Sales  Tax  under  Section  5(2)(a)(v) of the Bengal Finance (Sales Tax) Act, 1941  (for short 'BFST Act').

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20. It  is  worth  mentioning  here  that  M/s.  Daewoo  Corporation Limited, South Korea was specifically directed  by  the  Company  to  emboss  on  each  pipe  the  following  marking:

“NTPC-FARAKKA STG-II (2 X 500 MW)   INDURE LIMITED (ASH HANDLING)”

21. The special marking on each pipe would go to show  that  it  was  to  be  exclusively  used  as  an  integral  component of the said project. The Special Imprest Import  License  was  granted  to  the  Company  on  21.08.1989  by  Controller of Imports and Exports with specific condition  that the goods supplied therein shall be used exclusively  for the plant of N.T.P.C. only.

22. After the pipes were received at Calcutta port the  same  were  transported  to  Farakka  in  the  month  of  December,  1989  and  End  Use  Certificate  was  issued  on  03.06.1991  by  N.T.P.C.,  Farakka  Super  Thermal  Power  Project  certifying  that  MS  Pipes  imported  from  M/s.  Daewoo Corporation of South Korea had been supplied fully

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to N.T.P.C. in terms of their Letter of Award/ purchase  order.

23. The Company, thereafter, filed its Return claiming  benefit under Section 5(2) of the Act as sale in the  course of import. The Commercial Tax Officer, Durgapur  Charge, in assessment proceedings disallowed the claim of  the Company and raised a demand of Rs. 12,60,795.00/- as  Sales  Tax.  Company  preferred  an  appeal  under  Section  11(1)  of  the  BFST  Act  before  Assistant  Commissioner  (Commercial Taxes) but the same also came to be dismissed  and  the  order  of  the  Commercial  Tax  Officer  was  confirmed. The Revision Application was moved against the  said order before West Bengal Commercial Taxes Appellate  and Revisional Board, but after contest the said Revision  Application was also dismissed against the Company. It,  thereafter,  preferred  an  application  under  S.8  of  the  West Bengal Taxation Tribunal Act, 1987 before the West  Bengal Taxation Tribunal, challenging the orders passed  by the authorities below but the same was also rejected.  The  Appellants  were  then  constrained  to  file  a  Writ

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Petition  before  Division  Bench  of  the  High  Court  of  Calcutta,  challenging  the  said  orders.  However,  the  Appellant's Writ Petition also came to be dismissed by  the  Division  Bench  of  the  said  Court  on  19.10.2001,  giving rise to this appeal.

24. The  case  of  the  Respondents  right  from  the  very  beginning had been that it was neither obligatory nor  mandatorily required for the Company to have imported the  goods  in  question.  There  was  no  contractual  or  legal  obligation on their part to do so. The only obligation  required to be performed by the Company under the terms  of the Letter of Award and the contract was to design,  supply, erect and commissioning the Ash Handling Plant  for N.T.P.C., irrespective of the components to be used  therein.  Appellant's  further  obligation  was  that  the  materials  used  in  the  execution  of  the  said  contract  should  conform  to  the  specification  stipulated  by  N.T.P.C. Such supplies would be effected by the Company  either from imports or  procured from within the country.

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25.  Furthermore,  learned  counsel  for  the  Respondents  have contended that the imports effected by the Company  were on its own accord and under special licensing scheme  which enabled it to import raw materials and components,  for manufacturing in India. The imports if at all to be  made were subject to a further condition that the Company  would in the process of manufacturing of the goods add  at least 33 percent value to them before exporting the  manufactured goods. In terms of the declarations made by  the Company to the Licensing Authority, the Appellant was  not to 'trade' in the imported goods and undertook to re- export  them  after  further  manufacturing  and  value  addition of atleast 33 percent. The sale made to N.T.P.C.  by the Company was, therefore, not of the goods which  were imported by the Company. Thus, provisions contained  in  Section  5(2)  of  the   Act  would  not  at  all  be  attracted.

26. As per the Special Import License granted to the  Company, it was entitled to divert the goods by re-using  them in the manufacture of other goods or by transferring

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them to another actual user in accordance with the Import  Export Policy.

27. The imports thus, made by the Company was neither  pursuant to any stipulation in the Contract nor as an  incidence thereof. Section 5(2) of the Act, covers only  those cases, which occasions the import. The decisions on  which the Appellants have placed reliance have considered  the question whether the sales therein had occasioned the  import. In none of those cases did the contracts for sale  stipulate any condition with regard to the imports in  question.  In  other  words,  they  have  contended  that  imports or exports, as the case may be, did not occasion  the sales in question. It has also been their case that  actual  user  license  had  not  been  obtained  by  the  assessee. The Company was only acting on behalf of the  ultimate purchaser for whom the work was being conducted.

28. It  has  also  been  contended  by  them  that  the  decisions  on  which  reliance  has  been  placed  by  the  Appellants,  in  unequivocal  terms  emphasised  that  the  transaction of import and the transaction of sale have to

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be so integrated to each other as to form one single  chain  without  a  break.  The  various  factors,  including  contractual stipulation, are considered only to ascertain  if  the  integrated  chain  is  maintained  to  fulfill  the  conditions laid down in Section 5(2) of the Act. That is  to say such sale or purchase occasioned the import.  

29. They have, therefore, strenuously submitted that the  Appellants have lost before all the Authorities below and  the reasoning adopted by West Bengal Taxation Tribunal  has been affirmed by Division Bench of the High Court,  thus, no case for interference has been made out in this  Appeal, which deserves dismissal.

30. In the Written Submissions of the Respondents, they  have further taken the following plea:-

It is thus clearly established that  the  goods  which  were  imported  by  the  Appellant, were to be imported by them for  their own purposes though ultimately to be  utilised  for  N.T.P.C'S  Ash  Handling  Plant.  The goods were to undergo processing at the  premises  of  the  Appellant  and  only  after  their conversion into a final product were to  be  handed  over  to  N.T.P.C.  The  Appellants  thus clearly admitted that there was to be a  value addition to the equipments which were  to  be  imported  from  the  foreign  sellers

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before  they  could  be  utilised  for  the  Ash  Handling Plant.

Not only the Appellant utilised the  Special  Imprest  License  on  import  of  the  goods with the declaration that the imports  were in the nature of raw material components  which  would  be  utilised  for  further  manufacturing in its premises and with value  addition thereon would be sold to N.T.P.C,  but  even  when  the  imported  goods  were  dispatched  to  the  site  office  of  the  Appellant at N.T.P.C Farakka, the Appellant  made a declaration under FORM XXX, prescribed  under the West Bengal Sales Tax Rules to the  following effect:  “We also undertake to duly account  to you the disposal of above goods and to pay  tax on the sales thereof in accordance with  the provisions of the said Act.” ('Act' in  this context, refers to Bengal Finance (Sales  Tax) Act, 1941).

31. In this Court Respondents have taken a further plea  that Company had admitted that the raw materials imported  by it were manufactured by it. Further, with a view to  secure the value addition of at least 33 percent, such raw  materials cannot remain the same after being processed into  final  product.  At  least  the  Company  has  produced  no  material to substantiate the claim  that the raw material  imported by it remained the same even after value addition.

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Since the Company was seeking exemption under the Act, the  burden  squarely  fell  on  it  to  establish  that  they  were  entitled  to  such  exemption.  Furthermore,  the  Respondents  have also argued that it was required to be established by  the  Company  that  the  goods  imported  and  dispatched  to  Farakka would also be in the nature of raw materials or  components or it underwent further processing at the site  office of the Company and then with value addition thereon  were sold to N.T.P.C to be used exclusively for the plant  which  it  failed  to  establish  or  prove.  For  all  these  reasons Respondents have contended that the matter having  been dealt with and considered from all angles, no case for  interference has been made out and the Appeal being devoid  of any merit and substance deserves to be dismissed. 32. We have, accordingly, heard learned Senior Counsel  Shri S. Ganesh and Mr. Amar Dave, Mr. Gaurav Goel, Mr.  Mahesh Agarwal, Mr. Rishi Agrawala and Mr. E.C. Agrawala,  Advocates for the Appellants and Mr. A.K. Ganguli, learned  Senior Counsel and Mr. Avijit Bhattacharjee, Advocate for  Respondents at length and perused the record.

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33. For proper adjudication of the Appeal it is foremost  important to consider the provision of Section 5(2) of the  Act, which is reproduced hereinbelow:-

“5 When is a sale or purchase of goods said  to  take  place  in  the  course  of  import  or  export. 5.1 xxx xxx xxx xxx 5.2 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  have  crossed  the  customs  frontiers of India.” 5.3 xxx xxx xxx xxx 5.4 xxx xxx xxx xxx 5.5 xxx xxx xxx xxx”

34. Before we proceed to decide the questions of law as  projected hereinabove, one material fact pertinent to the  issue involved in this Appeal requires special mention. We  have already mentioned hereinabove that alongwith MS Pipes,  the disputed goods in this Appeal, the Company had also  imported 11 other components/ items to be used in the plant  for its erection and commissioning. Other 11 imported goods,  utilised by the Company in the erection of the plant have

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been  held  to  be  sales  in  the  course  of  import  made  by  Company to N.T.P.C and accordingly benefit under Section  5(2) of the Act has been granted by the concerned State  Government. It was only this particular component MS Pipes,  which has been denied this benefit.  35.  Sales   Tax   Assessment    Order     passed   by  Assistant  Commissioner  (Commercial Tax), Ghaziabad, State  Of  Uttar   Pradesh  has  been filed before us to show that  such   benefit  has   been  accrued  to the  Company   for   remaining  11    items.  Since   MS   Pipes  were  shipped   at  Calcutta Port, thus it was Respondents who treated them  exigible for Sales Tax. If the benefit of the Sales Tax  exemption has been given to the Company for 11 components/  items there is no reason why it is to be denied in respect  of MS Pipes. This we are quoting so that the facts may be  put on record correctly. 36. Leading case dealing with Section 5(2) of the Act is  reported in (1966) 3 SCR 352, K.G. Khosla & Co. Vs. Deputy  Commissioner of Commercial Taxes decided by a Constitution  Bench  of  this  Court.  In  the  aforesaid  judgment,  two

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questions  were  projected  for  consideration  by  the  Constitution Bench namely, if the sales were in the course  of import within the meaning of Section 5(2) of the Act;  and, secondly if the property in the goods passed in Belgium  and consequently the sales were outside the State within the  meaning  of  Article  286(1)(a)  of  the  Constitution.  The  Constitution Bench was of the opinion that the assessee must  succeed on the first point and it will not be necessary to  deal with the second point. Court has held as under:-

“The next question that arises is  whether the movement of axle-box bodies from  Belgium  into  Madras  was  the  result  of  a  covenant  in  the  contract  of  sale  or  an  incident of such contract. It seems to us  that it is quite clear from the contract that  it was incidental to the contract that the  axle-box  bodies  would  be  manufactured  in  Belgium,  inspected  there  and  imported  into  India for the consignee. Movement of goods  from Belgium to India was in pursuance of the  conditions  of  the  contract  between  the  assessee  and  the  Director-General  of  Supplies. There was no possibility of these  goods being diverted by the assessee for any  other purpose. Consequently we hold that the  sales took place in the course of import of  goods within Section 5(2) of the Act, and  are, therefore, exempt from taxation.”  

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37. In the case in hand, it is to be noted that import  had occasioned only on account of the covenant entered into  between the Company and N.T.P.C. and the imported pipes were  used  exclusively  for  erection  and  commissioning  of  the  plant. Respondents have failed to establish that these pipes  were not used in the plant of N.T.P.C. Similar question had  again come up for consideration before two learned Judges of  this  Court  reported  in  (1997)  7  SCC  190,  State  of  Maharashtra Vs.  Embee Corporation, Bombay wherein it has  been held as under:-  

“9. In this case (K.G. Khosla & Co.(P) Ltd.  Vs.  Dy.  Commissioner  of  Commercial  Taxes),  the Constitution Bench specifically held that  sale  need  not  precede  the  import  and  this  decision is a complete answer to the argument  advanced  by  the  learned  counsel  for  the  appellant. 10. Learned counsel then tried to argue that  the  decision  of  the  Constitution  Bench  in  Khosla case 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 case the inspection of goods was to be  carried out in Belgium as well as on arrival  into  India.  In  the  present  case,  the  inspection was to be done on arrival of goods  into  India  and  as  such,  there  is  no

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distinction on facts between the present case  and  that  of  Khosla.  Learned  counsel  then  urged that the decision of the Constitution  Bench in  Khosla case  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 case 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. 11. Learned  counsel  then  urged  that  this  case is covered by decisions of this Court in  the cases of Binani Bros. (P) Ltd. v. Union  of India, Mohd. Serajuddin v. State of Orissa  and  K. Gopinathan Nair v.  State of Kerala.  The decision of this Court in the case of  Binani Bros. 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 Mohd. Serajuddin 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  which  entered into a contract with a foreign buyer  and it was found that the immediate cause of  export was the contract between the foreign  buyer  who  was  the  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  v.  State  of  Kerala.  In  the  said  case,  on

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facts it was found that on account of the  sale  to  CCI  by  foreign  exporters  raw  cashewnuts  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 judgment were not  applicable  to  that  case.  We  do  not,  therefore, find that this decision is helpful  to the appellant’s case. 12. 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.”

38. Test to determine if the sales were in the course of  import has been elaborately considered in a judgment of  learned  three  Judges'  Bench  of  this  Court  reported  in  (1985)  4  SCC  119,  Deputy  Commissioner  of  Agricultural  Income Tax And Sales Tax, Ernakulam Vs. Indian Explosives  Ltd.

39. Para 4 thereof dealing with the issue is reproduced  hereinbelow and finally in para 6 while distinguishing  (1974) 1 SCC 459 in the matter of  M/s. Binani Bros (P)  Ltd. Vs. Union of India and Others, it has been held as  under:-

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“4.  The  test  of  integral  connection  or  inextricable link between the sale and the  actual  import  or  export  in  order  that  the  sale could become a sale in the course of  import or export has been clearly enunciated  by this Court in Ben Gorm Nilgiri Plantations  Company case. There the question related to  sale of tea which was claimed to be in the  course  of  export  out  of  the  territory  of  India and though by majority it was held that  the sales in question were not “in the course  of export”, the Court at p. 711 of the Report  laid down the test thus:  

A  sale  in  the  course  of  export  predicates  a  connection  between  the  sale  and  export,  the  two  activities  being  so  integrated that the connection between the  two  cannot  be  voluntarily  interrupted,  without  a  breach  of  the  contract  or  the  compulsion arising from the nature of the  transaction. In this sense to constitute a  sale in the course of export it may be said  that there must be an intention on the part  of both the buyer and the seller to export,  there  must  be  obligation  to  export,  and  there  must  be  an  actual  export.  The  obligation may arise by reason of statute,  contract  between  the  parties,  or  from  mutual understanding or agreement between  them,  or  even  from  the  nature  of  the  transaction which links the sale to export.  A  transaction  of  sale  which  is  a  preliminary to export of the commodity sold  may be regarded as a sale for export, but  is not necessarily to be regarded as one in  the  course  of export,  unless  the  sale  occasions  export.  And  to  occasion  export  there must exist such a bond between the  contract  of  sale  and  the  actual

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exportation, that each link is inextricably  connected  with  the  one  immediately  preceding  it.  Without  such  a  bond,  a  transaction of sale cannot be called a sale  in the course of export of goods out of the  territory of India.

Conversely, in order that the sale should be  one in the course of import it must occasion  the import and to occasion the import there  must be integral connection or inextricable  link  between  the  first  sale  following  the  import and the actual import provided by an  obligation  to  import  arising  from  statute,  contract or mutual understanding or nature of  the  transaction  which  links  the  sale  to  import  which  cannot,  without  committing  a  breach  of  statute  or  contract  or  mutual  understanding, be sapped (sic snapped). 6. Counsel for the appellant fairly conceded  

that the facts in  K.G. Khosla & Co. case  were on all fours with the facts obtaining  in the instant appeals and that the ratio  of that decision would appear to govern the  question arising in these appeals, but he  contended that  a different view has been  taken by this Court in Binani Bros (P) Ltd.  v. Union of India and in view of this later  decision the High Court ought not to have  applied  the  ratio  of  K.G.  Khosla  &  Co.  decision to this case. It is not possible  to accept this contention as in our view  Binani Bros case is clearly distinguishable  on two material aspects. In that case the  assessee itself held the import licence and  the goods were imported on the strength of  such import licence and not on the strength  of any Actual Users’ Licence as is the case  here. Secondly, unlike in the present case  there was no term or condition prohibiting

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diversion of the goods after the import. In  fact, it is these two factors obtaining in  the  instant  case  which  establish  the  integral  connection  or  inextricable  link  between the transactions of sale and the  actual  import  making  the  sales  in  the  course of import. In fact as pointed out  earlier, the movement of the goods from the  foreign country to India was in pursuance  of  the  requirements  flowing  from  the  contract  of  sale  between  the  respondent- assessee  and  the  local  purchaser  and  as  such the sales in question must be held to  be in the course of import.”

40. Learned Counsel for Respondents has placed reliance  on   Binani  Bros.  supra specially  para  14,  reproduced  hereinbelow:-

“14. Be that as it may, in the case under  consideration we are concerned with the sales  made by the petitioner as principal to the  DGS&D. No doubt, for effecting these sales,  the  petitioner  had  to  purchase  goods  from  foreign sellers and it was these purchases  from the foreign sellers which occasioned the  movement of goods in the course of import. In  other  words,  the  movement  of  goods  was  occasioned  by  the  contracts  for  purchase  which the petitioner entered into with the  foreign sellers. No movement of goods in the  course of import took place in pursuance to  the contracts of sale made by the petitioner  with  the  DGS&D.  The  petitioner’s  sales  to  DGS&D  were  distinct  and  separate  from  his  purchases  from  foreign  sellers.  To  put  it  differently, the sales by the petitioner to

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the DGS&D did not occasion the import. It was  purchases  made  by  the  petitioner  from  the  foreign sellers which occasioned the import  of the goods. The purchases of the goods and  import  of  the  goods  in  pursuance  to  the  contracts of purchases were, no doubt, for  sale to the DGS&D. But it would not follow  that the sales or contracts of sales to DGS&D  occasioned  the  movement  of  the  goods  into  this  country.  There  was  no  privity  of  contract  between  DGS&D  and  the  foreign  sellers. The foreign sellers did not enter  into any contract by themselves or through  the agency of the petitioner to the DGS&D and  the  movement  of  goods  from  the  foreign  countries was not occasioned on account of  the sales by the petitioner to DGS&D.”

41. However, we are of the considered opinion that it  has  not  been  the  Respondents'  case  that  the  MS  Pipes  imported by the Company were not used for the erection and  commissioning of the plant for N.T.P.C. Thus, from the facts  of Binani Bros supra, it is clearly spelt out that the facts  of the case in hand are different. Thus, the ratio of the  said case would not be applicable to it. 42. In fact, the ground, sought to be raised for the  

first time before this Court that MS Pipes were put to  manufacturing process and thereby converted into distinct  end  product  had  not  been  raised  before  any  of  the

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Authorities earlier. It was not the Respondents case that  pipes so imported were not necessary components for the  erection and commissioning of the plant. Admittedly, the  said pipes were used as components in the Ash Handling  Plant in the same condition as they were imported without  altering  its  originality.  Thus,  the  ground  which  was  sought to be raised before us for the first time has not  been  considered  by  any  of  the  Authorities  and  in  our  opinion rightly so. Thus, we also do not deem it fit and  proper to consider the same at this belated stage.

43. Apart from the aforesaid reasons, we are also of the  considered  opinion  that  such  import  would  fall  within  the Constitutional umbrella.  It is also to be noted that  Company had admittedly imported the goods into India for  completion of the Project on Turnkey Basis of N.T.P.C.  Thus,  by  virtue  of  Article   286  (1)  (b)  of  the  Constitution,  it  would  not  be  taxable.   For  ready  reference,  Article  286  (1)  (b)  of  the  Constitution  is  reproduced hereinbelow:

“286.  Restrictions as to imposition of tax  on the sale or purchase of goods – (1) No law

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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.

See (1998) (7) SCC 19 Minerals & Metals Trading  Corporation of India Ltd. Vs. Sales Tax Officer.

44. In the facts and circumstances of the case we are of  the opinion that the order passed by Division Bench of the  High Court as also the orders passed by Tribunal and other  Authorities cannot be sustained in law. Same are hereby set  aside  and  quashed.  Appellant  is  held  entitled  to  claim  benefit of Section 5(2) of the Act.

45. We have been given to understand that pursuant to  the demand notice issued by Respondents, the Company has  already deposited the Sales Tax liability “under protest”.  Respondent State would refund the same to the Company with  Simple Interest at the rate of 6 percent from the date of

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its deposit till its refund within a period of three months,  from the date of communication of the said order. In case  amount is not refunded within three months, from the date of  communication  of  said  order,  then  Respondents  would  be  liable to pay Compound Interest on the amount deposited by  Appellants with the Respondents at the rate of 12 percent  per annum.  

46.The Appeal thus, stands allowed with costs throughout,  Counsel's fee  Rs. 50,000/-.

 ......................J.     [DALVEER BHANDARI]

 .....................J.

            [DEEPAK VERMA] New Delhi September 20, 2010