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PETITIONER: MINERALS AND METALS TRADING CORPORATION OF INDIA LTD.

       Vs.

RESPONDENT: SALES TAX OFFICER & ORS.

DATE OF JUDGMENT:       25/09/1998

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

ACT:

HEADNOTE:

JUDGMENT: JUDGMENT The following Judgment of the Court was delivered: The appeal impugns the correctness of a judgment  of a  Division Bench of the High court of Orissa dismissing the writ petitions filed by the appellant. The appellant is a Government of India  undertaking. It functions as a canalising agent for the purpose of import and export  of  minerals  and  metals.    It  had,  for this purpose, issued guidelines to actual users in the matter  of applications  for  the  import of iron and steel items to be canalised through it.  Thereby the actual user was  informed that the formal purchase order on the foreign exporter would be  released by the appellant after the actual user had made financial arrangements to cover the purchase.    The  actual user  had  the  option  to  open either a domestic letter of credit in favour of the appellant  or  a  direct  letter  of credit  in  favour  of  the  exporter,  but  the facility of opening a direct letter of credit was to be  given  only  on the  merits  of  the case and provided an undertaking in the stated proforma was given.  In other  cases  a  back-to-back letter   of   credit  favouring  the  appellant  had  to  be established.  On 31st March, 1991, the  Steel  Authority  of India  Limited (hereinafter referred to as ’SAIL’) requested the appellant to register the import of  15,000  MT  of  tin mill black plate (TMBP) coils.  An application was enclosed. The  applicants stated that the said coils were required for production by them of electrolytic tin  plates.    The  said coils  would be utilised in their factory for their purposes and no portion thereof would be sold to or be  permitted  to be used  by  any  other  party or for any other purpose.  On 14th July, 1991, SAIL opened a letter of credit directly  in favour of the  exporter,  M/s.    Samsung  Co.  Ltd., Seoul, South Korea, in the sum of US $ 1,895,475.00.  The consignee therein was shown  as  SAIL.    On  2nd  August,  1991,  the appellant  placed  a purchase order with the exporter for on behalf of SAIL.  On 16th August, 1991, the  appellant  wrote to SAIL  enclosing a copy of its purchase order.  The letter stated:         "We shall arrange delivery of the material to you on         ’high-seas’  basis  by  endorsement  and transfer of

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       shipping  documents  in  your   favour   after   the         documents  have been paid for by your banker against         L/C established by you." SAIL was requested to make arrangements for clearing the cargo, including arrangements for clearance thereof from customs.  The letter  stated  that  the  responsibility  for "payment  of  Import duties, Port charges and other expenses subsequent to sale on ’high  seas’  also  will  be  to  your account."  On 23rd October, 1991, the appellant sent to SAIL its invoice, adjusting the amount that had already been paid by SAIL through its bankers.  On  28th  October,  1991,  the appellant  wrote to SAIL stating that it had decided to make a high seas sale of the said coils to  SAIL.    Accordingly, documents  with due endorsement thereon were sent to SAIL to get the  said  coils  cleared.    The  documents  that  were enclosed  included  the  original  bill of lading dated 30th September, 1991, for the said coils, duly endorsed in favour of SAIL.  On the same day the appellant wrote  to  Assistant Collector  of  Customs,  Paradeep  Port,  Cuttack, where the consignment of the said coils would  arrive  on  the  vessel M.V.  State  of  Tripura.    The letter stated that the said coils had been imported by the appellant and had  been  sold to  SAIL  on high seas basis and SAIL would process the bill of entry and the pay the customs duty.  The  vessel  arrived at Paradeep Port on 11th November, 1991 and breathed on 30th November, 1991.    On 18th November, 1991, the bill of entry in respect of the said coils was submitted and processed  by SAIL. On 31st December, 1994, the Sales Tax Officer levied sales tax on the aforesaid sale.  He rejected the appellants case that no sales tax was payable, this being a sale in the course of import covered by  Section  5(2)  of  the  Central Sales Tax Act.    1956.    He  held  that there had been two sales, one between the exporter and the  appellant  and  the other  between  the  appellant and SAIL and that the sale to SAIL had not occasioned the import. In regard to the  sale  made  by  the  appellant  to Paradeep Phosphates ltd., the facts are similar. The appellant filed writ petitions in the High Court of Orissa challenging the levy of sales tax on the aforesaid sales. The High Court noted the argument that the  aforesaid sales  on  high  seas  basis  had been effected prior to the imported goods "crossing the  customs  frontier  of  India", which  expression  was  defined  in  Section  2  (ab) of the Central Sales Tax Act by an amendment which had taken  place prior  to  the  aforesaid  sales.  The  High Court, however, relying upon the judgment of the Karnataka High Court in the case of cashew Corporation of India vs. State of  karnataka, (1986)  63  STC  90,  held  that the appellant was liable to sales tax and dismissed the writ petitions. By reason of the provisions of Article 286(1)(b) no law of a State shall impose, or authorised the imposition of,  a  tax on the sale or purchase of goods where such sale or purchase takes  place  in  the course of import of the goods into, or export of the goods out of the territory of India.   Section 5 of  the  Central Sales Tax Act deals with this :  "When is sale or purchase of goods said to take place in  the  course of  import  or  export."  Sub-section (1) thereof deals with exports and sub-section (2) with imports.   Sub-section  (2) reads thus:         "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

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       the goods have  crossed  the  customs  frontiers  of         India. The  definition  in  Section  2  (ab)  of the phrase "crossing  the  customs  frontiers  of  India"  reads  thus: "crossing  the customs frontiers of India means crossing the area of a customs station in which imported goods or  export goods  are  ordinarily  kept  before  clearance  by  customs authorities." It was inserted by an amendment in 1976.   The Objects  and  reasons  of the amendment were that the phrase had been interpreted to mean, coterminous with the extent of the territorial waters.  This had given  rise  to  practical difficulties  as  it  was difficult to determine whether, at the time of the sale or purchase, the goods had  entered  or crossed the territorial waters.  The actual checking of thee goods  took place in the customs station and not at the edge of the territorial waters.  It was, therefore, necessary  to so define  the expression.  A customs station has, by reason of the Explanation to Section 2 (ab), the same meaning as in the Customs Act, 1962, and that is :    "any  customs  port, customs airport or land customs station".  A customs port is any  port  appointed  under  Clause  (a) of Section 7 of the Customs Act to be a customs port.  (That Paradeep Port is  a customs port is not in dispute.) Section 5,  sub-section  2 has two parts.  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 if the sale or  purchase  either  (i)  occasions  such import  or (ii) it is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India, that is to say, before  the  goods  have crossed  the  limits  of  the area of the customs station in which  they  are  kept  before  clearance  by  the   customs authorities. The judgment of a Constitution Bench of  this  Court in  J.V.  Gokal  &  Co.  (Private)  Ltd.  vs.  The Assistant Collector of Sales Tax (Inspection) & Ors. 1960(2) SCR  852, has set out the legal position of import sales thus:         [[["The   legal    position    vis-a-vis    the         import-sale can  be summarized thus:  (1) The course         of import of goods starts at a point when the  goods         cross the customs barrier of the foreign country and         ends  at  a point in the importing country after the         goods cross the customs barrier, (2) the sale  which         occasions  the  import  is  a  sale in the course of         import; (3) a purchase by an importer of goods  when         they  are  on  the  high  seas  by  payment  against         shipping documents is also a purchase in the  course         of  import  and  (4) a sale by an importer of goods,         after the property in the goods passed to him either         after the receipt of the documents of title  against         payment  or otherwise, to a third party by a similar         process is also a sale in the course of import." The judgment states that it is well settled  in  the commercial  world that a bill of lading represents the goods and the transfer of it operates as the  transfer  of  goods. The  delivery  of  the  bill  of  lading while the goods are afloat  is  equivalent  to  the  delivery   of   the   goods themselves. The  facts  afforested,  based  upon documents, show that the bill of lading had been endorsed in favour of  SAIL while  the consignment of the said coils was still upon thee high seas.  The sale, therefore, was a sale in the course of the import of the said coils into the territory of India; it was effected by transfer of the documents to the said  coils before they had crossed the limits of the customs station at

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Paradeep Port.  The position would be the same in respect of the goods sold to Paradeep Phosphates Ltd., The  High  Court  noticed  the argument based on the latter part of Section 5 but did not address it.  It  relied upon the judgment of the Karnataka High Court in the case of Cashew Corporation  of  India.  That was a case where notice was taken of the amendment introducing Section 2  (ab)  into the Central  Sales  Tax  Act  in  1976.    It was held to be prospective in operation and, therefore, of no assistance in constructing the meaning of the expression ’customs frontier of India’ prior thereto.  The High Court  failed  to  notice that in the case in hand the aforesaid sales had taken place long   after   the  introduction  of  Section  2  (ab)  and, therefore, the question  whether  they  were  sales  in  the course  of  import  had  to  be  judged  on the basis of its provisions. The  aforesaid sales being covered by the provisions of the latter part of Section 5(2) read with  Section  2(ab) of  Central  Sales  Tax Act, they are sales in the course of import and not liable to sales tax. It is now not necessary  to  consider  the  argument that,  in  any  event  the provisions of the earlier part of Section 5(2) apply. The appeals are allowed. The judgment  under  appeal is  set aside. The writ petitions filed by the appellants in the High Court are made absolute. No order as to costs.