Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5616-5617 OF 2000

State of Karnataka         .... Appellant(s)

Versus

Azad Coach Builders Pvt. Ltd. & Anr.      .. Respondents(s)

[with CIVIL APPEAL NOS. 6594-6598 of 2000]

J U D G M E N T

K. S. Radhakrishnan, J.

The question that  falls  for  consideration in  this  case is  

whether an assessee (local manufacturer) is eligible to get exemption  

under sub-section (3) of Section 5 of the Central Sales Tax Act, 1956  

(for short ‘CST Act’), if the penultimate sale effected in favour of the  

exporter is inextricably connected with the export of goods outside  

the territory of India.

2. This  Court  in  Md.  Serajuddin  &  Others v.  State  of  

Orissa (1975)  2  SCC  47,  held  that,  under  Article  286  of  the  

Constitution,  the  sale  which  was  not  liable  to  tax  under  the  State  

Sales Tax was only the actual sale by the exporter, but the benefit of  

export  sale  did  not  extend  to  the  penultimate  sale  to  the  Indian  

exporter for the purpose of export.   This led to the insertion of sub-

section (3) of Section 5 of the CST Act by the Amending Act 103 of  

1976 with effect  from 1.4.1976, whereby the last sale or purchase  

occasioning  the  export  of  goods was  granted  exemption  from the  

State levy.

3. The  scope  of  the  Amending  Act  later  came  up  for  

consideration  before  a  Constitution  Bench  of  this  Court  in  

Consolidated Coffee Ltd. & Another  v.  Coffee Board, Bangalore  

(1980) 3 SCC 358 and a contention was raised that sub-section (3) of  

Section  5  of  the  CST  Act  was  ultra  vires  Article  286(2)  of  the  

Constitution of India and that the expression “shall also be deemed to  

be  in  the  course  of  such  export”  occurring   in  Section  5(3)  was  

intended to convey that the penultimate sale shall also be regarded  

as being in the course of such export.  The Court held that the above  

expression intends to convey that the penultimate sale shall also be  

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regarded as being in the course of such export and held that sub-

section (3) of Section 5 is intra vires Article 286(2) of the Constitution.  

A  three  Judges  Bench  of  this  Court  in  Sterling  Foods,  A  

Partnership  Firm  represented  by  its  Partner  Shri  Ramesh  

Dalpatram v. State of Karnataka & Another (1986) 3 SCC 469, also  

examined the scope of the above mentioned provision.  The question  

raised  in  that  case  was  whether  the  assessee  was  entitled  to  

exemption from tax under Section 5(3) of the CST Act in respect of  

purchase of shrimps, prawns and lobsters, the purchase being of the  

same commodities which were exported.  The Court held that in order  

to attract sub-section (3) of Section 5 of the CST Act it is necessary  

that the goods which are purchased by an assessee for the purpose  

of complying with the agreement or order for or in relation to export,  

must be the same goods which are exported out of the territory of  

India.   The Court further held that the test which has to be applied for  

the  purpose  of  determining  whether  a  commodity  subjected  to  

processing retains its original character and identify is as to whether  

the processed commodity is regarded in the trade by those who deal  

in it as distinct in identity from the original commodity or it is regarded,  

commercially and in the trade, the same as the original commodity.

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4. In  Vijayalaxmi Cashew Company & Others v.  Deputy  

Commercial Tax Officer & Another (1996) 1 SCC 468, the question  

raised was whether the export of cashew kernels obtained out of raw  

cashew nuts would amount to export of those goods which had been  

purchased.  The Court held that, since the raw cashew nuts can be  

used for so many purposes and the process of extracting the kernels  

so  elaborate,  it  cannot  be said  that  the  goods (raw cashew nuts)  

purchased in the penultimate sale were the same goods (cashew nut  

kernels)  which  were  sold  to  the  exporter.    The  Court,  therefore,  

concluded that cashew nut kernels are not the same goods as raw  

cashew nuts.   

5. Sterling  Foods  (supra) and  Vijayalaxmi  Cashew  

Company  (supra) were  essentially  advocating  the  “same  goods”  

theory of course in different fact situations.  Later, in K. Gopinathan  

Nair & Others v. State of Kerala (1997) 10 SCC 1, a three Judges  

Bench of this Court examined the question whether the purchase of  

African raw cashew nuts made by the assessees from the Cashew  

Corporation of India (for short 'CCI') are in the course of import and,  

therefore immune from liability to tax under Kerala General Sales Tax  

Act, 1963.   In that case, on facts the Court found that there was no  

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privitiy of contract between the local users on the one hand and the  

foreign exporter  on the other and held that those two transactions  

could not be said to be so integrally interconnected as to represent  

one composite  transaction  in  the  course  of  import  of  raw cashew  

nuts.   The Court held that those sales by the CCI to the local users  

go out of the sweep of the exemption provisions engrafted by Section  

5(2) of the CST Act, reason being that there was no privity of contract  

between the local users and the foreign exporters.    

6. M/s  Azad  Coach  Builders  Pvt.  Ltd.,  the  assessee  was  

requested  to  build  bus  bodies,  by  the  exporter,  Tata  Engineering  

Locomotive Co. Ltd. in accordance with the specifications provided by  

the  foreign  buyer,  Lanka  Ashok  Layland  Ltd.,  Colombo.   The  

specimen copy of the Purchase order dated 11.7.1988 placed on the  

assessee by the exporter revealed that the assessee was asked to  

fabricate  bus  bodies  on  the  chassis  supplied  by  the  exporter  in  

accordance with the specifications given by the foreign buyer.   In one  

of  the  communications  received  from  the  foreign  buyer  it  was  

stipulated that the steel and aluminium panels of the bus bodies be  

built  by  the  assessee  since  the  customers  in  Sri  Lanka  preferred  

them.  The assessee accordingly manufactured the bus bodies, in  

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accordance with the specifications stipulated by the foreign buyer and  

mounted the same on the chassis made available by the exporter  

making it as a complete bus ready for export.

7.  The assessee claimed exemption on sales of bus bodies  

as penultimate sales in the course of export made to their customers  

like Telco Bombay and others which was rejected by the Assessing  

Authority, treating the transactions as interstate sales, on the ground  

that the ‘bus bodies’ and ‘buses’ are two different commodities and  

the bus bodies as such were not exported, but complete buses.  The  

Assessing Authority held that the transactions could not amount to  

penultimate  sale  eligible  for  exemption  under  sub-section  (3)  of  

Section 5 of CST Act.

8. Aggrieved by the assessment order dated 21.3.1995, the  

assessee approached the Joint Commissioner of Commercial Taxes  

(Appeals), Bangalore Division under Section 20(5) of the Karnataka  

Sales Tax Act, 1957.  The appeal was rejected upholding the levy of  

tax by the Assessing Authority on the ground that the goods exported  

was different  from the goods purchased and hence,  the assessee  

was not entitled to exemption under Section 5(3) of the CST Act.  The  

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matter  was  taken  up  in  appeal  before  the  Karnataka  Appellate  

Tribunal and the appeal was rejected vide order dated 14.8.1996.    

9. Feeling aggrieved by the order passed by the Tribunal,  

the assessee took up the matter before the Division Bench of the  

Karnatka High Court vide S.T.R.P. No. 4 of 1997.   After examining  

the agreement between the exporter and the foreign buyer and also  

the order placed by the exporter on the assesseee, the High Court  

came to the conclusion that the bus bodies supplied by the assessee  

to  the  exporters  was  in  the  course  of  exports  and  the  words  “in  

relation to such export” extended the scope of the exemption to the  

extent that even if  there is no agreement or  order but  they are in  

relation to such exports, the exemption could still be claimed under  

Section 5(3) of the CST Act.   The High Court, therefore, allowed the  

Revision Petition and held that the assessee is eligible for the benefit  

of exemption from tax under Section 5(3) of the CST Act.    

10. Aggrieved by the order  of  the High Court,  the State of  

Karnataka has come up with these appeals.  A Division Bench of this  

Court felt that the judgments of this Court in Sterling Foods (supra)  

and Vijayalaxmi Cashew Company (supra) need a fresh look in the  

light of a later judgment of this Court in K. Gopinathan Nair (supra)  

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and hence the matter was referred to a larger Bench, the reference  

order is reported in (2006) 3 SCC 338.    The larger Bench then  

placed  this  matter  before  the  Constitution  Bench  and  hence  the  

matter has been placed before us for consideration.

11. Mr.  Sanjay  Hegde,  learned  counsel  appearing  for  the  

State of Karnataka submitted that the High Court has committed a  

grave error in holding that the assessee is entitled to the exemption  

under Section 5(3) of the CST Act.  The learned counsel submitted  

that in order to attract Section 5(3) of the CST Act, it is necessary that  

the  goods  which  are  sold  by  the  assessee  for  the  purpose  of  

complying with  the agreement  or  export  order  for  or  in  relation to  

export,  must  be  the  same  goods  which  are  exported  out  of  the  

territory  of  India.   The  learned  counsel  submitted  that  the  words  

“those goods” in Section 5(3) of the CST Act are clearly referable to  

“any goods” mentioned in the preceding part of this sub-section.  The  

learned counsel submitted that the goods supplied by the assessee  

and the goods actually exported by the dealer to the foreign buyer  

were  not  the  bus  bodies  but  buses  itself,  hence,  the  benefit  of  

exemption under Section 5(3) of the CST Act is not available to the  

assessee.

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12. Learned  counsel  has,  in  support  of  his  contentions,  

placed reliance on the Constitution Bench judgments of this Court in  

Sterling Foods (supra) and  Vijayalaxmi  (supra).   Reference was  

also made to the judgments of this Court in  Consolidated Coffee  

Company  (supra),  Md.  Serajuddin (supra),  Binani  Brothers  (P)  

Ltd. v.  Union  of  India  &  Others (1974)  1  SCC  459,  Satnam  

Overseas  (Export)  through  its  Partner  &  Others v.  State  of  

Haryana  &  Another (2003)  1  SCC  561  and  Coffee  Board,  

Bangalore v.  Joint Commercial  Tax Officer,  Madras & Another  

(1969) 3 SCC 349.

13. Mr.  P.  S.  Narasimha,  the  learned  senior  counsel  

appearing for Respondent No. 2 submitted that the exemption under  

taxation law will have to be purposefully and widely construed.  In that  

context, the learned senior counsel submitted that, under Section 5(3)  

of the CST Act, those penultimate sales are also given exemptions, if  

such sale was for the purpose of complying with the agreement or  

order for or in relation to such export.   The learned senior counsel  

submitted that any penultimate sale made in furtherance of an export  

order, irrespective of nature of the goods, would be covered and any  

other construction would render the use of those words otiose.

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14. Mr. Soli J. Sorabjee, learned senior counsel appearing for  

the respondents submitted that Section 5(3) of the CST Act should be  

given a purposive interpretation  keeping in  mind the Statement  of  

Objects  and Reasons of  the Amendment  Act  103 of  1976.    The  

learned senior counsel submitted that the only requirement of Section  

5(3) is that the goods sold to the exporter should be exported as such  

without loss of identity and if that happens, the penultimate sale gets  

the benefit of Section 5(3) of the CST Act.    

15. Shri  Goolam  E.  Vahanvati,  learned  Attorney  General,  

assisting  the  Court  submitted  that  if  the  penultimate  sale  is  

inextricably connected with the export of goods outside the territory of  

India, then such a sale is eligible for exemption under sub-section (3)  

of  Section  5  of  the  CST Act.   The  only  pre-condition  is  that  the  

exemption be linked to the penultimate sale, preceding the export.

16. Before examining the rival  contentions of  the parties,  it  

would  be  appropriate  to  refer  to  the  Statement  of  Objects  and  

Reasons of the Amending Act 103 of 1976 by which Section 5(3) of  

the CST Act was added.   The relevant portion of the Statement of  

Objects and Reasons reads as under:

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“…..According  to  the  Export  Control  Orders,  exports  of  certain  goods can be made only by specified agencies such as the State  Trading  Corporations.    In  other  cases  also,  manufacturers  of  goods, particularly in the small scale and medium sectors, have to  depend  upon  some  experienced  export  house  for  exporting  the  goods because special expertise is needed for carrying on export  trade.   A sale of goods made to an export canalizing agency such  as the State Trading Corporation or to an export house to enable  such agency or export house to export those goods in compliance  with an existing contract or order is inextricably connected with the  export of the goods.  Further, if such sales do not qualify as sales in  the course of export, they would be liable to States sales tax and  there would be a corresponding increase in the price of the goods.  This  would  make  our  exports  uncompetitive  in  the  fiercely  competitive  international  markets.   It  is,  therefore,  proposed  to  amend, with effect from the beginning of the current financial year,  Section 5 of the Central Sales Tax Act to provide that the last sale  or  purchase  of  any  goods  preceding  the  sale  or  purchase  occasioning 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.”

17. The  relevant  portions  of  Section  5  are  also  extracted  

hereunder for easy reference:

“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.

xxx xxx xxx

xxx xxx xxx

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(3) Notwithstanding  anything  contained  in  sub-section  (1), the last sale or purchase of any goods 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.

xxx xxx xxx

xxx xxx xxx”

18. Article 286(1)(b) of the Constitution of India states that no  

law of a State shall impose, or authorize the imposition of a the sales  

tax on the sale or purchase of goods when such sale or purchase  

takes place in the course of export of goods.    Article 286(2) prohibits  

imposition  of  sales  tax  on  import  and  export  by  the  State  

Government.  Article 286(2) authorizes the Parliament to formulate  

principles for determining when sale is in the course of import/export.  

The sale or  purchase of  goods is  deemed to be in  the course of  

export of 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.  Therefore, under Article 286(1) of the Constitution,  

the Court has to examine whether any tax is being imposed by the  

State Legislature on the sale or purchase of goods "in the course of  

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the import of the goods into or export of the goods out of the territory  

of India". In order to resist imposition of sales tax by the State, the  

assessee will have to establish the identity of the goods sold to be  

exported  out  of  the  territory  of  India.  In  order  to  fulfill  an  export  

obligation, if an exporter purchases goods and as a result of some  

processing the identity and character of the goods change, then it will  

not be a case of export of the same goods.   

19. In Sterling Foods (supra), this Court had advocated the  

“same goods” theory of course in a different situation.   In that case,  

on  facts  the  Court  found  no  essential  difference  between  raw  

shrimps,  prawns  and  lobsters  and  processed  or  frozen  shrimps,  

prawns and lobsters, especially when the dealer and the consumer  

regarded  both  as  shrimps,  prawns  and  lobsters  and  that  they  

continued to possess their original character and identity as shrimps,  

prawns and lobsters, notwithstanding the removal of heads and tails,  

peeling, deveining and cleaning.  It is in that context that this Court  

held that the processed or frozen shrimps, prawns and lobsters were  

not  a  new  and  distinct  commodity  and  they  retained  the  same  

character and identity as the original shrimps, prawns and lobsters.

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20. In  Vijayalaxmi  Cashew  Company  (supra),  we  have  

already stated that the question was whether  the purchase of  raw  

goods made by the appellants after which the cashew kernels were  

extracted and exported to foreign countries could be subjected to the  

State  Sales  Tax  Act.    The  Court  elaborately  examined,  in  what  

manner  the  raw  cashew  nuts  were  processed.   After  getting  the  

detailed report from the High Court as to how the edible kernels were  

extracted from raw cashew nuts and having examined minutely the  

whole  process,  the Court  came to the conclusion that  the kernels  

were  not  the  same goods  as  raw cashew nuts  purchased by  the  

dealers.  What was exported were the edible kernels and what was  

purchased for the purpose of export were raw cashew nuts.     The  

Court noticed that since raw cashew nuts could be used for so many  

purposes and the process of extracting the kernels so elaborate, it  

could not be said that the goods (raw cashew nuts) purchased in the  

penultimate sale were the same goods (cashew nut kernels) which  

were sold for export.

21. In this connection, it is useful to refer to the judgment of  

this Court  in  Deputy Commissioner of Agricultural  Income Tax  

and Sales Tax,  Ernakulam v.   Indian Explosives Ltd. (1985)  4  

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SCC 119, wherein this Court was dealing with the question whether  

the respondent-assessee was concerned with sale transactions in the  

course of import of chemicals, dyes etc. The modus operandi of the  

assessee in that case was to the effect that local purchasers used to  

place  orders  with  the  respondent  quoting  their  Import  Licence  

Numbers  in  accordance  with  their  pre-existing  contracts  with  the  

respondent.  The  respondent  then  placed  orders  with  the  foreign  

supplier for the supply of the goods and in such orders the name of  

the  local  purchaser  who  required  the  goods  as  also  its  licence  

numbers, were specified; the actual import was done on the strength  

of two documents like (a) the Actual Users' Import Licence and (b)  

Letter of Authority issued by Chief Controller of Imports and Exports  

whereunder  the  local  purchaser  was  authorized  to  permit  the  

respondent-assessee  on  his  behalf  to  import  the  goods,  to  open  

letters of credit and make remittance of foreign exchange against the  

said licence to the extent of value specified therein.  The Court held  

that there was an integral connection between the sale to the local  

purchaser  and  the  actual  import  of  the  goods  from  the  foreign  

supplier.  The movement  of  goods from foreign country like United  

States to India was in pursuance of the conditions of the pre-existing  

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contract  of  sale  between  the  respondent-assessee  and  the  local  

purchaser.   It  was  noticed  that  the  import  of  the  goods  by  the  

respondent assessee was for and on behalf of the local purchaser  

and the respondent-assessee could not, without committing a breach  

of the contract, divert the goods so imported for any other purpose.  

The Court, therefore, concluded that 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 snapped.

22. Now, let us refer to the Constitution Bench judgment of  

this Court in K. Gopinath Nair (supra) on which strong reliance was  

placed in the order of reference.   The question raised was whether  

the purchase of  African raw cashew nuts  made by the assessees  

from CCI was in the course of import  and, therefore immune from  

liability to tax under Kerala General Sales Tax Act, 1963.  The Court  

rejected  that  contention  observing  that  there  was  no  direct  and  

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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 canalizing scheme pertaining to the  

import of cashew nuts.   In that case, the Court was mainly concerned  

with the interpretation of sub-section (2) of Section 5 of the CST Act.  

In the facts and circumstances of that case, the Court observed that  

the transactions between the foreign exporter and the local users in  

India  got  transmitted  through  an  independent  canalizing  import  

agency which entered into back to back contracts and there was no  

direct  linkage or  causal  connection  between the export  by foreign  

exporter and the receipt of the imported goods in India by the local  

users and hence the integrity of the entire transaction got disrupted  

and substituted by two independent transactions, one between the  

canalizing agency and the foreign exporter which made the canalizing  

agency the owner of the goods imported and the other between the  

canalizing agency and the local users for whose benefit the goods  

were imported by the canalizing agency.    In such a situation, the  

Court held that the sale by the canalizing agency to the local users  

would  not  be a  sale  in  the course  of  import  but  would  be a  sale  

because  of  or  by  import  which  would  not  be  covered  by  the  

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exemption provision of Section 5(2) of the Central Sales Tax Act. The  

Court further noticed that a sale or purchase can be treated to be in  

the course of import if there is a direct privity of contract between the  

Indian importer and the foreign exporter and the intermediary through  

which such import is effected merely acts as an agent or a contractor  

for and on behalf of Indian importer.

23. When we analyze all  these decisions in the light of the  

Statement of Objects and Reasons of the Amending Act 103 of 1976  

and on the interpretation placed on Section 5(3) of the CST Act, the  

following principles emerge:

-   To constitute a sale in the course of export 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.  

-   To occasion export there must exist such a bond between the  contract  of  sale  and  the  actual  exportation,  that  each  link  is  inextricably  connected  with  the  one  immediately  preceding  it,  without which a transaction sale cannot be called a sale in the  course of export of goods out of the territory of India.

24. The phrase 'sale  in  the  course  of  export'  comprises  in  

itself  three essentials:  (i)  that there must be a sale: (ii)  that goods  

must actually be exported and (iii) that the sale must be a part and  

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parcel  of  the export.   The word  ‘occasion’  is  used as a verb and  

means 'to cause' or 'to be the immediate cause of’.  Therefore, the  

words  ‘occasioning  the  export’  mean  the  factors,  which  were  

immediate  course  of  export.   The  words  ‘to  comply  with  the  

agreement  or  order’  mean  all  transactions  which  are  inextricably  

linked with the agreement or order occasioning that export. The  

expression ‘in  relation to’  are words of  comprehensiveness,  which  

might  both  have  a  direct  significance  as  well  as  an  indirect  

significance, depending on the context in which it is used and they  

are not words of restrictive content and ought not be so construed.   

25. Therefore, the test to be applied is, whether there is an in-

severable link between the local sale or purchase on export and if it is  

clear  that  the  local  sale  or  purchase  between  the  parties  is  

inextricably linked with the export of the goods, then a claim under  

Section 5(3) for exemption from State Sales Tax is justified, in which  

case, the same goods theory has no application.

26. The facts of this case clearly reveal that the transaction  

between the assessee and the exporter is inextricably connected with  

the export of the goods to Sri Lanka.   The communication between  

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the  foreign  buyer  and  the  exporter  reveals  that  the  foreign  buyer  

wanted the bus bodies to be manufactured by the assessee under  

the specifications stipulated by the foreign buyer.   The bus bodies  

constructed and manufactured by the assessee could not be of any  

use in the local market, but were specifically manufactured to suit the  

specifications and requirements of the foreign buyer.  In the Purchase  

Order  placed  on  the  assessee  by  the  exporter,  it  is  specifically  

indicated that the bus bodies have to be manufactured in accordance  

with the specifications provided by the foreign buyer, failure to do so  

might result in cancellation of the export order.  The assessee in this  

case has succeeded in showing that  the sale of  bus bodies have  

occasioned the export of goods.  When the transaction between the  

assessee and the exporter and the transaction between the exporter  

and foreign buyer are inextricably connected with each other, in our  

view, the ‘same goods’ theory has no application.  

27. We may also indicate that the burden is entirely on the  

assessee  to  establish  the  link  in  transactions  relating  to  sale  or  

purchase  of  goods  and  to  establish  that  the  penultimate  sale   is  

inextricably connected with the export of goods by the exporter to the  

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foreign  buyer,  which  in  this  case the  assessee  has  succeeded in  

establishing.

28. Mr.  T.  S.  Narasimha,  learned  counsel  appearing  for  

Respondent  No.  2  contended  that  any  penultimate  sale  made  in  

furtherance of export, irrespective of the nature of the goods, would  

also  be  covered,  is  too  tall  a  proposition  to  be  accepted.    It  all  

depends  on  the  question  as  to  whether  the  sale  or  purchase  is  

inextricably  connected with  the export  of  goods and not  a  remote  

connection as tried to be projected by the counsel. The connection  

between the penultimate sale and the export of goods should not be  

casual,  accidental  or  fortuitous,  but  real,  intimate  and inter  linked,  

which depends upon the nature of the agreement the exporter has  

with  the  foreign  buyer  and  the  local  manufacturer,  the  integrated  

nature of  the transactions and the nexus between the penultimate  

sale and the export sale.  

29.   In  the  facts  and  circumstances  of  this  case,  we are  

satisfied that the assessee has succeeded in satisfying those tests  

and hence, eligible for exemption under sub-section (3) of Section 5  

of the CST Act.    

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30. We, therefore, find no error in the decision rendered by  

the High Court in declaring that the assessee is entitled to exemption  

under Section 5(3) of the CST Act.   The Reference is accordingly  

answered  and  the  appeals  stand  dismissed.   In  the  facts  and  

circumstances of the case, there will be no order as to costs.

………………………………CJI

               (S. H. KAPADIA)

………………………………..J.             (B. SUDERSHAN REDDY)

…………………………………J.            (K. S. RADHAKRISHNAN)

…………………………………J.

           (SURINDER SINGH NIJJAR)

…………………………………J.             (SWATANTER KUMAR)

New Delhi; September 14, 2010.

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