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PETITIONER: STATE OF KARNATAKA

       Vs.

RESPONDENT: B.M. ASHRAF & CO.

DATE OF JUDGMENT:       20/10/1997

BENCH: S. C. KIRPAL, B. N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T KIRPAL, J.      The  respondent   is  a  registered  dealer  under  the provisions of  Karnataka Sales  Tax Act,  1957  (hereinafter referred to as ’the Act’) and the only question which arises for consideration in this appeal by special leave is whether it is  liable to  pay purchase  tax under  the provisions of Section 6 of the said Act.      The respondent had purchase fish oil from un-registered dealers within the State of Karnataka. It, in turn, sold the said oil  to M/s.  Kalbhavi Venkatarao  & Bros. (hereinafter referred to as "Kalbhavi") who purchased the said oil in the order to  comply with the export from its buyer in a foreign country.      In respect  to the  assessment year  1.9.78 to 31.8.79, the respondent clamed exemption from payment of sales tax on sales made  to Kalbhavi  as the  export sales  of the  goods referred to  under Section  5(3) of  Central Sales  Tax Act, 1957.  This claim was allowed by the assessing authority but he came to the conclusion that the transaction of respondent of purchasing  the fish oil from un-registered dealers would attract the  levy assessment  was made, levying purchase tax on the  purchase of  fish oil, made by the respondent which, in turn, had been sold to Kalbhavi.      An appeal  was filed  before the Deputy Commissioner of Commercial Taxes,  Mangalore by  the respondent  but without success.   Its second  appeal  to  the  Karnataka  Appellate Tribunal, Bangalore  was also  dismissed with  the  Tribunal confirming the  Order of the Assessing Authority in treating the transaction  of purchase  of fish  oil as attracting the provisions of Section 6 of the Act.      The decision  of the  Tribunal was  challenged  by  the respondent in  a Revision  Petition filed in the High Court. The High Court, interpreted Section 6 of the Act and came to the conclusion that the purchase of fish oil, which was sold by the  respondent,  did  not  attract  purchase  tax  under Section 6  of the  Act inasmuch as the purchases made by the respondent were  sold within  the State  of Karnataka and as such the  ingredients of Section 6 of the Act, so as to make the purchase taxable, were not attracted.

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    Having heard  learned counsel for the appellant, we are of the opinion that the conclusion of the High Court that no purchase tax was payable by the respondent, on the facts and under circumstances  of the  present case,  was not correct. As we  shall presently  see on the correct interpretation of the provisions  of Section  6 of the Act read with Section 5 of the  Central Sales Tax Act, the purchase of fish oil made by the  respondent and  sold to  Kalbhavi would  attract the levy of purchase tax.      It is  appropriate to refer to Section 6 of the Act and Section 5 of the Central Sales Tax Act which read as under:           "6. Levy of purchase tax under      certain  circumstances-Subject   to      the provisions  of sub-section  (5)      of Section  5, every  dealer who in      the   course    of   his   business      purchases  any   taxable  goods  in      circumstances in which no tax under      Section 5  is leviable  on the sale      price of such goods, and      (i)  either consumes  such goods on           the manufacture of other goods           for  sale   or  otherwise  [or           consumes     otherwise]     or           disposes of  such goods in any           manner other  than by  way  of           sale in the State, or      (ii) despatches  them  to  a  place           outside the  State except as a           direct  result   of  sale   or           purchase  in   the  course  of           inter-state trade or commerce.      Shall be  liable to  pay tax on the      purchase price of such goods at the      same rate  at which  it would  have      been leviable  on the sale price of      such goods under Section 5:      Provided that  this  section  shall      not apply-      (i)  in respect of sale or purchase           of  goods   specified  in  the           Fourth Schedule-      [a]  which are taxable at the point           of purchase; and      [b]  which   have    already   been           subjected to  tax  under  sub-           section (4) of Section 5.]      (ii) in respect of sale or purchase           of  goods   specified  in  the           Second  Schedule   which  have           already been  subjected to tax           under  clause   (a)  of   sub-           section (3 of Section 5].      [(iii) XXXXXXX].      [(iv) XXXXXXX].      [Provided  further   that  the  tax      payable under  this section  on the      purchase of  butter and  ghee shall      be calculated  at the  rate of  two      per cent].      [(v) in  respect of the purchase of      cocoa pods and cocoa beans by a co-      operative Society  registered under      the     Karnataka      Co-operative      Societies Act, 1959.]

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    Explanation -  For the  purpose  of      this section  "consumes such  goods      in the  manufacture" shall  include      goods   consumed    for   ancillary      purpose    in     or    for    such      manufacture.]      Section 5  of the Central Sales Tax      Act reads as follows:      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      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.      (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 a transfer of documents of      title to 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      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."      Section 6, on analysis, provides as      follows in  order that purchase tax      can be levied:-      i) person  who purchases the goods,      is a dealer.      ii) the  purchase is made by dealer      in the course of his business;      iii)  the   goods   purchased   are      taxable goods;      iv)    such    purchase    is    in      circumstances in which no tax under      Section 5  is leviable  on the sale      price of such goods; and      v) the dealer either           (a)  consumes  such  goods  in                the manufacture  of other                goods   for    sale    or                otherwise; or           (b)   consumes    such   goods                otherwise; or           (c)  disposes of such goods in                any manner  other than by

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              way of  sale in the State                or;           (d)  despatches  them   to   a                place outside  the  State                except as a direct result                of sale  or  purchase  in                the course of inter-state                trade or commerce.      From the  aforesaid, it  will  be  clear  that  if  the purchased goods  are disposed  of by  way of sale within the State or  are sold  in the  course of  inter-state trade  or commerce, then no purchase tax is leviable.      It is  pertinent to  note that whereas intra-state sale or inter-state  sale would  be a reason for purchase tax not being levied  but sale  in the  course of  export would  not exclude the  applicability of the levy of purchase tax under Section 6  of the  Act.   The  sale  by  the  respondent  to Kalbhavi is the last sale preceding the sale occasioning the export of  those goods out of the territory of India and is, therefore, deemed  to be  sale in  the course  of export  as envisaged by Section 5(3) of the Central Sales Tax Act.  The sale by Kalbhavi to the foreign purchaser was also a sale in the course  of export  falling under  Section  5(1)  of  the Central  Sales   Tax  Act.  Inasmuch  as  the  sale  by  the respondent to  Kalbhavi was  a sale  in the  course  of  its export, therefore, no tax was levlied under Section 5 of the Act.      The  High   Court  while   holding  that  the  purchase transactions by the respondent were of goods on which no tax was leviable  under Section  5 of the Act and that by virtue of Section  5(3) of  the Central  Sales Tax  Act  read  with Article 286  of the  Constitution of  India, the sale by the respondent to  Kalbhavi was not taxable nevertheless came to the conclusion  that the respondent had sold the fish oil to Kalbhavi within  the state of Karnataka and, therefore, this would be  regarded as  a sale  as "sale  in the State" under Section 6(1)  of the Act and, therefore, exempt from levy of purchase tax.      In  our  opinion,  there  is  a  fallacy  in  aforesaid reasoning of  the High Court.  The words "sale in the State" occurring in  Section 6(i) of the Act would refer to "intra- state" sale  in contradistinction  to "sale in the course of inter-state trade or commerce" as referred to in Clause (ii) of Section  6.   It has been accepted by the High Court and, it is  not disputed,  that the  sale in  the present case to Kalbhavi falls  under Section  5(3) of the Central Sales Tax Act.  This, therefore, is a sale in the course of export and ipso facto cannot be regarded as intra-state sale.  It is to be borne  in mind that in the case of inter-state trade sale or sale  in the  course of export, the property in the goods may stand  transferred within  the State  but merely because the passing  of title  or sale  takes place in a State would not detract it from its character as a inter-state or export sale.   In this  connection, it will be appropriate to refer to the decision of this Court in THE BENGAL IMMUNITY COMPANY LIMITED  V.  THE  STATE  OF  BIHAR  AND  OTHERS,  [1995]  VI S.T.C.446. While  examining the  scope and  ambit of Article 286 of  the Constitution  and, in  particular, the effect of sale of  sale qua  inter-state sale, it was observed at page 481 as follows:      "The  truth  is  that  what  is  an      inter-state   sale    or   purchase      continues to  be so irrespective of      the State  where the  sale is to be      located either  under  the  general

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    law when  it is  finally determined      what the  general law  is or by the      fiction created  by the Explanation      to Article 286.  The sale of a sale      or purchase is wholly irrelevant as      regards it inter-State character."      Similarly sale is irrelevant as regards the sales being in the  course of  export, as  in the  present case.  In the context of sales tax law, the expression "sale in the State" occurring in  Section 6  can only  mean a  local sale  or  a intra-state sale  as opposed to sale in the course of export sale or  a intra-state sale as opposed to sale in the course of export or in the course of inter-state trade or commerce. Therefore, wherever, there is a sale in the course of export or an inter-state sale then, that would not be regarded as a "sale in  the State"  falling under  Section 6(1) of the Act and, therefore,  sale by  the respondent  to Kalbhavi, which was admittedly  a sale in the course of export under Section 5(3) would not be regarded as "sale in the State."      The  High   Court,  while   allowing  the  respondent’s revision, had  placed reliance on the decision of this Court in the  case of MURLI MANOHAR & CO. AND ANOTHER VS. STATE OF HARYANA AND  ANOTHER, [1991] 80 S.T.C. 79.  In that case the registered dealer  had purchased raw material without paying tax  against   declaration  on  the  basis  of  registration certificate.   From that  raw material  certain  goods  were manufactured  and  sold  to  other  dealers  who,  in  turn, exported the  goods outside India.  The question which arose was whether the dealer was liable to pay purchase tax on the raw material under Section 9(1) of the Haryana General Sales Tax Act,  1973.   This Court  had held  that the  registered dealers were not entitled to exemption under Section 9(1) of the Haryana  General Sales  Tax Act,  1973 because the sales made by  them were  not in  the course of export outside the territory of India within the meaning of Section 5(1) of the Central Sales  Tax Act.   It  may appear  that this decision would support  the dealer but the provisions of Section 9 of the Hryana  Sales Tax  Act and  Section 6  of the  Act, with which we  are concerned  in the  present case, are different with regard  to one  important  and  relevant  circumstance. Section 9(1)  of the Haryana General Sales Tax Act which was under consideration in Murli Manohar’s case (supra) excluded from it’s  purview the  purchase of  goods which  were  sold either out of State or in the course of inter-state trade or commerce of  "in the  course of  export out  of territory of India within  the meaning of sub-section (1) of Section 5 of the Central  Sales Tax  Act, 1956".   After referring to the decision in  Mod. Serajuddin  Vs. The  State of  Orissa,  36 S.T.C. 136, it was noticed that sub-section (3) was inserted in Section  5 of  the Central  Sales Tax Act so as to regard penultimate sale  of purchases in the course of export.  The purchases in  question in  Murli Manohar’s case (supra) were not regarded  as sales  in the  course of  export within the meaning of  Section 5(1)  of the  Central Sales  Tax Act but were regarded  as sales falling under the purview of Section 5(3) of  the Central  Sales Tax  Act.   Section 9(1)  of the Haryana Sales  Tax Act  had referred  to  the  export  sales envisaged by  Section 65(1) of the Central Sales Tax Act and not the  export sales  falling within the purview of Section 5(3).   This distinction and its effect were clearly brought out in  the Murli  Manohar’s case  (supra)  ar  page  93  as follows:      "It will  be  convenient  first  to      dispose  of  the  contention  dealt      with by  the High  Court.   For the

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    purposes of  this argument we shall      assume that  the sale  made by  the      assesses were  "penultimate  sales"      which would fall within the purview      of  section  5(3)  of  the  Central      Sales  Tax  Act.  The  argument  on      behalf of  the Revenue,  which  was      found favour  with the  High Court,      is that  section 9(1)  exempts only      sales made  in the course of export      within the  meaning of Section 5(1)      of the  Central Sales  Act but  not      those under  Section  5(3)  of  the      said   Act.        After    careful      consideration we  think  that  this      argument was  rightly  accepted  by      the High Court.  In the first place      there is  no dispute before us that      section 5(3)  covers a  category of      cases  which  would  not  otherwise      have come  within  the  purview  of      section 5(1),  as explained in Mod.      Serajuddin’s case [1975] 36 STC 136      (SC).    The  language  of  section      9(1)(a)(ii)-later 9(1)(b)-using the      words "within  the meaning  of sub-      section (1)  of Section  5  of  the      Central Sales Tax Act, 1956" has to      be given  full  meaning;  in  other      words, the  exemption under section      9(1) has  to be  restricted only to      export  sales  falling  within  the      scope of  section  5(1).  It  seems      clear,   from   the   circumstances      referred   to   below,   that   the      Legislature deliberately used these      words  and   intended  to   give  a      restricted  operation   to  section      9(1)(a)(ii)    and    (b).    These      circumstances are:      1.    Section    9(1)(a)(ii),    as      originally framed,  merely uses the      words  "in  the  course  of  export      outside the  territory  of  India".      Clause 9(1)(b)  referred  to  cases      where raw  materials were purchased      and exported  and the word "export"      was  defined  in  Section  2(e)  as      meaning "the  taking out  of  goods      from the State to any place outside      it otherwise than by way of sale in      the course  of inter-state trade or      commerce." Act  44 of  1976 amended      the  definition   of  "export"   in      section 2(e)  by  adding  the  wide      words "or  in the  course of export      out of the territory of India" with      effect from  April 1. 976.  But the      same Act narrowed down the scope of      clause  (a)(ii)   by   adding   the      restrictive words at the end of the      clause.      2.  If   a  reference  is  made  to      section 24,  one finds that section      24(1)(iii)  refers  again  to  sub-

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    section (1)  of section  5  of  the      Central Sales  Tax Act.    However,      the language  of the  two provisoes      simultaneously    introduced     in      section 24(1)(a)  and (b)  by Act 3      of 1983  makes interesting reading.      The proviso  to clause  (a)  refers      only to  "sale by him in the course      of export  outside the territory of      India within the meaning of section      5 of  the Central  Sales  Tax  Act,      1956",  whereas   the  proviso   to      clause (b)  refers to  "sale by him      in the course of export outside the      territory  of   India  within   the      meaning  of   sub-section  (3)   of      section 5  of the Central Sales Tax      Act,  1956".    Thus  the  statute,      within the same provision, has made      a distinction between a sale in the      course of export within the meaning      of section 5 and such a sale within      the meaning of section 5(3).      3. When we turn to section 27 next,      we find two provisoes introduced in      section 27(1)(iv)(a)  by Act  44 of      1976, the  same amending  Act  that      introduced the  extra words  at the      end of  section 9(1)(a)(ii).  These      provisoes make  a  marked  contrast      between sales  falling  under  sub-      section (1) and those falling under      sub-section (3) of section 5 of the      Central Sales Tax Act.      4. As will be seen from the extract      of the  legislative amendments  set      out  earlier  the  Legislature  has      subsequently deleted  the reference      to sub-section  (3) of section 5 in      section  9(1)(b).    However,  this      amendment, which has been made both      in section  9 and  in section 24 by      Act 1  of 1988  has not  been given      any      retrospective      effect.      Considering that the legislation is      replete    with     instances    of      retrospective effect (in some cases      even  to   as  early   a  date   as      September 7,  1955), the failure or      omission to  give any retrospective      effect to  the amendment to section      9 in  this regard  is  an  eloquent      pointer to  the  intention  of  the      Legislature.      In  view   of   the   circumstances      outlined  above,   we  are  of  the      opinion that  the  High  Court  was      right  in   concluding   that   the      assessee was  not entitled  to  the      exemption under  Section 9  because      the sales  made  by  him  were  not      sales  in   the  course  of  export      outside  the   territory  f   India      within the  meaning of section 5(1)      of the Central Sales Tax Act."

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    If was further held that the goods sold either could be intra-state sale,  inter-state sale or sale in the course of export within  the meaning  of section  5(1) of  the Central Sales Tax  Act.  Having come to the conclusion that the sale was not  in the  course of  export  within  the  meaning  of Section 5(1)  of the  Central Sales  Tax Act and it was also not a local sale, it was concluded that the sale in question was inter-state  sale and,  therefore, would fall within the exemption contained  under Section 9(1) of the Haryana Sales Tax Act.  Such a question does not arise in the present case because whereas  in Murli  Manohar’s case  (supra) the goods had gone  out of  State of  Haryana prior to its export from India, in the present case, according to the learned counsel for  the   appellant,  Kalbhavi   exported  the  goods  from Mangalore i.e.  from within  the State  of Karnataka.  There was thus  no occasion of movement of goods from one State to another and  as the  sale in  the course  of export  is  not entitled to the exemption from payment of purchase tax under Section 6  of Karnataka  Sales Tax  Act, the decision of the High Court regarding the sales in question as being sales in the State  and, therefore, immune from levy of purchase tax, cannot be sustained.      From the  aforesaid  discussion,  it  follows  that  by virtue of  Section 5(3)  of the  Central Sales  Tax Act, the sale effected  by the  respondent  to  Kalbhavi  has  to  be regarded to  be in  the course  of export by virtue of which fish oil was exported to a place outside the State and since this despatch  was not pursuant to an intra-state sale or as a result  of sale  in the  course of  inter-state  trade  or commerce, the  said sale  falls directly within the ambit of Section  6   of  the   Act.    Accordingly,  the  Sales  Tax authorities were  justified in  levying purchase  tax on the respondent and  the High Court erred in coming to a contrary view.      For the  aforesaid reasons,  this appeal  allowed.  The order of the High Court is set-aside and the decision of the assessing authority is restored.  There shall be no order as to costs.