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PETITIONER: THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES

       Vs.

RESPONDENT: M/S.  KOTAK & CO., BOMBAY, ETC.  ETC.

DATE OF JUDGMENT03/04/1973

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1973 AIR 2491            1973 SCR  (3) 883  1974 SCC  (3) 118

ACT: Central Sales Tax Act 1956-S. 5(2) read with Art. 286 of the Constitution.  Assessee Company sold to buyer in the  course of import Whether an inter-State sale.

HEADNOTE: The  respondent was engaged in the supply of foreign  cotton to  textile  mills  in South India on the  basis  of  import licences issued to the mills authorising: import of  foreign cotton  by them.  The, firm supplied cotton to the mills  on the  basis  of  specific  written  contracts.   One  of  the conditions in the contract is that the goods imported should not under any circumstances, be diverted from its determined destination,   i.e.  the  mills.   Secondly,  the   relative shipping documents were issued by the foreign seller in  the names  of  the respective mills and not in the name  of  the assessee-firm.   Again,  the import licences issued  to  the mill&  authorise the mills to import the goods; and on  the reverse  of these licences is stated that the goods for  the import  of  which the licences were granted  should  be  the property  of the licensees at the time of clearance  through the  customs.  Still further, the letters  of  authorisation issued  by the Government authorising the  assessee-firm  to import the cotton show that the assessee had to do it purely as  an  agent  of  the licensees both at  the  time  of  the clearance through the customs and’ subsequent thereto.   The firm  entered  into a contract with M/s.   Mahalaxmi  Cotton Mills  on  20-3-1964.  According to the respondent,  by  the contract entered into with the mills, the quantity of cotton agreed to be supplied to the mills was specified as also its quality  and places from where it has to be  imported.   The price  was fixed on C.I.F. Cochin term.  Payment was  to  be made  by  the mills to the firm against the  document.   The other  conditions governing the contract were laid  down  on the  reverse of  the contract  form,  the  most  important clauses in the contract were that the contract was C.I.F. in nature notwithstanding anything to the contrary mentioned in the contract.  The price was subject to variation  depending upon  the import duty, freight rate,. insurance premium  and exchange  rate.  It was further provided by the  Mills  that the  contract  was  irrevocable  and  that  any  differences between  the parties had to be resolved through  arbitration

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etc.  The question was, whether the sales made to the  mills affected  in this country occasioned the import.  The  Sales Tax   Officer,   as   well  as   the   Appellate   Assistant Commissioner,   held  that  the  sales  in   question   were intrastate  sales and therefore, the assessee was liable  to tax. On  appeal, the Sales Tax Tribunal held that the  assessee’s case fell within s. 5(2) of the Central Sales Tax Act,  read with  Art.  286 of the Constitution and the  High  Court  on revision,  affirmed  the decision of the  Tribunal.   Before this Court it was contended by the appellant that the  sales were  intrastate sales and as such, the assessee was  liable to tax.  Dismissing the appeals, HELD  : The present case falls within the rule laid down  by this  Court in K. G. Khosla & Co. v. Deputy Commissioner  of Commercial 884 Taxes,  [1966]  3 S.C R. 352, wherein it was held  that  the sales in question occasioned the : import and as such it was exempt  under  s. 5 (2) of the Central Sales Tax  Act,  1956 which says, "A sale or purchase of goods shall be deemed  to take  place  in the course of the import of 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." [887G] Coffee  Board,  Bangalore v. Joint Commercial  Tax  Officer, Madras  and  Another [1970] 3 S.C.R. 147,  referred  to  and distinguished.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1889 to 1891 of 1970. Appeals  by certificates from the judgment and  order  dated ’October 28, 1969 of the Kerala High Court at.  Ernakulam in T.R.C. Nos. 40, 41 and 42 of 1968. Civil Appeals Nos. 1892 to, 1896, of 1970 Appeals  by certificates from the judgment and  order  dated October  28, 1969 of the Kerala High Court at  Ernakulam  in T.R.C. Nos. 43, 44, 45, 47 and 48 of 1968. Civil Appeal No. 1897 of 1970. Appeals  by certificates from the judgment and  order  dated October  28, 1969 of the Kerala High Court at  Ernakulam  in T.R.C. No. 46 of 1968. Civil Appeals Nos. 1898 to 1900 of 1970. Appeals  by certificates from the judgment and  order  dated October  28, 1969 of the Kerala High Court at  Ernakulam  in T.R.C. Nos. 52, 53 and 54 of 1968. V.   A.  Sayed  Mohammed  and  A.  G.  Pudissery,  for   the appellants (in all the appeals). G.  B. Pai P C. Bhartari, O. C. Mathur and Ravinder  Narain, for the respondent (in C.A. Nos. 1889-1891 and 1897/70). T.   A. Ramachandran and K. Jayaram, for the respondent  (in ,C.A. Nos. 1892-1896/70). Ram  Phal Bansal, S. P. Pande and Ganpat Rai, for  the  res- pondent (in C.A. Nos. 1898-1900/70. The judgment of the Court was delivered by HEGDE, J.-In these appeals by certificate a common  question of law arises for decision and that question is whether  the sales effected by the respondent with which we are concerned in  these cases occasioned import of Egyptian  cotton.   The Sales  885

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Tax Officer as well as the Appellate Assistant Commissioner, rejecting  the  contention  of  the  assessee  came  to  the conclusion that the sales in question were intrastate sales. But,  on  appeal,  the  Sales Tax  Tribunal  held  that  the assessee’s  case fall within S. 5 (2) of the  Central  Sales Tax  Act  1956 read with Article 286 of  the,  Constitution. The  High  Court on revision affirmed the  decision  of  the Tribunal.   In  support  of its conclusion  the  high  Court observed thus "One of the conditions in the contract is that the goods im- ported should not under any circumstances, be diverted  from its, determined destination, i.e., the mills.  Secondly, the relative,  shipping  documents were, issued by  the  foreign seller  in the names of the respective mills and not in  the name  of  the  assessee-firm.  Again,  the  import  licences issued  to  the  mills authorise the mills,  to  import  the goods;  and on the reverse of these licences is stated  that the goods for the import of which the licences were granted. should  be  the  property of the licensees at  the  time  of clearance  through the customs.  Still further, the  letters of  authorisation, issued by the Government authorising  the assessee-firm  to import, the cotton show that the  assessee had  to  do it purely as an agent of the licensees  and  the imported goods would be the property of’ the licensees  both at  the  time  of the clearance  through  the  customs.  and subsequent thereto." The  material  facts of the case are fully set  out  in  the judgment of the Appellate Tribunal and are as follows "The facts of the case here are not in dispute and the  only point  that has to be considered here is as to  whether  the sales  arc  in  the course of  import.   The  assessee  firm submitted  before the, Sales Tax Officer a detailed note  in regard  to the procedure in this matter.  According to  them the  firm  is  engaged in the supply of  foreign  cotton  to textile mills among other places in South India on the basis of  the  import  licences issued to  the  nulls  authorising import of foreign’ cotton by them.  The details in regard to the.  procedure contained in the note submitted by the  firm are found; from page 37 onwards in the assessment files.  It is stated that the firm supplies cotton to the mills on  the basis  of  specific  written contracts.   Under  the  import control  regulations,  import  licences  are  necessary  for import of foreign cotton and they are issued to only  actual users  like the mills.  The appellant firm and  the  similar concerns  are  not given import licences.   The  mills  make enquiries  with  the firm as regards the quality  of  cotton they  required,  ,  the period during which  they  would  be supplied,  the  price and other particulars and  on  getting these  enquiries  the appellant firm  contacts  the  foreign suppliers in Egypt, Sudan or America for ascer-- 886 taining  whether they could supply the cotton required.   It the ,offers received are found acceptable the appellant firm enters  into contract with the various mills  concerned  and immediately thereafter accept the offer made by the  foreign suppliers.   The  supply  ,of such foreign  cotton  to  M/s. Mahalakshmi  Textiles Mills Ltd., one of the mills  to  whom supply was made by the firm is detailed in the said note and it  is stated that the supply made to the other  mills  also are   under   similar  circumstances.   According   to   the appellant, after receiving enquiries from the mills the firm contacts  the American Suppliers in New York.   The  foreign suppler  agreed to supply the quantity at the price,  agreed upon.  Thereafter the firm entered into a contract with  the mills  dated  20-3-1964, that the import licence  issued  in

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favour  of  the  mills was made available to  the  firm  for utilisation  of  the  contract  that  the  letter  authority issued,  authorising  the  firm to import  cotton  was  also issued,  that  the bill of lading obtained  by  the  foreign supplier  on shipment of the goods was also obtained by  the firm  and  the  cotton  is  thus  sent  on  to  India.   The contention  of  the  appellant is that  under  the  contract entered into with the mills the quantity of cotton agreed to be  supplied to the mills is specified as also  its  quality and places from where it was to be imported.  The price  was fixed on C.I.F. Cochin terms.  Payment was to be made by the mills   to  the  firm  against  the  document.   The   other conditions  governing  the  contract are laid  down  on  the reverse of the contract form.  The most important clauses in the  contract -ire that the contract was C.I.F. in  nature, notwithstanding  anything to the contrary mentioned  in  the contract, the price was subject to variation depending  upon the  import  duty,  freight  rate,  insurance  premium   and exchange  rate, that it was specifically provided  that  the sale  was  subject to import licence to be provided  by  the mills  that  the  contract  was  irrevocable  and  that  any difference  between the parties had to be  resolved  through the  arbitration machinery provided in the contract  itself, that  under the import control regulations, the importer  is the mill, the auhorisation and ,he import licence are issued to  the mills only, that even under the letter of  authority although  the  firm was authorised to import the  goods  the mills  remained  the  importer  and  they  were  liable   as importer,  ,that the particulars necessary for inclusion  in the bill of lading are furnished by the firm to the  foreign suppliers  before the shipment is effected, that  after  the goods were shipped at the foreign Port the bill of lading is forwarded  along  with  the  invoice  and  other   connected documents  of title through their Bank to India, that  these documents are received by the firm after due payment of the value to the Agent Bank, that after receiving this document, information is given to the mill when they made the  payment in  accordance with the contract, that thereafter the  goods were  cleared and delivered to the mills by clearing  agents at Cochin and forwarded to the mills".  887 In  another  portion of its Order the tribunal  stated  that "the  goods could not in any circumstances be diverted  from its  determined  destination, once it is  shipped  from  the foreign country." The facts set out by the Tribunal, quoted above, are stated by the Tribunal as admitted facts.  Hence we cannot go  into the  correctness  of those facts.  Dr. Sayed  Mohammed,  the learned  counsel  for  the  department  contended  that  the observation of the High Court that "one of the conditions in the  contract is that the goods imported should not  in  any circumstance  be diverted from its  determined  destination, i.e.,  the mills" is incorrect as there is no such  term  in the  contract entered into between the respondents  and  the mills.  This submission, though in a technical sense may  be correct,  has really no substance because, as could be  seen from the letter of authority issued by the Government  that, one  of  the conditions of the letter of authority  was,  to quote the words of that letter "The person or firm in  whose favour  it has been issued, will act purely as an  agent  of the licensee and the goods imported will be the property  of the  licence-holder both at the time, of  clearance  through the Customs and subsequent thereto.  The licence-holder will have  to  ensure  that  the goods  on  importation  will  be delivered  to  him and shall not be disposed  of  otherwise.

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The  licensee  shall not cause or permit the holder  of  the letter of authority to dispose of the goods." This  clause must be read as a part of the contract  entered into  between the respondents and the mills.  Even  if  this clause  had  not  been  there,  there  would  have  been  no difficulty in coming to the conclusion that the  respondents were precluded from selling the goods to anybody other  than the mills to whom the users import licence had been granted. From  the  facts  set  out above  it  is  obvious  that  the respondents  could not have sold the goods to anybody  other than the, licence-holders. From  the  facts set out above it is clear  that  this  case clearly falls within the rule laid down by this Court in  K. G.  Khosla  &  Co.  v.  Deputy  Commissioner  of  Commercial Taxes(1).   The  appellant therein, imported  certain  goods from  Belgium  in  order to fulfil  contracts  with  certain buyers  in  India.  The question arose  whether  the,  sales effected in this country occasioned the import.  This  Court came to the conclusion that the sales in question occasioned the  import and as such it is exempt under Sec. 5(2) of  the Central  Sales  Tax  Act,  1956, which  says**  "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". (1)  [1966] 3 S. C. R. 3 52. 8 88 Dr.  Sayed Mohammed tried to distinguish Khosla’s case  from the present case on the plea that in Khosla’s case there was only  one  sale whereas in the present case there  were  two sales.  We are unable to accept this contention as  correct. From the facts set out above, it is clear that the facts  of this case are similar to those found in Khosla’s case. Reliance was placed by Dr. Sayed Mohammed on the decision of this  Court in Coffee Board, Bangalore v.  Joint  Commercial Tax Officer, Madras and Another(1).  The facts of that  case briefly stated, are as follows : The Coffee Board auctioned certain quantities of coffee  for the  purpose  of  being  sold  in  foreign  countries.   The purchasers  of  those  lots were  required  to  export  that quantity  of  coffee  to one or the  other  of  the  foreign countries mentioned in the sale notice.  They were precluded from  selling  the same inside India.   The  question  arose whether the purchases made by, them occasioned export.  This Court came to the conclusion that the purchases in  question were  purchases for the purpose of export and the  same  did not  occasion  export.  This Court did not differ  from  the view  taken  in  Khosla’s  case.   On  the,  other  hand  it distinguished  that decision.  Hence the rule laid  down  in the Coffee Board’s case is inapplicable to the present case. For the reasons mentioned above these appeals fail and  they are   dismissed  with  costs.   There  are  four   sets   of respondents.   Hence four hearing fees--One set  of  hearing fee for each set of respondents. S.C.                                     Appeals dismissed. (1) [1970] 3 S. C. R. 147. 889