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PETITIONER: THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX & SALES T

       Vs.

RESPONDENT: INDIAN EXPLOSIVES LTD.

DATE OF JUDGMENT19/08/1985

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. MUKHARJI, SABYASACHI (J) MISRA RANGNATH

CITATION:  1985 AIR 1689            1985 SCR  Supl. (2) 623  1985 SCC  (4) 119        1985 SCALE  (2)483

ACT:      Sales in  the course  of import of the goods into India Whether the  goods imported and supplied to customers on the strength of  Actual Users’  Import Licences of the customers are exempt from sales tax under the Kerala General Sales Tax Act, 1950 - Constitution of India, 1950 Article 286 (I) (b).

HEADNOTE:      The Respondent - assessee deals in chemicals, dyes etc. import goods  on the  strength of  the Actual  Users’ Import Licences that  had been obtained by the customers and supply the same for use by the latter in their factories. The sales in question  were put  through by the respondent assessee in the following manner. The indigenous purchaser used to place orders with  the respondent  - assessee  quoting his  Import Licence Number,  quantity of  goods, rate, etc. as agreed to by previous  correspondence with  the respondent - assessee; the respondent  -  assessee  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 authorised 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 import  licence expressly  contained two conditions  (i) that  the goods  imported  will  be  the property of  the licence-holder  at the  time  of  clearance through the Customs and (ii) that the goods will be utilised only for  consumption as  raw material or accessories in the licence- holder’s  factory and  that no portion thereof will be sold  to or  be permitted  to be  utilised by  any  other party. On  receipt of  the goods  the respondent  - assessee used to invoice the local purchaser.      The respondent  - assessee  was assessed  to Sales  Tax during the  assessment years  1961-62, 1962-63  and  1963-64 under the 624

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General Sales  Tax Act,  1950 on  the  turn  over  of  sales effected by  them in  those years  of goods, imported on the strength of the customers’ Actual Users’ Import Licences and supplied to  them. Such turnover subjected to tax was to the tune  of  Rs.  3,15,586.19  in  the  year  1961-62  and  Rs. 4,03,427.72 in  the year  1963-64. The respondent - assessee contended that these sales were in the course of Article 286 (I) (b) of the Constitution. The contention was negatived by the assessing  authority as  also by the Appellate Assistant Commissioner but  the Appellate  Tribunal in  second  appeal accepted the contention and held that the disputed turn over in each  year was not taxable. In the revisions preferred by the  Deputy   Commissioner  the  Nigh  Court  confirmed  the Tribunal’s view.  Hence the Revenue appeals by special leave of the Court.      Dismissing the appeals, the Court, ^      HELD: 1.1  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 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. [628 B-C]      Ben Gorm  Nilgiri Plantatioos Company, Coonoor ant Ors. v. Sales Tax Officer, Special Circle Ernakulam & Ors. [1964] 7 SCR 706 relied on.      1.2 Reading the two documents, namely the Actual Users’ Import Licence  and letter  of Authority issued by the Chief Controller of Imports and Exports together, it is clear 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  80  imported  for  any  other purpose. Having  regard to the terms and conditions on which the respondent-assessee imported the goods and the manner in which the  transactions were  put through,  it is clear that there was  an integral  connection between  the sale  to the local purchaser  and the actual import of the goods from the foreign supplier.  In other  words  it  is  clear  that  the movement of  the goods  from the  foreign country  (here the United States)  to India  was in pursuance of the conditions of the 625 pre-existing  contract   of  sale  between  the  respondent- assessee and  local purchaser.  That being  so the  sales in question were in the course of import. [627 A-D]      Ben Gorm  Nilgiri Plantations Company, Coonoor and Ors. v. Sales  Tax Officer, Special Circle Ernakulam & Or. [1964] 7 SCR 706 and K.G. Khosla & Co.(Pvt.) Ltd. Delhi v. Deputy B Commissioner of  Commercial Taxes, Madras Division, [1966] 3 SCR 352 followed.      Coffee  Board,   Bangalore  v.   Joint  Commercial  Tax Officer, Madras  & Anr.  [1970] 3 SCR 147 and State of Bihar Anr. v.  Tata Engineering & Locomotive Cu. Ltd. [1971] 2 SCR 849 referred to.      M/s. Binani  Bros (P)  Ltd. v.  Union of  India &  Ors. [1974] 1 SCC 459 distinguished.

JUDGMENT:      CIVIL APPELLATE JURISDICTION  : Civil Appeals Nos. 867-

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869 1974.  T.S. Krishnamurthy,  T. Karunakaran  Nambiar  aud P.K. Pillai for the Appellant.       F.S.  Nariman, R.F.  Nariman, R.Suresh  and D.N. Gupta for the Respondent.      The Judgment of the Court was delivered by      TULZAPURKAR, J.  The common  question raised  in  these appeals is  whether the  sales effected  by the respondent - assessee in  the three concerned years of goods imported and supplied to  customers on  the  strength  of  Actual  Users’ Import Licences  of the customers were exempt from sales tax under the  Kerala General  Sales Tax Act, 1950 on the ground that these  were sales  in the course of import Or the goods into the territory of India .      The respondent  - assessee  deals in  chemicals,  dyes, etc. The concerned assessment years are 1961-62, 1462-63 and 1963-64. The respondent - assessee was assessed to sales tax under the  General Sales  Tax Act  1950 on  the turnover  of sales effected  by them  in those years of goods imported on the strength  of the customers’ Actual Users Import Licences and supplied  to them. Such turnover subjected to Tax was to the tune  of Rs.  3,15,586.19  in  the  year  1961-962,  Rs. 13,40,949-98 in  the year 1962-63 and Rs. 4,03,427.72 in the year 1963-64. The respondent - assessee contended that 626 these sales were in the course of import of goods into India and hence  not taxable  by virtue  of Art.  286(1)(b) of the constitution. The  contention was negatived by the assessing authority as  also by  the Appellate  Assistant Commissioner but the  Appellate Tribunal  in second  appeal accepted  the contention and  held that the disputed turnover in each year was not  taxable. In  the revisions  preferred by the Deputy Commissioner, the  High Court confirmed the Tribunal’s view. In doing  80 the High Court considered the several decisions that were  cited before it and ultimately following the test laid down  by this  Court in  Ben Gorm  Nilgiri  Plantations Company, Coonoor  and Ors.  v. sales  Tax  Officer,  Special Circle Ernakulam  & Others  [1964] 7  SCR  706,  and  mainly relying upon another decision of this Court in K.G. Khosla & CO. (Pvt.)  Ltd. v.  Deputy Commissioner  of Commercial Tax, Madras Division,  [1966] 3  SCR 352  - AIR  1966 SC 1216, it took the  view  that  the  sales  covered  by  the  disputed turnover in  the facts  and circumstances  of the  case were sales in  the course  of import.  The Revenue has come up in appeal to this Court.      It was  not disputed  that goods  were imported  by the respondent -  assessee in  the strength of the Actual Users’ Import Licences  that had been obtained by the customers and supplied to  them for  use by the latter in their factories. The sales  in question  were put  through by the respondent- assessee, as  found both by the Tribunal and the High Court, in  the  following  manner.  The  indigenous  purchaser  for example M/s. Hindustan Insecticides  Limited in Kerala, used to place  orders with respondent-assessee quoting his Import Licence Number,  quantity of  goods, rate, etc. as agreed to by previous correspondence with the respondent-assessee; the respondent-assessee 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) Actual Users Import Licence  and (b)  Letter of Authority issued by Chief Controller of  Importer and  Exports  whereunder  the  local purchaser was  authorised 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

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licence to the extent of value specified therein. The import licence expressly  contained two  conditions, (i)  that  the goods imported will be the property of the licence-holder at the time  of clearance through the Customs and (ii) that the goods will  be utilised only for consumption as raw material or accessories  in the  licence-holder’s factory and that no portion thereof  will be  sold to  or  be  permitted  to  be utilised 627 by any  other party. Reading these two documents together it was clear  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 purpose. On  receipt of  the goods  the  respondent-assessee used to  invoice the  local purchaser.  Having regard to the terms  and  conditions  on  which  the  respondent  assessee imported the  goods and the manner in which the transactions were put  through, it  cannot be  disputed that there was an integral connection  between the sale to the local purchaser and  the  actual  import  of  the  goods  from  the  foreign supplier. In  other words  it is  clear that the movement of the goods  from the foreign country (here the United States) to India  was in  pursuance of  the conditions  of the  pre- existing contract  oil sale  between the respondent-assessee and the  local purchaser.  If that  be so  the view  of  the Tribunal and  the High Court that the sales in question were in the course of import will have to be upheld.      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 had been clearly enunciated by this Court in Ben Gorm Nilgiri  Plantations   Company’s  case  (supra).  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 y           activities being so integrated that the connection           between the two cannot be voluntarily interrupted,           without a breach of the contract of 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 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 628           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 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

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         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.      Counsel for the appellant attempted to suggest that the aforesaid 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 diluted  or deviated  from in Coffee Board, Bangalore v.  Joint Commercial  Tax Officer,  Madras &  Anr. [1970] 3  SCR 147, but the suggestion has to be rejected. We may point  out that  such suggestion  was expressly rejected and the observations regarding two independent sales in that case were  properly explained as appropriate to the facts of that case  by this  Court in  State of  Bihar & Anr. v. Tata Engineering  Locomotive Co. Ltd. [1971] 2 SCR 849, where the test  of   Integral  connection  or  inextricable  link  was reaffirmed as  a correct and well-settled test to decide the question.      Counsel for  the appellant  fairly  conceded  that  the facts in  K.G. Khosla & Co.’s Case (supra) 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 M/S. Binani Bros (P) Ltd. v. Union of India Others, [1974] 1 SCC 459, and in view of this  later decision  the high  Court ought  not to  have applied the  ratio of  K.G. Khosla  &. Co’s decision to this case. It is not possible to accept this contention as in our view Binaini  Bros’s 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 629 strength of  any Actual  Users Licence  as is the case here. Secondly, unlike  in the  present case  there was no term or condition prohibiting  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.      The  view  of  the  Tribunal  and  the  High  Court  is confirmed and  the appeals  are dismissed.  No order  as  to costs. S.R.                                       Appeal dismissed. 630