Case Note & Summary
The appeals before the Supreme Court arose from the Kerala High Court's orders in tax revision cases concerning sales tax liability on supplies of imported Egyptian cotton by an assessee firm to textile mills. The assessee, engaged in supplying foreign cotton to mills in South India, did not hold import licences because such licences were issued only to actual users. The mills held the licences and made enquiries with the assessee about quality, quantity, and price. The assessee then contacted foreign suppliers, and upon receiving acceptable offers, entered into written contracts with the mills. A representative contract dated 20 March 1964 with Mahalakshmi Textiles Mills specified quantity, quality, source of import, price on CIF Cochin terms, and payment against documents. Conditions on the reverse of the contract included prohibition on diverting goods from the determined destination. The shipping documents were issued by the foreign seller in the names of the mills, not the assessee. Letters of authorisation issued by government showed the assessee was to act purely as agent of the licensees, and the imported goods were to be the property of the licensees at the time of customs clearance and thereafter. The assessing authority and the Appellate Assistant Commissioner had held the sales to be intrastate, but the Sales Tax Tribunal held they fell within Section 5(2) of the Central Sales Tax Act, 1956 read with Article 286 of the Constitution, making them exempt. The Kerala High Court affirmed the Tribunal's decision. On appeal by the revenue, the Supreme Court had to decide whether the sales occasioned the import. The Court applied the precedent of K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes, which held that a sale or purchase is in the course of import if it either occasions such import or is effected by transfer of documents of title before the goods cross customs frontiers. The Court examined the contractual terms and documentation, including the CIF contract, shipping documents in the mills' names, import licences held by the mills, and the assessee's role as agent. It concluded that the sales were inextricably linked to the import and therefore fell under Section 5(2). The Coffee Board case was referred to and distinguished. The appeals were dismissed, and the High Court's order was affirmed.
Headnote
A) Sales Tax - Sale in Course of Import - Exemption under Section 5(2) Central Sales Tax Act, 1956 - The assessee firm supplied foreign cotton to textile mills on basis of import licences issued to mills; shipping documents were in mills' names; letters of authorisation showed assessee acted purely as agent of licensees; contract was CIF with condition against diversion - Held that the sales occasioned the import and were exempt from sales tax under Section 5(2) read with Article 286 of the Constitution; following K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes (Paras 1-5). B) Precedent - Applicability of K.G. Khosla & Co. - Distinguishing Coffee Board, Bangalore v. Joint Commercial Tax Officer - The Court held that the present case fell within the rule laid down in K.G. Khosla & Co. because the contract of sale between assessee and mills preceded the import and was integrally connected with it; Coffee Board case was referred to and distinguished without detailed reasoning (Paras 1-5).
Issue of Consideration
Whether the sales effected by the respondent to the textile mills occasioned the import of Egyptian cotton and hence fell within the exemption under Section 5(2) of the Central Sales Tax Act, 1956 read with Article 286 of the Constitution of India.
Final Decision
The Supreme Court dismissed the appeals, holding that the sales in question occasioned the import and fell within Section 5(2) of the Central Sales Tax Act, 1956 read with Article 286 of the Constitution. The Court applied the rule in K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes and affirmed the Kerala High Court's decision.
Law Points
- A sale or purchase of goods is deemed to be in the course of import into India only if the sale or purchase either occasions such import or is effected by transfer of documents of title before the goods cross customs frontiers
- Where shipping documents are issued in the buyer's name
- import licences are held by buyer
- and assessee acts as agent of licensee
- the sale by assessee to buyer occasions the import and is exempt under Section 5(2) Central Sales Tax Act 1956 read with Article 286 of Constitution
- CIF contracts for supply of imported goods coupled with licence conditions prohibiting diversion indicate that sale is in course of import
- The decision in K.G. Khosla & Co. governs when contract between assessee and local buyer is inseparably linked with import.
