Bhoop Kishore Pramod Kumar Thru' ... vs The Commissioner Of Trade Tax
2017 Latest Caselaw 7011 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

Court No. - 59
 

 
Case :- SALES/TRADE TAX REVISION No. - 235 of 2007
 

 
Applicant :- Bhoop Kishore Pramod Kumar Thru' Its Prop. Pramod Kumar
 
Opposite Party :- The Commissioner Of Trade Tax
 
Counsel for Applicant :- Piyush Goyal
 
Counsel for Opposite Party :- C.S.C.
 

 
Hon'ble Yashwant Varma,J.

Heard Shri Piyush Agarwal learned counsel for the revisionist and the learned standing counsel.

This revision has been preferred against an order of the Tribunal which has taken the position that the purchases of mentha oil effected by the revisionist in the relevant assessment year would not be exempt from tax nor would they stand covered under the terms of the notification dated 12 February 1999.

The case of the assessee was that it had purchased mentha oil directly from individual farmers and utilized the same for manufacture of menthol. It was its case further that menthol so manufactured was thereafter sent to a dealer outside the State for ultimate export out of the country. The assessee asserted that since mentha oil was a raw material used in the manufacture of goods which were ultimately exported, it was entitled to exemption from purchase tax in light of the notification dated 12 February 1999. The authorities below have negatived this claim of the assessee solely on the ground that it was not the ultimate exporter of the goods and unless it were established that the manufacturer and ultimate exporter are one and the same, the benefit flowing from the said notification would not be available. It is the correctness of this stand of the respondents which falls for consideration.

Since an answer to the question formulated would turn upon the terms of the notification dated 12 February 1999, the same is extracted herein below.

"TIF-2-289/XI-0 (820)/92-U.P.Act-15-48-Order-99, dated 12-2-1999

In exercise of the powers under Section 4-B of the Uttar Pradesh Trade Tax Act, 1948 (U.P. Act No.XV of 1948), the governor is pleased to declare that with effect from February, 15th 1999 and subject to conditions and restrictions specified in the said section and in this notification, no tax shall be payable on the sale to or as the case may be purchase by a dealer holding a valid recognition certificate under sub-section (2) of the said section of any raw materials processing material, consumable stores, spare parts, accessories, components, fuel or lubricants and packing materials required by him for the use in the manufacture of goods or in the packing of goods manufactured by him and such manufactured goods shall be notified goods for the purpose of said section.

CONDITIONS

(i) the above facilities will be available only when, the manufactured goods is exported out of India;

(ii) the dealer claiming benefit of this notification, shall issue a declaration in Form 3-B to selling dealer but before issuing the form, he will mention the number and ate of this notification and words "for export" in it;

(iii) if the manufactured goods is not exported out of India, the dealer claiming the benefit of this notification, shall be liable to pay tax, according to the provision of the aforesaid Act, on the purchase of such goods and also interest from the date of purchase of such goods and if such manufactured goods are exported out of India and also sold otherwise or disposed of otherwise or disposed of otherwise than by way of sale then the purchase of such goods liable to tax shall be determined in accordance with the ratio of quantity of exported goods and goods otherwise sold or disposed of otherwise than by way of sale;

Provided that no concession under this notification shall be admissible in respect of sale to or purchase by distilleries and breweries."

(emphasis supplied)

As is evident from a reading of the said notification, the State exercising powers conferred by Section 4-B of the 1948 Act has proceeded to exempt certain categories of transactions from a levy of purchase tax. This exemption is in respect of raw materials, processing materials, consumable stores etc. in case such goods are required by the manufacturer and are actually utilized by him in the manufacture of or packing of goods. One of the primary eligibility conditions to qualify for exemption placed by the notification is that the manufactured goods are exported out of India. The Department has taken the view that this notification would become applicable only if the manufacturer and the ultimate exporter of the goods are one and the same. The Court finds itself unable to sustain this line of reasoning which has weighed with the respondents for reasons which are set out below.

A plain reading of the terms of the notification establishes that the primary issue which must govern the grant of exemption is the export of the manufactured goods. The notification neither mandates nor provides that the manufacturer himself export the goods out of India. As is evident from a plain reading of "Condition (i)", the emphasis is on the manufactured goods being exported and not that the actual manufacturer export the goods. The crucial test, therefore, is whether the manufactured goods have ultimately been exported out of India. In view thereof, the Court finds that the reasoning which weighed with the Department to deny relief to the revisionist on this score cannot be sustained. However, the matter cannot end here.

This is for the simple reason that admittedly the assessee was not the ultimate exporter of the goods. In order to succeed, therefore, it would be incumbent upon him to establish that the transactions fall within the ambit of Section 5 (3) of CST Act 1956. This issue as to whether the manufactured goods have moved in the course of export cannot be determined on the basis of the notification dated 12 February 1999 since this would principally have to be answered with reference to the provisions encapsulated in section 5. In order to elucidate on this aspect, it would be necessary to notice the provisions of section 5 of CST, 1956 which reads thus:-

"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.

(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 by 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.]"

In order to fall under the umbrella of Section 5 (3) and the first purchase of goods also being deemed to be in the course of export, the assessee must satisfy the following two conditions:-

(a) that the first purchase of "any goods" took place for the purposes of complying with the agreement or order for the export of "those goods".

(b) an inextricable or inseparable link between the first purchase and the ultimate export of those goods.

The emphasis laid on "any goods" and "those goods" relates to the issue of identity of the goods which are imported. The issue which merits consideration is whether the provision contemplates the good firstly purchased and ultimately exported being identical and the same. One may in this connection usefully refer to the decision of the Supreme Court in Sterling Foods Vs State of Karnataka1 where it was observed:-

"3. It is clear on a plain reading of sub-section (3) of Section 5 of the Central Sales Tax Act, 1956 that in order to attract the applicability of that provision, 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 words "those goods" in this sub-section are clearly referable to "any goods" mentioned in the preceding part of the sub-section and it is therefore obvious that the goods purchased by the assessee and the goods exported by him must be the same. If by reason of any processing to which the goods may be subjected after purchase, they change their identity so that commercially they can no longer be regarded as the original goods, but instead become a new and different kind of goods and then they are exported, the purchases of original goods made by the assessee cannot be said to be purchases in the course of export. The question which therefore arises for consideration is as to what happens when shrimps, prawns and lobsters purchased by the assessee are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing before export. Do they cease to be the original commodity and become commercially a new commodity or do they still retain their original identity as shrimps, prawns and lobsters?

The second aspect which merits consideration in matters relating to section 5(3) is the requirement of an inseparable connection and link between the first purchase and their ultimate export. A Constitution Bench of the Supreme Court in State of Karnataka Vs. Azad Coach Builders2 explained the position in the following terms:-

"26. When we analyse 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.

27 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 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 the immediate cause 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. Therefore, the test to be applied is, whether there is an inseverable link between the local sale or purchase and 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." (emphasis supplied)

The Court finds that the revisionist was essentially non suited only on account of formation of the view that he was not entitled to the benefit of the exemption notification as he was not the ultimate exporter. This view has not commended acceptance by the Court. However the matter has not been examined from the view of section 5(3) as exposited above. There has been no consideration of the "same goods" principle flowing from the said provision nor has there been an examination of an inextricable link between the first purchase and ultimate export. Both these aspects of the matter would therefore merit a consideration of the entire issue afresh.

Accordingly while the Court sets aside the order dated 31 January 2007 and allows the instant revision, the matter in consequence shall stand remitted to the assessing authority to proceed afresh and in light of the observations made hereinabove.

Order Date: - 17.11.2017                  (Yashwant Varma, J.)
 
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