Commissioner Of Sales Tax, New ... vs Gramophone Co. Of India.
1991 Latest Caselaw 573 Del

JUDGMENT

B.N. Kirpal, J.

1. This is a reference made under section 45 of the Delhi Sales Tax Act, 1975, by the Sales Tax Appellate Tribunal, Delhi, who has referred the following questions of law to this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sale by the assessed of EMI Vidicon tube type 2677 and EMI tape video recording tape type 620/48/200 VP to the All India Radio in pursuance to the tender notice issued by the Directorate General of Supplies and Disposals was exempt from the levy of sales tax ?

2. Whether the sales of goods imported by M/s. Gramophone Co. of India from Middlesex, England, and subsequently sold to All India Radio constitute one sale or two distinct and different sales; one from the foreign seller to M/s. Gramophone Co. of India and other from Gramophone Co. of India to All India Radio through DGS & D ?

3. Whether the sales of goods by the dealer, i.e., M/s. Gramophone Co. is a sale in the course of import within the meaning of section 5(2) of the Central Sales Tax Act and exempt from levy of sales tax ?"

2. The assessment year involved is 1972-73. The facts, as found by the Tribunal, were that -

3. In response to a tender notice issued by the Directorate General of Supplies and Disposals, Government of India, for supply of EMI Vidicon tube type 2677 and EMI tape video recording tape type 620/48/200 VP, the assessed submitted a tender which was accepted by the said Directorate on January 15, 1972. In terms thereof item No. 1 was to be delivered within 6-8 weeks from the date of receipt of import license, and item No. 2 within 20-24 weeks from the receipt of similar license. The two items were specified to be the products of a particular manufacturer of Middlesex, England. The Director of Inspection was to be allowed inspection of item No. 1 at New Delhi and of item No. 2 at Calcutta. These items were said to be required for the All India Radio. The prices were based on current rates and provision for customs duty was made at 50 per cent. A provision was as well made for any variation in the exchange rate. The Directorate General of Supplies and Disposals also undertook that import recommendation certificates would be issued separately to enable the assessed to arrange the necessary import. It was also stipulated that the prices were exclusive of sales tax, as the transaction being during the course of import recommendation certificates to be issued by the Government of India, sales tax was not legally leviable.

4. The assessed then wrote a letter dated January 17, 1972 to the Directorate General of Supplies and Disposals for the issue of import recommendation certificates. One such was issued by the Directorate on February 1, 1972. A certificate was also issued by All India Radio on February 3, 1972 that the items mentioned therein were the property of Government of India.

5. The assessed wrote another letter on February 7, 1972 to the Directorate General of Supplies and Disposals for the expeditious issue of import license of the said items.

6. The import licenses were issued on February 21, 1972 and February 22, 1972, in favor of the assessed for the import of the said items.

7. The goods so imported were supplied to the All India Radio in terms of the aforesaid accepted tender.

8. The assessed contended before the sales tax authorities that the sales which were made to DGS & D were in the course of import, within the meaning of that expression in section 5(2) of the Central Sales Tax Act. The Sales Tax Officer did not accept this contention. An appeal was filed before the Assistant Commissioner, Sales Tax, but without success. Thereafter another appeal was filed to the Sales Tax Tribunal. While allowing the appeal, the Sales Tax Tribunal held as follows :

"It is obvious from the narration of the facts above that the two items for the supply of which the tender of the assessed was accepted were not stock-in-hand with the assessed in India. They had to be imported, and this was acknowledged by the Directorate General of Supplies and Disposals while accepting the tender. The Directorate had also undertaken to get made available the import recommendation certificates. They were actually got later procured. It is thus clear that the import of those items was directly connected and linked with the acceptance of that tender. But for that acceptance, the assessed would not have imported those items nor the Directorate would have ensured the procurement of import recommendation certificates. There is nothing to import from the nature of transaction that the assessed was competent to dispose of those items independently, and was not obliged to supply them to the All India Radio. The goods were rather, in fact supplied in terms of the accepted tender to the All India Radio.

The delivery schedule of those items to the All India Radio was further made dependent and co-related to the receipt of import licenses. The nature of the goods were also specified to be of a particular manufacturer of Middlesex, England. Their sale to the Government, therefore, necessarily involved import, and this was very well understood by the parties to that tender and they made this as part of the accepted tender.

Section 5(2) as aforesaid comes into play where the sale occasions import of goods into India. The present case would, therefore, be squarely covered by it inasmuch as it was as a result of agreement to sell the goods to the Government that the assessed imported those goods. Such sales are not exigible to sales tax.

The Directorate General of Supplies and Disposals had also understood the matter accordingly and it was stipulated that the sales tax was not leviable as the transaction was during the course of import. Such a stipulation, of course, is not binding on the Sales Tax Department, and it is entitled to independently adjudge the matter. However, otherwise too as discussed above, the present case is covered by section 5(2) of the said Act.

In my considered opinion, the ratio of the decision of the Supreme Court in the case of K. G. Khosla and Co. [1966] 17 STC 473 is applicable in the present case. The other two decisions on which the department relied namely, Binani Bros. [1974] 33 STC 254 and Ben Gorm Nilgiri Plantations Co. reported as are rather distinguishable and do not apply to the facts of the present case. As observed in the latter decision, there should be an application to import or export and a bond should be shown to exist to justify the inference that they formed part of a single transaction or that the sale and import were integrally connected. These were found missing in that case.

In the other case of Binani Bros. , the sales tax had been realised by the dealer and duly deposited. Subsequently by a writ, its refund was sought and reliance was placed upon the case of K. G. Khosla and Co. . The dealer in that case was found to be importing non-ferrous metals, for several years and it was noted that the particular sale transaction had not resulted in the import.

I, therefore, allow this appeal and hold that the sale of the aforesaid two items did not invite the levy of sales tax."

9. On an application being moved by the petitioner the aforesaid three questions of law have been referred to this Court.

10. As will be evident from what has been stated hereinabove, the Sales Tax Tribunal has based its decision on the judgment of the Supreme Court in the case of K. G. Khosla and Co. . We, however, find that the learned Tribunal did not appreciate the facts of the case of K. G. Khosla and Co. fully.

11. In the case of K. G. Khosla and Co. an agreement had been entered into with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The goods were to be imported from Belgium. Inspection of the goods was carried out outside India and thereafter the goods were supplied to the DGS & D in India. The Supreme Court came to the conclusion that the import had occasioned the movement of goods and M/s. K. G. Khosla and Co. had acted as the agents of the foreign seller. This important aspect is clearly brought out in the decision of the Supreme Court in Binani Bros. [1974] 33 STC 254. After noticing the decision in K. G. Khosla and Co. it was observed by the Supreme Court in Binani Bros. case [1974] 33 STC 254 that the only sale was the sale by K. G. Khosla & Co. as agent of the manufacturer in Belgium. To the same effect is a decision of the M.P. High Court, which is relied upon by Shri Sangal, in the case of Commissioner of Sales Tax v. Firestone Tyre & Rubber Co. of lndia Pvt. Ltd. [1986] 61 STC 105. In this case also the finding which was recorded was that there was no sale between foreign exporter and the assessed. There was only one sale by the assessed himself to the purchaser of the goods which had been imported from abroad.

12. The decision which is clearly applicable to the present case is that of Binani Bros. [1974] 33 STC 254. In that case the assessed, in order to effect supplies to the DGS & D had to obtain additional import license. The import licenses were obtained on the import recommendation certificates which were issued to the assessed. It was always contemplated and known that the goods which were to be supplied to the DGS & D had to be imported from abroad. Nevertheless the Supreme Court came to the conclusion that there were two sales which were involved in that case. One sale was that of the foreign supplier who sold to Binani Bros. and the other by the latter in favor of the DGS & D. The import had not been occasioned by the sale contract between Binani Bros. and the DGS & D.

13. It may be noticed that in arriving at the aforesaid conclusion the Supreme Court referred to its earlier decision in the case of Coffee Board v. Joint Commercial Tax Officer [1970] 25 STC 528. That was a case involving export of coffee from India. The Coffee Board had purchased coffee which was meant for export and, therefore, had actually exported the coffee to foreign purchaser. The Supreme Court held that there were two different sale transactions and that the sale had not occasioned the movement of goods from India to abroad.

14. It appears to us, from an analysis of the aforesaid decisions of the Supreme Court that, prior to the insertion of sub-section (3) in section 5 of the Central Sales Tax Act, in the case of sale of goods in the course of import or export, there has to be a privity of contract between a foreign party and the Indian importer or exporter. Unless the sale takes place during the movement of goods from India to abroad by transfer of documents of title a sale would be regarded as being in the course of import, within the meaning of section 5(2) of the Central Sales Tax Act only if the foreign exporter has the privity of contract with the Indian importer. In the present case, therefore, if there had been a contract between the foreign company, which had exported the equipment from England and the DGS & D and the assessed had merely acted as the agent of the foreign company then the ratio of the decision in K. G. Khosla and Co.'s case would have been applied. Notwithstanding the fact that the assessed, in the present case, obtained the import license on a certificate being issued by the All India Radio and also notwithstanding the fact that in the acceptance of tender, it was stipulated that the goods were being imported from abroad, nevertheless two independent sales transactions have taken place. There was a sale by a foreign exporter to the assessed and thereafter there was a sale by the assessed to the DGS & D. The sale which has occasioned the movement of goods from England to India is the sale made by the foreign exporter in favor of the assessed and not the sale made by the assessed in favor of the DGS & D. This sale has been made after the goods had been imported into India. The sale by the assessed to the DGS & D did not occasion the movement of goods from England to India.

15. We are clearly of the opinion, that the decision of the Tribunal was not correct. Therefore, answer to question No. 1 is in the negative and in favor of Commissioner. In answer to question No. 2, we hold that there were two distinct and different sales, one from foreign seller to the Gramophone Co. of India, and the other from Gramophone Co. to the All India Radio through the DGS & D. Our answer to question No. 3 is in the negative and in favor of the Commissioner.

16. There will be no orders as to costs.

17. Reference answered accordingly.