Commissioner Of Sales Tax vs General Trading & Sales ...
1991 Latest Caselaw 481 Del

JUDGMENT

B.N. Kirpal, J.

1. The Appellate Tribunal, Sales Tax, has referred three questions of law to this Court under section 45 of the Delhi Sales Tax Act, 1975.

2. The dealer was engaged in the business of newsprint and other papers. In respect to the year 1973-74, it claimed exemption on the basis of sales in respect of imports under local and Central Acts. The Sales Tax Officer narrated the facts in his order as under :

"The dealer has claimed exemption on the basis of sales in respect of imports under local and Central Acts. While examining the claim of the dealer it was revealed that the dealer had received authorisation of State Trading Corporation from various parties during the period under assessment for procuring goods on their behalf. These transactions fall in two categories : (1) sales for which the dealer received authorisation of State Trading Corporation for procuring goods on behalf of various parties and for which sale bills have been raised directly by the State Trading Corporation against the respective parties and the State Trading Corporation has charged whether Central sales tax or local tax as the case may be. These transactions amounted to Rs. 24,77,158.47 and (2) besides, the dealer had imported newsprint worth Rs. 10,88,141 on behalf of various newsprint agencies against actual user licenses granted by the Chief Controller of Imports and Exports, New Delhi, with the specific authorisation in favor of the dealer. In the case of the sales falling into first category, i.e., where the bills were raised directly by the State Trading Corporation against respective authorities the Central sales tax or local sales tax, as the case may be, has been charged by the State Trading Corporation. In such transactions the actual user licensees placed orders with the State Trading Corporation through this dealer. The dealer finances the purchases of the newsprint through bankers. The licensees authorise the dealer to pay to the State Trading Corporation and collect goods against authorisation. The dealer writes to the bankers to issue demand draft in favor of the State Trading Corporation against particular order, with the request to send the release order and demand draft to clearing agency at the place where the goods are to be received in India for the first time with instructions to dispatch the goods directly to the licensees. The dealer claims that these are not his purchases or sales and local and Central sales tax have been collected by the State Trading Corporation."

3. The Sales Tax Officer did not accept the contention of the dealer that the transactions were not its sales or that it simply acted as agent of the other purchasing dealers. The said transactions were subjected to sales tax in the hands of the dealer.

4. An appeal was filed against the orders passed both under the local Act and the Central Act but the Additional Commissioner of Sales Tax dismissed the same.

5. The dealer then filed two appeals before the Tribunal. After examining the various documents on the record, the Tribunal concluded that the dealer had no power or authority to sell imported newsprint except to the holder of actual user license. It came to the conclusion that the dealer had acted only as an agent of the licensees and was, therefore, not liable for payment of sales tax.

6. On an application being filed, the Tribunal has referred the following three questions to this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessed acted as agent of the actual user licensees while importing newsprint from foreign sellers under the actual user import licenses and authorisations issued ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessed was not liable for payment of sales tax on newsprint imported through the State Trading Corporation which was later passed on to third parties or license-holders ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for entire transactions under the import and disposal of newsprint, the assessed was not exigible to sales tax ?"

As would be evident from the above, there are two categories of cases with which we are concerned. The first is where imports were made on behalf of various actual user licensees on the basis of the import licenses issued by the Chief Controller of Imports and Exports. In such cases, letters of authority were issued to the dealer and the total value of the imported newsprint was Rs. 10,88,141. The second category is where the State Trading Corporation acted as canalising agent and imported goods which were then supplied to the actual user licensees. We propose to deal with these two categories of cases separately though the result is the same.

7. As regards the imports worth Rs. 10,88,141, the Tribunal has found that import licenses were issued by the Chief Controller of Imports and Exports in the name of actual users. Under the provisions of the Import and Export Control Order, letter of authority used to be issued whereby the dealer was authorised to import goods on behalf of the licensees. The letter of authority entitled the dealer to open letter of credit and make remittance of foreign exchange. The letter of authority was issued subject to three conditions which were :

"A. The person or concern in whose favor it has been issued, will act purely as an agent of the licensee and the goods imported will be the property of the license-holder both at the time of clearance through the customs and subsequent thereto. The license-holder will have to ensure that the goods on importation will be delivered to him and shall not be disposed of otherwise. The licensee shall not cause or permit the holder of letter of authority to dispose of the goods. If the licensee fails to take delivery of the imported goods within three months from the date of clearance through the customs authorities, he shall inform the licensing authority concerned explaining the reasons for the same.

B. The holder of the letter of authority shall clearly indicate on all the relevant customs documents including the triplicate copy of the customs bill of entry that the goods have been imported by him on behalf of the licensee. This endorsement will be duly attested by the customs authority.

C. The holder of the letter of authority shall not under any circumstances be entitled to any quota license or quota certificate on the basis of these imports."

8. It is an admitted case that the terms of the import license as well as the letter of authority were complied with. A perusal of the aforesaid conditions attached to the letter of authority clearly discloses that the goods which were imported, never became the property of the dealer. The important condition of the letter of authority was that the dealer was to act only as an agent and the goods were to be imported for the licensee and it is the license-holder who was to have the title in the goods both at the time of clearance through the customs and subsequent thereto. The goods were imported by the dealer no doubt but they were imported on behalf of the licensees.

9. As the goods remained the property of the licensees, the question of the same being sold by the dealer could not arise. The dealer never became the owner of those goods. The ownership was transferred by the foreign seller to the licensees. There was no principal to principal contract of sale between the dealer and the licensees. As the goods belonged to the licensees, there could obviously be no question of the dealer selling those very goods to the licensees. The only role which was played by the dealer, in such a case, was that of an agent. In law, the dealer was precluded from acting in any other capacity qua the goods so imported. In our opinion, therefore, the Tribunal was right in coming to the conclusion that the dealer only acted as an agent of the licensees.

10. Mr. Sangal has drawn our attention to the two decisions of the Bombay High Court where similar question arose. In Dean & Webber Mill Stores Company v. State of Maharashtra [1977] 39 STC 161, the assesseds, holding a letter of authority from an actual user, imported goods which were supplied to the actual user licensee. The question which arose was whether there was any transaction of sale between the assesseds and the licensee. After examining the documents on record, including the letter of authority, the Division Bench of the Bombay High Court came to the conclusion that the legal effect of the documents on the record left no doubt that in the matter of imports under the contract, the assesseds had acted as agents of the licensee and that they did not purchase any of the goods imported under the contract themselves and that there was no sale of goods by the assesseds to the licensee. To the similar effect is another decision of the Bombay High Court in the case of Commissioner of Sales Tax v. Metal Distributors Ltd. [1977] 39 STC 212. We are in respectful agreement with the said decisions which, in our opinion, laid down the correct law.

11. Coming now to the second category of transactions, we find the position not to be radically different. Newsprint became a canalised item. The canalised agent was the State Trading Corporation. Actual users had to get themselves registered and obtain authorisation and thereafter actual user licenses used to be issued by the Chief Controller of Imports and Exports in favor of the actual users. On the basis of the licenses so issued, order is to be placed on the State Trading Corporation, who would, thereafter import the goods from abroad. In fact the import license which used to be issued was subject to the conditions which were attached to the license itself. The most important condition was that the goods were being imported from abroad by the State Trading Corporation and the newsprint so imported would not be diverted to any other porson. The dealer was authorised by the licensees to represent them before the State Trading Corporation. A clarification was sought from the Government of India by the dealer about its status qua, such imports. A letter No. 16(4) 76-77/Nil has been placed on the record which sets out the procedure regarding the allocation and import of the newsprint. It is stated in this letter that allotments are made in the names of the newspapers and not on the name of the agent or the dealer and that the imports are through a single canalised agent, viz., the State Trading Corporation. No direct license of import is issued to the publishers or to any agent or dealer of newsprint and that the agents and dealers are not issued with any terms of allocation. The State Trading Corporation, however, recognises the arrangement between the dealer and the licensee whereby the licensee is allowed to authorise the dealer to lift the newsprint on its behalf. It has been found as a fact that in the supplies made by the State Trading Corporation to the licensees, the State Trading Corporation has paid sales tax. In respect to the same transactions, it is obvious, sales tax cannot once again be demanded by the department from the dealers. The dealer never became the owner of the goods. The title in them never transferred in its favor. The sales were made by the State Trading Corporation in favor of the licensees and the only part which was played by the dealer was that of an agent. The Tribunal was, therefore, right in coming to the conclusion that no sales tax was leviable on the dealer.

12. For the aforesaid reasons, we answer the questions of law in the affirmative and in favor of the dealer.

13. There will be no order as to costs.

14. Reference answered in the affirmative.