Parle Products Pvt Ltd vs The State Of Karnataka
2022 Latest Caselaw 478 Kant

  IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 12TH DAY OF JANUARY, 2022

                         PRESENT

          THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

    THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY

                   S.T.R.P.No.26/2017

BETWEEN :

PARLE PRODUCTS PVT. LTD.,
HAVING ITS OFFICE AT 15 K.M.STONE,
TUMKUR ROAD, N.H.4,
BANGALORE-560073
REPRESENTED BY MR. RAKESH JOSHI
ASST. MANAGER ACCOUNTS.                          ...PETITIONER

              (BY SRI AJAY J. NANDALIKE, ADV.)

AND :

THE STATE OF KARNATAKA
THROUGH THE ASSISTANT COMMISSIONER
OF COMMERCIAL TAXES (HQ),
DVO (6) - BANGALORE                         ...RESPONDENT

             (BY SRI JEEVAN J. NEERALGI, AGA.)


     THIS STRP IS FILED UNDER SECTION 65(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT DATED 15.10.2015 PASSED IN STA NOS.383 TO
418/2012 ON THE FILE OF THE KARNATAKA APPELLATE
TRIBUNAL AT BANGALORE, DISMISSING THE APPEALS AND
UPHOLDING ORDER DATED 13.03.2012 PASSED IN CST.AP236
TO 271/10-11 ON THE FILE OF THE JOINT COMMISSIONER OF
COMMERCIAL TAXES (APPEALS-6), BANGALORE, PARTLY
                              -2-




ALLOWING THE APPEAL AND MODIFYING THE RE-
ASSESSMENT ORDER DATED 03.03.2010 PASSED BY THE
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (HEAD
QUARTERS) DVO-6, BANGALORE AND FOR THE TAX PERIODS
FROM APRIL 2005 TO MARCH 2009.

      THIS PETITION HAVING BEEN HEARD AND RESERVED,
COMING ON FOR PRONOUNCEMENT OF ORDER, THIS DAY,
S. SUJATHA, J., PASSED THE FOLLOWING:

                         ORDER

The petitioner/assessee has filed this Sales Tax

Revision Petition under Section 65(1) of the Karnataka

Value Added Tax Act, 2003 ('Act' for short) challenging

the judgment dated 15.10.2015 passed by the

Karnataka Appellate Tribunal at Bangalore ('Tribunal'

for short) in STA Nos.383 to 418/2012.

2. The petition has been admitted to consider

the following questions of law:-

"1. Whether in the facts of the present case, the movement of goods from Bangalore to Navi Mumbai is classifiable as 'sale in the course of export' as per Section 5(1) or as 'stock transfer' as per section 6A of the Central Sales Tax, 1956?

2. Whether the Hon'ble Tribunal is correct in stating that only the party actually exporting the

goods alone can be said to affect sale in the course of export 'occasioning' such export?

3. Whether central sales tax is payable on the goods even if it is conclusively proved by documentary evidence that the goods have been exported proved by reason of failure to furnish 'F Forms'?

4. Whether filing of 'F Form' is mandatory when the goods are not supplied by a dealer to his place of business or his agent or principal?"

3. The petitioner - assessee is a manufacturer

and dealer of consumer goods under provisions of the

Karnataka Value Added Tax Act, 2003 and the Central

Sales Tax Act, 1956 ('CST Act' for short). The returns in

Form VAT 100 were filed by the assessee for the period

under consideration i.e., 2005-06 to 2008-09. The

Assistant Commissioner of Commercial Taxes

(Assessing Authority) re-assessed the returns and

disallowed the exemption claimed under Section 5(1) of

CST Act on the ground that the petitioner had effected

stock transfer and not a sale in the course of export.

Being aggrieved, the petitioner preferred appeals before

the First Appellate Authority who dismissed the

appeals. Pursuant to which appeals were preferred

before the Tribunal. The Tribunal by order dated

18.07.2011 set aside the order of the First Appellate

Authority and remanded the matter back to the First

Appellate Authority. The said appeals having being

partly allowed, the petitioner preferred appeals before

the Tribunal unsuccessfully. The review petition

preferred by the assessee also came to be dismissed.

Hence, the present revision petition.

4. Learned counsel for the petitioner submitted

that the Assessing Authority rejected the claim of the

petitioner on the ground that the goods had moved from

Bangalore to Mumbai and the export invoices would

depict that the goods were exported from Maharashtra.

However, no F-Forms were filed by the assessee for the

stock transfer effected from Karnataka branch office to

the head office situated at Maharashtra, from where the

goods are said to be have been exported and has not

proved that only those goods stock transferred for the

purpose of export are exported. The First Appellate

Authority though accepted F-Forms, granted the relief

inasmuch as the stock transfer based on F-Forms

holding that the petitioner has not received any order

for the export of goods nor sending the goods from

Bangalore to abroad directly. Hence, considering the

said movement of goods to the extent of F-Forms

furnished as stock transferred allowed the appeals in

part. On further appeals before the Tribunal, ignoring

the F-Forms filed, it was held that there is no privity of

contract between the petitioner's branch office and the

foreign buyers. The petitioner was treated as an

intermediary interposed in the transactions. The

Tribunal concluded that in the absence of F-Forms,

stock transfers effected by the petitioner to its registered

office i.e., in view of non-compliance of statutory

provisions of Section 6-A of the CST Act, the petitioner

is not entitled to the claim made under Section 5(1) of

the CST Act. Accordingly, dismissed the appeals without

application of mind. The Tribunal indeed has not

addressed the relevant issue inasmuch as applicability

of Section 5(1) of the CST Act in the right perspective.

Learned counsel has placed reliance on the judgment of

the Hon'ble Apex Court in the case of State of Haryana

and others vs. Nipha Exports Pvt. Ltd., [(2007) 8

VST 466 (SC)].

5. Learned Additional Government Advocate

appearing for the State justifying the impugned orders

submitted that the orders of the authorities have been

rightly considered by the Tribunal, examining the

factual aspects in the light of Section 5(1) of the CST

Act. There being no inextricable link established

between the goods stock transferred and exported, it

has been rightly held that the goods have moved from

the branch office to the head office for export but not in

the course of export to attract the provisions of Section

5(1) of the CST Act. The same being in conformity with

the settled principles of law, no interference of this

Court is warranted.

6. We have carefully considered the arguments

advanced by the learned counsel appearing for the

parties and perused the material on record.

7. Section 5(1) of the CST Act 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."

8. In the case of State of Karnataka vs. Azad

Coach Builders Private Limited and another [(2010)

9 SCC 524], the Hon'ble Apex Court has enunciated the

principles relating to Section 5(3) of the CST Act as

under:-

• To constitute a sale in the course of export there must be an intention on the part of both the buyer and 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 of sale cannot be called a sale

in the course of export of goods out of the territory of India.

Thus, it has been held that the test to be applied

is, whether there is an unseverable 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.

9. The Hon'ble High Court of Punjab and

Haryana in the case of M/s Nipha Exports Pvt. Limited

vs. State of Haryana and others [(1998) 108 STC

337] has considered the issue relating to Section 5(1) of

the CST Act in the context of the assessee - company

therein, having its registered office at Calcutta and the

branch office at Faridabad. The goods purchased by the

branch office were sent to the head office at Calcutta for

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the purpose of export and the same were, in fact,

exported. The Assessing Authority recorded a finding

that the orders were received directly by the head office

from the foreign countries and the goods were not

exported directly by the Faridabad dealer. The Tribunal

rejected the claim of the assessee on the ground that

the movement of the goods from branch office at

Faridabad to the head office being a movement

preceding the one which caused movement of goods

from Calcutta to outside India cannot be regarded as

taking place in the course of export of the goods out of

the territory of India within the meaning of Section 5(1)

of the CST Act as it stood before 01.04.1976. The

Hon'ble High Court of Punjab & Haryana held that the

Tribunal seriously erred in invoking the ratio of the

decision of the Hon'ble Apex Court in the case of Mohd.

Sera Juddin vs. The State of Orissa [(1975) 36 STC

136] without applying mind to the background in which

the observations were made by the Hon'ble Apex Court.

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10. The said judgment of the Hon'ble High Court

of Punjab and Haryana in M/s Nipha Exports Pvt.

Limited has been confirmed by the Hon'ble Apex Court

in Civil Appeal No.6823/2000 and connected matters

[(2007) 8 VST 466 (SC)]. It has been categorically held

that the view taken by the Hon'ble High Court that the

movement of the goods from Faridabad to Calcutta was

occasioned in the course of export out of India and there

could be no sale between the branch office and the head

office was justifiable.

11. In the case of Madhur Trading Co. v. State

of Karnataka [ILR 1993 Kar 594], the co-ordinate

bench of this court has considered the expression "in

the course" and "sale in the course of export". It has

been observed thus:

"22. Article 286(2) of the Constitution, empowers the Parliament to formulate principles determing when a sale or purchase of goods takes place, (a) outside the State; or (b) in the

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course of the import of the goods into or export of the goods out of the territory of India.

23. As per Article 269(1)(g) taxes on the sale or purchase of goods (other than Newspapers), where such sale or purchase takes place in the course of interstate trade or commerce, shall be levied and collected by the Government of India, but shall be assigned to the States, in the manner provided in the said Article. Article 269(3) provides that Parliament may be law formulate principles determining when a sale or purchase of goods takes place in the course of interstate trade or commerce. Thus, Article 269 and 286 are the sources of Parliament's power in enacting Sections 3 to 5 of the Central Act. Though Sections 3 and 5 use the word 'deemed' while formulating the principles, Supreme Court has held that the word was not used to create a legal fiction; but, used to convey as to what are the principles governing the respective concepts stated in those provisions. Therefore, there can be no doubt that these concepts are concepts derived from the Constitution and the principles formulated under Sections 3 and 5 of the Central Act would govern them. When the State Legislature uses any one of these concepts -

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whether, it is "sale in the course of inter-state trade or commerce," or "sale in the course of export", it has to be understood by applying the principles formulated in the aforesaid Sections 3 and 5 of the Central Act.

24. Before the enactment of Section 5(3) of the Central Act, the concept of "sale in the course of export" was confined to the last sale which directly occasioned the export. The meaning of the term 'course' was explained by the Supreme Court in Mohd. Serajuddin's case. At page 153 the Supreme Court held:

"The expression "in the course" implies not only a period of time during which the movement is in progress but postulates a connected relation. Sale in the course of export out of the territory of India means sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities."

The Supreme Court referred to its earlier Decision in Coffee Board case to point out that "sale in the course of export" comprised of three essentials: "... First, there must be a sale. Second, goods must actually be exported. Third, the

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sale must be a part and parcel of the export. The propositions laid down in the Coffee Board case are these: The sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. To establish export a person exporting and a person importing are necessary elements and the course of export is between them.

Introduction of a third party dealing independently with the seller on the one hand and with the importer on the other breaks the link between the two, for then there are two sales, one to the intermediary and the other to the importer. The first sale is not in the course of export because the export commences with the intermediary. The tests are that there must be a single sale which itself causes the export or is in the progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer."

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A sale "for export" was different from a "sale in the course of export". Consequently it was held that, safe involved in the purchase of goods by a dealer who in turn sold them to the actual exporter, was not a 'sale in the course of export' (such a sale is referred as 'penultimate sale' for the sake of easy identification)."

12. It is apt to refer to the ruling of this Court in

the case of State of Karnataka and others v. ECE

Industries Ltd., [(2006) 144 STC 605 (Kar)], wherein

it is held thus:

"26. In the present case, the respondent-company had been engaged in the execution of works contract at the premises of the contractee, who placed purchase orders with the branch office of the respondent-company at Bangalore. The branch office in turn communicates such purchase orders to the principal office of the respondent-company, which has its factory at Ghaziabad at U.P. The lifts and elevators were manufactured to the design and specification of the customers. The manufactured items were tested and thereafter dismantled and dispatched to the customers' place in the State by way of

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stock transfers. The branch office of the respondent-company executes the works contract by installing and commissioning of the lifts and elevators at the customers' place. Merely because the lifts and elevators are installed and commissioned in the State, it cannot be said that it is a local sale exigible to levy of tax under Section 5B of the Act on the ground that the actual transfer of property used in the works contract took place in the State of Karnataka. In view of the law declared by the apex Court in Builders Association's case [1993] 88 STC 248 and Gannon Dunkerley's case [1993] 88 STC 204, it can be safely concluded that the principles for determining when a sale takes place in the course of inter-State trade or commerce laid down in Section 3 of the CST Act would apply equally to transfer of property in goods involved in the execution of works contract. Alternatively, it could be said that a transaction to be of inter-State character, it is as to in which State the transfer of property in goods is effected. At this stage, it may be useful to refer to the decision of Madras High Court in the case of State of Tamil Nadu v. Bombay Metal Depot [1978] 41 STC 140, wherein the court has observed :

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(iv) that where the description of the goods is clear and such goods have been sent in conformity with such description and have also been accepted by the purchaser on the basis that they conformed to the description, there is ascertainment and appropriation of the goods to the contract. Where the goods are ascertainable and goods of that description are despatched then the goods so despatched can be taken as appropriated to the contract unconditionally. The circumstance that the purchaser has a right of rejection does not postpone the transfer of property in the goods.

The Allahabad High Court in the case of Swastik Rubber Products (P) Ltd. v. Commissioner of Sales Tax , while rejecting the plea of stock transfer as contended by the assessee, held that the movement of goods took place from one State to another and further, the transfer invoices denote the same quantity and the value of goods which were in the sale bill of the consignee State depot. This was dispatched to the identified customers. In other words, such dispatches from one State to another to an identified customer result in inter- State sale.

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27. We respectfully agree with the conclusion reached by the Madras High Court in the case of Bombay Metal's case , and that of Allahabad High Court in the case of Swastik Rubber Products Ltd.'s case . In conclusion, we are of the view that for determining whether a transaction constitutes inter-State sales or intra-State sales the test that requires to be applied is whether the contract occasioned the movement of goods from one State to another."

The same analogy applies to Section 5(1) as well.

13. Learned counsel for the petitioner has filed a

memo along with certain documents to substantiate his

contention that the goods have occasioned the

movement from Karnataka to Maharashtra in the

course of export. The orders of the appellate authority

relating to the subsequent assessment years 2009-

2010, 2011-2012 and 2012-2013 are also placed on

record wherein the contention of the assessee that the

transfer from branch office to head office was in the

course of export has been accepted.

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14. It is pertinent to note that the Tribunal has

held that there must be a single sale to attract Section

5(1), but it is not the case of the department that the

goods have moved from the branch office in Karnataka

to Head Office at Mumbai as a result of sale. On the

other hand, it is construed as stock transfer. The test to

be applied is whether the contract of the foreign buyers

with the Head Office occasioned the movement of the

goods from Bangalore branch office. This inextricable

link has not been properly examined by the authorities.

However, learned Additional Government Advocate

argued that it is revenue neutral. This argument would

not take the dispute to logical conclusion. The matter

requires to be re-examined by the Tribunal in the light

of the judgments referred to above vis-à-vis the

documents produced before this Court. If the Excise

pass has any inextricable link with the export, certainly

the transaction would come within the purview of

Section 5(1) of CST Act. In other words, the movement

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of goods occasions such export. These aspects require to

be verified by the Tribunal considering the material

evidence placed on record by the assessee. Hence, the

matter has to be restored to the file of the Tribunal sans

answering the questions of law. For the reasons

aforesaid, we pass the following

ORDER

i) The Revision Petition is allowed in part.

ii) The impugned judgment dated

15.10.2015 passed by the Karnataka

Appellate Tribunal at Bangalore in STA

Nos.383 to 418/2012 is set aside. The

matter is restored to the file of the

Tribunal to re-consider the matter in the

light of the observations made

hereinabove.

iii) Registry shall forward all the documents

now placed by the assessee before this

Court to the Tribunal.

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iv) All the rights and contentions of the

parties are left open.

v) The Tribunal shall pass appropriate

orders in accordance with law in an

expeditious manner.

vi) Parties are directed to appear before the

Tribunal on 02.02.2022 without waiting

for any notice and shall take further

orders.

vii) In view of disposal of the main petition, all

pending I.As. stand disposed of.

Sd/-

JUDGE

Sd/-

JUDGE

PMR