CIVIL WRIT JURISDICTION CASE No.3997 of 2007 In the matter of an application under Articles 226 & 227 of the Constitution of India FOOD CORPORATION OF INDIA through the General Manager, Region, Patna …..Petitioner Versus 1. THE UNION OF INDIA, Ministry of External Affairs, through the Joint Secretary (North) South Block, New Delhi 2. The State of Bihar 3. The Commissioner of Commercial Taxes, Government of Bihar, Patna 4. The Deputy Commissioner of Commercial Taxes In Charge, Pataliputra Circle, Patna ……….Respondents ******* For the Petitioner : Mr. Jai Narain Sahay & Ms. Priyadarshini Y Jha, Advocates For the State : Mr. Satyavir Bharti, Advocate For Respondents nos.1, 2 and 4 : Mr. ******** P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE BIRENDRA PRASAD VERMA S K Katriar, J. This writ petition is directed against the order dated 7.11.2006 (Annexure 6), passed by the Commercial Taxes Tribunal, Bihar, Patna, in Revision Case no. PT -531/96 (M/s Food Corporation of India, Patna vs. State of Bihar), whereby the revision application preferred by the assessee, the present petitioner, has been dismissed, the orders of the authorities under the Act have been upheld, and it has been held that the alleged export of rice from India to Nepal was really sale within the State of Bihar and, therefore, exigible to tax under the Central Sales Tax Act 1956 (hereinafter referred to as `the Central Act). 2. A brief statement of facts essential for the disposal of this writ petition may be indicated. Nepal is a sovereign, independent country with a long length of common boundary with the State of Bihar. It appears that large areas of Nepal were flooded in the second half of 1993. Therefore, the Government of India (GOI, in short) decided to donate adequate quantity of rice to Nepal for the benefit of flood victims. The GOI, therefore, purchased 10,000 metric tons of rice from the petitioner at a total cost of 2 Rs.6.5 crores. The goods were to be delivered by the petitioner to its counter part, namely, Food Corporation of Nepal, at Muzaffarpur, within the State of Bihar, whereafter the Nepalese Corporation had to take it by road to Nepal at the cost of the GOI. The sale and the export had taken place during the period 13.12.1993 to 25.3.1994. A question, therefore, arose whether or not it was a sale simpliciter between the petitioner and the GOI in the State of Bihar, or it was a sale between the two in the course of export of rice to Nepal. Relying on the provisions of Section 7(3) of the Bihar Finance Act 1981 (hereinafter referred to as `the Bihar Act’), the learned Assessing Officer as well as the learned appellate authority held that in absence of any notification by the State Government exempting levy of sales tax these were sales between the petitioner and the GOI within the State of Bihar and, therefore, liable to tax under the Central Act. The petitioner preferred revision application before the Tribunal which has been dismissed by the impugned order. The learned Tribunal held as follows in the impugned order:- “Both sides were heard and the lower court and appellate court records were perused. It appears that the assessing officer has disallowed the claim of export of rice to Nepal Govt. by the petitioner, FCI. The reason assigned for this disallowance is that the 10000 metric ton rice worth Rs.6,50,000=00 was donated by way of relief to Govt. of Nepal by the Govt. of India for the flood sufferers after purchasing the same from the FCI at the rate of Rs.650/- per quintal through cheque and the same consignment was received by the Nepal Food Corporation on behalf of Nepal Govt. at Narayanpur Anant Station, Muzaffarpur, and the transport cost was paid by the embassy of the External Affairs Ministry, Govt. of India. The Govt. of India requested the Govt. of Bihar to exempt this transaction from levy of sales tax but exemption was not granted. Sec. 7(3) exempts exports to foreign countries from the sales tax and it is essential that transaction should take place as a result of direct privity of contract. In the instant case the sale took place between the FCI and the Ministry of External Affairs, Govt. of India and this sale was complete at the hands of FCI and it has rightly been held by the assessing officer that this sale was not in course of export to Nepal and was held by him that until and unless the same transaction is not exempted by notification by the Govt. of Bihar the allowance of exemption to this transaction would be contrary to provision of law. Hence he levied sales tax at the rate of 4% treating this as intra State sales. The appellate authority too confirmed this assessment order and further held that the letters issued by the Commercial Taxes Deptt. do not help the petitioner as the petitioner did not fulfill the conditions laid down in the CST Act for the allowance of export claim. We too are of the view that there is no doubt that the Govt. of India purchased rice from FCI, Patna for which payment was made through cheque and the petitioner only delivered the goods to Nepal Food Corporation as per direction of the Ministry of External Affairs,Govt. of India at Narayanpur Anant Station, Muzaffarpur and the FCI was under no contractual obligation to send rice to Nepal. Further there are no evidence on the records to prove that the transactions between the Govt. of India and the FCI and the FCI and the Govt. of Nepal are integrally inter connected and not as a result of any privity of contract entered into by the FCI and the Govt. of Nepal. The case laws cited by the petitioner’s counsel 3 do not support the case of the petitioner as the facts of this case are quite different from those in cited judgments. Rather case laws cited in the case of Shankar Jee Raut Gopaljee Raut and Dulichand Hardwai Lal reported in (1968) 22 STC (Patna) support the case of the revenue. In view of the above discussion, we find no merit in the case of the petitioner, and hence no interference is called for in this matter by the Tribunal. In the result, revision is dismissed and the impugned order is confirmed.” In other words, the three authorities under the Act have concurrently found as an issue of fact and held that it was sale between the petitioner and the GOI within the State of Bihar and, therefore, taxable. 3. While assailing the validity of the impugned order, learned counsel for the petitioner submits that the learned Tribunal has completely misread the documents. If the documents are read as a composite whole, constituting one integrated sale, then it is evident that the sale between the petitioner and the GOI from the very inception was bound for export to Nepal and, therefore, exempt from payment of sales tax in terms of Article 286(1)(B) of the Constitution of India read with the proviso to Section 6(1) of the Central Act, and Section 7(1)(c) of the Bihar Act. He relies on the following reported judgments:- (i) State of Bihar v. Tata Engg. & Locomotive Co. Ltd. 1971 (27) Sales Tax Cases 127 (at p.148) (ii) State of West Bengal Vs. North Adjai Coal Co. Ltd. 1971 (27) Sales Tax Cases 268 (iii) Dulichand Hardwari Mull v. State of Bihar 1968 (22) Sales Tax Cases 255 Learned counsel for the petitioner submits that the impugned judgment has been passed on a complete misreading of the transaction discernible from the chain of correspondence between the GOI, the petitioner (FCI), and the State of Bihar. In such a situation, in his submission, the provisions of Section 7(3) of the Act are inapplicable to the facts and circumstances of the present case. 4. Learned counsel for the respondents submits that the issue is concluded by findings of facts. The learned Tribunal and the two authorities under the Act have concurrently held that it was really a sale between the petitioner and the GOI within the State of Bihar and, therefore, the provisions of Section 7(3) of the Bihar Act are attracted. Therefore, exemption from payment of tax needed the requisite notification in terms of Section 7(3) of the Act. In the absence of such a notification, the transaction in question is exigible to tax under the Central Act. He relies on the Full 4 Bench judgment of this Court in Shankarjee Raut Gopalji Raut v. State of Bihar (supra). 5. We have perused the materials on record and considered the submissions of learned counsel for the parties. Section 7 of the Bihar Act is reproduced hereinbelow:- “7. Exemption.- (1) No tax shall be payable under this part on sales or purchases of goods which have taken place – (a) in the course of inter-State trade or commerce; (b) outside the State; © in the course of import of goods into, or export of the goods out of the territory of India. (2) The provisions of the Central Sales Tax Act 1956 (LXXIV of 1956) shall apply for determining when a sale or purchase of goods shall be deemed to have taken place in any of the ways mentioned in clauses (a), (b) or (c) of sub-section (1). (3) The State Government may, by notification and subject to such conditions or restrictions as it may impose, exempt from the sales tax or purchase tax- (a) sales of any goods or class or description of goods; (b) sales of any goods or class or description of goods to or by any class of dealers; © any sale or category or description of sales; and (d) purchase of any goods by any class of dealers or any purchase or category or description of purchases of such goods; (4) Where exemption from the levy of tax under this part on any sale or purchase of goods is claimed by a dealer under the provisions of this section or section 21, the burden of proof shall lie on such dealer and the prescribed authority may require the dealer to substantiate the claim in the prescribed manner.” Section 5 and Section 6 of the Central Sales Tax are reproduced hereinbelow:- “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. ……… …………. ……… ………” “6. Liability to tax on inter –State sales.- (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales (of goods other than electrical energy) effected by him in the course of inter-State trade or commerce during any year on and from the date so notified: Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5 is a sale in the course of export of those goods out of the territory of India.” Article 286 of the Constitution of India is also reproduced hereinbelow:- 5 “286. Restrictions as to imposition of tax on the sale or purchase of goods. – (1) No law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place – (a) outside the State; or (b) in course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub- clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates, and other incidents of the tax as Parliament may by law specify.” 6. It is thus evident on a perusal of the provisions relevant in the present context that, if the sale or purchase occasions such export within the meaning of Section 5 of the Central Act, then such a sale is exempt from payment of sale tax. Provisions of Section 7(1) of the Bihar Act are to the same effect. Article 286 of the Constitution also, inter alia, lays down that no law of State shall impose or authorize the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place in course of export of goods out of the territory of India. 7. This takes us on to the most vital question, namely, whether or not the transaction in question is a sale between the petitioner and the GOI in the State of Bihar within the meaning of Section 7(3) of the Bihar Act, or it is a sale meant for, and lead to, the export of goods to Nepal. There is no formal of sale in the present case. Nature of the transaction has to be found out from the chain of correspondence which took place between the GOI, the petitioner, and the State of Bihar. The first communication being a wireless message dated 16.9.93 (Annexure 1), from the GOI to the Government of Bihar, is reproduced hereinbelow in full:- “ TO : CHIEF SECRETARY, GOVT. OF BIHAR FROM : R R DASH, DEPUTY SECRETARY, MINISTRY OF EXTERNAL AFFAIRS, SOUTH BLOCK, NEW DELHI. ------------------------------------------------------------------------------------- No. Dated 16.9.93 Crash Unclass ----------------------------------------------------------------------------------- IT HAS BEEN DECIDED AT THE HIGHEST LEVEL TO MAKE AVAILABLE 10,000 MTS OF RICE ON URGENT BASIS TO NEPAL AS GRANT FOR ITS FLOOD-AFFECTED AREAS. 6 FOOD CORPORATION OF INDIA, FROM WHOM THE ABOVE QUANTITY OF RICE IS BEING PROCURED, HAVE CONFIRMED IMMEDIATE AVAILABILITY OF RICE AT THEIR DEPOT/GODOWN IN MUZAFFARPUR (BIHAR)(.) THIS MINISTRY HAS ASKED NEPAL FOOD CORPORATION TO LIFT THE RICE FROM FCI GODOWN SOONER POSSIBLE (.) RICE WILL BE MOVED FROM MUZAFFARPUR TO BIRGANJ (NEPAL) THROUGH RAXAUL CHECKPOST (.) SINCE THE ENTIRE QUANTITY OF RICE IS MEANT AS `EMERGENCY RELIEF SUPPLIES` TO GRANT OF GOVT. TO GOVT. OF NEPAL FOR ITS FLOOD AFFECTED AREAS. THIS MINISTRY WOULD BE GRATEFUL IF THE GOVT. OF BIHAR COULD KINDLY CONSIDER GRANTING AD-HOC EXEMPTION OF DUTIES/TAXES USUALLY LIABLE ON SUCH CONSIGNMENT(.) AN EARLY RESPONSE IN THIS REGARD COULD BE APPRECIATED ENABLING US TO FINALISE ARRANGEMENTS (.) PLEASE ISSUE, Sd/- ( R R DASH ) DEPUTY SECRETARY (MA) 16.9.93 Duty Officer Police Wireless Centre CGO Complex, Block no.9, 1st floor New Delhi – 11 0003” The same read with other such communications brought to our notice make it abundantly clear that the item of sale between the petitioner and the GOI from the very inception was bound to be exported to Nepal for the aid of the flood victims there. It is impossible to read these documents in any other way. We are convinced that the sale in question had really occasioned the export from India to Nepal. In that view of the matter, we have no manner of doubt that the Tribunal has completely misread the documents and recorded a perverse finding of fact. We, therefore, conclude that the transaction in question was from the very inception bound for exports to Nepal and the sale had really occasioned export within the meaning of Section 5(1) of the Central Act. Such a sale meant for export is indeed covered by the provisions of Article 286 of the Constitution of India, read with the proviso to section 6(1) of the Central Act, and is evidently exempt from payment of sales tax. 8. Learned counsel for the petitioner has rightly relied on the aforesaid judgments of the Supreme Court and this Court. We would content ourselves by referring to the judgment of the Supreme Court in State of Bihar vs.Tata Engg. & Locomotive Co. Ltd. (supra). The Supreme Court quoted with approval the following portions from its earlier judgment in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, Special Circle, Ernaculam [(1964) 7 SCR 706]:- 7 “A sale in the course of export predicates a connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction. In this sense to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be an 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. A transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export, but is not necessarily to be regarded as one in the course of export, unless the sale occasions export.” The Supreme Court also quoted with approval the following portion from its another earlier judgment in Tata Engineering and Locomotive Co. Ltd. V. Assistant Commissioner of Commercial Taxes [(1970) 1 SCC 622] :- “ It has been laid down that the sale in the course of export predicated connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted without a breach of the contract or the compulsion arising from the nature of the transaction. 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. The principle thus admits of no doubt, according to the decisions of this court, that the sales to be exigible to tax under the Act (Central Sales Tax Act 1956) must be shown to have occasioned the movement of the goods or articles from one State to another. The movement must be the result of a covenant or incident of the contract of sale.” The Supreme Court concluded as follows:- “ The decided cases establish that sales will be considered as sales in the course of export or import or sales in the course of inter-State trade and commerce under the following circumstances:- (1) When goods which are in export or import stream are sold; (2) When the contracts of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of goods takes place, and (3) Where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported out of the State in which the delivery of goods takes place.” 9. The judgment of the Supreme Court in State of West Bengal v. North Adjai Coal Company Ltd. (supra), is to the same effect. A Division Bench of this Court held to the same effect in Dulichand Hardwari Mull v. State of Bihar (supra), and was approved by the Supreme Court in State of Bihar vs. Tata Engg. & Locomotive Co. Ltd. (supra), at page 136. Identical issues fell for the consideration of a Full Bench of this Court in Shankerjee Raut Gopalji Raut vs. State of Bihar (supra), and is to the same effect as the aforesaid judgment of the Supreme Court. It may be stated that the 8 Full Bench quoted with approval the earlier judgment of the Full Bench in Dulichand (supra). 10. In the result, the writ petition is allowed. We set aside the judgment dated 7.11.2006 (Annexure 6), passed by the learned Tribunal with the cost quantified at Rs.1000/- (one thousand only). ( S K Katriar, J. ) Birendra Prasad Verma, J. I agree. ( Birendra Prasad Verma, J. ) Patna High Court, Patna The 1st of July 2010 AFR/mrl