Case: The Indure Ltd. &amp; Another Vs. Commercial Tax Officer &amp; Others

of the territory of India. Conversely, in order that the sale should be one in the course of import it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding, be sapped (sic snapped). 6. Counsel for the appellant fairly conceded that the facts in K.G. Khosla & Co. case were on all fours with the facts obtaining in the instant appeals and that the ratio of that decision would appear to govern the question arising in these appeals, but he contended that a different view has been taken by this Court in Binani Bros. (P) Ltd. v. Union of India and in view of this later decision the High Court ought not to have applied the ratio of K.G. Khosla & Co. decision to this case. It is not possible to accept this contention as in our view Binani Bros. case is clearly distinguishable on two material aspects. In that case the assessee itself held the import licence and the goods were imported on the strength of such import licence and not on the strength of any Actual Users Licence as is the case here. Secondly, unlike in the present case there was no term or condition prohibiting diversion of the goods after the import. In fact, it is these two factors obtaining in the instant case which establish the integral connection or inextricable link between the transactions of sale and the actual import making the sales in the course of import. In fact as pointed out earlier, the movement of the goods from the foreign country to India was in pursuance of the requirements flowing from the contract of sale between the respondent- assessee and the local purchaser and as such the sales in question must be held to be in the course of import. 40. Learned Counsel for Respondents has placed reliance on Binani Bros. supra specially para 14, reproduced hereinbelow: 14. Be that as it may, in the case under consideration we are concerned with the sales made by the petitioner as principal to the DGS&D. No doubt, for effecting these sales, the petitioner had to purchase goods from foreign sellers and it was these purchases from the foreign sellers which occasioned the movement of goods in the course of import. In other words, the movement of goods was occasioned by the contracts for purchase which the petitioner entered into with the foreign sellers. No movement of goods in the course of import took place in pursuance to the contracts of sale made by the petitioner with the DGS&D. The petitioners sales to DGS&D were distinct and separate from his purchases from foreign sellers. To put it differently, the sales by the petitioner to the DGS&D did not occasion the import. It was purchases made by the petitioner from the foreign sellers which occasioned the import of the goods. The purchases of the goods and import of the goods in pursuance to the contracts of purchases were, no doubt, for sale to the DGS&D. But it would not follow that the sales or contracts of sales to DGS&D occasioned the movement of the goods into this country. There was no privity of contract between DGS&D and the foreign sellers. The foreign sellers did not enter into any contract by themselves or through the agency of the petitioner to the DGS&D and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to DGS&D. 41. However, we are of the considered opinion that it has not been the Respondents case that the MS Pipes imported by the Company were not used for the erection and commissioning of the plant for N.T.P.C. Thus, from the facts of Binani Bros. supra, it is clearly spelt out that the facts of the case in hand are different. Thus, the ratio of the said case would not be applicable to it. 42. In fact, the ground, sought to be raised for the first time before this Court that MS Pipes were put to manufacturing process and thereby converted into distinct end product had not been raised before any of the Authorities earlier. It was not the Respondents case that pipes so imported were not necessary components for the erection and commissioning of the plant. Admittedly, the said pipes were used as components in the Ash Handling Plant in the same condition as they were imported without altering its originality. Thus, the ground which was sought to be raised before us for the first time has not been considered by any of the Authorities and in our opinion rightly so. Thus, we also do not deem it fit and proper to consider the same at this belated stage. 43. Apart from the aforesaid reasons, we are also of the considered opinion that such import would fall within the Constitutional umbrella. It is also to be noted that Company had admittedly imported the goods into India for completion of the Project on Turnkey Basis of N.T.P.C. Thus, by virtue of Article 286(1)(b) of the Constitution, it would not be taxable. For ready reference, Article 286(1)(b) of the Constitution is reproduced hereinbelow: 286. Restrictions as to imposition of tax on the sale or purchase of goods - (1) No law of a State shall impose, or authorise 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 the course of the import of the goods into, or export of the goods out of, the territory of India. See (1998) (7) SCC 19 Minerals and Metals Trading Corporation of India Ltd. v. Sales Tax Officer.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We have already mentioned hereinabove that alongwith MS Pipes, the disputed goods in this Appeal, the Company had also imported 11 other components/items to be used in the plant for its erection and commissioning. Other 11 imported goods, utilised by the Company in the erection of the plant have been held to be sales in the course of import made by Company to N.T.P.C and accordingly benefit under Section 5(2) of the Act has been granted by the concerned State Government. It was only this particular component MS Pipes, which has been denied this benefit.35. Sales Tax Assessment Order passed by Assistant Commissioner (Commercial Tax), Ghaziabad, State Of Uttar Pradesh has been filed before us to show that such benefit has been accrued to the Company for remaining 11 items. Since MS Pipes were shipped at Calcutta Port, thus it was Respondents who treated them exigible for Sales Tax. If the benefit of the Sales Tax exemption has been given to the Company for 11 components/items there is no reason why it is to be denied in respect of MS Pipes. This we are quoting so that the facts may be put on record correctly.37. In the case in hand, it is to be noted that import had occasioned only on account of the covenant entered into between the Company and N.T.P.C. and the imported pipes were used exclusively for erection and commissioning of the plant. Respondents have failed to establish that these pipes were not used in the plant of N.T.P.C. Similar question had again come up for consideration before two learned Judges of this Court reported in (1997) 7 SCC 190 State of Maharashtra v. Embee Corporation, Bombay wherein it has been held as under:9. In this case (K.G. Khosla and Co.(P) Ltd. v. Dy. Commissioner of Commercial Taxes), the Constitution Bench specifically held that sale need not precede the import and this decision is a complete answer to the argument advanced by the learned Counsel for the appellant.10. Learned Counsel then tried to argue that the decision of the Constitution Bench in Khosla case is not applicable to the present case as in the said case, the materials were to be inspected at Belgium and London and thereafter the goods were to enter into India. This argument is not correct. In Khosla case the inspection of goods was to be carried out in Belgium as well as on arrival into India. In the present case, the inspection was to be done on arrival of goods into India and as such, there is no distinction on facts between the present case and that of Khosla. Learned Counsel then urged that the decision of the Constitution Bench in Khosla case has not been correctly decided and as such this case be referred to a larger Bench. We have considered the matter and found that Khosla case has held the field nearly more than three decades and its correctness has not been doubted so far. We, therefore, reject the prayer of learned Counsel for the appellant.11. Learned Counsel then urged that this case is covered by decisions of this Court in the cases of Binani Bros. (P) Ltd. Union of India; Mohd. Serajuddin v. State of Orissa and K. Gopinathan Nair v. State of Kerala. The decision of this Court in the case of Binani Bros. is distinguishable as in that case no obligation was imposed on the appellant to supply the imported goods to DGS&D after they had been imported and the same could be directed to other channels. Similarly, the decision of this Court in the case of Mohd. Serajuddin is not applicable to the present case as in that case it was found that the appellant in the said case sold the goods directly to the Corporation which entered into a contract with a foreign buyer and it was found that the immediate cause of export was the contract between the foreign buyer who was the importer and the Corporation who was the exporter. Such sales were described as back-to-back contract. This decision rested on the peculiar facts of that case. We are, therefore, of the view that the appellant cannot derive any assistance from the said decision. The last case which was brought to our notice was K. Gopinathan Nair v. State of Kerala. In the said case, on facts it was found that on account of the sale to CCI by foreign exporters raw cashewnuts were imported into India. The importer being the CCI and not the local user, this Court held that principles evolved by it in para 12 of the judgment were not applicable to that case. We do not, therefore, find that this decision is helpful to the appellants. The result of the aforesaid discussion is that while interpreting the expression sale occasions import occurring in Sub-section (2) of Section 5 of the Act, it is not necessary that a completed sale should precede the import.41. However, we are of the considered opinion that it has not been the Respondents case that the MS Pipes imported by the Company were not used for the erection and commissioning of the plant for N.T.P.C. Thus, from the facts of Binani Bros. supra, it is clearly spelt out that the facts of the case in hand are different. Thus, the ratio of the said case would not be applicable to it.42. In fact, the ground, sought to be raised for the first time before this Court that MS Pipes were put to manufacturing process and thereby converted into distinct end product had not been raised before any of the Authorities earlier. It was not the Respondents case that pipes so imported were not necessary components for the erection and commissioning of the plant. Admittedly, the said pipes were used as components in the Ash Handling Plant in the same condition as they were imported without altering its originality. Thus, the ground which was sought to be raised before us for the first time has not been considered by any of the Authorities and in our opinion rightly so. Thus, we also do not deem it fit and proper to consider the same at this belated stage.43. Apart from the aforesaid reasons, we are also of the considered opinion that such import would fall within the Constitutional umbrella. It is also to be noted that Company had admittedly imported the goods into India for completion of the Project on Turnkey Basis of N.T.P.C. Thus, by virtue of Article 286(1)(b) of the Constitution, it would not be taxable38. Test to determine if the sales were in the course of import has been elaborately considered in a judgment of learned three Judges Bench of this Court reported in (1985) 4 SCC 119 Deputy Commissioner of Agricultural Income Tax And Sales Tax, Ernakulam v. Indian Explosives Ltd.39. Para 4 thereof dealing with the issue is reproduced hereinbelow and finally in para 6 while distinguishing (1974) 1 SCC 459 in the matter of Binani Bros. (P) Ltd. v. Union of India and Ors. it has been held as under:4. The test of integral connection or inextricable link between the sale and the actual import or export in order that the sale could become a sale in the course of import or export has been clearly enunciated by this Court in Ben Gorm Nilgiri Plantations Company case. There the question related to sale of tea which was claimed to be in the course of export out of the territory of India and though by majority it was held that the sales in question were not in the course of export, the Court at p. 711 of the Report laid down the testA 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 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. And 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 such a bond, a transaction of sale cannot be called a sale in the course of export of goods out of the territory of India.Conversely, in order that the sale should be one in the course of import it must occasion the import and to occasion the import there must be integral connection or inextricable link between the first sale following the import and the actual import provided by an obligation to import arising from statute, contract or mutual understanding or nature of the transaction which links the sale to import which cannot, without committing a breach of statute or contract or mutual understanding, be sapped (sic. Counsel for the appellant fairly conceded that the facts in K.G. Khosla & Co. case were on all fours with the facts obtaining in the instant appeals and that the ratio of that decision would appear to govern the question arising in these appeals, but he contended that a different view has been taken by this Court in Binani Bros. (P) Ltd. v. Union of India and in view of this later decision the High Court ought not to have applied the ratio of K.G. Khosla & Co. decision to this case. It is not possible to accept this contention as in our view Binani Bros. case is clearly distinguishable on two material aspects. In that case the assessee itself held the import licence and the goods were imported on the strength of such import licence and not on the strength of any Actual Users Licence as is the case here. Secondly, unlike in the present case there was no term or condition prohibiting diversion of the goods after the import. In fact, it is these two factors obtaining in the instant case which establish the integral connection or inextricable link between the transactions of sale and the actual import making the sales in the course of import. In fact as pointed out earlier, the movement of the goods from the foreign country to India was in pursuance of the requirements flowing from the contract of sale between the respondent- assessee and the local purchaser and as such the sales in question must be held to be in the course of import.