Case: Binani Bros. (P). Ltd Vs. Union Of India &amp; Ors

the Coffee Board to the export promoter, and the second sale by the export promoter to a foreign buyer which occasioned the movement of goods and that the latter sale alone could earn the exemption from sales tax as being a sale in the course of export. 13. In Khosla case, (1966) 3 SCR 352 = (AIR 1966 SC 1216 ), it might be recalled that Khosla and Co. entered into the contract of sale with the DGS and D for the supply of axle bodies manufactured by its principal in Belgium and the goods were to be inspected by the buyer in Belgium but under the contract of sale the goods were liable to be rejected after a further inspection by the buyer in India. It was in pursuance to this contract that the goods were imported into the country and supplied to the buyer at Perambur and Mysore. From the statement of facts of the case as given in the judgment of the High Court it is not clear that there was a sale by the manufacturers in Belgium to Khosla and Co., their agent in India. It would seem that the only sale was the sale by Khosla and Co. as agent of the manufacturer in Belgium. In the concluding portion of the judgment of the Court, it was observed as follows : ".... It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle-bodies would be manufactured in Belgium, inspected there and imported into India for the consignee. Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sale took place in the course of import of goods within Section 5(2) of the Act, and are, therefore, exempt from taxation." As already stated, there was to be an inspection of the goods in Belgium by the representative of the DGS and D but there was no completed sale in Belgium as, under the contract, the DGS and D reserved a further right of inspection of the goods on their arrival in India. 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 and 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 and D. The petitioners sales to DGS and D were distinct and separate from his purchases from foreign sellers. To put it differently, the sales by the petitioner to the DGS and 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 and D. But it would not follow that the sales or contracts of sales to DGS and D occasioned the movement of the goods into this country. There was no privity of contract between DGS and 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 and D and the movement of goods from the foreign countries was not occasioned on account of the sales by the petitioner to DGS and D. 15. It was contended on behalf of the Central Government that the contracts of sale between the petitioner and the DGS and D envisaged the import of goods for fulfilling the contracts and it was for that reason that there was first the recommendation for issue of import licences by DGS and D and then the actual issue of import licences and, as the contracts of sale visualised the import of goods for fulfilling them, the movement of goods in the course of import was occasioned by the contracts of sale to the DGS and D and, therefore, the sales to the DGS and D were the sales which occasioned the movement of goods in the course of import. 16. There was no obligation under the contracts on the part of the DGS and D to procure import licences for the petitioner. On the other hand, the recommendation for import licence made by DGS and D did not carry with it any imperative obligation upon the Chief Controller of Imports and Exports to issue the import licence. Though under the contract DGS and D undertook to provide all facilities for the import of the goods for fulfilling the contracts including an Import Recommendation Certificate, there was no absolute obligation on the DGS and D to procure these facilities. And, it was the obligation of the petitioner to obtain the import licence. Therefore, even if the contracts envisaged the import of goods and their supply to the DGS and D from out of the goods imported it did not follow that the movement of the goods in the course of import was occasioned by the contracts of sale by the petitioner with DGS and D. 17. We see no reason in principle to distinguish this case from the decision in the Coffee Board case, (1970) 3 SCR 147 = (AIR 1971 SC 870 = 1971 Tax LR 391) though that case was concerned with the question when a sale occasions the movement of goods in the course of export.

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

Explanation:
1[ds]11. In the Khosla case, (1966) 3 SCR 352   = (AIR 1966 SC 1216  ), the assessee entered into a contract with the DGS and D, New Delhi, for the supply of axle-box bodies. The goods were to be manufactured in Belgium according to specifications and the DGI SD, London or his representative had to inspect the goods as the works of the manufacturers and issue an inspections certificate. Another inspection was provided for at Madras. The assessee was entitled to be paid 90 per cent. after inspection and delivery of the stores to the consignee and the balance of 10 per cent was payable on final acceptance by the consignee. In the case of deliveries on f.o.r. basis the assessee was entitled to 90 per cent, payment after inspection on proof of despatch and balance of 10 per cent after receipt of stores by the consignee in good condition. The assessee was entirely responsible for the execution of the contract and for the safe arrival of the goods as the destination. The contract provided that notwithstanding any approval or acceptance given by an Inspector, the consignee was found that the goods were not in conformity with the terms and conditions of the contract in all respects. The manufacturers consigned the goods to the assessee by ship under bills of lading and the goods were cleared at the Madras Harbour by the Assessees Clearing Agents and despatched for delivery to the Southern Railway in Madras and Mysore, the question was whether the sales by the assessee to the Government departments were in the course of import and exempt from taxation under Section 5(2) of the Central Sales Tax Act, 1956 Sikri, J. (as he then was), delivering the judgment of the Court said after referring to S. 5(2) of the Central Sales Tax Act that the movement of goods to India was occasioned by the contract of sale between the appellant (Khosla and Co.) and the DGS and D, that if the movement of goods is the result of a covenant or incidental to the contract of sale, it is quite immaterial that the actual sale took place after the import was over12. In Coffee Board v. Joint Commercial Tax Officer, (1970) 3 SCR 147   = (AIR 1971 SC 870   = 1971 Tax LR 391), hereinafter referred to as Coffee Board Case, the Coffee Board claimed that as certain sales of coffee to registered exporters in March and April, 1963 were sales made in the course of export, it could not be taxed under the Madras General Sales Tax Act, 1959. The rules framed by the Coffee Board provided that any dealers who had registered themselves as exporters of coffee with the Coffee Board or their agents and who held permits from the Chief Coffee Marketing Officer in that behalf would be permitted to participate in the auctions, and after the bidding comes to an end, the payment of price would take place in a particular way. Condition No. 26 headed "export guarantee" provided that it was an essential condition of the auction that the coffee sold thereat shall be exported to the destination stipulated in the Catalogue of lots, or to any other foreign country outside India as may be approved by the Chief Coffee Marketing Officer, within three months from the date of Notice of Tender issued by the Agent and that it shall not under any circumstances be diverted to another destination, sold, or be disposed of, or otherwise released in India. Condition 30 stated that if the buyer failed or neglected to export the coffee as aforesaid within the prescribed time or within the period of extension, if any granted to him, he shall be liable to pay a penalty calculated at Rs. 50 per 50 kilos which shall be deductible from out of the amount payable to him as per Condition 31. And Condition 31 provided that on default by the buyer to export the coffee aforesaid within the prescribed time or such extension thereof as may be granted, it shall be lawful for the Chief Coffee Marketing Officer, without reference to the buyer, to seize the unexported coffee and take possession of the same and deal with it as if it were part and parcel of Boards coffee held by them in their Pool stock. The case of the petitioners before this Court was that the purchase at the export auctions were really sales by the Coffee Board in the course of export of coffee out of territory of India since the sales themselves occasioned the export of coffee and that the coffee so sold was not intended for use in India or for sale in the India markets. The case of the Sales Tax Authorities, on the other hand, was that these sales were not inextricably bound up with export of coffee and that the sales must therefore be treated as sales taking place within the State of Tamil Nadu liable of sales tax under the Madras General Sales Tax Act. This Court held that the Board was not entitled to the exemption claimed. The Court said that the phrase sale in the course of export comprises three essentials, namely, that there must be a sale, that goods must actually be exported and that the sale must be a part and parcel of the export. The Court further said that the sale must occasion the export and that the word occasion is used as a verb and means to cause or to be the immediate cause of. The Court was of the view that the sale which is to be regarded as exempt from tax is a sale which causes the export to take place or is the immediate cause of the export that the introduction of an intermediary between the seller and the importing buyer breaks the link, for, then there are two sales, one to the intermediary and the other to the importer, and that the first sale is not in the course of export, for the export begins from the intermediary and ends with the importer. According to the Court the test was that there must be a single sale which itself causes the export and that there is no room for two or more sales in the course of export. The Court, therefore, held that though the sales by the Coffee Board were sales for export, they were not sales in the course of export that there was two independent sales involved in the export programme; the first sale by the Coffee Board to the export promoter, and the second sale by the export promoter to a foreign buyer which occasioned the movement of goods and that the latter sale alone could earn the exemption from sales tax as being a sale in the course of export13. In Khosla case, (1966) 3 SCR 352   = (AIR 1966 SC 1216  ), it might be recalled that Khosla and Co. entered into the contract of sale with the DGS and D for the supply of axle bodies manufactured by its principal in Belgium and the goods were to be inspected by the buyer in Belgium but under the contract of sale the goods were liable to be rejected after a further inspection by the buyer in India. It was in pursuance to this contract that the goods were imported into the country and supplied to the buyer at Perambur and Mysore. From the statement of facts of the case as given in the judgment of the High Court it is not clear that there was a sale by the manufacturers in Belgium to Khosla and Co., their agent in India. It would seem that the only sale was the sale by Khosla and Co. as agent of the manufacturer in Belgium.16. There was no obligation under the contracts on the part of the DGS and D to procure import licences for the petitioner. On the other hand, the recommendation for import licence made by DGS and D did not carry with it any imperative obligation upon the Chief Controller of Imports and Exports to issue the import licence. Though under the contract DGS and D undertook to provide all facilities for the import of the goods for fulfilling the contracts including an Import Recommendation Certificate, there was no absolute obligation on the DGS and D to procure these facilities. And, it was the obligation of the petitioner to obtain the import licence. Therefore, even if the contracts envisaged the import of goods and their supply to the DGS and D from out of the goods imported it did not follow that the movement of the goods in the course of import was occasioned by the contracts of sale by the petitioner with DGS and D17. We see no reason in principle to distinguish this case from the decision in the Coffee Board case, (1970) 3 SCR 147   = (AIR 1971 SC 870   = 1971 Tax LR 391) though that case was concerned with the question when a sale occasions the movement of goods in the course of export