Case: State Of Karnataka Vs. Azad Coach Builders Pvt. Ltd.

was no direct linkage or causal connection between the export by foreign exporter and the receipt of the imported goods in India by the local users and hence the integrity of the entire transaction got disrupted and substituted by two independent transactions, one between the canalizing agency and the foreign exporter which made the canalizing agency the owner of the goods imported and the other between the canalizing agency and the local users for whose benefit the goods were imported by the canalizing agency. In such a situation, the Court held that the sale by the canalizing agency to the local users would not be a sale in the course of import but would be a sale because of or by import which would not be covered by the exemption provision of Section 5(2) of the Central Sales Tax Act. The Court further noticed that a sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer. 23. When we analyze all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on Section 5(3) of the CST Act, the following principles emerge:- To constitute a sale in the course of export 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.- 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 sale cannot be called a sale in the course of export of goods out of the territory of India.24. The phrase sale in the course of export comprises in itself three essentials: (i) that there must be a sale: (ii) that goods must actually be exported and (iii) that the sale must be a part and parcel of the export. The word `occasion is used as a verb and means to cause or to be the immediate cause of. Therefore, the words `occasioning the export mean the factors, which were immediate course of export. The words `to comply with the agreement or order mean all transactions which are inextricably linked with the agreement or order occasioning that export. The expression `in relation to are words of comprehensiveness, which might both have a direct significance as well as an indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed. 25. Therefore, the test to be applied is, whether there is an in-severable link between the local sale or purchase on 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. 26. The facts of this case clearly reveal that the transaction between the assessee and the exporter is inextricably connected with the export of the goods to Sri Lanka. The communication between the foreign buyer and the exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the assessee under the specifications stipulated by the foreign buyer. The bus bodies constructed and manufactured by the assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer. In the Purchase Order placed on the assessee by the exporter, it is specifically indicated that the bus bodies have to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order. The assessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the `same goods theory has no application. We may also indicate that the burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and to establish that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer, which in this case the assessee has succeeded in establishing. 27. Mr. T. S. Narasimha, learned counsel appearing for Respondent No. 2 contended that any penultimate sale made in furtherance of export, irrespective of the nature of the goods, would also be covered, is too tall a proposition to be accepted. It all depends on the question as to whether the sale or purchase is inextricably connected with the export of goods and not a remote connection as tried to be projected by the counsel. The connection between the penultimate sale and the export of goods should not be casual, accidental or fortuitous, but real, intimate and inter linked, which depends upon the nature of the agreement the exporter has with the foreign buyer and the local manufacturer, the integrated nature of the transactions and the nexus between the penultimate sale and the export sale. In the facts and circumstances of this case, we are satisfied that the assessee has succeeded in satisfying those tests and hence, eligible for exemption under sub-section (3) of Section 5 of the CST Act. 28.

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

Explanation:
0[ds]In this connection, it is useful to refer to the judgment of this Court in Deputy Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam v. Indian Explosives Ltd. (1985) 4 SCC 119 , wherein this Court was dealing with the question whether the respondent-assessee was concerned with sale transactions in the course of import of chemicals, dyes etc. The modus operandi of the assessee in that case was to the effect that local purchasers used to place orders with the respondent quoting their Import Licence Numbers in accordance with their pre-existing contracts with the respondent. The respondent then placed orders with the foreign supplier for the supply of the goods and in such orders the name of the local purchaser who required the goods as also its licence numbers, were specified; the actual import was done on the strength of two documents like (a) the Actual Users Import Licence and (b) Letter of Authority issued by Chief Controller of Imports and Exports whereunder the local purchaser was authorized to permit the respondent-assessee on his behalf to import the goods, to open letters of credit and make remittance of foreign exchange against the said licence to the extent of value specified therein. The Court held that there was an integral connection between the sale to the local purchaser and the actual import of the goods from the foreign supplier. The movement of goods from foreign country like United States to India was in pursuance of the conditions of the pre-existing contract of sale between the respondent-assessee and the local purchaser. It was noticed that the import of the goods by the respondent assessee was for and on behalf of the local purchaser and the respondent-assessee could not, without committing a breach of the contract, divert the goods so imported for any other purpose. The Court, therefore, concluded that 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 snapped.When we analyze all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on Section 5(3) of the CST Act, the following principles emerge:- To constitute a sale in the course of export 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.- 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 sale cannot be called a sale in the course of export of goods out of the territory of India.24. The phrase sale in the course of export comprises in itself three essentials: (i) that there must be a sale: (ii) that goods must actually be exported and (iii) that the sale must be a part and parcel of the export. The word `occasion is used as a verb and means to cause or to be the immediate cause of. Therefore, the words `occasioning the export mean the factors, which were immediate course of export. The words `to comply with the agreement or order mean all transactions which are inextricably linked with the agreement or order occasioning that export. The expression `in relation to are words of comprehensiveness, which might both have a direct significance as well as an indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed.Therefore, the test to be applied is, whether there is an in-severable link between the local sale or purchase on 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.The facts of this case clearly reveal that the transaction between the assessee and the exporter is inextricably connected with the export of the goods to Sri Lanka. The communication between the foreign buyer and the exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the assessee under the specifications stipulated by the foreign buyer. The bus bodies constructed and manufactured by the assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer. In the Purchase Order placed on the assessee by the exporter, it is specifically indicated that the bus bodies have to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order. The assessee in this case has succeeded in showing that the sale of bus bodies have occasioned the export of goods. When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, in our view, the `same goods theory has no application.We may also indicate that the burden is entirely on the assessee to establish the link in transactions relating to sale or purchase of goods and to establish that the penultimate sale is inextricably connected with the export of goods by the exporter to the foreign buyer, which in this case the assessee has succeeded in establishing.In the facts and circumstances of this case, we are satisfied that the assessee has succeeded in satisfying those tests and hence, eligible for exemption under sub-section (3) of Section 5 of the CST