Case: Serajuddin and Ors Vs. The State of Orissa

2. The appellant entered into four contracts for sale of mineral ore. Two of these contracts were with the foreign buyer M/s. Associated Metals and Minerals Corporation, New York. The other two contracts were with the State Trading Corporation. It is common ground that the Corporation entered into contracts with foreign buyers for sale of the identical goods purchased by the Corporation from the appellant.3. The present appeal relates to the two contracts between the appellant and the Corporation. The High Court came to the conclusion that the appellants two contracts with the Corporation are exigible to tax under the Central Seles Tax Act,1956.

Reasoning:
There may be a variety of transactions if the sale of commodity is followed by export. Foreign purchasers may purchase through their agents within the territory of India. Such a transaction is not in the course of export because the seller does not export the goods and it is not his concern as to how the purchaser deals with the goods. There may be also a transaction under a contract of sale with a foreign buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to the purchaser. Such a sale may be dissociated from the export. A sale in the course of export predicates a connection between the sale and export. No single test can be laid as decisive for determining that question. Each case must depend upon its facts. But it does not mean that distinction between transactions which may be called sales for export and sales in the course of export is not real. Where the sale is effected by the seller and the seller is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of the obligations arising by statute, contract, or mutual understanding between the parties arising from the nature of the transaction the sale is in the course of export. In the Nilgiri Plantations case (supra) this Court found that the sales by the appellants were intended to be complete without the export and as such it could not be said that the sales occasioned export. The sales were for export and not in the course of export.The appellant sold the goods directly to the Corporation. The circumstance that the appellant did so to facilitate the performance of the contract between the Corporation and the foreign buyer on terms which were similar did not make the contract between the appellant and the Corporation the immediate cause of the export. The Corporation in regard to its contract with the foreign buyer entered into a contract with the appellant to procure the goods. Such Contracts for procurement of goods for export are described in commercial parlance as back to back contracts. In export trade it is not unnatural to find a string of contracts for export of goods. It is only the contract which occasions the export of goods which will be entitled to exemption. The appellant was under no contractual obligation to the foreign buyer either directly or indirectly. The rights of the appellants were against the Corporation. Similarly the obligations of the appellant were to the Corporation. The foreign buyer could not claim any right against the appellant nor did the appellant have any obligation to the foreign buyer. All acts done by the appellant were in performance of the appellants obligation under the contract with the Corporation and not in performance of the obligations of the Corporation to the foreign buyer.27. The expression "sale" in Section 5 of the Act has the same meaning as in Sale of Goods Act . String contracts or chain contracts are separate transactions even when there is similarity relating to quantity, quality of goods, shipment, sampling and analysis, weighment and force majeure etc. or other similar terms. A contract of sale is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for the money consideration called the price. There were two separate contracts. The price was different in the two contracts. This difference also dissociates the two contracts from each other. The High Court was right in holding that the sales of the appellant to the Corporation were exigible to tax because the appellants sales to the Corporation were not sales in the course ofthe present case, there is no principal and agent relationship between the appellant and the Corporation and in the absence of such relationship the agency of necessity does not arise. Other instances of agency of necessity are where the master of a ship is entitled in the case of accident to enter into a contract which binds the owner of the cargo, notwithstanding that it transcends his express authority if it is bona fide made in the best interests of the owners concerned. The same power is possessed by a land carrier in respect of perishable goods. In the present case, the relationship between the appellant and the Corporation is between two principals and there is no aspect whatever of principal and agency. Further, this question of agency was never raised before the Sales Tax authorities.In the present case, the mention of F,O.B, price in the contracts between the appellant and the Corporation does not render the contracts F.O.B. contracts with the foreign buyer. The Corporation entered into independent contracts with the foreign buyers on F.O.B basis, The appellants were required under the contracts between the appellant and the Corporation to bring the goods to the ship named by the Corporation. The shipment of the goods by the Corporation to the foreign buyer is the F-O-B, contract to which the appellants are not the parties. The course of export in the export stream is possible in direct contracts between the Indian seller and the foreign buyer. The Corporation purchased goods from the appellants in order to fulfil the contract with the foreign buyer. The only scope of the deeming provision in the Act is to find out the contract of sale which is the direct cause or which occasions the export.35. 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. In Burmah Shell Oil Storage and Distributing Co. v. Commercial Tax Officer (1961) SCR 902 = (AIR 1961 SC 315  ) it was said that the word "export" did not mean a mere taking out of the country but that the goods may be sent to a destination at which they could be said to be imported. The directions given by the Corporation to the appellant to place the goods on board the ship are pursuant to the contract of sale between the appellant and the corporation. These directions are not in the course of export, because the export sale is an independent one between the Corporation and the foreign buyer. The taking of the goods from the appellants place to the ship is completely separate from the transit pursuant to the export sale.36. The fact that the exports can be made only through the State Trading Corporation does not have the effect of making the appellants the exporters where there is direct contract between the Corporation and the foreign buyer. Restriction on export that export can be made only through the State Trading Corporation is reasonable restriction and has been upheld by this Court in several decisions to which reference has been made earlier.37. For these reasons we are of opinion that the High Court was correct in its conclusion that the contracts between the appellant and the Corporation were not entitled to claim exemption within the meaning of Section 5 (1) of the Act. Civil Appeals Nos. 697-706 of 1973 are dismissed. Parties will pay and bear their own costs.38. In Civil Appeals Nos. 2063 2082 of 1974 the appellants entered into similar contracts with the Corporation. The Corporation entered into similar contracts with the foreign buyers. The appellants were assessed to tax under the Act. The appellants made an application to the Tribunal to refer the question to the High Court as to whether the sales by the appellants to the Corporation were in the course of export. The Tribunal dismissed the application of the appellants. The appellants applied to the High Court for orders that the Tribunal be called upon to file statement of case. The High Court dismissed the applications. The High Court relied on the decision which is the subject matter of Civil Appeals Nos. 697-706 of 1973. In view of our conclusion in Civil Appeals Nos. 697 706 of 1973 that the appellants are not entitled to claim exemption. Civil Appeals Nos. 2063-2082 of 1974 are dismissed.39. In view of the fact that the High Court directed the parties to pay and bear their own costs. similar order is made in all these appeals.