Case: State Of Orissa Etc Vs. The M.M.T.C. Of India Etc

2. The Minerals and Metals Trading Corporation of India Limited. respondent in the appeals herein, is a government company within the meaning of Section 617 of the Companies Act, 1956. Thee is registered as a dealer under the Act. During the years8 and the quarters ending June, September and December 1968, the respondent purchased mineral ores from the, who were registered dealers under the Act. While purchasing mineral ores from thes the respondent gave declarations in terms of Rule 27 of the Orissa Sales Tax Rules, 1947 (the Rules) to the effect that the said mineral ores would be resold within the State of Orissa. The Sales Tax Officer while examining the accounts relating to the relevant period found that the respondent had sold the mineral ores in the course of export to the Japanese buyers with whom the assessee hadg export contracts. The Sales Tax Officer came to the conclusion that the mineral ores were sold in violation of the declarations furnished by the respondent and, as such contravened the provisions of Section 5(2) (A) (a) (ii) of the Act. The Sales Tax Officer added the amount of the relevant sales to the taxable turnover of the respondent and issued a demand for payment of the tax. The respondent filed an appeal before the first appellate authority which was dismissed. Aggrieved by the order of the first appellate authority, the respondent filed a second appeal before the Sales Tax Tribunal. It was contended before the Tribunal that the goods were resold in Orissa and the transaction with the Japanese buyers being sale in the course of export, it was not liable to tax by virtue of Article 286(1) (b) of the Constitution of India. The Tribunal came to the conclusion that the sale by the respondent in favour of the Japanese buyers, was within the State of Orissa and as such there was no violation of the terms of the declarations. The Tribunal, however, did not agree with the other contention that the transactions were in the course of export and, therefore, not exigible to sales tax. The Tribunal rejected the second contention. The net result was that the assessee was not found liable on account of violation of the undertaking in the declarations but the assessees sale in favour of the Japanese buyers was found liable to tax. As the accounts had to bed to ascertain the correct figures the Tribunal remanded the matter. The Tribunal stated the cases and referred the questions at the instance of both the Revenue as also the assessee for the opinion of the High Court. We have already set out the answers given by the High Court. Sections 2(g) and 5(2) (A) (a) (ii) of the Act and Rule 27(2) of the Rules are reproduced hereunder2. (g) sale means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge or pledge and the words buy and purchase shall be construed accordinglyExplanation : (a) A sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State(i) in the case of specific or ascertained goods at the time the contract of sale is made; and(ii) in the case of unascertained or future goods at the time of their appropriation to the contract of sale by the seller or by the buyer whether assent of the other party is prior or subsequent to such appropriation;(iii) where there is a single contract or sale or purchase of goods situated at more places than one, the provisions of this Explanation shall apply as if there were contracts in respect of the goods at each of such places5. (2) (A) In this Act the expression taxable turnover means that part of a dealers gross turnover during any period which remains after deducting therefrom(a) his turnover during that period on(ii) sates to a registered dealer of goods specified in the purchasing dealers certificate of registration as being intended for resale by him in Orissa or for use by him in the execution of any contract in Orissa, and on sales to a registered dealer of containers and other materials for the packing of such goodsProvided that when such goods are used by the registered dealer for purposes other than those specified in his certificate of registration, the price of goods so utilised shall be included in his taxable turnover. *Rule 27. (2) (i) Claim for deduction of turnover under item (ii) ofe (a) of clause (A) ofn (2) of Section 5 : A dealer who wishes to deduct from his gross turnover the amount of a sale on the ground that he is entitled to make such deduction under item (ii) ofe (a) of clause (A) ofn (2) of Section 5 of the Act shall, on demand, produce a copy of the relevant cash receipt or bill according as the sale is a cash sale or a sale on credit and a declaration in Form XXXIV duly filled up and signed by the purchasing dealer or by such responsible persons as may be authorised in writing in this behalf by the purchasing dealer. *6. 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 place5. (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. *4. The undisputed scheme of the Act is that a dealer becomes liable to pay tax at the time of purchase but being a registered dealer under the Act a facility is given to him and the liability to pay the tax is deferred to a later stage, when he resells the goods. To ensure that the sale does not escape tax altogether a declaration is taken from the dealer to the effect that the goods are meant for resale with in the State. In other words, the Act has adopted a single point tax. Under the scheme, the taxable event is postponed until a registered dealer sells the goods to an unregistered dealer, a consumer or in breach of the undertaking diverts the goods for other purposes. The proviso to Section 5(2) of the Act operates when the purchasing dealer violates his undertaking and he becomes liable to pay the tax which he had avoided on the basis of the declaration

Reasoning: 9. We agree with the High Court that the sale effected by the assessee in favour of the Japanese buyers is the sale in the course of the export of the goods out of the territory of India and, as such, is not exigible to sales tax. As stated above the learned counsel for the State of Orissa has also not questioned the findings of the High Court on this point. We are, however, of the view that the High Court fell into patent error in holding that sale to the Japanese buyers was made within the State of Orissa. A sale in the course of the export of the goods and a sale within the State of Orissa are two distinct events. A sale in the course of the export of the goods cannot be a sale within the State of Orissa. The assessee entered into contracts with the Japanese buyers for export sale of the mineral ores. An export sale has an entirely different legal concept. In the export sale, the sale and the export are so intertwined and intermixed that both begin and end together. The various clauses of the contract entered into by the assessee and the Japanese buyers are wholly irrelevant and are of no consequence. Even if on the construction of the contract of export sale the sale part of it is completed within the State it would still not be considered as legally complete because till the time the sale and the export both are completed none can be taken to be complete. It is, therefore, inherent in the concept of export sale that both the sale and the export are completed when the goods are appropriated by the foreign buyerThe delivery of the goods at the Paradeep Port was thus in discharge of the obligation under the contract on the part of thee and formed but a single transaction. It was not a second sale to the foreign buyer in the State of Orissa. The effort to confuse the delivery of goods at Paradeep Port for transportation to the destination of the foreign buyer with a sale at Paradeep Port is a futile attempt to wriggle out or his misdeclaration. In the declaration filed by the assessee, he not only misstated that the goods were meant for resale within the State of Orissa but also concealed the fact that there was ag contract between the assessee and the Japanese buyers to satisfy which of the mineral ores were being purchased, for export, from the registered dealers. The declaration made by the assessee concealed more than what it revealed. The assessee, therefore, made a declaration which was palpably incorrect. The assessee thus contravened the provisions of Section 5(2) (A) (a) (ii) of the Act and rendered itself liable under the proviso to the said section