Case: K. Gopinathan Nair and Others Vs. State of Kerala

2. In Civil Appeals Nos. 4955-77 of 1991 common question falls for consideration. It is to the following effect :"Whether the purchases of African raw cashewnuts made by the assessees from the Cashew Corporation of India (for short CCI) are in the course of import and, therefore immune from liability to tax under the Kerala General Sales Tax Act, 1963 (hereinafter referred to as the Act)." *Appellants in these cases are engaged in the purchase of raw cashewnuts and export of cashew kernels after processing. The assessments relate to the years 1970-71 to 1973-74. It is the case of the appellants that they had placed orders for import of raw cashewnuts from African countries through the CCI which was canalising agency and pursuant to the said orders the CCI had imported these raw cashewnuts and had made them available to the assessees. Consequently these transactions would be styled as purchases by This contention of the assessees was rejected by the Kerala Sales Tax the assessees in the course of import and were outside the sweep of the Act. Appellate Tribunal, Additional Bench, Ernakulam. Their tax revision cases were also dismissed by a Division Bench of the Kerala High Court and that is how the appellants have preferred these appeals by obtaining special leave to appeal from this Court3. In Civil Appeals Nos. 3647-52 (NT) of 1986 CCI is the assessee. The sale of imported raw cashewnuts from African countries to the local purchasers by the CCI have been brought to tax under the provisions of the Karnataka Sales Tax Act, 1957. The appellant is a private company registered under the Companies Act and is said to be a subsidiary of the State Trading Corporation wholly owned by the Government of India. The appellant Company, the registered office of which is at Cochin in Kerala, imports raw cashew from East African countries under licences issued by the Controller of Imports and Exports, and allots such cashew to the actual users for being processed and for export of a certain percentage of the raw cashew allotted. In this process the appellant Company sells cashew to the actual users. The appellant had not got itself registered as a dealer in the Karnataka State nor had it filed returns for the years 1970-71 to 1975-76. The contention of the appellant Company before the Taxing Authority was to the effect that the transaction of sale by the Company to the actual users was in the course of import and, therefore, the State Sales Tax Act could not encompass such a transaction. The Taxing Authority in Karnataka on the other hand sought to levy sales tax on the appellant on the basis that it was a non-resident dealer. The contention of the CCI was negatived by the Karnataka Appellate Tribunal, Bangalore. The appellants revision before the High Court came to be dismissed by Division Bench of the High Court by its order dated 3-3-1986 and that is how the CCI is before us on special leave.

Reasoning: 15. If the aforesaid conditions are satisfied then obviously the transaction of sale or purchase would be in the realm of sale or purchase in the course of import entitling it to earn exemption under Section 5(2) of the Central Sales Tax Act. But if on the contrary the transactions between the foreign exporter and the local users in India get transmitted through an independent canalising import agency which enters into back-to-back contracts and there is 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, the integrity of the entire transaction would get disrupted and would be substituted by two independent transactions, one between the canalising agency and the foreign exporter which would make the canalising agency the owner of the goods imported and the other between the import canalising agency and the local users for whose benefit the goods were imported by the wholesale importer being the canalising agency. In such a case the sale by the canalising 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 sub-section (2) of the Central Sales Tax Act16. On the facts of these cases and in the light of the propositions enumerated above it is impossible to accept the contention of the learned Senior Counsel for the appellants that the sales in the present cases effected by the CCI in favour of the local users were in course of import of raw cashew from African countriesConsequently it cannot be said that the enactment of a new definition regarding crossing the customs frontiers of India as laid down by Section 2(ab) of the Central Sales Tax Act for considering the liability to pay sales tax could be legitimately pressed in service for deciding the question of sales tax liability of the appellants during the assessment years when such definition was not on the Statute-Book. For all these reasons no case is made out by the appellants for our interference in these cases. With great respect to our esteemed colleague Sujata V. Manohar, J., it is not possible to agree with her conclusion that there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the canalising scheme pertaining to the import of cashewnuts. Nor it is possible for us to agree with her finding that these transactions are covered by the exemption provisions of Section 5(2) of the Central Sales Tax Act27. Thus it is clear that although the canalising agency placed a bulk order for the import of cashewnuts and opened a letter of credit in favour of the foreign sellers, the bulk order so placed was a sum total of the requirements of all the processors of cashewnuts in whose favour allotment orders were issued. The Cashew Corporation of India had from the inception marked separately each lot imported by it in favour of each allottee. It had also in turn, prepared a corresponding set of documentation in favour of the allottee and the allottee was required to open a corresponding letter of credit in favour of the Cashew Corporation of India in respect of the lot being imported on its behalf. The allottees also paid the corresponding insurance a premium for the marine insurance taken out by the Cashew Corporation of India pertaining to the import of cashewnuts.