EMBEE CORPORATION Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) AT the instance of the assessee, Messrs. Embee Corporation, the Sales Tax Tribunal has referred to this Court the following three questions :

(2.) THE assessee, Messrs. Embee Corporation, during the period 6th November, 1972 to 26th october, 1973, carried on business of buying and selling chemicals. In response to a tender invited by the Director-General of Supplies and Disposals, Government of India, New Delhi, on 26th March, 1971, the assessee had submitted a tender for supply of carbamite (undyed) 29,100 kgs. for use in the manufacture of different types of propellant explosives as per specifications. Messrs. Chemisches Werk Lowi, West Germany, were shown as the suppliers in the tender. The assessee had quoted the price c. i. f. per kg. (without commission) at Rs. 11. 97 and added to the said quotation licence application fees, duty 60 per cent, port charges and miscellaneous expenses all of which were shown separately. To the said figures the Corporation had added 15 per cent as its profit. The Director-General of Supplies and Disposals, by letter dated 29th May, 1971, had accepted the assessee's above quoted tender to the extent of 25,000 kgs. , subject, inter alia, to the condition that the contract would be governed by the conditions of the contract as contained in form DGS and D-68 (revised) including Clause 24 thereof as amended up to date. The ordered material was to be inspected by the Chief Inspector, C. I. M. E. , Kirkee, Pune, at Bombay Port. The General Manager, Cordite Factory, Aruvankadu, was mentioned as the indenter. The assessee, by its letter dated 15th June, 1971, acknowledged the letter of the Director-General of supplies and Disposals accepting the above tender and requested for the issue of import recommendation certificate because carbamite was a strategic material and could be exported by its principals only against an export permit of the West German Government. On 15th June, 1971, the assessee wrote a letter to Messrs. Chemisches Werk Lowi confirming its order to supply 25,000 kgs. of carbamite (undyed ). The Director-General, in continuation of advance acceptance earlier notified, sent his acceptance of the assessee's aforesaid tender. The said letter also mentioned that the conditions of the contract as contained in form DGS and D-68 (revised) including Clause 24 would apply to the contract. The said acceptance letter also stipulated for inspection and for rejection in case of examination of any sample from any portion of the supply if the material was found to be not fully in accordance with the specifications quoted. Instructions were also given regarding insurance, shipping, obligation of the consignee, etc. The Director-General of Supplies and disposals issued import recommendation certificate in favour of the assessee for procuring the said goods through a commercial channel from abroad and recommended that the import licence might be issued as per particulars. Against the said order of the Director-General of Supplies and disposals for supply of carbamite, the Controller (Import Trade Control) issued Licence No. G/o/2108528, for the licensing period April, 1971 to March, 1972. One of the conditions of the licence was that the goods imported shall be utilised or disposed of in the manner stipulated in the Director-General of Supplies and Disposals' letter dated 17th June, 1971 and the imported goods shall not be utilised or disposed of in any other manner without the prior written approval of the licensing authority. Another condition was that the goods for the import of which the licence had been granted, shall be the property of the licensee at the time of import and thereafter up to the time of clearance through customs. The Director-General of Supplies and Disposals through the assessee had furnished end-use certificate which was to the effect that carbamite was allowed to be imported by the Indian government and it was intended for consumption in India and would not be reexported or reutilised for any purpose other than consumption by the Government factory for whose consumption the same was being imported. The same was, however, without prejudice to the terms and conditions of the contract. In the bill of lading the name of the assessee was shown as the party to be notified and the general Manager, Cordite Factory, Aruvankadu, was described as the consignee of 216 consignments of carbamite. After the aforesaid consignments of carbamite had arrived at bombay Port, they had been forwarded to the consignee named in the contract, viz. , the General manager, Cordite Factory, Aruvankadu.

(3.) THE Sales Tax Officer disallowed the assessee's claim that the supply of carbamite under contract with the Director-General of Supplies and Disposals, was a sale in the course of import of the goods into India and, therefore, exempt from payment of sales tax. The Assistant commissioner also dismissed the appeal against the said assessment order. The assessee's second appeal before the Tribunal was also dismissed. Referring to the Supreme Court decisions in the cases of Mod. Serajuddin [1975] 36 STC 136 and Binani Bros. (P.) Ltd. [1974] 33 STC 254, the tribunal stated that Khosla's case [1966] 17 STC 473 (SC), was explained in the said two decisions. It was of the view that the Full Bench of the Madras High Court in the case of vasantha Mills Ltd. [1976] 38 STC 366, had correctly summed up the law in this regard. It is on the basis of the Madras decision that the Tribunal held that the theory of integrated activity cannot any longer be involved to make the sale between two local dealers as a sale in the course of import. In the opinion of the Tribunal, once it was held that there were two sales, consideration of the question whether the said two sales were interlinked or so related as to form one transaction became not only unnecessary but also irrelevant. On merits the Tribunal held that the detailed examination of the transaction in the present case would show that for effecting the sales by the assessee to Director-General of Supplies and Disposals it had to purchase goods from foreign principals, the assessee by its letter dated 15th June, 1971, addressed to the foreign principal confirmed the order for purchase of carbamite and import thereof in pursuance of the contract of purchase was, no doubt, for sale to Director-General of Supplies and Disposals, but it could not be said that it was the contract of sale by the assessee to Director-General of Supplies and Disposals that had occasioned the movement of the goods into the territory of India. It was the contract for purchase by the assessee with the foreign principal that had, in fact, occasioned the movement of the goods from West Germany into the territory of India. Further from the terms of the contract between the assessee and the Director-General of Supplies and Disposals it clearly appears that there was no privity of contract between the Director-General of Supplies and Disposals and foreign principal. In view of the facts and circumstances of the case, the tribunal held that the lower authorities were right in holding that it was the first sale between the foreign principal and the assessee which had occasioned the movement of the goods from West germany into the territory of India. The Tribunal further held that the said sale by the assessee to the Director-General of Supplies and Disposals was an inter-State sale. The Tribunal did not accept the alternate plea that the assessee had acted only as an agent. However, it allowed the appeal in part inasmuch as while it confirmed the order of the lower authority disallowing the transaction as a sale in the course of import, the matter was remanded to the Assistant commissioner of Sales Tax in order to enable the present applicant to produce the necessary declaration in form D and thereafter for redetermination of the amount of tax.