VELLANKI FRAME WORKS, A SOLE PROPRIETORY CONCERN Vs. COMMERCIAL TAX OFFICER, CHINAWALTAIR CIRCLE, VISAKHAPATNAM

JUDGEMENT

(1.) THESE two Writ Petitions are filed by the petitioner questioning thevalidity of the assessment orders dated 20.1.2010 and 18.5.2010 passed by the Commercial Tax Officer, Chinnawaltair circle, for the assessment years 2005 -06 and 2006 -07, denying them exemption under Section 5(2) of the Central Sales Tax Act, 1956, (hereinafter called the "CST Act"), on the turnover of Rs.1,14,86,342/ - and Rs.4,05,09,427/ - respectively, as contrary to the documents on record. During the pendency of the Writ Petitions the Petitioner filed additional grounds, by way of WPMP No.23096 and 23098 of 2014, contending, inter -alia, that the assessment order was without jurisdiction in the absence of any valid authorization from the Deputy Commissioner (CT), Visakhapatnam authorizing the respondent to take up assessment, under the CST Act, for the years 2005 -06 and 2006 -07.

(2.) FOR the tax period 2005 -06, the Commercial Tax Officer, Chinawaltair Circle, Visakhapatnam issued show cause notice dated 19.11.2005, proposing to reject the petitioner's claim of exemption on a turnover of Rs.1,14,86,342/ -, treating the transaction as an inter -state sale falling under Section 3(a) of the CST Act. In respect of the said turnover, the petitioner (M/s. Vellanki Frame Works) had claimed exemption from payment of tax on the ground that the relevant sales were effected by transfer of documents of title before the goods had crossed the customs frontiers of India. In their reply to the show cause notice, the petitioner sought to explain the transactions, relatable to the turnover of Rs.1,14,86,342/ -, which they claimed was covered by Section 5(2) of the CST Act. The petitioner's case, as is noted by the assessing authority in the assessment order, is that M/s. Radha Industries, Lucknow, U.P ("Radha" for short), was their close business associate; Radha, which did not have the requisite infrastructure with the custom department, desired to purchase the subject goods from M/s. World Best Trading Co. (L.L.C.), Dubai (U.A.E), and had approached them for help; though they had the requisite infrastructure facilities at Visakhapatnam Customs, they did not have the letter of credit facilities to cause import; in these circumstances, the petitioner and Radha entered into a quadri -partite agreement with Indus Tropics Ltd. ("Indus" for short), whereby it was agreed that Indus would purchase the goods and sell them to the petitioner who wouldpurchase the same from Indus as the agent of Radha, and transfer the documents on high seas in favour of Radha; in turn Radha agreed to pay the petitioner commission of 2% plus bank charges; the petitioner paid the entire amount to Indus without retaining a penny as commission; it was a friendly transaction arranged by the petitioner in favour of Radha; a quadripartite agreement was entered into between Indus, the petitioner, Radha and World Best Trading Co. (L.L.C.); pursuant thereto, Indus purchased the goods and caused transfer of the bill of lading on high seas on 10.12.2005; on 12.12.2005, another high seas sale agreement was entered into between the petitioner and Radha whereby the bill of lading was sold in favour of Radha; the expression "sold", as used in the said agreement, is a misnomer; what the parties meant was only transfer of the bill of lading in favour of Radha; on and from 12.12.2005, the petitioner did not have control over the bill of lading dated 09.12.2005, as they had parted with it in favour of Radha by then; since Radha did not have the customs facility at Visakhapatnam customs port, the petitioner had extended its help by filing a bill of entry in their name for the purpose of customs bonding, as well as customs clearance; the circumstance of filing a bill of entry has no relevance in determining the nature of the transaction; as seen from all the relevant documents, including (i) quadrilateral master agreement dated 21.01.2005, and (ii) the High Seas Sale agreement dated 12.12.2005, the petitioner had transferred the import document on high seas; at any rate, the title in the goods always stood vested in Radha, as the owner of the goods; the petitioner was merely acting as the agent of Radha at all points of time; by reason of transfer of the import document, it could not be said that the petitioner had sold the goods to Radha; on the contrary, as the petitioner had acted as the agent of Radha, at all points of time including at the time of purchase, the question of the petitioner selling the goods to Radha did not arise; the transactions between the petitioner and Radha cannot be treated as a transaction between one principal and another; the fact that the petitioner had charged commission at 2% plus bank charges to Radha, and had parted with the entire amount to Indus is proof that they had only acted as a conduit, as a friendly gesture to Radha; the transaction was accounted in the petitioner's books of accounts as anagency purchase; receipt and payment of commission was also accounted in their books of accounts; their Balance Sheet for the year also supported this submission; transfer of imported goods by them to Radha did not partake the character of sale of goods; in any event the transfer, having being effected over high seas before bonding with the custom authorities, cannot be treated as inter -state sale in the State of Andhra Pradesh; and therefore further proceedings, in pursuance of the show cause notice, should be dropped.

(3.) IN the assessment order dated 20.01.2010, the Commercial Tax Officer summed up the stand of the petitioner that the documents of title to the goods were transferred to Radha Industries on high seas by virtue of the high sea sale agreement dated 12.12.2005; the transaction did not attain the character of an inter -state sale; and filing of the bill of entry had no relevance in the context of determining the nature of the transaction. The Commercial Tax Officer held that it followed that it was not the petitioner's claim that the sale or purchased had occasioned the import falling under the first limb of Section 5(2) of the CST Act; the question which necessitated examination was whether there was a sale of goods by the petitioner, or whether it constituted a commission transaction as stated by them; and in the computer print out of the petitioner's trading account, for the year 2005 -06, the purchase was shown as purchase trading (high seas), and the relevant sale was shown as sales - trading (high seas). After referring to a few other details, the assessing authority noted the contents of the high seas sale agreement dated 10.12.2005 entered into between M/s. Indus Tropics Ltd and the petitioner wherein the latter was described as the buyer; the second high seas sales agreement dated 12.12.2005, entered into between the petitioner and M/s. Radha Industries, wherein the parties were described as the seller and the buyer respectively; and the letter of the assessee dated 25.11.2009 wherein, while submitting certain documents like the sales invoice, the bill of lading, high sea sale agreement, bill of entry for warehousing and the bill of entry of ex -bond, the petitioner had stated that they had claimed exemption from payment of tax on the ground that the said sales were effected by transferof documents of title to the goods before the goods had crossed the customs frontiers of India.