MINERALS AND METALS TRADING CORPORATION OF INDIA LIMITED Vs. DEPUTY COMMISSIONER COMMERCIAL TAXES VISAKHAPATNAM

JUDGEMENT

(1.) THE petitioner in each of these six matters is the same, viz. , the Minerals and Metals Trading Corporation of India Limited, Visakhapatnam. All these six matter relate to different assessment years for purposes of sales tax. The question arises in connection with the export of iron ore and manganese ore effected by the petitioner in each of these matters to foreign countries and the question is whether, in respect of the purchases and sales in connection with such exports, any sales tax is payable or not. W. P. No. 472 of 1976 relates to the assessment year 1956-57. W. P. No. 473 of 1976 relates to the assessment year 1957-58. W. P. No. 750 of 1976 relates to the assessment year 1968-69. W. P. No. 752 of 1976 relates to the assessment year 1967-68. C. R. P. No. 587 of 1976 relates to the assessment year 1969-70 and C. R. P. No. 832 of 1976 relates to the assessment year 1970-71. Under section 5 of the Central Sales Tax Act (74 of 1956), exemption is given from payment of Central sales tax when a sale or purchase of goods is said to take place in the course of import or export. Sub-section (1) of section 5 provides that 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. Under sub-section (2) of section 5, a sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. Since the transactions in question relate to the export of iron ore and manganese ore from India, we are only concerned with sub-section (1) of section 5.

(2.) THE question as to when the sale can be said to have taken place in the course of the export of the goods out of the territory of India has been engaging the attention of the courts and has been the subject-matter of several decisions of the Supreme Court commencing from the decision of the Supreme Court in State of Travancore-Cochin v. Bombay Company Ltd. ([1952] 3 S. T. C. 434 (S. C.)) and ending with the decision of the Supreme Court in Mod. Serajuddin v. State of Orissa ([1975] 36 S. T. C. 136 (S. C.) ). It is not necessary for us to go into all these cases decided by the Supreme Court because in Mod. Serajuddin v. State of Orissa ([1975] 36 S. T. C. 136 (S. C.)) the Supreme Court considered each one of the decisions delivered by it earlier in point of time, viz. , State of Travancore-Cochin v. Bombay Company Ltd. ([1952] 3 S. T. C. 434 (S. C.)), State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory ([1953] 4 S. T. C. 205 (S. C.)), Ben Gorm Nilgiri Plantations Company v. Sales Tax Officer ([1964] 15 S. T. C. 753 (S. C.)), Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes ([1966] 17 S. T. C. 473 (S. C.)), Coffee Board v. Joint Commercial Tax Officer ([1970] 25 S. T. C. 528 (S. C.)), National Tractors v. Commissioner of Commercial Taxes ([1971] 27 S. T. C. 271 (S. C.)), Binani Bros (P.) Ltd. v. Union of India ([1974] 33 S. T. C. 254 (S. C.)) and several other decisions and out of the five judges who decided the matter, H. R. Khanna, J. , dissented from the majority view and the remaining four judges delivered the majority judgment. In that case, the appellant before the Supreme Court, Mohammed Serajuddin, entered into two contracts with the State Trading Corporation for the sale of mineral ore and the corporation, in its turn, entered into similar contracts with foreign buyers for the sale of the identical goods purchased by the corporation from the appellant. Under the terms of the contract between the appellant and the State Trading Corporation the price was expressed in U. S. dollars per long ton, f. o. b. ocean liner vessel, Calcutta, and the material should be ready in Calcutta harbour for shipment by a particular steamer. The final sampling and moisture determination and the final ascertainment of weight should be done at the port of discharge by certain named persons and their certificate should be final and binding on both the buyer and the seller.

(3.) THE contention on behalf of Mohammed Serajuddin before the Supreme Court was that the sales of the mineral ore by the appellant to the State Trading Corporation were "sales in the course of export" and were, therefore, exempt from sales tax under section 5 of the Central Sales Tax Act, 1956, read with article 286 (1) (b) of the Constitution. It was contended before the Supreme Court that Mohammed Serajuddin had entered into negotiations with foreign purchasers and settled all the conditions of the contract and thereafter the corporation entered into an f. o. b. contract with the appellant and with the foreign buyer on identical terms. All the necessary steps including the payment of customs duty for shipment and export had been done by the appellant and, therefore, the sale by the appellant to the corporation and the export by the corporation to the foreign buyer constituted one integrated transaction. It was further contended that the export could not be made except by the corporation which could not have diverted the goods to a buyer in India without violating the Export and Import Control Order and, therefore, the sale was in the course of export. It was thirdly contended that there was no sale in the taxable territory inasmuch as the contract between the appellant and the corporation being on f. o. b. basis, the property in the goods passed only on shipment when the goods were in the stream of export. It was further contended that even if it was held that the appellant did not have any contract with the foreign buyer and that privity was essential, the rigid rule of privity of contract should be relaxed on considerations of equity and justice and a realistic approach should be adopted. The manner of entering into contracts through the channel of the corporation raised in reality a presumption of the corporation being an agent of the appellant in the integrated transaction. On these contentions, the learned Judges, who constituted the majority of the Bench of five Judges, held that the corporation alone had agreed to sell the goods to the foreign buyer and was the exporter of the goods; that there was no privity of contract between Mohammed Serajuddin and the foreign buyer; and that the privity of contract was between the corporation and the foreign buyer. It was further held that the immediate cause of the movement of goods and export was the contract between the foreign buyer, who was the importer, and the corporation, who was the exporter and shipper of the goods. All the relevant documents were in the name of the corporation whose contract of sale was the occasion of the export. According to the learned Judges, who constituted the majority, the expression "occasions" in section 5 of the Central Sales Tax Act means the immediate and direct cause and, but for the contract between the corporation and the foreign buyer, there was no occasion for export and, therefore, the export was occasioned by the contract of sale between the corporation and the foreign buyer and not by the contract of sale between the corporation and Mohammed Serajuddin. The circumstance that Mohammed Serajuddin sold the goods directly to the corporation 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 Mohammed Serajuddin and the corporation the immediate cause of the export. It was held by the learned Judges who constituted the majority that Mohammed Serajuddin was under no contractual obligation to the foreign buyer either directly or indirectly and the rights of Mohammed Serajuddin were against the corporation. Similarly, the obligations of Mohammed Serajuddin were to the corporation. The foreign buyer could not claim any right against Mohammed Serajuddin nor did Mohammed Serajuddin have any obligation to the foreign buyer. All acts done by Mohammed Serajuddin were in performance of his obligation under the contract with the corporation and not in performance of the obligations of the corporation to the foreign buyer. It was further held that there was no principal and agent relationship between the appellant and the corporation and, in the absence of such relationship, the agency of necessity did not arise. The relationship between the appellant and the corporation was between two principals and there was no aspect whatever of principal and agent. The mention of the f. o. b. price in the contracts between the appellant and the corporation did not render the contracts f. o. b. contracts with the foreign buyer. The shipment of the goods by the corporation to the foreign buyer was the f. o. b. contract to which the appellant was not a party. The directions given by the corporation to the appellant to place the goods on board the ship were pursuant to the contract of sale between the appellant and the corporation. These directions were not in the course of export, because the export sale was an independent one between the corporation and the foreign buyer. The taking of the goods from the appellant's place to the ship was completely separate from the transit pursuant to the export sale. It was further held that the fact that the exports could be made only through the State Trading Corporation did not have the effect of making the appellant the exporter where there was direct contract between the corporation and the foreign buyer. Restriction on export that export could be made only through the State Trading Corporation was a reasonable restriction and was valid and the decision of the High Court that the sales of the appellant to the corporation were exigible to tax because they were not sales in the course of export was upheld by the Supreme Court.