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Judgment
Balasubrahmanyan, J.—In the well-known decision of the Supreme Court in Serajuddin and Others Vs. The State of Orissa, the modus
operandi of export of goods from India through the STC (the State Trading Corporation) is analysed from the view point of sales tax liability.
Dealers who have goods for export must export only through the STC, if the STC''s monopoly extends to those goods. In formal terms, this
involves a transfer of property in the goods from the local dealers to the STC and then a subsequent transfer of the same goods by the STC to the
foreign buyers. In this milieu, although the dealers are undoubtedly engaged in foreign trade, they cannot make a claim for exemption from sales tax
on the ground that their sales are ""in the course of export"" within the meaning of section 5 of the Central Sales Tax Act, 1956, for the requirement
of the section is that the export must itself have been occasioned by the sale in order that the sale might be regarded as having taken place in the
course of export. Where the STC has the monopoly of export - where it ""canalises"" the export, as it is some times called - then, by definition, the
sale by the local dealer could hardly be regarded as the sale which, by its own force, occasions the export. On the contrary, what occasions the
export, in such cases, is the subsequent transaction of sale by the STC to the foreign buyer. The relationship between the local dealer and the STC
is one between principal and principal; even as the relationship between the STC and the foreign buyer is as between principal and principal.
Hence it is that two successive transactions of sale are discernible in this mode of carrying on export trade. The first one is liable to sales tax as a
local sale; and the subsequent one exempt from sales tax as a sale in the course of export. This, broadly, is the principle laid down by the Supreme
Court in Serajuddin and Others Vs. The State of Orissa, . This is being applied in similar cases for some time now. The Supreme Court''s decision,
however, indicated that different considerations might prevail in a case where the actual exporter of goods only acted as the agent, or instrument, of
the local dealers. For that conclusion to be arrived at however, there must be a direct privity of contract between the local dealer and the foreign
buyers for sale of the goods, and the actual exporter must be shown to have acted only for and on account of the local dealer.
This revision concerns a sales tax assessee who carries on partnership business as a dealer in hides and skins. It engages itself in foreign trade. It
has a quota for export of hides and skins. But the entire exports under its quota are to be canalised through the STC. The modus operandi for
export is precisely the same as that described in Serajuddin and Others Vs. The State of Orissa, . The value of goods involved in the export
through the STC under the assessee''s quota amounted to Rs. 56,21,480 for 1975-76. The assessee put forward a somewhat weak claim for
exemption of this turnover, on the score that the turnover represented its own export sales. The authorities found little or no difficulty in rejecting
the claim, applying the rule in Serajuddin and Others Vs. The State of Orissa, . The assessee has accepted the decision as correct, apparently in
view of the applicability of the Supreme Court''s decision to the relevant turnover.
The assessee, however, has kept up its fight on another claim relating to another turnover in goods exported for foreign markets. According to
the assessee, this turnover, at any rate, cannot be dealt with on the Serajuddin and Others Vs. The State of Orissa, model. This contention,
however, has not found acceptance at the hands of any of the taxing authorities. The assessee has, therefore, brought up this revision.
The turnover involved is Rs. 55,56,053. According to Mr. Inbarajan, the assessee''s learned counsel, this turnover is a different cup of tea
altogether from the other turnover of Rs. 56,21,480. As earlier mentioned, the other turnover of Rs. 56,21,480 represented sales by the assessee
to the STC for export under the assessee''s export quota. The turnover in question in this revision, it is said, is different. It represents the value of
goods exported, not under the assessee''s quota, but under other people''s export quotas. These people have been described, for the purpose of
the distinction, as ""quota-holders"". The assessee''s transactions which were covered by export licences held by these quota-holders are claimed to
be sales in the course of export within the meaning of section 5 of the Central Sales Tax Act, 1956. The factual basis for the assessee''s claim is not
in doubt. As long ago as the stage of pre-assessment notice, the assessee formulated the facts as under :
In the second case, the assessees call these transactions ''done, for the quota holders''. There is neither any sale nor any transfer of property
between these assessees and the quota-holders. The latter pass on the word by phone that they have a quota for export, and the assessees attend
to the rest of it all. They pack the goods, and send them to the harbour, pay the harbour dues, and all other dues payable at the point of export, are
paid by them. Insurance in transit is covered by the foreign buyer. Goods are consigned by the assessees in the name of the quota-holders as
consignor, and the foreign buyers as consignees. Bills of lading are taken accordingly, and these are endorsed by the titular quota-holders in favour
of these assessees and they are presented by the assessees to the banks where the letters of credit are opened by the foreign buyers. The amounts
are forthwith credited by the banks to the account of these assessees resulting in payment at sight.
The above statement of facts lacks only one important detail, and that is, even the goods covered by the import licences of these quota-holders
were exported only by the instrumentality of the STC. Frankly, it could not be otherwise. The learned counsel for the assessee had to concede
that, as in the case of export under the assessee''s own quota, so also in the case of goods covered by other people''s quotas, the export was only
by and under the imprimatur of the STC. This means that these exports were also two-stage transactions; a sale of the goods to the STC first, and
a sale of the same goods by the STC later to the foreign buyers. The only difference is that the goods involved were not covered by the quota in
the name of the assessee; they were covered by quotas in the names of other quota-holders. The assessee''s contention all along had been that
since the assessee ""exploited"" other people''s export licences, that makes for a difference in the nature of the transaction.
We do not think it does. The assessee''s role as respects the quota-holders may be interpreted in one of two ways. Either the assessee was their
agent; or they were only the assessee''s benamidars. Either way, the interpretation does not improve matters for the assessee, in so far as its claim
for exemption of the sales as export sales is concerned. For, whether the assessee is the agent of the quota-holders, or the quota-holders are the
benamidars of the assessee, there is no denying of the fact that the export was made only by the STC and the privity of contract in the export sales
was only between the STC and the foreign buyers. There is thus no escape from Serajuddin and Others Vs. The State of Orissa, .
It was suggested that there was ""nether sale nor transfer of property"" by the assessee to the quota-holders. This may be true. But this does not
help the assessee to gain any exemption from tax. If there was no transfer or sale of goods by the assessee to the quota-holders, it must
nevertheless be explained how the goods got into the hands of the STC who exported them to the foreign buyers under the quota-holders'' licences
? The answer is not for to seek. Even as the assessee sold to the STC for export goods which were covered by its own export quota, it sold to the
STC other goods for similar export under other quota-holders'' licences. In doing so, the assessee did not act as agent of the quota-holders
because the goods did not belong to them. What the assessee did was to use or misuse, other persons'' export licences. In doing so, however, the
assessee could not avoid the initial local sale to the STC. In other words, there were local sales of goods in both kinds of transactions, whether the
quota licences happened to be in the assessee''s own name or in the names of the other quota-holders. The result is that section 5 of the Central
Sales Tax Act could not be applied even with respect of the latter transactions.
The learned counsel for the assessee raised an alternative contention. He submitted that the transactions in question must be exempted from
sales tax as sales effected by way of transfer of documents of title while the goods were on the high seas. Supports for this contention was sought
by the learned counsel from the fact that the bills of lading were endorsed by the quota-holders in favour of the assessee, and, as transferee of the
bills of lading, the assessee presented the documents to the banks in which letters of credit had been opened by the foreign buyers. This fact, it was
thought, brings the transactions under the second limb of section 5(1) of the Central Sales Tax Act.
This argument of the learned counsel involves a confusion of thought. The question is whether the assessee had effected any sales in the course
of export. In order that the assessee''s sales may answer this description, the sales must be either direct export sales, or at any rate, sales by means
of transfer of documents of title while the goods are on the high seas. These two ways of looking at an export sale are found in the two limbs of
section 5(1) of the Central Sales Tax Act. The second limb contemplates that the person claiming the exemption must be the owner of the goods
while the goods are on the high seas and it is he who transfers the title to the goods during their voyage by merely making an endorsement of
transfer in the shipping documents. In the present case, both when the goods were delivered on board the ship and when they left the shores of
India, they were goods which were being sold and exported by the STC; they were not, at that stage, the goods of the assessee. What is more, the
assessee does not figure as the transferor of title; it only figures as the transferee. The transferee of a document of title to goods cannot be regarded
as having effected a sale of the goods, whether the goods are on the high seas or elsewhere, at the time endorsement is made on the documents of
title. The transferee is at the receiving end; not at the setting end, of the goods. Over and above these conceptual difficulties in accepting the
learned counsel''s argument, the endorsement on the bill of lading would appear to have been made by the quota-holders only to enable the
assessee to collect its price. For the quota-holders, even according to the assessee, were not at any time the owners of the goods, and therefore
they could not very well collect the money in the banks wherein the foreign buyers had opened letters of credit as if the money belonged to them
after sale by export. The money, on the contrary, was only intended for the owner of the goods, namely, the assessee, in this case. We are,
therefore, satisfied that the endorsement on the bills of lading was only intended as a convenient instrument of collection of the value of the goods
by the assessee, considering that otherwise the assessee must let go a ready means of getting at the value for his goods. The second limb of section
5(1) contemplates that the transfer by way of endorsement on the bills of lading must be by the owner of the goods, and the endorsement by him
must be meant by him as a transfer of title to the goods to the endorsee. An endorsement which merely enables the endorsee to collect certain
moneys without making him the owner of the goods does not come within the contemplation of the section. So far as the quota-holders''
endorsement in favour of the assessee is concerned, it would be strange to regard it as a transfer of title to the goods, when it is not the intention
that thereby the assessee who had originally transferred the title to the goods must get the goods back by way of a retransfer by endorsement on
the shipping documents. Looked at in every way, the argument addressed by learned counsel on the basis of the second limb of section 5(1) is far-
fetched.
We may make a general observation as to the applicability of the second limb of section 5(1) having regard to the normal trend of export
operations. We think that the section is practically unnecessary for export operations covered by that limb. Import operations may be different, and
transfers of documents of title to goods under import may present a different position. But so far as export is concerned, with the goods moving
from the shores of this land, whether occasioned by a sale or not, the export already commences. Subsequent dealings with the shipping
documents are only subsequent to the commencement of the export. It is, therefore, unnecessary for the statute to introduce a special provision for
transfers of goods on the high seas either by endorsement on the shipping documents or otherwise, as though without such provision there is a risk
of their being regarded, somehow, as local sales. The statute only emphasises the obvious and does not introduce any deeming provision when it
enacts in the second limb of section 5(1), that once the ship crosses the Indian customs frontier with the cargo, any subsequent dealing with the
goods by way of transfer of documents of title, will not make it any the less of sale in the course of export. The position is quite obvious. It would
be the same even in a case where, after the goods leave the shores of India, an actual sale of the goods takes place on board the ship. For, by that
time, the export, by definition, has already begun, and there can be no looking back. This last contention urged on behalf of the assessee on the
basis of the second limb of section 5(1) of the Act was not dealt with by the Tribunal, although the point was taken before them. We have thought
fit to deal with it ourselves instead of sending the case back, since it is purely a legal contention. To reiterate our conclusion on this part of the case,
the assessee cannot bring the transactions under the second limb of section 5(1) of the Act any more than it could bring them under the first limb of
that provision. The result is that the assessee''s revision petition is dismissed. It is dismissed with costs. Counsel''s fee Rs. 250.