Smt. Manorama Madhvaraj vs The Assistant Commissioner of Commercial Taxes, (Assessments), Mangalore and Others

The petitioners have challenged the levy of tax on purchases of shrimps and prawns under Entry 13a of the Third Schedule to the Karnataka Sales Tax Act. The Entry with regard to shrimps, prawns and lobsters other than frozen shrimps, prawns and lobsters prescribed rate of tax of 4% for the years from 1-9-1978 to 31-3-1986 and 5% thereafter. Section 6 of the Karnataka Sales Tax Act prescribes the circumstances under which the purchases can be made liable to tax.

Petitioners are the last stage purchasers in the State of Karnataka and have exported these items. The validity of Entry 13a of the Third Schedule to the Act have been assailed on the ground that it is violative of Section 5(1) of the Central Sales Tax Act, 1956. Reliance is placed on the decision given in the case of M/s. Nipha Exports Private Limited v State of Haryana, (1998)108 STC 337, wherein the machinery and the parts purchased by the assessee and despatched to its head office for export in the execution of orders of foreign buyers were held not liable to tax. In the case of the assessee the purchases have been made from unregistered dealer and by the charging Section 6 liability of purchase tax comes into play. The dispute is in respect of the period prior to insertion of Section 5(3) of the Central Sales Tax Act. The question of purchases by an exporter were considered by the Apex Court in the case of Mod. Serajuddin v State of Orissa, AIR 1975 SC 1564, wherein the word "occasions" used in Section 5 of the Central Sales Tax Act, was considered and it was found that there was contract between the Corporation and the foreign buyer and the appellant who sold the goods to the Corporation, has not occasioned the export of goods. It is in this countext the provisions of Section 5(3) were subsequently incorporated under the Central Sales Tax Act.

The words ''sale'' or ''purchase'' used in Section 5 of the Central Sales Tax Act have to be read along with "in the course of export of goods". There can be a sale in the course of export of goods. In a case where a foreign buyer is having its branch in India which purchases the goods then the said purchase would be considered in the course of export of goods. The purchase by transfer of document in the course of export will also be covered under sub-section (1). The purchases by exporter to a foreign buyer will not come in the saving clause under Section 5(1) which will fall only under Section 5(3) from the date the amendment has been made. Since the purchases have been made by the petitioner from an unregistered dealer there is liability of purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957.

The statement of objects and reasons while enacting Section 5(3) of the Central Sales Tax Act for giving relief in respect of penultimate sale was as under:

"According to Section 5(1) of the Central Sales Tax Act, a sale or purchase of goods can qualify as a sale in the course of export of the goods out of the territory of India only if the sale or purchase has either occasioned such export or is by a transfer of documents of title to the goods after goods have crossed the customs frontiers of India. The Supreme Court has held (videMod. Serajuddin''s case, supra) that the sale by an Indian exporter from India to the foreign importer alone qualifies as a sale which has occasioned the export of goods. According to the Export Control Orders, exports of certain goods can be made only by specified agencies such as the State Trading Corporation. In other cases also, manufacturers of goods, particularly in the small scale and medium sectors, have to depend upon some experienced export house for exporting the goods because special expertise is needed for carrying on export trade. A sale of goods made to an export canalising agency such as the State Trading Corporation or to an export house to enable such agency or export house to export those goods in compliance with an existing contract or order is inextricably connected with the export of goods. Further if such sales do not qualify as sales in the course of export, they would be liable to State sales tax and there would be a corresponding increase in the price of the goods. This would make out exports uncompetitive in the fiercely competitive international markets. It is therefore, proposed to amend, with effect from the begining of the current financial year, Section 5 of the Central Sales Tax Act to provide that the last sale or purchase of any goods preceding the sale or purchase occasioning export of those goods out of the territory of India shall also be deemed to be in the course of such export if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order, for or in relation to, such export".

In the case of Consolidated Coffee Limited v Coffee Board, Bangalore, AIR 1980 SC 1468, the above statement of objects and reasons were taken into consideration and it was observed thus.-

"Two things become clear from this Statement; first, Mod. Serajuddin''s case, supra, is specifically referred to as necessitating the amendment and secondly, penultimate sales made by small and medium scale manufacturers to an export house to enable the latter to export those goods in compliance with existing contracts or orders are regarded as inextricably connected with the export of the goods and hence earmarked for conferral of the benefit of the exemption. But here again, ''existing contract'' with whom is not clarified. Statement is silent and does not throw light on whether the existing contract should be with a foreign buyer or will include any agreement with a local party containing a covenant to export. Therefore, the question will again depend upon proper construction and, as we have said above, in the matter of construction the two aspects discussed earlier show that by necessary implication ''the agreement'' spoken of by Section 5(3) refers to the agreement with a foreign buyer".

The Apex Court has clearly held in the cases referred to above, that the last sale immediately preceding the sale occasioning export of goods however closely related to the final export cannot be considered in the course of export. Section 5(1) of the Act 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 if the goods have crossed the customs frontiers of India.

In the first and the second Travancore-Cochin cases i.e., State of Travancore-Cochin and Others v Bombay Company Limited, Alleppey and Another, AIR 1952 SC 366 and State of Travancore-Cochin and Others v Shanmugha Vilas Cashewnut Factory, Quilon, AIR 1953 SC 333, it was held that a sale or purchase which occasions export will be falling within Section 5(1) of the Central Sales Tax Act. In view of the above position of law, the purchase of the petitioner from unregistered dealer cannot be considered a purchase in the course of export.

Provisions of Entry 13a of the Third Schedule cannot be said to be suffering from any illegality, after coming into force of Section 5(3) of the Central Sales Tax Act. Purchases which have been made from unregistered dealer in compliance of the pending order have specifically been excluded under Section 5(3) and therefore in such a situation, the benefit could be taken only after the insertion of Section 5(3). For the previous period the liability which has been created by Entry 13a of the Karnataka Sales Tax Act cannot be said to be contrary to the provisions of Section 5(1) of the Central Sales Tax Act.

The petitions having no force are accordingly dismissed.