1. The facts which have given rise to this reference under section 34(1) of the Bombay Sales Tax Act, 1953, made at the instance of the assessees are that at the relevant time the assessees were carrying on the business of supplying bobbins to textile mills. They were themselves, however, not manufacturers of bobbins but they purchased bobbins from manufacturers of bobbins, including Navjivan Bobbins Industries, who hereinafter for the sake of brevity referred to as 'the manufacturers'. It is not disputed before us that the applicants were, if not the sole purchasers of all bobbins manufactured by the manufacturers, at least one of their biggest customers. For the purpose of manufacturing bobbins the manufacturers used to import certain special type of wood from aboard. One of such foreign suppliers of wood was Nanri Trading Company Limited of Nagoya, Japan (hereinafter referred to as 'the said Japanese suppliers'). One George Wills and Sons (India) Private Limited (hereinafter referred to as 'the foreign suppliers' agents') were at all relevant times agents of the said Japanese suppliers.
2. In about May, 1958, the manufacturers placed an order with the foreign suppliers' agents for importing certain quantity of wood of particular specifications from the said Japanese suppliers. By their letter of confirmation bearing No. GW/956-JAP/467 dated 27th May, 1958, the foreign suppliers' agents wrote to the manufacturers that they confirmed having booked on their about 1.000 cubic feet of Japanese beech wood of 1 7/8' x 11 1/2' lengths and about 125 cubic feet of Japanese beech wood of 1 5/8' x 1 5/8' x 9 1/4' lengths at the rate of 17s. 2d. Stg. per cubic foot c.i.f. Bombay. The mode of payment specified in the said letter of confirmation was to be by a confirmed irrevocable letter of credit for pounds 970 Stg. c.i.f. Bombay, to be established by the manufacturers in favour of the said Japanese suppliers, valid for shipment up to 31st July, 1958, and further 15 days for negotiation of documents. The said letter of confirmation further provided that the goods were to be shipped under import licence No. A992566/57. The said import licence was the import licence No. A992566/57/AU/C.C.I. BOM dated 17th February, 1958, issued to the manufacturers for import of 5,000 cubic feet of blocks of beech and birch wood of the value of Rs. 55,000 from soft currency area, except that Union of the South Africa and South-West Africa. The said licence was expressed to be an actual user's licence and was valid for shipment up to 30th November, 1958.
3. The order booked by the manufacturers with the said Japanese suppliers through the foreign suppliers' agents, as contained in the said letter of confirmation dated 27th May, 1958, to which we will hereinafter for the sake of brevity referred to as 'the said contract No. 956', was, it appears, subsequently amended and substituted by a fresh contract contained in a letter of confirmation bearings No. GW/956-JAP/467 (AMENDED) dated 23rd June, 1958, from the foreign suppliers' agents to the manufacturers. The amendments effected were that instead of Japanese beech wood of two different specifications aggregating to 1,125 cubic feet, which were to be supplied under the said contract No. 956, what was to be supplied was 1,125 cubic feet of Japanese beech wood of 1 7/8' x 1 7/8' x 11 1/2' lengths at the rate of 17s. 2d. Stg. per cubic foot c.i.f. Bombay. The other terms and conditions of the said amended contract No. 956 remained the same. On the same day, by their letter dated 23rd June, 1958, addressed to the applicants, the foreign suppliers' agents intimated to them that they had that day received a letter from the said Japanese suppliers that the said Japanese suppliers had persuaded their own suppliers to amend the size of item No. 2 mentioned in the said contract No. 956, namely, 125 cubic feet of beech wood, so as to make the entire quantity of 1,125 cubic feet, to be of uniform size. Along with the said letters, the foreign suppliers' agents enclosed the said amended contract in triplicate, with a request to the applicants to return one copy for their record duly signed. In conclusion, the said letter stated that the applicants must have already established a letter of credit for pounds 860 to cover 1,000 cubic feet of beech wood and that they should amend the said letter of credit and increase the value to pounds 970 so as to cover the entire quantity of 1,125 cubic feet of beech wood. The letter concluded by stating, 'We now await the details of credit opened by you.'
4. Thereafter by their letter dated 3rd July, 1958, addressed to joint Chief Controller of Imports, Bombay, the manufacturers stated that as they did not have banking facilities for direct imports, they wished to imports the goods under the said license through the applicants, and for this purpose requested the Joint Chief Controller to issue a letter of authority in favour of the applicants. Along with the said letter, the manufacturers enclosed both the copies of their said license for the purpose of issuing the necessary letter of authority. The letter of authority in favour of the applicants was thereafter issued by the Joint Chief Controller of Imports, and was dated 17th July, 1958. The said letter of authority was in the following terms :
'Messrs. Navjivan Bobbin Industries (Indent or Commission Agents/Dealers), Bombay-28, holder of license No. 992566 dated 17th February, 1958, are hereby authorised to permit Messrs. Dean and Webber Mill Stores Co., Bombay (Indent or Commission Agents/Dealers), to import goods are stated in the licence and open the letter of credit and make remittance of foreign exchange against the above licence to the extent of Rs. 55,000 (Rupees fifty-five thousands only) AC IMP.
This letter of authority is valid for importation of goods from Messrs. Nanri Trading Co. Ltd., Japan.
The imports made under this letter of authority will be imports of the licensee who alone will be entitled to any quota licences on these imports.
This letter of authority is valid for shipment from the date of issue.'
By their letter dated 23rd July, 1958, the foreign suppliers' agents intimated to the applicants that their suppliers had cabled them that most of the consignment under the said amended contract No. 956 was ready for shipment. They further recorded in the said letter the information given by the applicants to them on telephone that the applicants had received the import license duly amended and that the applicants would be opening the letter of credit. By the said letter the foreign suppliers' agents requested the applicants to open a letter of credit by cable. An application was thereupon made on 24th July, 1958, by the applicants to the National Overseas and Grindlays Bank Limited for opening a letter of credit in the sum of pounds 970. The amount for which the said letter of credit was opened was the amount for which the foreign suppliers' agents by their said letter dated 23rd June, 1958, had asked the applicants to open a letter of credit. Subsequently, two further orders were placed by manufacturers with the said Japanese suppliers through the foreign suppliers' agents. The terms of the said orders are to be found in the letter of confirmation bearing No. GW/987-JAP/483 dated 15th October, 1958 (hereinafter for the sake of brevity referred to as 'the said contract No. 987'), and the letter of confirmation bearing No. GW/991-JAP/487 dated 27th October, 1958 (hereinafter for the sake of brevity refereed to as 'the said contract No. 991'), from the foreign suppliers' agents to the manufacturers. The said the contract No. 987 was for 750 cubic feet of Japanese beech wood of 1 7/8' x 1 7/8' x 11 1/2' at the rate of 17s. Stg. per cubic foot c.i.f. Bombay. The said contract No. 991 was in respect of 350 cubic feet of Japanese beech wood of 7/8' x 7/8' x 9 1/2' at the rate of 16s. 6d. Stg. per cubic foot. All the others terms and conditions of these two contract were the same as those of the said contract No. 956. The goods which were subject-matter of the said three contracts, namely, the amended contract No. 956, the said contract No. 987 and the said contract No. 991, were thereafter shipped and received in Bombay. They were cleared from the customs by the applicants and delivered by the applicants to the manufacturers. The goods under each of the said three contracts were shipped on different ships, and in respect of each of these shipments so received the applicants submitted to the manufacturers their debit notes. The first debit note is dated 31st October, 1958, and though it does not specify the number or the date of contract under which the goods in questions were shipped, it is quite clear from the quantity and the description of goods mentioned in the said debit note that is was in respect of the shipment made under the said amended contract No. 956. The second debit note is dated 31st January, 1959. Here again, though the contract number or the date of the contract are not mentioned, it is quite clear from the quantity and the description of the goods shipped that this debit note related to goods shipped under the said contract No. 987. The third debit note is also dated 31st January, 1959, and here again the number or the date of the contract are not mentioned, but it is quite clear from the quantity shipped and the description of the goods mentioned in the said debit note as also from the rate mentioned in the said debit note that this debit note related to goods shipped under the said contract No. 991. At this stage, it is pertinent to note that the rate at which the goods were supplied was mentioned only in respect of the goods shipped under the debit note which related to the said contract No. 991 and was not mentioned in either of the two remaining debit notes. It has been found by all the sales tax authorities and the Tribunal that the said three debit notes in respect of the actual expenses incurred by the applicants for taking delivery of the goods, opening the letter of credit and the letter of credit charges, the amount paid to the banks and the customs duty and clearing charges paid by the applicants.
5. In their assessment for the period 1st April, 1958, and 31st March, 1959, the Sales Tax Officer, A Ward, Unit II, Bombay, assessed the applicants to sales tax on the said quantity of Japanese beech wood shipped under the said three contracts on the grounds that these transactions were transactions of sales effected by the applicants to the manufacturers. During the assessment proceedings the assessees contended that they had merely acted as agents of the manufacturers or, in any events, as their financiers and that there was no privity of contract between them and the manufacturers. These contentions of the assessees were negatived. Against the said order of the assessment the applicants field an appeal to the Assistant Commissioner of Sales Tax, who also rejected their contentions. He held that this was a c.i.f. contract, and as the documents were taken delivery of by the applicants, the property in the goods passed to the applicants and passed from them to the manufacturers, and there were thus two sales. The applicants' revision application to the Commissioner of Sales Tax met with same fate at the hands of the Deputy Commissioner of Sales Tax. Against the order of the Deputy Commissioner of Sales Tax, the applicants went in further revision to the Sales Tax Tribunal. A perusal of the order of the Sales Tax Tribunal delivered on 30th September, 1966, leaves one bewildered. We have yet to see an order in which the facts were rejected so wholly divorced from all reality and so totally disconnected with what had actually happened, as to make one wonder whether this was a judgment delivered in this very matter. The judgment of the learned Member of the Tribunal began by stating that the dispute had arisen 'in respect of one solitary transaction of sales of Japanese beech wood'. The learned Member of the Tribunal who heard this matter held that wanting to import goods under their said import licence, the manufacturers approached the foreign suppliers' agents for importing the required quantity of beech wood from Japan from the said Japanese suppliers and that thereupon the foreign suppliers' agents booked an order of the manufacturers by the said amended contract No. 956, and on the same day, that is, on 23rd June, 1958, the foreign suppliers' agents contacted the applicants for financing the import. In the judgment of the learned Member of the Tribunal the said letter of authority is stated to be dated 17th February, 1958. Repeatedly it is mentioned that according to the applicants they financed the import because the foreign suppliers' agents did not have finance to import the goods. It is further stated that the applicants' case was that they had intervened only in order to accommodate both the foreign suppliers' agents and the manufacturers whom they would always like to oblige. There were several other inaccuracies in setting out the facts. After settings out the so-called facts, the learned Member of the Tribunal laid emphasis on the fact that the debit note submitted by the applicants to the manufacturers showed the rate as 16s. 6d. and not as 17s. 2d. as was stated in the amended contract No. 956. He further held that this was not compatible with their role of financiers which they claimed. He, however, did not apply his mind to the question as to how this fact could in any way be compatible with the role of sellers, which he held the applicants had performed vis-a-vis the manufacturers. He then referred to the said letters dated 23rd June, 1958, and 23rd July, 1958, written by foreign suppliers' agents to the applicants. On the incorrect facts set out by him the learned Member of the Tribunal came to the conclusion that the applicants were the buyer, and the manufacturers did not 'figure anywhere except through a mention of their import licence'. He then stated that the applicants had not produced before the lower authorities nor before the Tribunal 'all the relevant documents which are really missing links to explain as to how Messrs. Nanri Trading Co. came to treat the applicants as a buyer in the entire transaction' and, on this findings, he held that the story that the applicants acted as a mere financier was false, and on this ground rejected the applicants' case that they had acted as mere financiers and that there was no sale by the applicants to the manufacturers. This observation and the conclusion based thereon are equally bewildering. It was never the case of the applicants that they were buyers vis-a-vis the said Japanese suppliers or that the said Japanese suppliers had at any time treated them as buyers. The questions, therefore, of the applicants producing documents to show that they were buyers from the said Japanese suppliers, and as a results of not having produced them, failing to show that they were buyers did not arise. Before the Tribunal an alternative argument was also advanced by the applicants that assuming there was a sale, it was sale made in the course of import and was, therefore, not taxable. With the respect to this alternative contention the learned Member of the Tribunal held that the sale had not been effected by the applicants by transfer of shipping documents, and as the applicants had not produced relevant documents it was not possible to hold that the sale had occasioned the import or had taken place in the course of import. He accordingly dismissed the applicants' revision application. Thereafter the applicants filed a rectification application to correct the errors which, according to the applicants, were apparent on the face of the record in the aforesaid order of the Tribunal passes on 30th September, 1966. By that time the learned Member of the Tribunal who had heard the applicants' revision application had ceased to be a Member, and the rectification and application was heard by a Beech of the Sales Tax Tribunal consisting of two Members. By its order dated 12th November, 1968, the said Bench rectified in the said order dated 30th September, 1966, each of the mistakes asked to be rectified except one, namely, the part of the order which stated, 'The learned Advocate (of the applicants) has not cared to produce the relevant documents'. What was sought to be rectified in this sentence was that 'The learned Advocate has produced the relevant documents'. It appears from the original order of the Tribunal that a file of correspondence had been produced before the Tribunal but neither the said file nor any of the documents contained therein were taken on the record. Instead, the file was returned to the applicants. Thus, there was nothing on the record to show what documents has been shown of the Tribunal at the hearing of the revision application. We may mentions that the order of the lower authorities also show that the various documents had been produced before them. In hearing this references we have, however, repeatedly found that very often neither the sales tax authorities nor the Tribunal care to take on records and mark as exhibits documents produced before them. They merely peruse documents and return them, and then when the matter comes in reference before the High Court, these documents are not on the record. This is hardly a desirable practice, for the result is that the record is not complete and at times, one of the parties, either assessee or the department, suffers because the necessary documentary evidence is not before the High Court. The errors rectified were the incorrect settings out of facts in the said order dated 30th September, 1966.
6. Thereafter the applicants made an application to the Tribunal to state the case and refer four questions to this High Court. They thereafter reframed the said four questions and compressed them into the following two questions :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct to hold the supplies of goods made by the applicants under their debit notes No. 2/K/58 dated 31st October, 1958, and No. 1/M/58 of 31st January, 1959, and No. 1/M/59 of 31st January, 1959, to M/s. Navjivan Bobbin Industries on importing the goods on the strength of letter of authority issued by the Joint Chief Controller of Imports and Exports in favour of the applicants and on the strength of actual user's import licence held by Navjivan Bobbin Industries as a transaction of 'sale' liable to tax in law
(2) Whether, on the facts and in the circumstances of the case [and in case if answer to question No. (1) above is in the affirmative], the Tribunal was correct to hold that the said transaction entered into by the applicants with the said industries were not a sale in the course of the imports, and thereby protected under article 286(1)(b) of the Constitution read with section 46 of the Bombay Sales Tax Act, 1953 ?'
7. The Tribunal granted the application and made a reference in respect of the said two questions, after reframing questions No. (2). The two question which have been submitted to us, namely, question No. (1), as asked for by the applicants, and question No. (2) as reframed by the Tribunal from the reframed question No. (2) of the applicants, with the necessary grammatical corrections made therein by us, are as follows :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the supplies of goods made by the applicants under their debit notes Nos. 2/K/58 dated 31st October, 1958, 1/M/58 dated 31st January, 1959, and 1/M/59 dated 31st January, 1959, to Navjivan Bobbin Industries on importing the goods the strength of the actual user's import licence held by Navjivan Bobbin Industries is a transaction of 'sale' in law
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the applicants had not produced the relevant documents and, therefore, it was not possible to hold that this sale had occasioned the import and had taken place in the course of import ?'
8. It is highly doubtful whether the second question has reframed by the Tribunal is a question of law or at all brings out the real controversy between the parties on this point and, in our opinion, the proper question which the Tribunal should have referred to us is the second question as reframed by the applicants and which we have reproduced above. In view, however, of the answer we are inclined to give on question No. (1), as referred to us, we think it unnecessary to reframe question No. (2).
9. We find that in this case none of the sales tax authorities nor the Tribunal has all appreciated what the real transaction was. They have totally misunderstood the effect of documents. They have failed to realise what had happened in the case and what capacity each of the parties held therein and the role they played. Admittedly, the applicants were not manufacturers of bobbins. They purchased the bobbins from those who manufacturers them and, as we have mentioned earlier, they were the only customers or at least the biggest customers of the manufacturers who were the importers of the special type of wood required for the purpose of manufacturing these bobbins and who manufacturers bobbins therefrom. The applicants were, therefore, vitally interested the seeing that the manufacturers obtained the raw materials from which bobbins could be manufactured for the applicants so that the applicants could sell those bobbins to textile mills. The said letter dated June, 1958, clearly shows that the applicants were interested in the wood to be imported. They were, of course, interested in this wood which was to be imported, not because they were buying the wood and selling it to the manufacturers but because they wanted the bobbins which they had to supply to the various mills to be manufactured therefrom. No evidence was necessary for drawings so obvious, apparent and elementary a conclusion which stares one in the face from the facts and documents on the record. It is equally clear from the correspondence that in respect of the particular imports with which we are concerned, particularly after the said contract No. 956 was amended, the manufacturers are not in a position to open a letter of credit. They required finance for this purpose. It was but natural that they should go to the applicants for whom the goods were to be manufactured from the wood to be imported and who were, therefore, interested in seeing that the wood contracted for came to India and was converted into bobbins which they required. It was in their mutual interest, therefore, that the applicants would agree to finance these transactions. The sales tax authorities and the Tribunal have totally overlooked the importance of a very significant fact that all the applicants had recovered from the manufacturers were the actual costs and expenses incurred by them. There obviously never was any profit-motive. The sales tax authorities and the Tribunal have gone on an entirely wrong line in observing that it is not necessary that a transaction of sale should result in profit. Here, it is not the question of a person entering into a transaction of sale failing to make a profit by reason of the market turning against him or incurring loss. Here is a person who has himself billed, by sending his debit notes to the other party, for the exact amounts spent by him. Another importance fact, the legal effect of which has been totally ignored by the authorities and the Tribunal, is the import licence issued to the manufacturers and the letter of authority in favour of the applicants. They have wholly omitted to notice that the import licence was an actual user's licence. The import policy and procedure under the Import Control Order, 1955, for the April-September, 1958, licensing period, which is the period with which we are concerned, was notified in the Gazette of India, Extraordinary, dated 31st March, 1958, at pages 1 et seq. Paragraph 34 of the said notification shows that 'actual users' are those who require raw materials accessories for use and industrial manufacturing process. Thus, the goods under said the import licence were to be imported only for the purpose and use in the manufacture by the manufacturers' industry, and not for sale to any third party, or for any other use. The said licensing policy provided for the issue of letters of the authority. It stated (at page 590) :
'Under the Import Trade Control Regulations, import licences are not transferable, and can be utilised for importation of the goods covered by them only by the person or firm whose favour these have been issued. Similarly no person other than the licence-holder himself is permitted by the Reserve Bank of India to open letters of credit to make remittance of foreign exchange against the exchange control copy of the import licence.
2. With a view, however, to avoid interference with the ordinary trade practice and inconvenience in genuine transactions and also with a view to exercising to proper check over the transfer of import licences, letters of authority will be issued by the licensing authorities with the limited object of enabling an agent to import the goods and/or make necessary remittances on behalf of licensee.'
10. The notification then sets out the procedure which was to be followed for consideration of requests for the grant of a letter of authority in 'bona fide case, where the licence-holder desire to employ an agent to perform these limited functions' - to quote the actual words used in the said notification. For the purpose of obtaining a letter of authority in favour of an agent said notification requires that a written application has to be made. It should made for the licensee himself to the authority which issued the licence and is to indicate inter alia why the licence-holder could not import goods directly. The said notification to further states :
'3. The letter of authority will authorise the person or firm in whose favour it is issued to operate licence on behalf of the licensee and to open letter or letters of credit against the exchange control copy.
11. It will be deemed to be the condition of the letter of authority that
(a) the person or firm in whose favour it has been issued, will act purely as an agent of the licensee and the goods imported will be the property of the licence-holder both at the time of clearance through the customs and subsequent thereto. The licence-holder will have to ensure that the goods on importation will be delivered to him and shall not be disposed of otherwise. The licence shall not cause or permit the holder of the letter of authority to dispose of the goods;
(b) the inventor/agent acting on the authority letter shall clearly indicate on all the relevant customs documents including the triplicate copy of the customs bill of entry that the goods have been imported by him on behalf of licensee. This endorsement will be duly attested by the customs authorities; and
(c) the holder of the letter of authority shall not under any circumstances be entitled to any quota licences on the basis of these imports.'
Thus, under the Import Control Order imports made under a letter of authority are imports made by the holder of the letter of authority as an agent and for and on behalf of the licence-holder. Those import cannot be utilised for any purpose other than the purposes of the licence-holder, that is, the purpose for which the import licence was ordinarily granted. These imports inure not for the benefit of the person to whom the letter of authority has been issued but inure for the benefit of the licence-holders on whose licences the goods have been imported and a part of whose import quota these imports then become. In this connection, again a cardinal factor which the sales tax authorities and the Tribunal have wholly overlooked was that good imported under the said three contracts were not sold by the applicants to third parties but were handed over by them to the manufacturers themselves, here the licence-holders. There could have been no purpose at all in the licence-holder transferring their licence to the applicants to import goods which they have themselves ordered out for the applicants to sell those very goods back to them. Such extraordinary commercial situations may seem feasible to the department but are not to be come across in ordinary and regular commercial and mercantile transactions.
12. Considerable emphasis has been laid on behalf of the respondents on the said letter of 23rd June, 1958, from the foreign suppliers' agent to the applicants, and it was argued that this showed that the applicants alone were concerned with the imports, and the manufacturers had no concern therein. It is undoubtedly true that the said letter is addressed by the foreign suppliers' agents to the applicants. It makes it obvious that it was at the instance of the applicants that the said contract No. 956 was amended, very probably, to meet the requirements of the applicants, since the wood was required to manufacture the bobbins needed by the applicants. There will be nothing surprising in the applicants takings an interest in the import of the raw materials from which goods were to be manufacturers for them. In holding that manufacturers were not at all interested in this import, the sales tax authorities and the Tribunal overlooked the fact that in fact the goods were delivered to the manufacturers, and they manufactured bobbins out of them for supply to the applicants. It is true that the said letter taken by itself is equivocal and can show either that the applicants were acting as agents of the manufacturers or that they were acting on their own, but the other facts and circumstances on the record leave no doubt that they were acting only as the agents of the manufacturers. Another letter on which emphasis was laid was the letter dated 23rd July, 1958, from the foreign suppliers' agents to the applicants requesting the applicants to open the necessary letter of credit for the full quantity of goods to be imported under the said amended contract No. 956. It was said, why should the applicants open a letter of credit unless they were purchasing the goods Instead of asking the applicants to finance them, the manufacturers could have, had they sufficient security to give to a bank or a desire to pay the bank rate of interest, obtained finances from a bank. Could it them have been said that the bank has purchased the goods and sold them to the manufacturers If a bank, when it finances transaction of import, does not become a buyer, we fail to see why, when a private party finances it, he should become a buyer. The said application dated 3rd July, 1958, made by the manufacturers to the Joint Chief Controller of Imports clearly shows that they desired the letter of authority to be issued to the applicants because they did not have any bank facilities for direct import. It will be remembered that under the said notification settings out the import policy for the period April-September, 1958, the application for the issue of a letter of authority is to show why the licence-holder cannot import the goods directly, and it is only when satisfied that the case is a bona fide one that the licensing authorities issue the necessary letter of authority for which the application is made. The legal effect of the documents on the record leaves no doubt that in the matter of the imports under the said three contracts the applicants acted as the agents of the manufacturers, Messrs. Navjivan Bobbin Industries and that they did not purchase any of the wood imported under the said three contracts themselves and that there was no sale of any of these goods by the applicants to the said Messrs. Navjivan Bobbin Industries.
13. According, we answer question No. (1) in the negative.
14. In view of this answer to questions No.(1), no answer is necessary to question No. (2) either in the form in which it was asked to be referred to us by the applicants or in the form as reframed by the Tribunal.
15. The respondents will pay to the applicants the costs of this reference fixed at Rs. 250.
16. The fee of Rs. 100 paid by the applicants will be refunded to them.
17. Reference answered accordingly.