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Commissioner of Sales Tax Vs. Veekey Footwear and Leather Industries - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case Number Sales Tax Revision Nos. 65 and 66 of 1983
Judge
Reported in[1985]58STC338(All)
AppellantCommissioner of Sales Tax
RespondentVeekey Footwear and Leather Industries
Appellant Advocate The Standing Counsel
Respondent Advocate Bharatji Agrawal, Adv.
DispositionPetition allowed
Excerpt:
.....of section 5 of the central sales tax act, the sale by the opposite party in favour of the state trading corporation was a sale in relation to export by the state trading corporation of the shoes to russia and consequently it was not a case of inter-state sale and the provisions of section 3-aaaa of the act were attracted, the other conditions of the section having been satisfied and the tribunal committed an error of law in taking a contrary view......the state trading corporation of the shoes to russia and consequently it was not a case of inter-state sale and the provisions of section 3-aaaa of the act were attracted, the other conditions of the section having been satisfied and the tribunal committed an error of law in taking a contrary view. for the opposite party, on the other hand, it has been urged by its counsel that notwithstanding the provisions contained in sub-section (3) of section 5 of the central sales tax act, the sale by the opposite party to the state trading corporation continued to be an inter-state sale and the tribunal correctly took the view that the opposite party was not liable to pay any tax.5. having heard counsel for the parties at some length, i am of the opinion that there is substance in the submission.....
Judgment:

N.D. Ojha, J.

1. These two revisions under Section 11(1) of the U. P. Sales Tax Act (hereinafter referred to as the Act) raise a common question of law and as such are being decided together.

2. M/s. Veekey Footwear and Leather Industries Private Ltd., the opposite party in each of these two revisions, carry on business in purchase and sale of shoes. The opposite party had entered into an agreement with the State Trading Corporation for supply of shoes. The shoes purchased by the State Trading Corporation from the opposite party were meant to be exported to Russia. In the year 1977-78 the opposite party purchased shoes worth Rs. 19,43,904.80 and submitted a declaration in form III-A. In the year 1978-79 it appears shoes worth Rs. 8,51,040.00 (were purchased) and in regard to this purchase also a declaration in form III-A was submitted by it. The question which arose for determination before the authorities below and arises for consideration in the present revisions is whether the opposite party was liable to pay tax in respect of the aforesaid purchase under Section 3-AAAA of the Act. That part of Section 3-AAAA of the Act which is relevant for purposes of the present revisions reads as follows :

Where any goods liable to tax at the point of sale to the consumer are sold to a dealer but in view of any provision of this Act no sales tax is payable by the seller and the purchasing dealer does not resell such goods within the State or in the course of inter-State trade or commerce, in the same form and condition in which he had purchased them, the purchasing dealer shall, subject to the provisions of Section 3, be liable to pay tax on such purchases at the rate at which tax is leviable on sale of such goods to the consumer within the State.

3. The Tribunal has recorded a finding that the shoes purchased by the opposite party were liable to tax at the point of sale to the consumer. It has also held that the shoes in question were sold to a dealer and that as a result of the requisite declaration having been given in form III-A no sales tax was payable by the seller. Further there is no dispute that the goods were sold by the opposite party to the State Trading Corporation in the same form and condition in which it had purchased them. The Tribunal, however, took the view that the sale by the opposite party to the State Trading Corporation being in the course of inter-State trade the opposite party was not liable to pay tax under Section 3-AAAA inasmuch as the condition that the resale of such goods should not be within the State or in the course of inter-State trade or commerce was not satisfied. In taking this view the Tribunal placed reliance on the decision of a Division Bench of this Court in Commissioner of Sales Tax v. Nihal Shoe Factory [1976] 37 STC 154, where relying on an earlier decision, of the Supreme Court in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 (SC) it was held that the sale by the assessee in that case in favour of the State Trading Corporation was a local sale as distinguished from an export sale. On this view the Tribunal held on 14th October, 1982 that the opposite party was not liable to pay any tax in the years 1977-78 and 1978-79 under Section 3-AAAA of the Act. It is this order of the Tribunal against which these two revisions have been preferred by the Commissioner of Sales Tax.

4. It has been urged by the Standing Counsel appearing for the Commissioner of Sales Tax that in view of Sub-section (3) of Section 5 of the Central Sales Tax Act, the sale by the opposite party in favour of the State Trading Corporation was a sale in relation to export by the State Trading Corporation of the shoes to Russia and consequently it was not a case of inter-State sale and the provisions of Section 3-AAAA of the Act were attracted, the other conditions of the section having been satisfied and the Tribunal committed an error of law in taking a contrary view. For the opposite party, on the other hand, it has been urged by its counsel that notwithstanding the provisions contained in Sub-section (3) of Section 5 of the Central Sales Tax Act, the sale by the opposite party to the State Trading Corporation continued to be an inter-State sale and the Tribunal correctly took the view that the opposite party was not liable to pay any tax.

5. Having heard counsel for the parties at some length, I am of the opinion that there is substance in the submission made by the Standing Counsel. In order to appreciate the legal position it would be useful to refer to Section 5 of the Central Sales Tax Act at this place which reads :

5. When is a sale or purchase of goods said to take place in the course of import or export.-(1) 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.

(2) 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.

(3) Notwithstanding anything contained in Sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the 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.

6. A plain reading of Sub-section (3) of Section 5 makes it clear that if the following three conditions are fulfilled the penultimate sale shall be deemed to be in the course of export: .

(1) There must have been a pre-existing agreement or order to sell the goods in question to a foreign buyer;

(2) The last purchase referred to in Section 5(3) must have taken place after the said agreement with the foreign buyer was entered into; and

(3) The said purchase must have been for the purpose of complying with the said pre-existing agreement or order.

7. Since the Tribunal took the view that the sale by the opposite party to the State Trading Corporation was an inter-State sale and did not consider the effect of Sub-section (3) of Section 5 of the Central Sales Tax Act, clear-cut findings on the three conditions referred to above have not been recorded by the Tribunal. Section 5(3) of the Central Sales Tax Act was inserted by Section 3 of Act 103 of 1976 with effect from 1st April, 1976. The decision of this Court in the case of Commissioner of Sales Tax v. Nihal Shoe Factory [1976] 37 STC 154 on which reliance has been placed by the Tribunal is dated 21st October, 1975. The date of decision in the case of Mod. Serajuddin [1975] 36 STC 136 (SC) of the Supreme Court is dated 16th April, 1975. Both these decisions were thus given at a point of time when Sub-section (3) of Section 5 of the Central Sales Tax Act was not on the statute book and naturally there was no occasion to consider the effect of this sub-section. Section 5(3) came up for consideration before the Supreme Court in Consolidated Coffee Ltd. v. Coffee Board [1980] 46 STC 164 (SC). The following observations made by the Supreme Court in the aforesaid case are of significance in appreciating the import of Section 5(3):

In our view, when Sub-section (3) of Section 5 uses the word 'deemed' and says that the penultimate sale 'shall also be deemed to be in the course of export' what is intended to be conveyed is that the penultimate sale shall also be regarded as being in the course of such export. In other words, no legal fiction is created.

It is thus clear to us that Section 5(3) formulates a principle of general applicability in regard to all penultimate sales provided they satisfy the specified conditions mentioned therein and there is no question of the said provision creating a legal fiction as has been contended for by the counsel.

On construction we are of the view that by implication the expression 'the agreement' occurring in Section 5(3) refers to the agreement with a foreign buyer.

8. In view of the observations made above by the Supreme Court in the case of Consolidated Coffee Ltd. [1980] 46 STC 164 (SC) there seems to be no manner of doubt that if the aforesaid conditions contemplated by Sub-section (3) of Section 5 of the Central Sales Tax Act are made out, the sale by the opposite party to the State Trading Corporation which was the penultimate sale shall be deemed to be in the course of export and consequently by operation of law it cannot be treated to be an inter-State sale for purpose of Section 3-AAAA of the Act.

9. Reliance has been placed by counsel for the opposite party on an observation in the case of Consolidated Coffee Ltd. [1980] 46 STC 164 (SC) that Section 5(3) has obviously been enacted to extend the exemption from tax liability under the Act not to any kind of penultimate sale but only to such penultimate sale as satisfies the two conditions specified therein, namely, (a) that such penultimate sale must take place after the agreement or order under which the goods are to be exported and (b) it must be for the purpose of complying with such agreement or order and it is only then that such penultimate sale is deemed to be a sale in the course of export. On its basis it was urged that Section 5(3) could be read only to find out the extent of the exemption from tax liability and could not be pressed in service in support of the submission that penultimate sale was not an inter-State sale within the meaning of Section 3-AAAA. In my opinion the context in which the aforesaid observation was made is apparent and that observation in no way detracts the law laid down by the Supreme Court in the aforesaid case that if the conditions laid down in Sub-section (3) of Section 5 are made out then the 'penultimate sale shall also be regarded as being in the course of such export'. It has not been disputed by counsel for the parties that the sale covered by Sub-section (1) of Section 5 of the Central Sales Tax Act would be a sale in the course of export. When Sub-section (3) of Section 5 places even a penultimate sale almost at par with a sale contemplated by Sub-section (1) of Section 5 it is not possible to accept the submission made by counsel for the opposite party that notwithstanding the plain language of Sub-section (3) of Section 5 of the Central Sales Tax Act the penultimate sale shall still continue to be an inter-State sale for purposes of Section 3-AAAA. I am aware that legal fictions are for a definite purpose and are limited to the purpose for which they are created and should not be extended beyond their legitimate field. However, as regards Section 5(3) aforesaid, as seen above, the argument that Section 5(3) created a legal fiction has been specifically overruled by the Supreme Court in the case of Consolidated Coffee Ltd. [1980] 46 STC 164 (SC). As such it is not a case where any legal fiction contained in Sub-section (3) of Section 5 of the Central Sales Tax Act is being extended for a purpose other than the purpose for which such legal fiction may have been created. On the other hand, as held by the Supreme Court in the case of Consolidated Coffee Ltd. [1980] 46 STC 164 (SC) in view of Section 5(3) 'the penultimate sale shall also be regarded as being in the course of such export' and 'section 5(3) formulates a principle of general applicability in regard to all penultimate sales provided they satisfy the specified conditions mentioned therein'.

10. Counsel for the opposite party has placed reliance on certain other decisions also laying down the interpretation of inter-State sale but since even those decisions are of a date prior to the insertion of Sub-section (3) in Section 5 of the Central Sales Tax Act, I am of the opinion that they are not useful for deciding the question involved in these revisions. As such I do not find it necessary to refer to those decisions.

11. In view of the foregoing discussion it is a fit case where the order of the Tribunal may be set aside and the Tribunal may be directed to decide the second appeals filed by the opposite party afresh. While doing so it shall record findings on the questions as to whether the other conditions contemplated by Section 3-AAAA of the Act and Section 5(3) of the Central Sales Tax Act are fulfilled or not. In case those conditions are fulfilled, it is apparent that the sales in question made by the opposite party to the State Trading Corporation shall be in the course of export as contemplated by Sub-section (3) of Section 5 of the Central Sales Tax Act and shall not be treated as inter-State sale and the opposite party shall be liable to pay tax under Section 3-AAAA of the Act.

12. In the result both these revisions succeed and are allowed and the order of the Sale's Tax Tribunal dated 14th October, 1982 allowing the two second appeals filed by the opposite party in respect of the assessment years 1977-78 and 1978-79 are set aside and the Tribunal is directed to decide these two second appeals afresh in accordance with law keeping in mind the observations made above, on the basis of the material already existing on record. In the circumstances of the case the parties shall bear their own costs. A copy of this order may be sent to the Tribunal concerned as contemplated by Section 11(8) of the Act.


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