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Liberty Footwear Co. Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case NumberSales Tax Revision No. 772 of 1980
Judge
Reported in[1983]52STC273(All)
AppellantLiberty Footwear Co.
RespondentCommissioner of Sales Tax
Appellant AdvocateJ.C. Bhardwaj, Adv.
Respondent AdvocateStanding Counsel
DispositionPetition dismissed
Cases ReferredIndia and K. G. Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes
Excerpt:
- - 3. the case of the dealer is that, on facts, its case was different from that of serajuddin [1975] 36 stc 136 (sc); air 1975 sc 1564 or of nihal shoe factory [1976] 37 stc 154 ;1976 uptc 45 wherein, relying upon that decision, a division bench of this court held that the transaction of sale of shoes by nihal shoe factory to another firm agra charm kala kendra which, in turn, had entered into an agreement with the state trading corporation for supply of shoes to be exported by the corporation to foreign buyers could not be said to be in the course of export......quantities and specifications mentioned in an annexure. the applicant was to get the price for the goods exported as indicated in the contract of 4th september, 1973, less 4 per cent thereof to be paid to the state trading corporation as its guaranteed margin. the applicant was to manufacture, pack, transport and ship the goods in specifications and in the manner provided in the contract of 4th september, and all documents including the bill of lading had to be made out in the name of the applicant 'account s.t.c.'. the applicant was to be kept informed of any dispute relating to or arising out of the contract dated 4th september, 1973, and the dispute was to be resolved in consultation with him. where such resolution did not take place and the matter had to be decided by arbitration or.....
Judgment:

V.K. Mehrotra, J.

1. The applicant, Liberty Footwear Company, Agra, deals in footwears. His case is that during the year 1974-75 purchases of shoes of the value of Rs. 11,09,784.50 made by him were exempt from payment of purchase tax for they had been made in the course of export thereof outside India. His claim having been rejected by the authorities under the U. P. Sales Tax Act, necessity arose for him to approach this Court in the present revision under Section 11(1) of the Act.

2. The claim of the dealer has been rejected on account of the law laid down by the Supreme Court in Mod. Serajuddin v. State of Orissa AIR 1975 SC 1564. A Constitution Bench of the Supreme Court, by majority, ruled in that case that sale in the course of export out of the territory of India means sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. The appellant before the Supreme Court had entered into contract with State Trading Corporation which had entered into contracts with foreign buyers for sale of identical goods purchased by the Corporation from the appellant. The Supreme Court, amongst others, made the following observations :.The various decisions to which reference has been made illustrate the ascertainment of the pre-eminent question as to which is the sale or purchase which occasions the export... The features which point with unerring accuracy to the contract between the appellant and the Corporation on the one hand and the contract between the Corporation and the foreign buyer on the other as two separate and independent contracts of sale...are these. The Corporation entered on the scene and entered into a direct contract with foreign buyer to export the goods. The Corporation alone agreed to sell the goods to the foreign buyer. The Corporation was the exporter of the goods. There was no privity of contract between the appellant and the foreign buyer. The privity of contract is between the Corporation and the foreign buyer. 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 relevant documents were in the name of the Corporation on whose contract of sale was the occasion of the export. The expression 'occasions' in Section 5 of the Act (the Central Sales Tax Act, 1956) means the immediate and direct cause. But for the contract between the Corporation and the foreign buyer, there was no occasion for export. 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 the appellant..The Corporation in regard to its contract with the foreign buyer entered into a contract with the appellant to procure the goods. Such contracts for procurement of goods for export are described in commercial parlance as back to back contracts. In export trade it is not unnatural to find a string of contracts for export of goods. It is only the contract which occasions the export of goods which will be entitled to exemption.....The directions given by the Corporation to the appellant to place the goods on board the ship are pursuant to the contract of sale between the appellant and the Corporation. These directions are not in the course of export, because the export sale is an independent one between the Corporation and the foreign buyer....

The fact that the exports can be made only through the State Trading Corporation does not have the effect of making the appellants the exporters where there is direct contract between the Corporation and the foreign buyer. Restriction on export that export can be made only through the State Trading Corporation is a reasonable restriction and has been upheld by this Court in several decisions to which reference has been made earlier.

3. The case of the dealer is that, on facts, its case was different from that of Serajuddin [1975] 36 STC 136 (SC); AIR 1975 SC 1564 or of Nihal Shoe Factory [1976] 37 STC 154 ; 1976 UPTC 45 wherein, relying upon that decision, a Division Bench of this Court held that the transaction of sale of shoes by Nihal Shoe Factory to another firm Agra Charm Kala Kendra which, in turn, had entered into an agreement with the State Trading Corporation for supply of shoes to be exported by the Corporation to foreign buyers could not be said to be in the course of export. It was held to be a local sale attracting liability to tax under the U. P. Act.

4. The facts noticed by the Division Bench in Nihal Shoe Factory's case [1976] 37 STC 154 ; 1976 UPTC 45 were that a preliminary inspection of the shoes was to be made in India and the final by the foreign buyers at the destination when the shipment arrived there. Shoes found to be of sub-standard quality or not conforming with the guarantee were to be rejected and the foreign buyers could claim refund of the price in respect of such shoes as also all incidental expenses. The damages so claimed as also the expenses were to be borne by Nihal Shoe Factory which was to export the consignment of shoes directly to the foreign buyers. It was to receive payment from the Kendra of the price payable by the foreign buyers at the destination minus override commission and the expenses of the Kendra which had been described as the agent entitled only to charge such commission.

5. A large number of authorities were cited before the Bench in support of the view that, in fact, there was only one integrated sale as a result of which goods were exported from India to foreign countries and it was urged that the Corporation and Kendra were mere intermediaries. The Bench, however, held against Nihal Shoe Factory on the principle laid down in Mod. Serajuddin's case [1975] 36 STC 136 (SC); AIR 1975 SC 1564.

6. What then are the facts which make the present case different from those aforesaid. Says Sri J. C. Bhardwaj, for the applicant, that they are these : The applicant is a recognised exporter. It entered into negotations with the foreign buyers itself. The State Trading Corporation had to be associated in the matter on account of legal compulsion under Clause 3 of the Exports (Control) Order, 1968, made by the Central Government in exercise of powers conferred upon it by sections 3 and 4-A of the Imports and Exports (Control) Act, 1947 (Parliament Act 18 of 1947). No person could export footwear, an item mentioned at serial No. 50 in Schedule I of the Order, except under and in accordance with a licence granted to him. The Central Government had framed an import trade control policy under which, during the year in question, footwears of all types (at item No. 21) was one of the commodities of which exports were to be canalised only through public sector agencies. This is contained in Part D of Section I of Volume II of the Import Trade Control Policy for the year April, 1974, to March, 1975, published under the authority of the Government of India. The contract between the State Trading Corporation and the Russian purchaser of 4th September, 1973, was made a part of the document executed between the applicant and the Corporation on 12th October, 1973, in which it was expressly mentioned that the State Trading Corporation had entrusted to the applicant the obligation for manufacture and shipment of leather shoes in quantities and specifications mentioned in an annexure. The applicant was to get the price for the goods exported as indicated in the contract of 4th September, 1973, less 4 per cent thereof to be paid to the State Trading Corporation as its guaranteed margin. The applicant was to manufacture, pack, transport and ship the goods in specifications and in the manner provided in the contract of 4th September, and all documents including the bill of lading had to be made out in the name of the applicant 'Account S.T.C.'. The applicant was to be kept informed of any dispute relating to or arising out of the contract dated 4th September, 1973, and the dispute was to be resolved in consultation with him. Where such resolution did not take place and the matter had to be decided by arbitration or court, the expenses were to be borne by the applicant which was also bound by the decision. The applicant was entitled to avail of all import benefits which were available to the State Trading Corporation under any scheme of the Government which may be enforced from time to time. The plea raised is that the two documents, namely, the one between the foreign buyers and the State Trading Corporation and the other between the latter and the applicant constituted one transaction. The contract between the applicant and the State Trading Corporation was not one of sale nor was the applicant a dealer making any sale qua the State Trading Corporation. It was nothing more than an entrustment of obligation by the State Trading Corporation to the applicant for fulfilment of the export order. In the case of Serajuddin [1975] 36 STC 136 (SC); AIR 1975 SC 1564, says the counsel, there was a contract of sale between the Corporation and Serajuddin as was evident from the terms of the agreement between them, of which a copy has been brought on the record of the present proceedings as annexure 6 wherein it has been stated that the seller (Mod. Serajuddin) had agreed to sell and the buyer (State Trading Corporation) had agreed to buy a certain quantity of Indian chrome ore on the terms and conditions mentioned unlike in the case of the applicant where the agreement dated 12th October, 1973, expressly talked of entrustment to the applicant of the obligation for manufacture and shipment of leather shoes in quantities and specifications mentioned, on the agreed terms.

7. The counsel leans heavily upon the decision of this court in Commissioner of Sales Tax v. Hanuman Trading Company 1979 UPTC 809. There the dealer used to make purchases of foodgrains and oil-seeds also for ex-U. P. principals, inter alia, from cartmen and agriculturalists. After purchasing the goods, he used to despatch them outside the State. The question was whether the turnover of these purchases was exigible to purchase tax under Section 3-D of the U. P. Sales Tax Act. This Court observed that :

Inasmuch as the ex-U. P. purchasers and the assessee contracted that the goods should be purchased by the assessee on behalf of ex-U. P. principals and thereafter the goods should be sent to the buyers outside U. P., it is clear that the goods moved pursuant to the contract of purchase entered into between the purchasing agent and the ex-U. P. buyers. Although, the cases referred to were dealing with the question as to whether the contract of sale had caused the movement, the same principle would apply in the case of purchases, as Section 3 embraces both sales and purchases....

8. The learned standing counsel for the Commissioner of Sales Tax answers by urging that there were in reality two separate contracts, one between the State Trading Corporation and the foreign buyers and the other between the State Trading Corporation and the applicant, for sale of shoes to the foreign buyers and to the State Trading Corporation, by the Corporation and the applicant respectively. There was no privity between the applicant and the foreign buyers. The purchases by the applicant may be for export but they could not be treated to be in the course of export of shoes. Serajuddin's case [1975] 36 STC 136 (SC) ; AIR 1975 SC 1564, says the standing counsel, concludes the matter against the applicant and the decision of Hanuman Trading Co. [1979] 43 STC 408 ; 1979 UPTC 809 was not attracted at all on the facts of the present case. He relies also on the decision rendered by this Court in Commissioner of Sales Tax v. Ganeshi Lal and Sons 1981 ATJ 38. In that case this Court ruled that before a sale could be held to be in the course of export, there should be a sale, goods must actually be exported and the sale must be one which occasions the export. Further, where there was no link between the agreement to sell and the export, the sale could not be treated to be the one in the course of export. The standing counsel also referred to the decisions of Supreme Court in Endupuri Narasimham and Son v. State of Orissa [1961] 12 STC 282 (SC) and in Himatsingka Timber Co. Ltd. v. State of Orissa [1966] 18 STC 235 (SC), wherein the principle laid down was that purchases made inside the State by a dealer to carry out obligations to constituents outside the State could not qualify for exemption from tax on the ground that they had been made in the course of inter-State trade.

9. On the terms of the contract between the State Trading Corporation and the applicant properly understood, it is clear that though the applicant was entrusted with the carrying out of some of the obligations undertaken by the Corporation in its contract with the Russian buyers and specific words to the effect that the Corporation was purchasing footwears from the applicant were not used therein, the transaction between them was nothing but sale by the applicant of footwear to the Corporation which, in turn, entered into a contract of sale with the Russian buyers.

10. Even on the assumption that the applicant was not making any sale to the Corporation of footwear to be exported to Russia, the purchases made by the applicant of footwear to the tune of Rs. 11,09,784.50 could not qualify for exemption from payment of purchase tax. On the facts found by the authorities, and those appearing from the evidence brought on record in this Court, it is clear that the purchases made by the applicant were not made in furtherance of any obligation undertaken by him in any contract with a foreign buyer. No contractual obligation to export the footwear outside India was directly undertaken by the applicant. The purchases made by him were in that sense, not part of any integrated activity of the applicant in the course of export of footwear by him.

11. The decisions on which reliance was placed on behalf of the applicant were all cases in which the dealer was one who was privy to a contractual obligation to despatch goods outside the State in which the purchases had been made by him. That was the situation in the case of Hanuman Trading Co. [1979] 43 STC 408; 1979 UPTC 809. So also in National Carbon Co. v. Commissioner of Sales Tax, U.P. AIR 1969 All 205 (FB), wherein the dealer had entered into a contract with Nepal dealers for supply of bulbs, etc., though, for convenience, delivery had been made to the purchasers within India and K. G. Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes AIR 1966 SC 1216 wherein the dealer had entered into an agreement with the Director General of Supplies and Disposals, New Delhi, for supplying axle-box bodies after getting them manufactured in Belgium and importing them into India. The sale was held to have taken place in the course of import of goods for the movement of goods from Belgium to India was in pursuance of the conditions of contract between the dealer and the Director General of Supplies.

12. On facts, theapplicant's case is indistinguishable from that of Mod. Serajuddin [1975] 36 STC 136 (SC) ; AIR 1975 SC 1564. It was rightly held governed by the dictum of that decision. It differs, on facts, from Hanuman Trading Co.'s case [1979] 43 STC 408 ; 1979 UPTC 809. The principle of that case is, therefore, not attracted.

14. The revision fails and is dismissed though the parties are left to bear their own costs.


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