G. Viswanatha Iyer, J.
1. The Deputy Commissioner of Agricultural Income-tax and Sales Tax is the revision petitioner in these cases. The respondent is the same in all. The respondent was assessed to sales tax under the General Sales Tax Act for the years 1961-62, 1962-63 and 1963-64 on the turnover of sales effected by them in the three years of goods imported and supplied to customers on the strength of actual user's import licences. The turnovers for the three years were as follows:
1961-62 ... Rs. 3,15,596.191962-63 ... Rs. 13,40,949.981963-64 ... Rs. 4,03,427.72
2. These sales were contended to be sales in the course of import of goods into India and hence not taxable. This contention was rejected by the assessing authority and by the Appellate Assistant Commissioner. But, on second appeal, the Appellate Tribunal accepted the contention of the assessee and held that the disputed turnovers are not taxable. The finding of the Appellate Tribunal is in the following terms:
There is no dispute that the goods were imported and supplied on the strength of the actual user's import licence obtained by the customers. From a specimen contract of supply produced by the appellant's agent, viz., the one in respect of supply of 72 tons of microcele to Messrs. Hindustan Insecticides Limited, Udyogamandal P.O., Kerala State, it is seen that the purchaser places orders with the appellant quoting the import licence number, quantity of goods, rate, etc., as agreed by the previous correspondence with the appellant. The appellant then places orders with the foreign supplier for supply of the goods. In the order the customer who required the goods and also the licence numbers are noted. After the goods are received the appellant draws invoice on the customer. In the instant case, the order was placed on Messrs. Johns Manvilla, New York. From the nature of the transaction, as described above, it is evident that the contract of sale provides for the import of the specified goods from abroad and the sale has occasioned the movement of goods from outside the territory of India to this country. So there is no doubt that the sale is in the course of import as found by the Supreme Court on similar facts in K. G. Khosla v. Deputy Commissioner of Commercial Taxes  17 S.T.C. 473 (S.C.).... We there find that the sales are in the course of import.... On the facts and circumstances of the case, we entertain no doubt in holding that the disputed turnover related to sales in the course of import which are exempt from levy of tax under the General Sales Tax Act.
3. The department has come up in revision and challenges this finding.
4. As can be seen from the findings of the Appellate Tribunal, referred to above, Messrs. Hindustan Insecticides Limited had what, is called . 'Actual User's Import Licence' to import goods from foreign countries. They placed orders with the assessee quoting the import licence number, quantity of goods required, rate, etc., as agreed to between them as per previous correspondence. Along with each order a letter of authority was also furnished to the assessee to import the goods as per the licence. The licence was to import certain specified goods on behalf of Messrs. Hindustan Insecticides Limited and one of the conditions of the licence in favour of Messrs. Hindustan Insecticides Limited was that 'the goods for the import of which the licence has been granted shall be the property of the licensee at the time of clearance through the customs'. Thereafter, the assessee placed orders with the foreign supplier, namely, Messrs. Johns-Manvilla, New York, for supply of the goods specified in the licence. It is seen from the terms of it that the assessee-company quoted the import licence obtained by Messrs. Hindustan Insecticides Limited and also stated in the order form that the goods are intended for supply to the licensee. These facts establish that the assessee cannot divert the goods on import to their own use or for sale to others and that the contract of sale occasioned the movement of goods from the foreign country and that this movement is referable to the contract with and the import licence of, Messrs. Hindustan Insecticides Limited.
5. The counsel for the revision petitioner contended that the principles which have to be applied in order to come to the conclusion that the sale was in the course of import have been clearly laid down in the decisions of the Supreme Court, namely, Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer  15 S.T.C. 753 (S.C.) and Coffee Board v. Joint Commercial Tax Officer  25 S.T.C. 528 (S.C.) and that the facts of these cases do not justify a conclusion that the sales were in the course of import. In Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer  15 S.T.C. 753 (S.C.), their Lordships of the Supreme Court held that in order that there may be a sale in the course of export, the export must be inextricably linked up with the sale so that the bond cannot be dissociated without a breach of the obligation arising out of a statute, contract or a mutual understanding between the parties in respect of the transaction. No single test can be laid down as decisive for determining that question also. It must be determined on a correct appraisal of all the facts. The relevant passage where this principle is laid down is given at page 759, which reads thus:
A sale in the course of export predicates a connection between the sale and export, the two activities being so integrated that the connection between the two cannot be voluntarily interrupted, without a breach of the contract or the compulsion arising from the nature of the transaction. In this sense to constitute a sale in the course of export it may be said that there must be an intention on the part of both the buyer and the seller to export, there must be an obligation to export and there must be an actual export. The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export. A transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export, but is not necessarily to be regarded as one in the course of export, unless the sale occasions export. And to occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it. Without such a bond, a transaction of sale cannot be called a sale in the course of export of goods out of the territory of India.
6. The next decision that was brought to our notice, namely, Coffee Board v. Joint Commercial Tax Officer  25 S.T.C. 528 (S.C.) also is a case of a sale in the course of an export. Their Lordships approved the principles laid down in the earlier decision, namely, Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer  15 S.T.C. 753 (S.C.) and further said at page 541 :
To establish export a person exporting and a person importing are necessary elements and the course of export is between them. Introduction of a third party dealing independently with the seller on the one hand and with the importer on the other breaks the link between the two, for then there are two sales one to the intermediary and the other to the importer. The first sale is not in the course of export for the export begins from the intermediary and ends with the importer.
7. It is contended that the above principles though stated in connection with export sales are applicable to import sales, that as there are two sales in the instant case and that there is no proof of an inextricable link between the sale and the import, the transactions are not sales in the course of import. But, the first sale here is an outside sale by the foreign supplier and it is only an outside purchase by the importers. The movement of goods from the foreign country may or may not be obligatory under an ordinary foreign purchase. If that purchase and import are made only to perform the contract of sale which the purchaser entered into with a consumer in India, the presence of two sales, one by the foreign supplier and another by the importer cannot take the transaction outside the ambit of a sale in the course of import. If both are inextricably linked the requirement of a sale in the course of import is established. In this respect the sale in the course of import is distinguishable from the presence of two sales, one to the intermediary and the other to the foreign importer in the case of an export transaction. So the decision in the Coffee Board's case  25 S.T.C. 528 (S.C.) is distinguishable.
8. This leads to the question as to what amounts to an inextricable bond between the import and the sale to constitute a sale in the course of import. For this purpose the counsel for the assessee relied on the principle laid down in the decision of the Supreme Court in Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes  17 S.T.C. 473 (S.C.), which was a case of a sale in the course of an import. The consumer in that case, namely, the Director-General of Supplies and Disposals, wanted the supply of certain goods manufactured in Belgium. The assessee entered into a contract to supply those goods. The goods had to conform to certain specifications and the D.G.I.S.D., London, or his representative was to approve them. In that case their Lordships, after referring to the nature of the transaction, held thus at page 488 :
The next question that arises is whether the movement of axle- box bodies from Belgium into Madras was the result of a covenant in the contract of sale or an incident of such contract. It seems to us that it is quite clear from the contract that it was incidental to the contract that the axle-box bodies would be manufactured in Belgium, inspected there and imported into India for the consignee. Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose. Consequently we hold that the sales took place in the course of import of goods within Section 5(2) of the Act and are, therefore, exempt from taxation.
9. Their Lordships laid emphasis in that case to the movement, of the goods from the foreign country as a result of a covenant in the contract of sale or as incidental to such contract and to the further fact that there was no possibility of these goods being diverted by the assessee for any other purpose. From these the integral connection which is a necessary element in deciding the question whether it is a sale in the course of import was held as satisfied. Though this decision was cited before the Supreme Court in the case of Coffee Board v. Joint Commercial Tax Officer  25 S.T.C. 528 (S.C.), their Lordships did not hold that this principle laid down in Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes  17 S.T.C. 473 (S.C.) is wrong and they distinguished the case from the facts of the case in Coffee Board v. Joint Commercial Tax Officer  25 S.T.C. 528 (S.C.).
10. Reliance was next placed on the decision of the Supreme Court in State of Bihar v. Tata Engineering & Locomotive Co. Ltd.  27 S.T.C. 127 (S.C.) At page 149 their Lordships have summarised the effect of the earlier decisions and formulated the principles which will make out whether a sale is in the course of export or import. This is what their Lordships said:
The decided cases establish that sales will be considered as sales in the course of export or import or sales in the course of inter-State trade and commerce under the following circumstances :
(1) When goods which are in export or import stream are sold;
(2) When the contracts of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of goods takes place; and
(3) Where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported out of the State in which the delivery of goods takes place.
11. So if the contract of sale requires the goods to be imported from a foreign country to fulfil the contract or if as a necessary incidence of the contract of sale, goods sold are required to be imported, that sale will be a sale in the course of import. Recently, in an appeal from the decision in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Kotak & Co. 1970 K.L.T. 1062, the Supreme Court had to consider a case more or less similar to the facts in these cases. That is the Deputy Commissioner of Agricultural Income-tax &. Sales Tax, Central Zone, Ernakulatn v. Kotak & Co., Bombay  32 S.T.C. 6 at p. 10 (S.C.). In this case, on the basis of an import licence issued to some mills those mills entered into a contract with the assessee and the assessee undertook to sell the goods specified in the contract and in the import licence. The import licence and the authority authorising the assessee to import on behalf of the mills were also handed over to the assessee. That transaction was sought to be assessed to general sales tax. Their Lordships read the import licence and the letter of authority along with the contract of sale as part of the same transaction and held that the transaction is a transaction in the course of import. Their Lordships followed the decision in Khosla & Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes  17 S.T.C. 473 (S.C.). In the course of the judgment, their Lordships have observed thus :
Dr. Sayed Mohammed, the learned counsel for the department, contended that the observation of the High Court that 'one of the conditions in the contract is that the goods imported should not, in any circumstance, be diverted from its determined destination, i. e., the mills' is incorrect as there is no such term in the contract entered into between the respondents and the mills. This submission, though in a technical sense may be correct, has really no substance because, as could be seen from the letter of authority issued by the Government that one of the conditions of the letter of authority was, to quote the words of that letter, '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 licensee shall not cause or permit the holder of the letter of authority to dispose of the goods'.
This clause must be read as a part of the contract entered into between the respondents and the mills. Even if this clause had not been there, there would have been no difficulty in coming to the conclusion that the respondents were precluded from selling the goods to anybody other than the mills to whom the user's import licence had been granted. From the facts set out above, it is obvious that the respondents could not have sold the goods to anybody other than the licence holders.
12. Though the principle laid down in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer  15 S.T.C. 753 (S.C.), that there must be proof of an inextricable link between the sale and the import is still the law for a sale in the course of export or import, the Supreme Court has, in this case, given great weight to the actual user's import licence and its terms to constitute that proof. In this regard, the usefulness of the import licence seems to be different from that of the use of export quota in the case of goods exported. The export quota right by itself was held to be insufficient to constitute that link in Coffee Board's case  25 S.T.C. 528 (S.C.) and in Ben Gorm's case  15 S.T.C. 753 (S.C.). In the light of these principles, we have to see whether inextricable link between the import and sale has been established.
13. Here there is an import licence in favour of M/s. Hindustan Insecticides Limited, that import licence was referred to in the agreement for sale entered into by the assessee with consumer company, that licence was referred to in the contract which the assesssee entered into with the foreign supplier and it was further mentioned in the contract with the foreign supplier that the supplies as per the latter contract are for M/s. Hindustan Insecticides Limited. The licence in favour of M/s. Hindustan Insecticides Limited clearly provided that the goods imported will be the property of the licence-holder at the time of clearance through the customs. From these an integral connection between the sale and the import is established. It is not possible for the assessee without committing a breach of contract to divert goods so imported for any other purpose. Therefore, applying the principles referred to above, it is seen that the transactions in these cases are really transactions in the course of import and are exempt from taxation.
14. In the light of our conclusion that these transactions are sales in the course of import, we hold that the finding of the Tribunal is correct. The revision petitions are dismissed; but in the circumstances, we make no order as to costs.