# Court in K. G. Khosla & Co v. Deputy Commissioner of Co1nmerciat·

- **Citation:** [1973] 3 S.C.R. 883
- **Court:** Supreme Court of India
- **Decided:** 1973-04-03
- **Case number:** Civil Appeal Nos. 1889 to 1891 of 1970
- **Bench:** S. Hegde, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/court-in-k-g-khosla-co-v-deputy-commissioner-of-co1nmerciat-6571
- **Pages:** 6

## Headnote

Central Sr.ies Tax Act 1956--S. 5(2) read with Art. 286 of the Consti-·
uuion.
A.~essee Company sold to bu,ver · ilr the course of import--
JVhether an inter-State sale.
~·.
The respondent was engaged in the supply of foreign cotton to texti!emilis. in South India on the basis·of import.Jic.cnces issued to the mills-.
3uthori!~Og import of foreign cotton· by them.. The firm supplied cotton
to the mills on the basis of specific written
contracts. One of the
co.rrditicns in the -contract is that _the goods imported· should not under
any cir:"Umstances, be diverted· fiom its d.:termined destination, i.e. the
mills. _ Secor.dly~ the relative. shipping docum~nts ·were issued
by
theforeign seHer in the names of the respective mills and not in the nameOf the assessee-firm.
Again;_ the import licences issued to 'the
mills.
authorise the mills to import the goods; and o:n the reverse
of. these·
licences is stated that the goods for the import of which the lice:nces.
\vere grante-d should be the property of the licensees at the time of
clearance through the customs. Still further, th~ _letters of authorisation
isstied by the Gover,ament authorising the assessee-.firm · to import the
cotton show that the assessce had to do it purely as
an agent . of thelicensces hoth at the time of th.e clearance through· the · customs
and
subsequent th{!reto. The firm entered into a contract with M/s. ~fahalaxmi Cotton Mills on 20-3-1964. · According to the" respondent, by the
contract entered into with the mills, the quantity of cotton agreed to be·
supp;ied to the mills was ~pecified as also its quality and places from
where it ""' to be imported. The price was fixed on C.l.F. Cochirr.
term. Payment was to be made by the mills to the firm against the.
document. The other conditio;r.tS governing the contract were laid down
on the reverse of the contract form, the most important clauses
in
ihc conti·act \Vere that the C!Ontract was C.I.F. in nature notwithstand- ·
ing anything to the contrary mentioned i;n the· contract. . The price was·
subject to variation depending . upon the import duty, . freight rate,.
iiisurancc premium and exchange rate. Jt was further provided by th.e·
l\:IiHs that the contract_ was irrevocable and that any differences betwee;n ·
the parties had to be resolved through arbitration etc._ The question_ was
\Vhether thi! sales made to the mills affeCted in this Country occasioned
the import. The Sales Tax Officer, as well- as the Appellate Assistant'
CoirJmissioner, held that the sales in question were intra-state sales and'
therefore, the assessee was liable to tax.
·
On appeal, the Sales Tax Tribunal held that the assessee's case fell"
within s. 5(2) of the Central Sales Tax Act, read with Art. 286 of the
Constitution and -the Hi.!dl Court on revision, affirmed the decision
ofthe Tribunal.·· Before this Court it was contended by the appellant that·
the. sales were intra-state sales . and as Mb, the assessee was liable totax:.
D~smissing th.e_ a~e?ls,_ ·.
·
.
·
·
· . HeLD : · The present· case falls within the. rule laid down. by . this
Court in K. G. Khosla & Co. v. Deputy Commissioner of Co1nmerciat·
ll84
SUPREME COURT REPORTS
[1973] 3 S.C.R.
Taxes, (1966] 3 S.C.R. 352, wherein it was held that the saies in question occas;oned the import and as such it was exempt under s. S (2) of
the
Central Sales Tax Act, 1956 which says, "A sale or purchase
-Of goods shall be deemed to take place in the course of the import of
goods into the territory of India only if the sale or purchase either
occasions such import or is eJfected by a transfer of documents of title
to the goods before the goods have crossed the customs frontiers
of
India." f887GJ
Coffee Board, Bangalore v. Joint CorrlJriercial Tax
Officer,
Madras
<1mi An<>ther (1970] 3 S.C.R. 147, referred to aod distinguished.

## Text

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THE DEPUTY COMMISSIONER OF AGRICULTURAL
INCOME TAX AND SALES TAX, CENTRAL ZONE,
ERNAKULAM
.
v .
M/S. KOTAK & CO., !JOMBAY, ETC. ETC.
April 3, 1973
(K, S. HEGDE AND H. R. KHANNA, JJ.]
Central Sr.ies Tax Act 1956--S. 5(2) read with Art. 286 of the Consti-·
uuion.
A.~essee Company sold to bu,ver · ilr the course of import--
JVhether an inter-State sale.
~·.
The respondent was engaged in the supply of foreign cotton to texti!emilis. in South India on the basis·of import.Jic.cnces issued to the mills-.
3uthori!~Og import of foreign cotton· by them.. The firm supplied cotton
to the mills on the basis of specific written
contracts. One of the
co.rrditicns in the -contract is that _the goods imported· should not under
any cir:"Umstances, be diverted· fiom its d.:termined destination, i.e. the
mills. _ Secor.dly~ the relative. shipping docum~nts ·were issued
by
theforeign seHer in the names of the respective mills and not in the nameOf the assessee-firm.
Again;_ the import licences issued to 'the
mills.
authorise the mills to import the goods; and o:n the reverse
of. these·
licences is stated that the goods for the import of which the lice:nces.
\vere grante-d should be the property of the licensees at the time of
clearance through the customs. Still further, th~ _letters of authorisation
isstied by the Gover,ament authorising the assessee-.firm · to import the
cotton show that the assessce had to do it purely as
an agent . of thelicensces hoth at the time of th.e clearance through· the · customs
and
subsequent th{!reto. The firm entered into a contract with M/s. ~fahalaxmi Cotton Mills on 20-3-1964. · According to the" respondent, by the
contract entered into with the mills, the quantity of cotton agreed to be·
supp;ied to the mills was ~pecified as also its quality and places from
where it ""' to be imported. The price was fixed on C.l.F. Cochirr.
term. Payment was to be made by the mills to the firm against the.
document. The other conditio;r.tS governing the contract were laid down
on the reverse of the contract form, the most important clauses
in
ihc conti·act \Vere that the C!Ontract was C.I.F. in nature notwithstand- ·
ing anything to the contrary mentioned i;n the· contract. . The price was·
subject to variation depending . upon the import duty, . freight rate,.
iiisurancc premium and exchange rate. Jt was further provided by th.e·
l\:IiHs that the contract_ was irrevocable and that any differences betwee;n ·
the parties had to be resolved through arbitration etc._ The question_ was
\Vhether thi! sales made to the mills affeCted in this Country occasioned
the import. The Sales Tax Officer, as well- as the Appellate Assistant'
CoirJmissioner, held that the sales in question were intra-state sales and'
therefore, the assessee was liable to tax.
·
On appeal, the Sales Tax Tribunal held that the assessee's case fell"
within s. 5(2) of the Central Sales Tax Act, read with Art. 286 of the
Constitution and -the Hi.!dl Court on revision, affirmed the decision
ofthe Tribunal.·· Before this Court it was contended by the appellant that·
the. sales were intra-state sales . and as Mb, the assessee was liable totax:.
D~smissing th.e_ a~e?ls,_ ·.
·
.
·
·
· . HeLD : · The present· case falls within the. rule laid down. by . this
Court in K. G. Khosla & Co. v. Deputy Commissioner of Co1nmerciat·
ll84
SUPREME COURT REPORTS
[1973] 3 S.C.R.
Taxes, (1966] 3 S.C.R. 352, wherein it was held that the saies in question occas;oned the import and as such it was exempt under s. S (2) of
the
Central Sales Tax Act, 1956 which says, "A sale or purchase
-Of goods shall be deemed to take place in the course of the import of
goods into the territory of India only if the sale or purchase either
occasions such import or is eJfected by a transfer of documents of title
to the goods before the goods have crossed the customs frontiers
of
India." f887GJ
Coffee Board, Bangalore v. Joint CorrlJriercial Tax
Officer,
Madras
<1mi An<>ther (1970] 3 S.C.R. 147, referred to aod distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1889 to
1891 of 1970.
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Appeals by certificates from the judgment and order dated c
October 28, 1969 of the Kerala High Court at Emakulam in
T.R.C. Nos. 40, 41 and 42 of 1968.
Civil Appeals Nos. 1892 to 1896 of 1970
Appeals by certificates from the judgment and order dated
October 28, 1969 of the Kerala High Court at Emakulam in
o
T.R.C. Nos. 43, 44, 45, 47 and 48 of 1968.
Civil Appe.al No. 1897 of 1970.
Appeals by certificates from the judgment and order dated
October 28, 1969 of the Kerala High Court at Ernakulam in
'T.R.C. No. 46 of 1968.
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Civil Appeals Nos. 1898 to 1900 of 1970.
Appeals by certificates from the judgment and order dated
'October 28, 1969 of the Kerala High Court at Ernakulam in
T.R.C. Nos. 52, 53 and 54 of 1968.
V. A. Sayed Mohammed and A. G. Pudissery, for the appelF
Jan ts (in all the appeals).
G. B. Pai, PC. Bhartari, 0. C. Mathur and Ravinder Narain,
for the respondent (in C.A. Nos. 1889-1891 and. 1897/70).
T. A. Ramachandran and K. /ayaram, for the respondent (in
C.A. Nos. 1892-1896/70).
'G
Ram Phal Bansal, S. P. Pande and Ganpat Rai, for the respondent (in C.A. Nos. 1898-1900/70).
The Judgment of the Court was delivered by
HEGDE J.-In these appeals by ·certificate a common question of la~ arises for decision and that question is whether "?e
H
sales effected by the respondent with wh!ch we are concerneil m
:these cases occasioned import of Egyptian celtton. The Sales
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DY. COMMR. AGR!C. INCOME TAX v. KOTAK & co. (Hegdc, J.) 885
Tax Officer as well as the Appellate Assistant Commissioner, rejecting the contention of the assessee came to the conclusion that
the sales in question were intra-state sales. But, on appeal, the
Sales Tax Tribunal held that the assessee's case fall within S. 5(2)
of the Central Sales Tax Act 1'956 read with Article 286 of the
Constitution. The High Court on revision affirmed the decision of
the Tribunal. In support of its conclusion the High Court observed
thus :
"One of the conditions in the contract is that the goods imported should not under any circumstances, be diverted from its
determined destination, i.e., the mills.
Secondly, the relative
shipping documents were issued by the foreign seller in the names
of the respective mills and not in the name of the assessee-firm.
Again, the import licences issued to the mills auth01ise the mills
to import the goods; and on the reverse of these licences is stated
that the goods for the import of which the licences were granted
>hould be the property of the licensees at the time of clearance
through the customs.
Still further, the letters of authorisation
issued by the Government authorising the assessec-firm to import
the cotton show that the assessee had to do it purely as an agent
of the licensees and the imported goods would be the property of
the licensees both at the time: of the clearance through the customs
and subsequent thereto."
The material facts of the case are fully set out in the judgment
of the Appellate Tribunal and are as follows :
"The facts of the case here are not in dispute and the only
point that has to be considered here is as to whether the sales are
in the course of import. The assessee firm submitted before the
Sales Tax Officer a detailed note in regard to the procedure in
this matter. According to them the firm is engaged in the supply
of foreign cO'tton to textile mills among other places in South India
on the basis of the import licences issued to the mills authorising
import of foreign cotton by them. The details in regard to the
procedure contained in the nO'te submitted by the firm are found
from page 37 onwards in the assessment files. It is stated that
the firm supplies cotton to the mills on the basis of specific written
contracts. Under the import control regulations, import licences
are necessary for import of foreign cotton and they are issued to
only actual iusers like the mills. The appellant firm and the similar
concerns are not given import licences. The mills make enquiries
with the firm as regards the quality of cotton they required, the
period during which· they would be supplied, the price and other
particulars and on getting the~e enquiries the appellant firm contacts the foreign suppliers in Egypt, Sudan or America for a~cer-
8 86
SUPREME COURT REPORTS
-(1973] 3 S.C.R.
taining whether they could supply the cotton required. l! the
offers received are found acceptable the appellant firm enters into
contract wrth the various mills concerned and im!Uediately thereafter accept the offer made by the foreign suppliers. The suppl}
of such foreign cotton to M/s. Mahalakshmi Textiles Mills Ltd ..
one of the mills to whom supply was made by the firm is detailed
in the said note and it is stated that the supply made to the other
mills also .are under similar circumstances.
According to
the
appellant, .after receiving enquiries from the mills the firm con-·
tacts the American Suppliers in New York. The foreign supplie!·
agreed to supply the quantfty at the price agreed upon.
lhereatter the firm entered into a contract with the mills dated 20-3-1964.
that the import licence issued in favour of the mills was made availabae to the firm for utilisation of the contract that the letter authorrty issued auhorising the firm to import cotton was also issued.
that the bill of lading obtained by the foreign supplier on shipment
of the goods was also obtained by the firm and the cotton is thu'
sent on to India. The contention of the appellant is that under
the contract entered into with the mills the quantity oE
cotton
agreed to be supplied to the mills is specified as also its quality
and places from where it was to be imported.
The price was
fixed on C.I.F. Cochin tenns. Payment was to be made by the
mills to the firm against the document.
The other
conditions
governing the contract are laid down on the reverse of the contract form.
The most important clauses in the contract ~re that
the contract was C.I. F. in nature, notwithstanding anything to
the contrary mentioned in the contract, the price was subject to
variation depending upon the import duty, freight rate, insurance
premium and exchange rate, that it was specifically provided that
the sale was subject to import licence to be provided by the mills.
that the contract was irrevocable and that any difference between
the parties had to be resolved through the arbitration machinery
provided in the contract itself, that under the Import control regulations, the importer is the mill. the auhorisation and the import
licence are issued to the mills only, that even under the letter of
authority although the firm was au1horised to ill}port the goods
the mills remained the importer and they were liable as importer.
·that the particulars necessary for inclusion in the bill of lading
are furnished by the Jinn to the foreign suppliers before the shipment is effected, that after the goods were shipped at the foreign
Port the bill of Jading is forwarded along with the invoice and
other connected documents of title through their Bank to India.
·that these documents are received "ty the firm after due payment
of the value to the Agent Bank. that after receiving 1his document.
information is given to the mill when they made the payment in
accordance with the contract, that thereafter the
goods wer~
cleared and delivered to the mills by clearing agents at Cochin
:and forwarded to the mills".
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DY. COMMR. AGRIC. INCOME TAX v. KOTAK & co. (Hegde, J.) 887
In another portion of its Order the tribunal stated that "the
goods could not in any circums•tances be diverted from its determined destination, once it is shipped from the foreign country."
The facts set out by the Tribunal, quoted above, are stated by
the Tribunal as admitted facts.
Hence we cannot go into the
correctness of those facts.
Dr. Sayed Mohammed, the learned
counsel for the department con•tended tthat the observation of the
High Court that "one of the conditions in the contract is that 1he
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 betwe.en the respondents
and the mills. This submission, though in a technical sense may
be correct, has really no substance because, as could ~ seen from
the letter of authority issued by the Government that, one of the
conditioos of the lel!ter 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 tire
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 ii 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 users
import licence had been granted.
From the facts set out abcwe
it is obvious that the respondents could not have sold the goods
to anybody other than the licence-holders.
From the facts set out a\J!Jve it is clear that this case clearly
falls within the rule laid down by this Court in K. G. Khos/a & Co.
v. Deputy Commissioner of Commercial Taxes( 1).
The appellant therein, imported certain goods from Belgium in order to fulfil
contracts with certain buyers in India. The question arose whether
the sales effected in this country occasioned the import.
This
Court came to the conclusion that the sales in question occasioned
the import and as such it is exempt under Sec. 5 (2) of the Central
Sales Tax Act, 1956, which says•• "A sale or purchase of goods
shall be deemed to take place in the course of the im;mrt of the
goods into the territory of India only if 1he 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 cu~toms
frontiers of India".
(1) [1966] J -S. C. R. 352
888
SUPREME COURT REPORTS
(1973] 3 S.C.R.
Dr. Sayed Mohammed tried to distinguish Khosla's case from
the pr!:Sfnt case on the plea that in Khosla's case there. was only
one sale whereas in the present case there were two sales.
We are
unable to accept this contention as correct. From the facts set out
above, it is clear that the facts of this case are similar to those
found in Khosla's case.
Reliance was placed by Dr. Sayed Mohammed on the decision
of this Court in Coffee Board, Bangalore v. Joint Commercial
Tax Officer, Madras and Another(').
The facts of that case
briefly stated, are as follows :
The Coffee Board auctioned certain quantities of coffee f0r
the purpose of being sold in foreign countries. The purchasers
of those lots were required to expol't that quantity of coffee to
one or the other of the foreign countries mentioned in the sale
notice. They were precluded ;from selling the same iuside India.
The question arose whether the purchases made by them occasioned export.
This Court came to the conclusion that the purchases
in question were purchases for the purpose of export and the same
did not occasion export. This Court did not differ from the view
taken in Khosla's case.
On the other hand it distinguished that
decision.
Hence the rule laid down in the Coffee Board's case is
inapplicable to the present case.
For the reasons mentioned above these appeals fail and they
are dismissed with costs.
There are four sets of respondents.
Hence four hearing fees-One set of hearing fee for each set of
respondents.
s.c.
Appeals dismissed.
(!) [1970] 3 S. C. R. 147.
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