# K. GOPINATHAN NAIR ETC v. STATE OF KERALA

- **Citation:** [1997] 3 S.C.R. 226
- **Court:** Supreme Court of India
- **Decided:** 1997-03-21
- **Bench:** A.M. Ahmadi, S.B. Majmudar, Sujata V. Manohar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/k-gopinathan-nair-etc-v-state-of-kerala-15491
- **Pages:** 43

## Headnote

Sales tax---Central Sales Tax Act 1956, s.5 (2)-Kerala General Sales
Tax Act, 1963-Karnataka Sales Tax Act, 1957-Wlzether import of raw
C cashew nuts by canalising agency and its purchases by actual users in India
could be said to be a transactio11 i11 the course of impo1t and, therefore, eligible
for exemption-Held, per maj01ity, on facts, no; Held, per Sujata V. Manohar,
J., dissenting, yes-Constitution of I11dia, A1ticle 286 (J)(b ).
Central Sales Tax Act 1956, s.2 (ab )-'Crossing the customs frontiers
D of India'-Held, per cwiam, being a substa11tive provision will have no
retrospective effect and will not cover transactions in questio11-I11terpretation
of Statues.
The appellants, engaged in the purchase of raw cashewnuts and
. E export of cashew kernels after processing, placed orders for import of raw
cashewnuts from African countries through the Cashew Corporation of
India (CCI) which was a canalising agency. Purs~ant to the said orders, .
the CCI had imported raw cashewnuts and had ·made them available to
the assessees.
F
· The contention of the appellants that these transactions, during
assessment years 1970-71 to 1973· 7 4, were purchases by them in the course
of import and therefore outside the sweep of the Central Sales Act, 1956
by virtue of s. 5 (2) thereof was rejected by the Kerala Sales Tax Appellate
Tribunal. The Tax Revision cases were also dismissed by a Division Bench
G of the Kerala High Courts.
CCl's contention that the sales made by it of imported raw
cashewnuts to local users in Karnataka were in the course of import and
therefore outside the purview of the Karnataka Sales Tax Act, 1957 was
rejected by the Karnataka Appellate Tribunal as well as the High Court.
H CCI then appealed to this Court.
226
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K.GOPINATIIANNAIR v. STATE
'121
Dismissing the appeals, th.is Court
HELD: Per Majority (Majmudar, J. for himself and Ahmadi, CJ!.):
1.1. Sales by the CCI to the local users were not in course of import
of raw cashew from African countries and were therefore outside the sweep
A
of the exemption provisi_ons engrafted by s. 5(2) of the Central Sales Tax B
Act. [251-E]
._
1.2. There were two transactions. One was the import of raw cashew
by CCI. The second transaction was the sale by CCI to local users. That
sale would remain an independent transaction between the importer CCI
and the local purchaser and there was no privily of contract between the C
local users on the one hand and the foreign exporter on the other. These
two transactions could not be said to be so integrally interconnected as to
represent .,,one composite transaction in· the course of import of ~w
cashewnuts. [251-B·D]
..
Mis Binani Bros. (P) Ltd. v. Unio11 of India, [1974] 1 SCC 459 and
. Md Serajuddin v. 17ze State of Orissa, [1975] 2 SCC 47, followed.
D
Be11 Grom Nilgiri Plantations Company, Coonoor v. Sales Tax Officer,
Special Circle, Emakulam, [1964] 7 SCR 706; KG. Khosla & Co. v. Deputy
Commissio11er of Commercial Taxes, [1966] 3 _SCR 352; Coffee Board, E
Bangalore v.Joint Commercial TarO'fficer, .Madras, [1969] 3 SCC 349; 17ze
State of Bihar v. Tata Engineering and Locomotive Co. Ltd., [1970] 3 SCC
697; T71e Deputy Commissioner of Agricultural Income Tax and Sales Tax,
Central Zone, Emakulam v. Mis Kotak & Co.,. [1974] 3 SCC 148; Deputy
Commissioner of Agncultural Income Income Tax and Sales Tax,· Emakulam F
. v. Indian Explosives Ltd., . [1985] 4 SCC 119 and CollSolidated Coffee Ltd. .
v. Coffee Board, Bangalore, [1980] 3 SCR 625, referred to.
Per Sujata V. Manohar, J; (dissenting) :
1.3. The Sales in question were in the course of import and could not G
be taxed under the Kerala General Sales Tax Act or the Kamataka Sales
Tax Act. [268-C, E]
1.4. There was an inseverable link as the import made by CCI was a
·necessary consequence of the specific- requirements submitted by the
processors and was a result of the obligations it had undertaken under H
···':~
228
SUPREME COURT REPORTS
[1997] 3 S.C.R.
A such arrangement wit

## Text

_Characters 0–39,981 of 108,879. This is a partial read: ask again with offset=39981 for what follows._

A
B
K. GOPINATHAN NAIR ETC.
v.
STATE OF KERALA
MARCH 21, 1997
[A.M. AHMADI, CJ., S.B. MAJMUDAR AND
SUJATA V. MANOHAR, JJ.]
Sales tax---Central Sales Tax Act 1956, s.5 (2)-Kerala General Sales
Tax Act, 1963-Karnataka Sales Tax Act, 1957-Wlzether import of raw
C cashew nuts by canalising agency and its purchases by actual users in India
could be said to be a transactio11 i11 the course of impo1t and, therefore, eligible
for exemption-Held, per maj01ity, on facts, no; Held, per Sujata V. Manohar,
J., dissenting, yes-Constitution of I11dia, A1ticle 286 (J)(b ).
Central Sales Tax Act 1956, s.2 (ab )-'Crossing the customs frontiers
D of India'-Held, per cwiam, being a substa11tive provision will have no
retrospective effect and will not cover transactions in questio11-I11terpretation
of Statues.
The appellants, engaged in the purchase of raw cashewnuts and
. E export of cashew kernels after processing, placed orders for import of raw
cashewnuts from African countries through the Cashew Corporation of
India (CCI) which was a canalising agency. Purs~ant to the said orders, .
the CCI had imported raw cashewnuts and had ·made them available to
the assessees.
F
· The contention of the appellants that these transactions, during
assessment years 1970-71 to 1973· 7 4, were purchases by them in the course
of import and therefore outside the sweep of the Central Sales Act, 1956
by virtue of s. 5 (2) thereof was rejected by the Kerala Sales Tax Appellate
Tribunal. The Tax Revision cases were also dismissed by a Division Bench
G of the Kerala High Courts.
CCl's contention that the sales made by it of imported raw
cashewnuts to local users in Karnataka were in the course of import and
therefore outside the purview of the Karnataka Sales Tax Act, 1957 was
rejected by the Karnataka Appellate Tribunal as well as the High Court.
H CCI then appealed to this Court.
226
j
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K.GOPINATIIANNAIR v. STATE
'121
Dismissing the appeals, th.is Court
HELD: Per Majority (Majmudar, J. for himself and Ahmadi, CJ!.):
1.1. Sales by the CCI to the local users were not in course of import
of raw cashew from African countries and were therefore outside the sweep
A
of the exemption provisi_ons engrafted by s. 5(2) of the Central Sales Tax B
Act. [251-E]
._
1.2. There were two transactions. One was the import of raw cashew
by CCI. The second transaction was the sale by CCI to local users. That
sale would remain an independent transaction between the importer CCI
and the local purchaser and there was no privily of contract between the C
local users on the one hand and the foreign exporter on the other. These
two transactions could not be said to be so integrally interconnected as to
represent .,,one composite transaction in· the course of import of ~w
cashewnuts. [251-B·D]
..
Mis Binani Bros. (P) Ltd. v. Unio11 of India, [1974] 1 SCC 459 and
. Md Serajuddin v. 17ze State of Orissa, [1975] 2 SCC 47, followed.
D
Be11 Grom Nilgiri Plantations Company, Coonoor v. Sales Tax Officer,
Special Circle, Emakulam, [1964] 7 SCR 706; KG. Khosla & Co. v. Deputy
Commissio11er of Commercial Taxes, [1966] 3 _SCR 352; Coffee Board, E
Bangalore v.Joint Commercial TarO'fficer, .Madras, [1969] 3 SCC 349; 17ze
State of Bihar v. Tata Engineering and Locomotive Co. Ltd., [1970] 3 SCC
697; T71e Deputy Commissioner of Agricultural Income Tax and Sales Tax,
Central Zone, Emakulam v. Mis Kotak & Co.,. [1974] 3 SCC 148; Deputy
Commissioner of Agncultural Income Income Tax and Sales Tax,· Emakulam F
. v. Indian Explosives Ltd., . [1985] 4 SCC 119 and CollSolidated Coffee Ltd. .
v. Coffee Board, Bangalore, [1980] 3 SCR 625, referred to.
Per Sujata V. Manohar, J; (dissenting) :
1.3. The Sales in question were in the course of import and could not G
be taxed under the Kerala General Sales Tax Act or the Kamataka Sales
Tax Act. [268-C, E]
1.4. There was an inseverable link as the import made by CCI was a
·necessary consequence of the specific- requirements submitted by the
processors and was a result of the obligations it had undertaken under H
···':~
228
SUPREME COURT REPORTS
[1997] 3 S.C.R.
A such arrangement with the local processors which had crystallised later in
the form of the contract of sale. [267-E]
KG. Khosla & Co. v. Deputy Commissioner of Commercial Taxes,
[1966] 3 SCR 352; The Deputy Commissioner of A!Jlicultural Income Tax
and Sales Tax, Central Zone, Emakulam v. Mis Kotak & Co., [1974] 3 SCC
B 148 and Deputy Commissioner of A!Jlirnltural Income Tax and Sales Tax,
Emakulam v. Indian Explosives Ltd., [1985] 4 SCC 119, followed.
Coffee Board, Bangalore v. Joint Commercial Tax Offiw; Madras,
[1969] 3 SCC 349 and Md. Serajuddin v. The State of Orissa, [1975] 2 SCC
C 47, distinguished.
Mis Binani Bros. (P) Ltd. v. Union of India, [1974] 1 SCC 459; Ben
Grom NilgiTi Plantations Company, Coonoor v. Sales Tax Office1; Special
Circle, Emakulam, [1964] 7 SCR 706; The State of Bihar v. Tata E1iginee1ing
and Locomotive Co. Ltd., [1970] 3 SCC 697 and Consolidated Coffee Ltd.
D v. Coffee Board, Bangalore, [1980] 3 SCR 625, referred to.
Per Curiam:
2. The enactment of a new definition regarding crossing the customs
frontiers of India as laid down by S.2 (ab) could not be legitimately pressed
E in services for deciding the question of sales tax liability of appellants
during the assessment years when such definition was not on the statute
book. This amendment which sought to confer a substantial benefit to the
local users was not procedural amendment which could have any
retrospective effect. [252-E]
F
R. Rajagopal Reddy v. Padmini Chandrasekharan, [1993] 2 SCC 630
and Gmikapati Veerava v. N. Subbaiah Choudhary, AIR (1957) SC 540,
referred to.
CIVIL APPEALLATE JURISDICTION: Civil Appeal Nos. 4955G 77 of 1991 Etc.
From the Judgment and Order dated 1.11.91 of the Kerala High
Court in T:R.C. Nos. 28-29, 32-35, 40-41, 44, 65, 69-71, 74-83 of 1988.
P.S. Potti, R.F. Nariman, N. Santosh Hegde, T.L. Viswantha Iyer, S.
H Prasad, S. Balakrishnan, M.K.D. Nambordiri, E.M.S. Alnam, FazlinAnam,
\
...
K.GOPINATIIANNAIR v. STATE[S.B.MAJMUDAR,J.]
229
G.V. Chandra Sehkar, A.D.N. Rao, A. Subba Rao, M.T. George, Kh. A
Nobin Singh and M. Veerappa for the appearing Parties.
The Judgments of the Court were delivered by
S.B. MA.JUMDAR, J. According to our esteemed colleague Sujata
V. Manohar, J., these appeals are required to be allowed. With profound B
respect, it is not possible for us to agree with her findings and the
conclusions in so far as it is held by her that Section 5 sub-section (2) of
the Central Sales Tax Act, 1956 will cover the transactions in question. We,
however, agree with her so far as it is held that Section 2 (ab) of the Central
Sales Tax Act has no retrospective effect and that there is no evidence on C
record to attract the second part of Section 5(2) which deals with sale on
high seas. We, therefore, record our separate reasons for confirming the
decisions impugned in these appeals.
In ClVil Appeal Nos. 4955-77 of 1991 a common question falls for
consideration. 1t-is-to the following effect:
D
"Whether the purchases of African raw cashewnuts made by the
assessees from the Cashew Corporation of India (for short 'CCI')
are in the course of import and, therefore immune from liability
to tax under Kerala General Sales Tax Act, 1963 (hereinafter E
referred to as 'the Act')."
Appellants in these cases are engaged in the purchase of raw cashewnuts
and export of cashew kernels after processing. The assessments relate to
years 1970-71 to 1973-74. It is the case of the appellants that they had
placed orders for import of raw cashewnuts from African countries through F
the CCI which was a canalising agency and pursuant to the said orders the
CCI had imported these raw cashewnuts and had made them available to
the assessees. Consequently these transactions would be styled as purchases by the assessees in the course of import and were outside the sweep
of the Act. This contention of the assessees was rejected by the Kerala G
Sales Tax Appellate Tribunal, Addi. Bench, Ernakulam. Their Tax
Revision cases were also dismissed by a Division Bench of the Kerala High
Court and that is how the appellants have preferred these appeals by
obtaining special leave to appeal from this Court.
In Civil Appeal Nos. 3647-52 (NT) of 1986 CCI is the assessee. The H
230
SUPREME COURT REPORTS
[1997) 3 S.C.R.
A sale of imported raw cashewnuts from African countries to the local ·
purchasers by the CCI have been brought to tax under the provisions of
the Karnataka Sales Tax Act, 1957. The appellant is a private company
registered under the Companies Act and is said to be a subsidiary of the
State Trading Corporation wholly owned by the Government of India. The
B appellant company, the registered office of which is at Cochin in Kerala,
imports raw cashew from East African countries under licenses issued by
the Controller of Imports and Exports, and allots such cashew to the actual
users for being processed and for export of a certain percentage of the raw
cashew allotted. In this process the appellant-company sells cashew to the
actual users. The appellart had not got itself registered as a dealer in the
C Karnataka State nor had it filed returns for the years 1970-71 to 1975-76.
The contention of the appellant-company before the Taxing Authority was
to the effect that the transaction of sale by the company to the actual users
was in the course of import and, therefore, the State Sales Tax Act could
not encompass such a transaction. The Taxing Authority in Karnataka on
D the other hand sought to levy sales tax on the appellant on the basis that
it was a non-resident dealer. The contention of the CCI was negruived by
Karnataka Appellate Tribunal, Bangalore. The appellant's ReVi.sion before
the High Court came to be dismissed by a Division Bench of the High
Court by its order dated 3rd March 1986 aad that is how the CCI is before ·
us on special leave.
E
It becomes, therefore, clear that a common question arises for our
determination as to whether the import of raw cashewnuts by the CCI from
African exporters and its purchase by actual users in India could be said
to be a transaction in the course of import and, therefore, eligible for
p
exemption under Section 5 (2) of the Central Sales Tax Act, 1956. Both
the Kerala High Court as well as the Karnataka High Court have taken the
view that these transactions are not saved by Section 5 (2) of the Central
Sales Tax Act, 1956 and they are eligible to local sales tax. It is this view
that has been seriously brought in challenge by Shri Potti, learned senior
counsel appearing for the appellants in Civil Appeal Nos. 4955-77 of 1991
G and Shri Hegde, learned senior counsel appearing for the appellant CCI
in Civil Appeal Nos. 3647-52 of 1986. The learned counsel appeariμg for
the respondent-State of Kerala and State of Karnataka on the other hand
have supported the decisions of these High Courts.
H
In order to resolve this controversy it is necessary at the outset to
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K. GOPINATHAN NAIR v. STATE [S.B. MATMUDAR, J.]
231
look at the relevant constitutional and statutory provisions. Under Article A
286 of the Constitution of India restrictions have been placed on the power
of a State to tax sales. Articles 286 (1) and 286 (2) lay down as under:
"286. Restrictions as to imposition of tax on the sale or purchase
of goods.-(1) No law of a Stale shall impose, or authorise the
imposition of, a tax on the sale or purchase of goods where such B
sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the C
goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
-mentioned in clause (1)".
Parliament in exercise of its powers under Article 286 sub-Article (2)
enacted Central Sales Tax Act, 1956. As laid down by Section 3 thereof, a
D
sale or purchase of goods shall be deemed to take place in the course of
inter~State trade or commerce if the sale or purchase-( a) occasions the
movement of goods from one State to another: or (b) is effected by a
transfer of documents of title to the goods during their movement from one E
State to another. Under Section 5 (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. Under sub-section (2), p
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. It, therefore, becomes a moot question as to whether the
sale of raw cashewnuts imported by CCI from African countries, to local G
users in State of Karnataka or Kerala, as the case may be, can he said to
be sales in the course of import of these raw cashewnuts into the territory
of India. For deciding this question the provision of sub-section (2) of
Section 5 will have to be kept in view. As per the said provision the sale
of imported raw cashewnuts shall be deemed to take place in course of H
232
SUPREME COURT REPORTS
(1997) 3 S.C.R.
A import only if such sales by CCI to the local actual users or conversely the
purchases of such imported raw cashew by the local users from the CCI
have occasioned such import of raw cashew. The second part of subsection (2) of Section 5 is not attracted on the facts of the present cases
as factually it is not found in these cases that such sales were effected by
B transfer of documents of title to goods, namely, the raw cashewnuts before
they crossed the customs frontiers of India. The entire controversy, there"
fore, centers round the short question, namely, whether the sales of these
imported cashewnuts by CCI to local users were in the course of import
of these cashewnuts and whether such sales had occasioned the import.
C
There are various decisions of the Constitution Benches of this Court
which have laid down clear parameters for answering this question. In the
case of Ben Gorm Nilgiri Plantations Company, Coonoor and Ors. v. Sales
Tax Officer, Special Circle, Emakulam and Ors. [1964) 7 SCR 706 a majority
of the Constitution Bench of this Court speaking through Shah, J., had an
D occasion to consider the question whether sale of tea by the assessee-appellants to local agents of foreign buyers would earn exemption under
Article 286 ( 1) (b) of the Constitution of India by being treated as sale in
the course of exports. It is trite to observe that the phraseology 'sale or
purchase in the course of export' as employed by Section 5 (1) of the
Central Sales Tax Act is in pari materia with the phraseology employed by
E Section 5 sub-section (2) dealing with 'sale or purchase in the course of
import'. In the aforesaid case the appellants were carrying on business of
growing and manufacturing tea in their estates. They sold tea to the local
agents of foreign buyers. The sales were effected by public auction at Fort
Cochin. These auctions were conducted by brokers of tea. The Sales Tax
F
Officer assessed the appellants to pay sales tax on transactions of auction
held at Fort Cochin. It was contended by the appellant-assessees that
purchases by local agents of foreign buyers were for their principals abroad
and the goods were in fact exported out of India and, therefore, the sales
by appellants were in the course of export out of the territory of India and
were thus exempt from tax under Article 286 (1) (b) of the Constitution.
G The aforesaid contention of the appellants was negatived by all the
authorities under the Sales Tax Act. They thereafter also failed before the
High Court. The majority of the Constitution Bench also dismissed their
appeal. Shah, J ., speaking for the majority held that the transaction of sale
which is preliminary to export of the commodity sold may be regarded as
H a sale for export, but is not necessarily to be regarded as one in the course
K GOPINATHAN NAIR v. STATE [S.B. MAJMUDAR, J.]
233
of export, unless the sale occasions export. Etymologically the expression A
'in the course of export', contemplates an integral relation or bond between
the sale and the export. In general where a sale is effected by the seller,
and the seller is not connected with the export which actually takes place,
it is a sale for export. Where the export is the result of the sale, the export
being inextricably linked up with sale so that the bond cannot be disB
sociated without a breach of the obligations arising by statute or contract
of mutual understanding between the parties arising from the nature of the
transaction, the sale is in the course of export. It was further laid down as
under:
"A sale in the course of export predicates a connection between the C
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
the present case there was between the sale and the export no such bond
as would justify the inference that the sale and the export formed parts of D
a single transaction or that the sale and export were integrally connected.
The appellants were not concerned with the actual exportation of the goods
and the sales were intended to be complete without the export, and as such
it cannot be said teat the said sales occasioned export. The sales were
therefore for export and not in the course of export. Therefore the sales
by the .appellant to the agents of foreign buyers do not come with the E
purview of Art. 286 (i) (b) of the Constitution".
As per the aforesaid decision of the Constitution Bench before a sale can
be said to have taken place in the course of export the export must have a
direct nexus with the sale and the activity of sale and export must be p
completely inter-linked. On the same reasoning as in the aforesaid case,
therefore, a sale in the course of import must necessarily require the
concerned sale to occasion the import and the sale and the import must
have an integrated and interwined connection. If that is not so it would not
be a sale in the course of import but i.t would be a sale by import or because
of import. In the case of K.G. Khosla & Co. v. Deputy Commissioner of G
Commercial Taxes, [1966) 3 SCR a letter Constitution Bench of this Court
had to deal with the question whether sales in that case were in the course
of import. Section 5 Sub-section 2 directly fell for consideration of the
Constitution Bench. In that case the appcllant-assessee had entered into a
contract with the Director General of Supplies, New Delhi for supply of H
A
B
c
D
E
F
G
H
234
SUPREME COURT REP.ORTS
[1997) 3 S.C.R.
axle bodies manufactured by its principals in Belgium. The goods were
inspected on behalf of the buyers in Belgium but under the contract they
were liable to rejection after further inspection in India. In pursuance of
the contract the appellant supplied axle bodies to the Southern Railway at
Perambur and Mysore. It was the contention of the appellant that the sales
effected by them in favour of Director General of Supplies. New Delhi '
were in the course of import. That contention was rejected by the Joint
Commercial Tax Officer, Madras who held that these were intra-State sales
because the seller was the consignee of the goods and the buyer had
reserved the right to reject the goods even after their arrival in India.
Accordingly assessment was made under Madras General Sales Tax Act
in respect of supplies at Perambur and another assessment was made
under Central Sales Tax Act in respect of supplies at Mysore. The appellant lose before the Appellate Assistant Commissioner but partially succeeded before the Tribunal which held that part of the goods were sold in
the course of import. Both the parties filed two Revision Applications in
the High Court. The High Court allowed the Revision Application of the
State and rejected that of the assessee. The appellant thereafter approached this Court by special leave. Allowing the appeal of the assessee
it was held by the Constitution Bench of this Court speaking through Sikri,
J., that Section 5 sub-section (2) of the Central Sales Tax Act does not lay
down any condition that before a sale could be said to have occasioned
import it is necessary that the sale should have preceded the import. That
it was quite clear on the facts 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
those goods being diverted by the assessee for any other purpose. Consequently the sales took place ~n the course of import of goods within Section
5 (2) and, therefore, were exempt from taxation. The facts of the aforesaid
case indicate that the assessee was the agent of the foreign seller. The
principals were in Belgium. They exported the goods through the agency
of the appellant and sold them to the Director General of Civil Supplies.
New Delhi who was the consignee. Thus the entire transaction was an
integrated transaction by which a foreign seller through its Indian agent,
namely, the assessee sold the goods to Indian purchaser, namely, the
Director General of Civil Supplies. Consequently it was treated as one
integrated transaction of sale by a foreign exporter of goods to Indian
K GOPINATHAN NAIR v. STATE [S.B. MAJMUDAR, J.]
235
importer, namely the Director General of Civil Supplies, New Delhi A
through the agency of its local agent, namely, the assessee and, therefore,
the transaction was treated by the Constitution Bench as representing sale
in the course of import. The third Constitution Bench judgment is found
in the case of Coffee Board, Bangalore v. Joint Commercial Tax Officer,
Madras and Another, [1969) 3 SCC 349. In that case the Coffee Board had B
sold coffee at the export auctions with a view that the coffee may get
exported through these auction purchasers to outside countries. It was the
contention of the Coffee Board that sales were in the course of export of
coffee out of the territory of India since the sales themselves occasioned
the export of coffee and coffee so sold was not intended for use in India
or for sale in Indian markets. This contention canvassed in the writ petition C
under Article 32 of the Constitution by the Coffee board was rejected by
the majority of the constitution Bench speaking through Hidayatullah, CJ.
It was held that the petitioners cannot claims exemption from tax. The
phrase 'sale in the course of export' comprises in itself three essentials : (i)
that there must be a sale: (ii) that goods must actually be exported and (iii) D
that the sale must be a part and parcel of the export. Therefore either the
sale must take place when the goods are already in the process of being
exported which is established by there having already crossed the customs
frontiers, or the sale must occasion the export. The Phrase expended with
this meaning reads 'in the progress or process of export' 'or during export'. E
Therefore the export from India to a foreign destination must be estab-
---
lished and the sale must be a link in the same export for which the sale is
held. The tests are that there must be a single sale which itself causes the
export or is in progress or process of export. There is no room for two or
more sales in the course of export. The only sale which can be said to cause . F
the export is the sale which itself results in the movement of the goods from
the exporter to the importer. Sale must be an integral part of the precise
export before it can be said to have occasioned that particular export.
Applying the aforesaid test laid down by majority in that decision to 'sales
in the course of import' three essentials would obviously be required to be
met before the sale can be said to be in the course of import, (i) there must G
be a sale; (ii) the goods must actually be imported; and (iii) the sale must
be part and parcel of the import. Consequently it must be shown by the
appellants that the sale by CCI to the local users of imported raw
cashewnuts had occasioned the import and such a sale was a part and
parcel of the import. If there are two independent sales, one by a foreign· H
236
SUPREME COURT REPORTS
(1997) 3 S.C.R .
.
A
exporter to CCI and second sale by CCI to the local users, the link between
the import of raw cashewnuts and their actual delivery to their al:tual users
would be broken. The integrated course of import would then be found
wanting. The next Constitution Bench judgment is rendered in the case of
The State of Bihar and Another v; Tata Enginee1ing and Locomotive Co.
B Ltd., (1970) 3 SCC 697. In that case the Constitution Bench of this Court
had to examine pari materia provision found in Article 286 (2) of the
Constitution dealing with sales in the course of inter-State trade or commerce. Hegde, J., speaking for the Constitution Bench made the following
pertinent observations in para 14 of the Report:
c
D
E
"The decided cases establish that sales will be considered as sales
in the course of export or import or sales in the course of interState trade and commerce under the following circumstances:
(1) When goods which are in export or import stream are sold;
(2) When the contract 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 take 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 detivery of goods takes place."
This takes us to yet another Constitution Bench Judgment of this Court in
p
the case of Mis Binani Bros. (P) Ltd. etc. etc. v. Union of India & Ors.,
(1974) 1 SCC 459. In this case a Constitution Bench of this Court speaking
through Mathew, J., had an occasion to once again examine the question
whether the sales in that case were in the course of import of goods so as
to be covered by Article 286 (l)(b) of the Constitution read with Section
G 5(2) of the Central Sales Tax Act, 1956. In that case the petitioner under
Article 32 before this Court was a dealer in non-ferrous metals. He was
supplying the same to the Directorate General of Supplies & Disposals
(DGS & D). The petitioner used to import these metals. The petitioner
had sold the imported material as principal to the DGS & D. For effecting
these sales it had purchased the goods from foreign sellers and these
H purchases from the foreign sellers occasioned the movement of goods in
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KGOPINATHANNAIR v. STATE[S.B.MAJMUDAR,J.]
237
the course of import. It was held by the Constitution Bench that the A
movement of goods was occasioned by the contracts for purchase which
the petitioner entered into with the foreign sellers. No movement of goods
in the course of import took place pursuant to the contracts of sale made
by the petitioner with the DOS & D. The petitioner's sale& to DOS & D
were distinct and separate from his purchase from foreign sellers. To put B
it differently, the sales by the petitioner to the DOS & D did not occasion
the import. On the contrary purchases made by the petitioner from the
foreign sellers occasioned the import of the goods. There was no privity of
contract between DOS & D and the foreign sellers. The foreign sellers did
not enter into any contracts by themselves or through the agency of the
petitioner with the DOS & D and the movement of goods from the foreign C
countries were not occasioned on account to the sales by the petitioner to
DOS & D. It was further held that though under the contract DOS & D
undertook to provide all facilities for the import of the goods for fulfilling
the contracts including an Import Recommendation Certificate, there was
no absolute obligation on the DOS & D to procure these facilities. And it D
was the obligation of the petitioner to obtain the import licence. Therefore,
even if the contracts envisaged the import of goods and their supply to the
DOS & D from out of the goods imported, it did not follow that the
movement of the goods in the course of import was occasioned by the
contracts of sale by the petitioner with DOS & D. As we will presently E
show, the ratio of the decision of the aforesaid Constitution Bench directly
gets attracted on the facts of the present cases. Substituting DOS & D for
local users and the petitioners in that case by the CCI it becomes clear that
on the same reasoning by which the Constitution Bench held in the
aforesaid case that the sale by petitioner to DOS & D was not in the course
of import it will have to be held that the sales by CCI in the presents cases
to local users were also not sales in the course of import. Another Constitution Bench judgment which also gets squarely attracted on the facts of
the present cases is rendered in the case of MD. Serajuddin & Ors. etc. etc.
v. 17te State of Orissa, [1975) 2 SCC 47. In the aforesaid case this Court
F
was concerned with the interpretation of the term 'in the course of export' G
as found in Section 5(1) of the Central Sales Tax Act. However, while
interpreting the said phraseology the Constitution Bench also construed
identical phraseology found in Section 5 (2) dealing with 'in the Course of
import'. In that case the appellant before this Court was assessee who was
registered dealer under the Central Sales Tax Act, 1956, carrying on H
238
SUPREME COURT REPORTS
[1997] 3 S.C.R.
A business of mining and exporting mineral ores to foreign countries. He had
entered into four contracts for sale of chrome concentrates. Two of them
were directly with foreign buyers. The other two were with the State
Trading Corporation (STC) ever since export of mineral ores was canalised
through it. The STC in turn entered into contracts with foreign buyers. The
B High Court held sales under the first two contracts directly with foreign
buyers exempt from sales tax being in the course of export. But it held sales
under the contract with STC not exempt from sales tax under Article 286
(1) (b) of the constitution read with Section 5(1) of the Central Sales Tax
Act. The majority of the Constitution Bench speaking through Ray, CJ.,
upheld the decision of the High Court against the assessee. It was held that
C Section 5 of the Central Sales Tax Act has given a legislative meaning to
the expression 'in the course of export' and 'in the course of import'. The
expression 'in the course' implies not only a ~eriod of time during which
the movement is in progress but postulates a connected relation. Sale in
the course of export out of the territory of India means sale taking place
D 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. In
Paragraph 18 of the Report the following pertinent observations were made
E
F
G
"A sale in the course of export predicates a connection between
the sale and· export. No single test can be laid as decisive for
determining that question. Each case must depend upon its facts.
But it does not means that distinction between transactions which
may be called sales for export and sales in the course of export is
not real. Where the sale is effected by the seller and the seller is
not connected with the export which actually takes place, it is a
sale for export. Where the export is the result of sale, the export
being ineXtricably linked up with sale so that the bond cannot be
dissociated without a breach of the obligations arising by statute,
contract, or mutual understanding between the parties arising from
the nature of the transaction the sale is in the course of export."
While considering the question whether the sale is in the course of export,
the Constitution Bench considered the further question whether there
should be a single sale or there can be two or more independence sales.
In this connection, it was observed that there must be a single sale which
H itself causes the export and there is no room for two or more sales in the
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K.GOPINATHANNAIR v. STATE[S.B.MAJMUDAR,J.]
239
course of export. The sale which is to be regarded as exempt is a sale which A
causes the export to take place or is the immediate cause of the export. 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 B
two sales one to the intermediary and the other to the importer. The first
sale is not in the course of export because the export commences with the
intermediary. The tests are that there must be a single sale which itself
causes the export or is in the progress or process of export. There is no
room for two or more sales in the course of export. The only sale which
can be said to cause the export is the sale which itself results in the C
movement of the goods from the exporter to the importer. So the test is
whether there were independent transactions or only one transaction which
occasioned the movement of the goods in the course of export. Applying .
this principle to the facts of the case it was held that the sale by the assessee
to the STC which was the canalising agency for exports had no connection D
with the export by STC of the purchased goods to the foreign buyers and,
therefore, the sale by the assessee in favour of the canalising agency,
namely, STC was held no to be a sale in the course of export but was found
to be a sitle for export. In this connection the following pertinent observations were made in paragraphs 25 and 26 of the Report :
E
"Hence the contention on behalf of the appellant that the contract
between the appellant and the Corporation and the contract between the Corporation and the foreign buyer formed integrated
activities in the course of export is unsound. The pre-eminent
question is as to which is the sale or purchase which occasions the F
export. The distinction between sales for export and sales in the
course of export cannot be disregarded.
' ·'• fhe 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 G
the other as two separate and independent contracts of sale are:
There was no privily of contract between the appellant and the
foreign buyer. The privity of contract is between Corporation and
the foreign buyer. The immediate cause of the movement of goods
and export was the contract between the foreign buyer who was H
240
A
B
c
SUPREME COURT REPORTS
[1997] 3 S.C.R.
the importer and the Corporation who was the exporter and
shipper of the goods. All relevant documents were in the name. of
the Corporation whose contract of sale was the occasion of the
export. The expression "occasions" in Section 5 of the Act 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 appellant sold the goods directly to the Corporation. The
circumstance that the appellant did so to facilitate the performance
of the contract between the Corporation and the foreign buyer on
terms which were similar did not make the contract between the
appellant and the Corporation the immediate cause of the export."
D Sales or purchases through canalising agencies who export or import goods
were also considered in paragraph 28 of the Report. It was held that system
of canalisation of exports or imports through the State Trading Corpora-
. tion is constitutionally valid. The broad reasons for the system of canalisation are control of foreign exchange and prevention of abuse of foreign
exchange. Counsel for Minerals and Metals Trading Co. which became the
E successor to the Corporation did not contend that the Corporation is an
agency. Agency is created by actual authority given by principal to the
agent or principal's ratification of contract entered into by the agent on his
behalf but without his authority. Agency arises by an ostensible authority
conferred by the principal on the agent or by an implication of law in cases
p
of necessity. The contention on behalf of the appellant that STC was an
agent of necessity because the STC was a special agency to carry out
certain public policies, was turned down. It was held that the sale by the
assessee to the canalising agency which exported the goods was a sale
transaction between two principals and there was no aspect whatsoever of
principal and agent.
G
Applying the ratio of the aforesaid Constitution Bench decision to
sale or purchase in the course of import as envisaged by Section 5 (2) which .
is a pari materia provision and is almost a mirror image. of the provision
of Section 5 (1) dealing with converse type of cases it has, therefore, to be
H held that any purchase of goods imported by canalising agency like CCI
-(
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K.GOPINATHANNAIR V. STATE[S.B.MAJMUDAR,J.)
241
which is the importer of such goods and which sells them to the actual A
users would also partake the character of a sale between principal and
principal wherein the foreign seller would be out of picture and such
transactions cannot be termed as a well-nit integrated transaction between
all the three of them so as to make the transaction one of sale or purchase
in the course of import. But it may as well be a transaction because of or B
by import carried out by the canalising agency like CCI. It is also pertinent
to note that the Constitution Bench in Serajuddin's case {supra) has heavily
relied upon other Constitution Bench judgment in the case of Binani Bros.
(supra) which was directly concerned with the interpretation of Section 5
(2) of the Central Sales Tax Act as we have seen earlier.
c
Learned senior counsel for the appellants invited our attention to a
decision of a Bench of two learned judges of this Court is the case of The
Deputy Commissioner of Agricultural Income Tax and Sales Tax, Central
Zone, Emakulam v. Mis Kotak & Co., Bombay, Etc. Etc., (1974] 3 SCC 148.
The said decision was rendered in the light of the peculiar facts of the case D
which came. up for
consideration of this Court;. The Bench speaking
through Hegde, J., noted the fact that the assessee-firm before them had
imported cotton against actual user's import licence granted to the mills
concerned and was selling the cotton to them. That the assessee was also
precluded from selling to anybody other than the mills to whom the user's E
import licence had been granted. It was also noted that the assessee firm
had entered into contract with the mills, dated March 20, 1964, that the
import licence issued in favour of the mills was made available to the firm
for utilisation of the contract, that the letter of authority authorising 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 F
and the cotton was thus sent to India.