The Deputy Commissioner of Agricultural Income Tax & Sales Tax, Ernakulam v. Indian Explosives Ltd.
TULZAPURKAR, J. The co!I!Itl.on question raised in these appeals
is whether the sales effected by the responddnt-assessee in the
three concerned years of gooG.s imported and supplied to customers
on the strength of Actual Users' Import Licences of the customers
were exempt from sales tax under the Kerala General Sales Tax
Act, 195u on the ground that these were sales "in the course of
import of the goods into the territo·ry of India".
The responctent-assessee deals in chemicals, dyes, etc. The
concerned assessment years are 1961-62, 1%2-63 a11d 1963-64. The
respondent-assessee was a~sessed to sales tax under the General
Sales Tax Act 195U on the turnover of sales effected by them in
those years of goocis imported on the. strength of the customers'
Actual Users Import Licences and supplied to them. Such turnover
subjected to tax was to the tune of Rs. 3,15,586.19 in the year
1961-62, Rs. 13,40,949~98 in the year 1962-63 and.Rs. 4,03,427.72
in the year 1963-6'-+· The rcspcndent-assessee contended that
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626 SUPREME COURT l<EPORTS [1985] SUPP.2 s.c.R.
A these sales were in the course of import of goods into Ind.la and
hence not taxable by virtue of Art. 286(l)(b) of the constitu
tion. The contention was negatived by the assessing authority as
also by the Appellate Assistant Collllllissioner but the Appellate
Tribunal in second appeal accepted the contention and held that
the disputed turnover in esch yesr was not taxable. In the
B revisions preferred by the Deputy Comnissioner, the High Court
confirmed the Tribunal's view. In doing so the High Court consi
dered the several decisions that were cited before it and Ulti
mately following the test laid down by this Court in Ben Gorm
Nilgiri Plantations Company, Cooooor and Ors. v. Sales Tax
Officer, ,special Circle J!rnaku!Bll & Others [1964] 7 SCR 706, and
mainly relying upon another decision of this Court in K.G. Kbosla
c & Co. (Pvt.) Ltd. v. Deputy Camrtssiooer of Comnercial Tax,
Madras Division, [1966] 3 SCR 352 =AIR 1966 SC 1216, it took
the view that the sales covered by the disputed turnover in the
facts and circumstances of the case were sales in the course of
import. , :rhe Revenue has come up in appeal to this Court.
It was not disputed that goods were imported, by the
D respondent-assessee in the strength of the Actual Users' Import
Licences.that had been obtained by the customers and supplied to
them for use by the latter in their factories. The sales in
questioU were put through by the reSpondent-assessee, as found
both by the Tribunal and the High Court, in the following manner.
The indigenous purchaser for example M/s. Hindustan Insecticides
E Limited in Kerala, used to place orders with respondent-assessee
quoting his Import Licence Number, quantity of goods, rate, etc.
as agreep. to by previous correspondenc:;:e with the r-~spondent
assessee; the respondent-assessee th~n placed orders with the
foreign supplier for the supply of the goods and in such orders
the name ~f the, local purchaser who required the goods as also
F its licence numbers, were specified; the actual import was done
on the: strength of two documents like (a) Actual Users Import
Licence and (b) Letter of Authority issued by Chief Controller of
Imports and Exports whereunder the local purchaser was authorised
to permit _the respo~ent-asse.ssee on his behalf to import the
goods, ,to open letters of credit and make remittance of foreign
G exchange against the said licence to the extent of value speci
fied therein. , The import licence expressly contained two condi
tions, · (i) that the goods imported will be the property of tl)e
licenc.,C.holder at the time of clearance through the Customs and
(ii) that the goods will be utilised only for consumption as raw
material or accessories in the licence-holder's factory and that
H no portion thereof will be sold to or be permitted to be utilised
COMMR. OF AGRI. TAX v. INDIAN EXPLOSIVES [TULZAPUI<KAR, J.] 627
by any other party. Reading these two documents together it was
clear that the import of the goods by the respondent-assessee
was for and on behalf of the 1¢cal purchaser and the respondent
assessee could not, without committing a breach of the contract,
divert the goods so_ imported for any purpose. On receipt of the
goods the respondent-assessee used to invoice the· local
purchaser. Having regard to the terms and conditions on which .the
respondent assessee imported the goods and the manner in ·which
the transactions were put through, it cannot be disputed that
there was an integral connection between the sale to the local
purchaser and the actual import of the goods from the foreign
supplier. In other words it is clear that the movement of the
goods from the.foreign country (here the United States) to· India
was in pursuance of the conditions of the pre-existing contract
of sale between the respondent-asses see and the local purchaser•
If that' be so the view of the Tribunal and the High Court that
the ·sales in questi9n were in the course of import will have to
be upheld.
The ·test of integral connection or inextricable link
between the sale ·and the actual import or export in order that
the sale .could become a sale in the course of import·or· export
had been cl.early enunciated by this Court in Ben Gorm Ni.lgiri
Plantal:ions Company's case (supra). There the question related to
sale of tea which was claimed to be in the course of export· out
of the tesritory of India and though by majority it was held
that the sales in question were not "in the course of export",
the Court at. p.711 of the .Report laid down the test thus:·
"A sale in the course of export predicates a
connection between. th~ .sale- and exp<>"rt, the two
activities being so integrated that the connection
between the two cannot be voluntarily interrupted,
without a breach of the contract of 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 actual export. The obligation may arise by
reason of statute, contract between the part.ies, or
from mut~1· understanding o.r; 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
'H
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 ii:wiediately
preceding it. Without such a bond, a transaction cf
sa1e cannot be caned a sale in the course of export
of goods out of the territory of India."
Conversely, in order that tne sale should be one in the course of
import iC must occasion the import and to occasion the import
there must be integral connection or inextricable link between
the first sale foll.owing the import and the actual import
provided by an obligation to import arising from statute,
contract or mutual understanding or nature of the transaction
whi.ch lillks the sale to import whicn cannot, without collJllitting a
breach of statute or contract or mutual understanding, be sapped.
Counse). for the appellant attempted to suggest that the
aforesaid test of integral connection or inextricable link.
between the sale and the actual import or export in order that
the sale could become a Pale in the course of impart or export
has been diluted or deviated from in Coffee Board, Baugalore v.
Joint Commercial Tax Officer, Madras & ~J:Jr, [1970) 3 SCR 147, hut
the suggestion has to be rejected. We may point out that such
suggestion was expressly rejected aod the observations regarUing
two independent sales in that case were properly explained as
appropriate to the facts of that case by this Court in State of
Bihar & An.r. v. Tata Engineering & Localoti ve Go. L!:d. [ 1971] 2
SCR 849, where the test of integral connection or inextricable
link was reaffirmed as a correct and well-settled test to decide
the question.
CoWlSel for the appellant fairly conceded that the facts in
K.G. llliosla. & Co. 's ca..e (supra) were on all fours with the facts
obtaining in the instant appeals and that the ratio of that
decision would appear. to govern the question arising in these
appeals, but he contended that a different view has been taken
G by this Court in l'J.,, Biooni Bros (I.') I.t:d. v. Ufiloo of lDd1a &
Otilers,_[1974] l SCC 459, and in view of this later decision the
High Court ought not to have applied the ratio of z:.G. Xbosla &
Co. 's decision to this case. It is not possible to accept this
contention as in our view lliD8ni Bros's case is clearly
distinguishable on two material aspects. In that case the
H assessee itself held the import licence ancl the goods WU11
imported on the strength of such import licence and not on the
..
COOMR. OF AGRI. TAX v. INDIAN EXPLOSIVES [TUIZAPURKAR, J. J 629
strength of any Actual Users Licence as is the case here.
Secondly, unlike in the present case there was no term or
condition prohibiting diversion of the goods after the import. In
fact, it is these two factors obtaining in the instant case which
establish the i.ntegral connection or inextricable link between
the transactions of sale and the actual import making the sales
in the course of import. In fact as pointed out earlier, the E
movement of the goods from the foreign country to India was in
pursuance of the requirements flowing from the contract of sale
between the respondent-assessee and the local purchaser and as
such the sales in question 1m1st be held to be in the course of
import. ·
The view of the Tribunal and the High Court is confirmed and
the appeal8 are dismissed. No order as to costs.
S.R. Appeal dismissed •