13 Jan 2121
Case : M/s Vellanki Frame Works v. Commercial Tax Officer, Visakhapatnam Civil Appeal Nos. 1322-1323 of 2019
Court : Supreme Court of India
Bench : Justice A. M. Khanwilkar and Justice Dinesh Maheshwari
Decided on : 13 Jan 2121
Article 286 of the Constitution of India
Sections 2(ab), 2(g), 3 and 5(2) of the Central Sales Tax Act, 1956
Sections 2(11), 2(12), 2(13), 2(26), 2(29), 30(3) and 147 of the Customs Act, 1962
Brief Facts and Procedural History
1. Seven transactions allegedly executed similarly were in question. The common salient features of all had been that they were for the supply of timber from a foreign country and the supplier (party no. 1) sold the goods in question to the first buyer (party no. 2) and delivered them at the port of shipment. Thereafter, while the goods were in transit on high seas, party number 2 transferred the goods to the appellant (party no. 3) by endorsing the bill of lading in favour of the appellant. Further to this and while the goods were on high seas, the appellant allegedly transferred them to the end-buyer (party no. 4) by endorsing the bill of lading in favour of the end-buyer.
2. Appellant asserted that the sales in question took place “in the course of the import” and did qualify for exemption under Section 5(2) of the Central Sales Tax Act, 1956. In accordance with the quadripartite agreements, the appellant had transferred the goods on high seas (before goods had crossed the customs frontiers of India) by endorsing the bills of lading in favour of the respective end-buyers and that had completed the sale.
3. Per contra, the Commercial Tax Officer asserted that the appellant alone cleared the goods from the customs area after filing the respective bills of entry and thereafter raised debit notes showing sales to the end-buyers; and such sales have taken place only after the goods crossing the customs frontiers of India and the end-buyers being situated outside the State of Andhra Pradesh to whom the goods were dispatched, the sales in question had only been inter-State sales.
4. The High Court of Judicature at Hyderabad for the State of Telangana and Andhra Pradesh upheld the assessment orders passed by the Commercial Tax Officer, and held that the transactions in question were not the sales in the course of import but had been inter-State sales, liable to Central Sales Tax; and denied the exemption claimed under Section 5(2) of the Central Sales Tax Act, 1956 while granting time to the appellant to produce the prescribed C-Forms to the assessing authority for availing the benefit of concessional rate of tax.
5. The appellant approached the Supreme Court through a writ petition.
Issue of the Case
Whether the sales in question took place in the course of the import of the goods into the territory of India and qualify for exemption under Section 5(2) of the Central Sales Tax Act, 1956?
The Observations of the Court
1. Article 286(1)(b) of the Constitution of India, restricts the power of the State to impose a tax on the ‘sale’ or purchase of goods ‘in the course of the import’ of the goods into the territory of India. The Parliament has enacted the Central Sales Tax Act, 1956 in the exercise of its powers under Article 286(2).
2. Section 3 of the said Act provides that a 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 affected by a transfer of documents of title to the goods during their movement from one State to another.
3. Under Section 5(2), 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.
4. The phrase ‘sale in the course of import’ carries three essential features:
a. That there must be a sale;
b. That goods must be imported into the territory of India; and
c. That the sale must be part and parcel of the import. A sale would become part and parcel of import if it either occasions such import or if it occurs by way of a transfer of document of title to the goods before the goods cross the customs frontiers of India.
5. The legal position in respect of import sale was explained in State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory, AIR 1953 SC 333 as follows:
a. The course of import of goods starts at a point when the goods cross the customs barrier of the foreign country and end at a point in the importing country after the goods cross the customs barrier;
b. The sale which occasions the import is a sale in the course of import;
c. A purchase by an importer of goods when they are on the high seas by payment against shipping documents is also purchased in the course of import, and
d. A sale by an importer of goods, after the property in the goods, passed to him either after the receipt of the documents of title against payment or otherwise, to a third party by a similar process is also a sale in the course of import.
6. The law declared in J. V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales-Tax (Inspection) and Ors, (1960) 2 SCR 852 was that bill of lading represents the goods and its transfer operates as a transfer of goods; and delivery of the bill of lading while the goods are afloat is equivalent to the delivery of goods. The Constitution Bench scrutinized the terms of the contract and they found out that it did not disclose any intention of the parties that notwithstanding delivery of the bill of lading against payment, the property in goods should not pass. It was only after such finding on facts the Court held that the sale of goods by the petitioner to the Government took place when the goods were on the high seas and hence, the sales took place in the course of import into India.
7. The aforesaid ratio was duly applied by the Supreme Court in Minerals & Metals Trading Corporation of India Ltd. v. Sales Tax Officer and Ors (1998) 7 SCC 1910. The appellant, a Government of India undertaking, had been functioning as canalising agent (one who facilitates the flow of transaction or goods) for import and export of minerals. It was in such a capacity that the appellant was requested by Steel Authority of India Limited (SAIL) to ensure import of the goods in question and the appellant took up the proceedings accordingly. The dealings of the parties made it clear that the appellant had sold the goods to SAIL on high seas by endorsement of the bill of lading. Significantly, when the vessel arrived at the port of destination, the bill of entry in respect of the goods was submitted and processed by SAIL, the end-buyer. It was found that the bill of lading had been endorsed in favour of SAIL while the consignment of goods was still upon the high seas. It had been, on such findings of fact, that the sale in question was held to be a sale in the course of import and having been affected by the transfer of goods (bill of lading) before they had crossed the limits of customs frontiers of India.
8. The decisions in J. V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales-Tax (Inspection) and Ors, (1960) 2 SCR 852 and Minerals & Metals Trading Corporation of India Ltd. v. Sales Tax Officer and Ors (1998) 7 SCC 1910 explain that pursuant to a previous contract with the end-buyer, the seller concerned arranged for the importation of goods; and transferred the property in goods in favour of the end-buyer by the endorsement of a bill of lading when the goods were on high seas. The goods in question, upon reaching the port of destination, were taken delivery of and cleared by the end buyer after paying the requisite customs duties. Whereas in the present case the seller purportedly acted as an intermediary and even after the alleged transfer of the bill of lading when the goods were on high seas, filed the bill of entry for home consumption at the port of destination and got the goods cleared from the customs.
9. In State of Maharashtra v. Embee Corporation, Bombay (1997) 7 SCC 190 it was opined that while interpreting the expression “sale occasions import” occurring in Section 5(2) of the Act, a completed sale didn’t need to precede the import.
10. In each of the transactions, when the goods in question reached the port at Visakhapatnam, the appellant carried out the proceedings envisaged by the Customs Act, 1962 and filed a bill of entry for warehousing and thereafter, filed another bill of entry for home consumption (ex-band); and based on such bills of entry, the appellant was duly assessed for customs duty. After the goods were cleared for home consumption, they moved from the State of Andhra Pradesh to the respective end-buyers in different States; and the appellant raised debit notes on the end-buyers. In these transactions, the goods in question, upon reaching the port of destination, were not cleared by the end-buyers after paying the requisite customs duties, as had been the fact situation in the case of J. V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales-Tax (Inspection) and Ors, (1960) 2 SCR 852 and Minerals & Metals Trading Corporation of India Ltd. v. Sales Tax Officer and Ors (1998) 7 SCC 1910.
Filing of the bill of entry for home consumption by the appellant: Implication
11. The High Court rejected the contention of the appellant that while filing the bills of entry, the appellant had acted merely as an agent of the end-buyers with reference to the contents of the bills of entry where the name of the appellant was shown as the importer and there was no reference to the end-buyers.
12. The High Court has observed that the inclusive definition of “importer” in Section 2(26) of the Customs Act, 1962 cannot be used to usurp the identity of an importer from the person who filed the bill of entry; and the person in whose name the bill of entry is filed does not cease to be an importer.
13. Only the appellant filed the bill of entry for warehousing and the bill of entry for home consumption and was assessed to customs duty. Before the customs authorities, there was no suggestion that the goods in question had already been transferred, on high seas, to the alleged real importer and that the (Import General Manifest) IGM did not contain the name of end-buyers.
14. The High Court observed that if the alleged second high seas sale had taken place, the IGM would have reflected the name of the last high seas sale purchaser as to the importer and if there was any bonafide omission, the IGM would have necessitated amendment because only the last purchaser of the goods on high seas could have been the importer/consignee. There was no material on record to show that either the IGM contained the name of end-buyer as the importer or that the same was subsequently amended in terms of Section 30(3) of the Customs Act, 1962. The fact that the name of Radha (and other end-buyers) was mentioned neither in IGM as the importer/consignee nor was the relevant IGM amended. The suggestion of the appellant had no corroboration on the record; rather the official records contradict it. Thus, the-second-high seas sale agreements never came into operation.
15. The person in whose name the bill of entry is filed does not cease to be an importer and, if that person claims to be not the owner or importer, the onus would heavily fall on him to establish that someone else is the owner or importer of goods.
16. The High Court rightly pointed out that the Customs House Agent is an entirely different person who acts only to present papers for clearance of the imported goods under a bill of entry. Under Section 147 of the Customs Act, 1962, a person could act on behalf of the importer or owner but such a person cannot be treated as the owner of the goods nor could be made liable for customs duty. If the appellant was merely acting as an agent, then the bill of entry would have reflected the name of end-buyer as the importer and the appellant as an agent of the importer; and the said end-buyer would have been assessed for customs duty. It was not so.
Whether sale in question occasioned import of goods:
17. By applying the decision of K. Gopinathan Nair & Ors v. State of Kerala (1997) 10 SSC 1 the Supreme Court observed that in the present case there were two transactions. First being the import of the timber and the second being the sale by the appellant to the end-users in different States. The independent sale which may be based even on a prior agreement of sale by the appellant to end-buyers would remain an independent transaction but there was no privity of contract between the end-buyers and the foreign exporter. Hence, the transaction of sale by Appellant to end-buyers was not in the course of import.
18. The suggestion that the sales in question had occasioned import of goods into the country is incompatible with the other assertion that the sales were affected by the transfer of documents of a title when the goods were on high seas. The two alternative parts of 5(2) cannot ordinarily go together. Also, such a plea could not have been raised for the first time in the writ petition for being a mixed question of facts and law.
These had been inter-State sales
19. The appellant had admittedly raised debit notes on the end-buyers situated in different States and moved goods to them but only after having cleared the goods by filing the bill of entry for home consumption.
20. The goods were ultimately received by Radha at Lucknow in the State of Uttar Pradesh (and other end-buyers in different States) and the appellant raised debit notes from the State of Andhra Pradesh. This established the movement of goods inside the country from one State to another had been on the account of the sale by the appellant to the end-buyers.
21. The High Court was right in observing that once the appellant got released the goods after filing the bill of entry for home consumption, the import stream dried up and the goods got mixed in the local goods. Any movement of the goods thereafter was bound to be a sale under Section 3(a) of the Central Sales Tax Act, 1956; and such movement being from the State of Andhra Pradesh to other States; it became a matter of the inter-State sale.
If any case for relegating the appellant to the remedy of appeal made out
22. The appellant, despite being aware of the availability of the remedy of statutory appeal, consciously chose to file writ petitions against the assessment orders aforesaid and consciously contested the entire matter in the High Court. There is no error or fault in the approach of the High Court in this case.
23. The extraordinary writ jurisdiction cannot be utilised by a litigant only to take chance and then to seek recourse to the other remedy after failing in its attempt on the basic merits of the case before the High Court. Litigation cannot be allowed to be unendingly kept alive at the choice of a litigant.
Tactics to avoid the operation of law
24. One of the end-buyers firms denied having received the goods in question or even knowing the appellant; and the other end-buyer firm was not even found at the given address. Thus, the overall dealings indicate that the attempt on the part of the appellant had only been to distort the facts and by alleging multiple transactions, to somehow avoid the operation of the law relating to Central Sales Tax, which rightly met with disapproval at the hands of the Commercial Tax Officer and the High Court.
The Decision Held by the Court
The Supreme Court dismissed the appeals with costs and held that:
1. The claimed exemption under Section 5(2) of the Central Sales Tax Act, 1956 has rightly been denied to the appellant and the High Court is justified in dismissing the writ petitions filed by the appellant. The High Court has yet been considerate and gave time to the appellant to submit C-Forms for availing the benefit of concessional rate of tax. No case for interference is made out.
2. In terms of the orders passed in these appeals, the appellant has deposited an amount of ₹ 7,07,325/- with the respondent. The respondent shall be entitled to adjust the same against the dues of the appellant.