This Article summarizes the decision of the Constitution Bench of the Supreme Court of India (SC) in the case of State of Karnataka Vs. Azad Coach Builders Pvt. Ltd. & Anr. (Assessee) [2010-VIL12-SC-CB] on the issue of eligibility of a local manufacturer/ dealer to claim exemption under section 5(3) of the Central Sales Tax Act, 1956 (CST Act) if the sale is a penultimate sale made to the exporter in connection to the export of goods. The SC held that if there is an inextricable link between the last sale and the export of goods, the same would be exempt under section 5 (3) of the CST Act.
Background
- · Section 5(3) of the CST Act provides an exemption to the last sale or purchase of goods preceding the sale or purchase occasioning the export of those goods.
- · The last sale or purchase should have taken place after and for the purpose of complying with the agreement or order in relation to such export.
Facts
- · The Assessee was engaged in fabrication of bus bodies as per the specifications provided by the exporter. The specifications provided were in accordance with the requirements of the foreign buyer.
- · The Assessee claimed exemption on the sale of bus bodies to the exporter under section 5 (3) of the CST Act on the ground that this was the last sale in the course of export.
- · The Assessing Authority rejected the claim for exemption on the ground that the Assessee was not engaged in the manufacture of exported goods i.e. “buses” but was engaged in fabrication of “bus bodies” which is a different commodity from the exported goods.
- · The order passed by the Assessing Authority was upheld by the First Appellate Authority and the Karnataka Appellate Tribunal.
- · The Assessee appealed against the order before the Karnataka High Court (HC). The HC held that the Assessee would be eligible to claim exemption as the sale was made in relation to export as envisaged by section 5 (3) of the CST Act.
- · The Tax Authority filed an appeal against the order passed by the HC before the SC which was subsequently placed before the Constitution Bench of the SC for adjudication.
Question before the SC:-The question before the SC was whether sale made by the local manufacturer/ dealer to the exporter in connection to the export of goods would be exempted under Section 5(3) of the CST Act.
Decision of the SC
1. The SC examined the phrases used in section 5 (3) of the CST Act held that “occasioning the export” would mean the factors which would be in immediate course of the export and the phrase “to comply with agreement or order” would mean all transactions which are inextricable linked with the agreement or order in pursuance to which the export is made.
2. In light of the above, the SC held that the following conditions must be fulfilled for a penultimate sale to qualify for exemption under Section 5(3) of the CST Act:
