Case Law Details

Case Name : State of Karnataka Vs. Azad Coach Builders Pvt. Ltd. & Anr. (Supreme Court of India)
Appeal Number : [2010-VIL­12-SC-CB]
Date of Judgement/Order :
Related Assessment Year :
Courts : Supreme Court of India (907)

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:

  • There must be an intention on the part of both the buyer and the seller to export.
  • There must be obligation to export, which may arise by reason of statute or from the contract between the parties or from the nature of the transaction which links the sale to export.
  • There must be an actual export.
  • There must be an inextricable bond between the contract of sale and the actual export. This bond should be real which depends upon the nature of the agreement between the foreign buyer and the local manufacturer!dealer, the nature of the transactions and the nexus between the last local sale and the export.

3. Further, the SC held that if there is an in- severable link between the last local sale preceding the export and the export, the transaction need not satisfy conditions laid down in the cases of Sterling Foods [(1986) 3 SCC 469] and Vijaylakshmi Cashew Company [(1996) 1 SCC 468] wherein it was held that, for a sale to qualify for exemption under Section 5(3), the goods sold in the penultimate sale should be the same goods that were exported.

4. In light of the above, the SC upheld the decision of the HC thereby dismissing the petition.

Brief:- The sale or purchase of goods is deemed to be in the course of export of 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.

* In order to resist imposition of sales tax by the State, the assessee will have to establish the identity of the goods sold to be exported out of the territory of India; in order to fulfill an export obligation, if an exporter purchases goods and as a result of some processing the identity and character of the goods change, then it will not be a case of export of the same goods.

* When the transaction between the assessee and the exporter and the transaction between the exporter and foreign buyer are inextricably connected with each other, the ‘same goods’ theory has no application.

More Under Goods and Services Tax

Posted Under

Category : Goods and Services Tax (5213)
Type : Judiciary (10108)

0 responses to “Eligibility of a local manufacturer/dealer to claim exemption from CST on the penultimate sale made to an exporter in connection with export of goods”

  1. VINEET says:

    SIR,
    HOW TO KNOW THE DETAILS OF ANY BODY (LIKE ADDRESS/CONTACT ETC.) QUOTING HIS/HER PAN NUMBER.

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