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.
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:
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.