Order of the Supreme Court in State of Karnataka Vs Azad Coach Builders Pvt. Ltd. & Anr (Civil Appeal Nos. 5616- 5617 of 2000 with Civil Appeal Nos. 6594- 6598 of 2000]
M/s Azad Coach Builders Pvt. Ltd. (hereinafter referred to as “the Assessee”) has received an order to build bus bodies, by an Indian exporter (Tata Engineering Locomotive Co. Ltd.) in accordance with an export order placed on the Indian exporter by and specifications provided by the foreign buyer (Lanka Ashok Layland Ltd., Colombo). The Assessee manufactured the bus bodies, in accordance with the specifications stipulated by the foreign buyer and mounted the same on the chassis made available by the Indian exporter making it as a complete bus ready for export.
The Assessee claimed exemption on sales of bus bodies to the Indian exporter as penultimate sales for export that are eligible for exemption under Section 5 of the Central Sales Tax Act, 1956 („CST Act). The Assessing Authority rejected the claim of penultimate sale on the ground that the `bus bodies’ and `buses’ are two different commodities. The claim of the Assessing Authority was that the expression „those goods? implies that penultimate sale should be of the same goods which are exported out of India and the bus bodies as such were not exported (i.e. complete buses were exported).
When the matter reached the Karnataka High Court, the High Court held that the bus bodies supplied by the Assessee to the Indian exporter was in the course of exports and the words “in relation to such export” extended the scope of the exemption to the extent that even if there is no agreement or order but they are in relation to such exports, the exemption could still be claimed under Section 5(3) of the CST Act.
The State of Karnataka filed an appeal to the Supreme Court. In the light of earlier decisions of the Supreme Court in various other cases, the appeal was heard by a Constitutional Bench of the Supreme Court.
Contentions of the Assessee
The Assessee put forth the following contentions:
Contentions of the Government
The contentions of the Government were as follows:
Observations of the Supreme Court
The following observations were made by the Supreme Court:
– To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export;
– There must be obligation to export, and there must be an actual export.
– The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export.
– 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 immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India.
– The communication between the foreign buyer and the Indian exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the Assessee under the specifications stipulated by the foreign buyer.
– The bus bodies constructed and manufactured by the Assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer.
– In the Purchase Order placed on the Assessee by the Indian exporter, it is specifically indicated that the bus bodies have to be manufactured in accordance with the specifications provided by the foreign buyer, failure to do so might result in cancellation of the export order.
The appeal were dismissed with the following conclusion:
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