Appeal dismissed against Single Judge's ruling that sales tax exemption under CST Act Section 5(3) was unavailable as sandalwood billets were converted to chips for export, losing their original identity.
Appeals dismissed in limine; Single Judge's order upholding tax demand stands affirmed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN
FRIDAY, THE 29TH DAY OF JULY 2016/7TH SRAVANA, 1938
WA.No. 2253 of 2006 ( )
-----------------------(AGAINST THE JUDGMENT IN WP(C).NO. 6210/2005 DATED 14-11-2006) ----------------------
APPELLANT/PETITIONER:
GUPTA ENTERPRISES, EASTERN STREET, POST BOX NO.44, ELURU (ANDHRA PRADESH), REP. BY ITS MANAGER,, MR.S.N.V.SATYANARAYANA.
BY ADVS.SRI.A.KUMAR SRI.P.J.ANILKUMAR SMT.G.MINI SRI.P.S.SREE PRASAD
RESPONDENT(S)RESPONDENTS :
1. COMMERCIAL TAX OFFICER, MUNNAR, DEVIKULAM, IDUKKI DISTRICT.
2. INSPCTING ASSISTANT COMMISSIONER OF AGRICULTURAL INCOME TAXES AND SALES TAX,
DEVIKULAM.
3. DIVISIONAL FOREST OFFICER, MUNNAR DIVISION, DEVIKULAM, IDUKKI DISTRICT.
4. FOREST RANGE OFFICER, MARAYOOR RANGE.
5. THE STATE OF KERALA, REPRESENTED BY THE SECRETARY (TAXES), GOVERNMENT OF KERALA, SECRETARIAT,
THIRUVANANTHAPURAM.
BY SR GOVERNMENT PLEADER (TAXES) SRI.S.SUDHEESH KUMAR
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 20-06-2016, ALONG WITH WA.NO.2246/2006 AND WA.NO. 2249/2006, THE COURT ON 29-07-2016 DELIVERED THE FOLLOWING:
sts
P.R.RAMAN & K.P.BALACHANDRAN,JJ.
W.A.NOS.2253, 2246 & 2249 OF 2006
Dated this the 7th day of December, 2006
JUDGMENT
Raman,J.
These appeals arise out a common judgment
rendered in three writ petitions,
O.P.No.14989/2001, W.P.(C).No.6210/2005 & W.P. (C).No.31709/2005. Hence, we dispose of these
appeals by this common judgment.
reference to the facts stated in
W.A.No.2253/2006 arising out of the judgment in W.P.(C).No.6210/2005. Hence, we refer to
the facts as extracted therefrom.
No.6210/2005 inter alia contending that he is
an exporter of sandalwood and on receipt of
prior orders and satisfying the same, he
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attended the auction held by the respondents.
The sale was eventually confirmed in his favour. He was called upon to pay the entire sales tax along with the balance amount. He replied that the transaction is exempted under Section 5(3) of the Central Sales Tax and
sought for release of the goods against his furnishing bank guarantee. The authorities
refused to release the goods. But the
respondents insisted on payment of tax before the goods are released. Placing reliance on
the decision of the Madras High Court in W.A.Nos.94 to 96/2000 it was contended that
the demand is against the dictum laid down in the said decision and being aggrieved by the insistence of the Sales Tax Authorities, writ petition was filed for the following reliefs:
(i) Issue a writ of mandamus directing respondents 3 and 4 to release the goods purchased vide Ext.P3 without collecting sales tax and on the petitioner furnishing
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documents in support of claim of exemption under Section 5(3) of the CST Act and on the petitioner paying the amount due under the auction,
(ii) Direct respondents 3 and 4 to release the goods without collection of sale tax land on the petitioner furnishing bank guarantee for the entire tax amount pending adjudication on sales tax exemption by the 2nd respondent and other consequential reliefs.
as the same is exempted by virtue of Section 5 (3) of the CST Act. The learned Single Judge after referring to the dictum laid down in
Vijayalaxmi Cashew Co. v. CTO ((1996) 1 SCC 468), Satnam Overseas (Export) v. State of Haryana ((2003) 1 SCC 561) and Sterling Foods v. State of Karnataka ((1986) 3 SCC 469) and other decisions of the Apex Court, did not agree with the contention of the appellant.
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consideration was as to whether the the goods purchased in the auction undergo any changes
before it was actually exported in that regard, so as to find whether "such goods" purchased moved or in relation to the contract to attract Section 5(3) of the CST Act. It was contended on behalf of the appellant that the term of the tender merely stipulating that the appellant is liable to pay Sales Tax under the K.G.S.T. Act will not be operative if the transaction is in the course of export and falls under Section 5(3) of the CST Act, that what was purchased and exported is sandalwood and there is no manufacture involving the purchased goods, before the exports, that there is no change in the nature and character of the goods, by the mere knocking down of the sandalwood purchased from the Forest
Department into chips. The contention of the respondents is that (i) there was nothing on
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record to show that the Forest Department was notified that the purchase is intended for
the purpose of export and therefore it has to
be taken that there was no sale by the
Department for the purpose of export; (ii) the liability to pay tax is primarily of the Department and that therefore, it cannot ;be treated to have entered into any transaction exempted from tax, without its intention to enter into such a transaction, depriving the
state of tax due, the entitlement of which was specifically included in the tender conditions; (iii) being a restricted item, sandalwood can be exported only in such form as is permitted under the licence issued by
the Director General of Foreign Trade (DGFT) and the goods purchased from the Forest Department are not of the descriptions contained either in the export licence issued to the petitioner by the DGFT or as described
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W.A.Nos.2253, 2246 & 2249/2006
in the export orders shown to have been issued by the foreign buyers; (iv) sandalwood, as sold by the Department cannot be exported under the law governing exports and (v) since the goods purchased from the Department ;were
not exported in the same form, but were manipulated to make them export-worthy, because they were not so originally, the exported goods had lost their identity, characteristics and nature as the goods
purchased from the Department and therefore exemption under Section 5(3) of the CST Act is not available.
decisions of the Apex Court on the point and a particular reference to the decision in
Vijayalaxmi Cashew Co. v. CTO ((1996) 1 SCC 468) referred supra, the learned Single
Judge assimilated the principles as emerged therefrom in paragraph 16 of the judgment as
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W.A.Nos.2253, 2246 & 2249/2006
follows:
"Assimilating the above, it can be seen that if in commercial parlance and according to what is understood in the trade by the dealer and the consumer, the goods retain their original character and identity, they do not become a new distinct commodity and Section 5(3) of the CST Act would be attracted. As a necessary corollary, it has to be held that where, original character and identity of the goods involved in the penultimate sale undergoes a change or transformation in character and identity in commercial parlance, Section 5(3) of the CST Act does not apply. Still further, the classification or grouping of the goods in the taxing statute including any homogenous treatment to prevent escape from the tax net are no indicia to determine whether the exported goods are those goods which were the subject matter of the penultimate purchase."
referring to the relevant provisions of the Foreign Trade (Development and Regulation) Act, 1992, (FDTR Act), held that while export of sandalwood can be only in such forms permitted by the DGFT, there can be no export
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W.A.Nos.2253, 2246 & 2249/2006
of sandalwood in any other form. Any export of
sandalwood except in the forms permitted by
the DGFT would be an illegal export contravening the provisions of the FTDR Act and the Customs Act. Placing reliance on Ext.R3(a) addressed by the Zonal Joint DGFT to the Conservator of Forests and Ext.R3(b)public notice issued by the DGFT in exercise of the
powers under "exim policy" show that sandalwood is not covered by open General Licence, but one falling under the restricted
list for which an exporter has to make specific request for licence to DGFT, who
releases quota from time to time and that the categories of Sandalwood allowed for export are "sandalwood chip class" in the form of heart wood chips utpo 50 grams, mixed chips upto 50 grams, flakes upto 20 grams of the sandalwood classes (Jajpokal I class, Jajpokal II class, Antibagar, Cheria Milvanthilta,
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Basolabjukni, saw dust, charred billets), sandalwood chips/power sandalwood dust
obtained as waste after the manufacturing process and sandalwood in any other form as approved by the Exim Facilitation Committee in
the Directorate General of Foreign Trade. Ext.P18 export licence was also issued to the petitioner under the FTDR Act and licence to export is granted only for the categories mentioned therein. The learned Single Judge also entered a positive finding after referring to Ext.P18 export licence issued to the petitioner under the FTDR Act that licence to export is granted only for the categories mentioned therein, namely, sandalwood in the form of heart wood chips upto 50 grams, mixed chips not exceeding 30 grams and flakes upto 20 grams of the sandalwood classes, jajpokal I class, Jajpokal II class, Antibagar, Cheria Milvachilta, Basolabukhi, saw dust, charred
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W.A.Nos.2253, 2246 & 2249/2006
billets, sandalwood power, dust, chips and flakes. The petitioner placed reliance on Ext.P17, the rules regarding selection, cleaning, classification and disposal of sandalwood etc. issued by the Tamil Nadu
Forest Department and it was contended based on Ext.P17 that various classes of sandalwood are described in Ext.P17 and it will be seen therefrom that the classification is purely on the basis of weight of billets, defects noticed in the billets and the length of the billets etc. and these are not different types or varieties of sandalwood. The learned Single Judge exhaustively referred to various items in Ext.P17 and found that the classification of sandalwood as per Ext.P17 when juxtaposed with the documents evidencing the items bid by the petitioner, as evidenced by different documents and were put in a tabular form in paragraph 22 of the judgment. It was concluded
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W.A.Nos.2253, 2246 & 2249/2006
that export orders of foreign buyers produced by the petitioner evidenced that they were
only sandalwood chips, below 50 grams. After referring to the various materials as noticed above, the learned Single Judge found that on facts the sandalwood as purchased by the petitioner from the Forest Department is in the form of billets, roots, or even chips
weighing over 50 grams, could not have been exported in consonance with exim policy and the export licence, without converting the same into chips of the description covered by the export licence. There is a prohibition, in law, for export of sandalwood in any form, other than that permitted under the exim policy and the export licence, with an order releasing quota for the export. So much so, the sandalwood purchased form the Forest Department as billets, roots etc. had to be converted into flakes, power etc. weighing
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W.A.Nos.2253, 2246 & 2249/2006
below not more than 50 grams to make them exportable goods. In commercial parlance, the goods prohibited from being exported stood converted to exportable goods. It is also held that for the purpose of Section 5(3), what is relevant for consideration is whether the goods that formed the subject matter of the penultimate sale or purchase are the self-same goods that are exported and in the light of the decision in Sterling Foods v. State of
Karnataka ((1986) 3 SCC 469) of the Apex
Court, the words "those goods" in Section 5(3) are clearly referable to "any goods" mentioned in the preceding part of that sub section and
it is, therefore, obvious that the goods purchased by the exporter and the goods exported by him must be the same. On the other hand, in the present case the goods purchased by the assessee from the Forest Department are those which were incapable of being exported
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in terms of the relevant laws. The only types
of goods that can be exported as sandalwood are those which fall under the categories permitted for export. Hence, the goods purchased by the petitioner from the Forest Department had to undergo the change from the commercial status of non-exportable goods to that of exportable goods, by change in its form from billets, roots etc. to flakes of the dimension or as dust, permitted for export, in terms of the laws relating to export. Thus,
there occurs a conversion of the goods purchased so as to facilitate the export and as such ceased to be "such goods" which were purchased from the Forest Department. Hence, the claim for exemption under Section 5(3) of the CST Act was negatived. Though the appellant placed reliance on the decision of the Apex Court in Consolidated Coffee v.
Coffee Board, Bangalore (AIR 1980 SC 1403) ,
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the learned Single Judge accepted that merely on the basis of the condition of sale notice, one could not be compelled to pay tax provided
the exemption applies. But the decision in W.A.Nos.94 to 96/2000 of the Madras High
Court, which in turn referred to the case of
Consolidated Coffee's case supra did not support the case of the petitioner on the issue regarding the identity of the goods to be found among that purchased and those
exported. In the Madras decision the goods purchased by the appellant therein (petitioner herein) were contended to be different from
the goods sought to export. But the said contention was not pursued further by the
Tamil Nadu Government. The different varieties of sandalwood purchased by the appellant were reduced to small pieces for the purpose of export, though noticed by the court in the
said decision, none of the decisions on which
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reliance was placed by the learned Single
Judge, were referred to and there was no
serious argument raised by the State of Tamil
Nadu in that regard and it was in such
circumsatances that the Court accepted the assessee's case therein.
appellant contended that the case on hand is squarely covered by the decision of the Madras High Court referred to above. But as rightly
pointed by the Learned Single Judge as to whether there was any change in the commodity purchased before they were exported were not agitated and in such circumstances, the finding of the Madras High Court cannot be relied on by the appellant to advance his case that no such change has occured against the
facts as found by the learned Single Judge. It has been found that the goods purchased as
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W.A.Nos.2253, 2246 & 2249/2006
such cannot be exported, unless the same being converted into such form as is required and permitted by the FTDR Act, for which alone export licence could be granted.
counsel that the Apex Court in the decision reported in State of Karnataka v. Azad Coach Builders Pvt.Ltd. ((2006) 145 STC 176) , has doubted the correctness of the decision in Sterling Foods's case ((1986) 3 SCC 469) and also the decision in Vijayalaxmi Cashew Company's case (((1996) 1 SCC 468), and has referred the case to a larger Bench. It is true, the Court observed that the said decisions need reconsideration and the matter is placed before the larger Bench. In the above case M/s. Tata the exporter and also a manufacturer of chassis had a pre-existing order of export of 'Buses". The chassis were
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W.A.Nos.2253, 2246 & 2249/2006
moved under customs bond for body building and export to the premises of the assessee (Bus body builder). The assessee then delivers the completed bus which is moved under the bond directly to the port and exported, so that chain never breaks. The question arose was whether in such circumstances the bus body builder is entitled to claim the benefit under Section 5(3) of the CST Act. It is in that context the Apex Court considered the expression "in relation to such exports" which
did not get due weightage in the earlier decision. But even in the said case, the assessee only contended that the test of "the same goods" is evolved only to explain that the exporter should not have undertaken any process to change the identity of the goods brought by him in order to confer the benefit of exemption on the penultimate sale. Thus
there was no dispute that if the goods
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undergo changes in the hands of the exporter after the purchase and before export, he will
not be entitled to claim the benefit of Section 5(3) of the CST Act, which is the main issue in the present case. Be that it may until a final decision is rendered by the Apex Court pursuant to the reference order in
State of Karnataka v. Azad Coach Builders Pvt.Ltd. ((2006) 145 STC 176), the decision in
Sterling Food's case and Vijayalaxmi Cashew
Company's case beholds the field as a binding precedent under Article 141 of the Constitution of India.
meticulous consideration of various points urged, came to the irresistible conclusion
that the appellant is not entitled to claim
the benefit under Section 5(3) of the CST Act,
as on facts it was found that there is a
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W.A.Nos.2253, 2246 & 2249/2006
change in the goods purchased before they are exported.
We have carefully gone through the
judgment of the learned Single Judge and we do not find any error of law or facts in the judgment under appeal. Accordingly, we dismiss these appeals in limine.
P.R.RAMAN,
K.P.BALACHANDRAN, Judge.
kcv.
3 issues framed by the court
Whether sandalwood purchased in auction form and processed into chips for export qualifies as 'such goods' under Section 5(3) of the Central Sales Tax Act.
Whether the change in the form and identity of goods after purchase disentitles the exporter from sales tax exemption.
Whether the Single Judge's finding that goods were converted from non-exportable billets to exportable chips requires interference.
Colour shows how this judgement treated each authority
Vijayalaxmi Cashew Co. v. CTORelied on¶53
Vijayalaxmi Cashew Co. v. CTO ((1996) 1 SCC 468) · Who else cites this
Satnam Overseas (Export) v. State of HaryanaRelied on¶53
Satnam Overseas (Export) v. State of Haryana ((2003) 1 SCC 561) · Who else cites this
Sterling Foods v. State of KarnatakaRelied on¶53
Sterling Foods v. State of Karnataka ((1986) 3 SCC 469) · Who else cites this
State of Tamil Nadu v. Annapurna MillsDistinguished¶74
W.A.Nos.94 to 96/2000 of the Madras High Court
State of Karnataka v. Azad Coach Builders Pvt.Ltd.Relied on¶136
State of Karnataka v. Azad Coach Builders Pvt.Ltd. ((2006) 145 STC 176)
Consolidated Coffee v. Coffee BoardDistinguished¶115
Consolidated Coffee v. Coffee Board, Bangalore (AIR 1980 SC 1403) · Who else cites this
2 provisions across 2 enactments
Gupta Enterprises
Commercial Tax Officer, Munnar
Inspecting Assistant Commissioner of Agricultural Income Taxes
Divisional Forest Officer, Munnar
Forest Range Officer, Marayoor
State of Kerala
P.R. Raman
K.P. Balachandran
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
