Allowed

The State Trading Corporation of India v. State of Kerala

Kerala HC14 Nov 2016WP(C)/13587/2004

Case brief

AI extract

What is this about?

We issued a writ petition against an assessment order denying sales tax exemption for high-seas sales of newsprint and cement. The court modified the order regarding imported cement transferred to the State Warehousing Corporation, recognizing the exemption under Section 5(2) of the CST Act.

What the court decided

AI extract

The State Trading Corporation of India Vs… — Contract and Commercial Disputes | Kerala HC (2016)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE

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FRIDAY, THE 17TH DAY OF JUNE 2016/27TH JYAISHTA, 1938

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WP(C).No. 13587 of 2004 (P)

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PETITIONER(S):

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THE STATE TRADING CORPORATION OF INDIA LTD., M.G.ROAD, COCHIN-16.

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BY ADV. SRI.VELLAYANI SUNDARARAJU

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RESPONDENT(S):

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1. STATE OF KERALA, REPRESENTED BY TAXES SECRETARY, DEPARTMENT OF COMMERCIAL TAXES, THIRUVANANTHAPURAM.

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2. THE ADDL.SALES TAX OFFICER-I, III CIRCLE, DEPARTMENT OF COMMERCIAL TAXES, RAVIPURAM, ERNAKULAM.

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3. THE ADDL.APPELLATE ASSISTANT, COMMISSIONER-I, DEPARTMENT OF, COMMERCIAL TAXES,ERNAKULAM.

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4. THE STATE WAREHOUSING CORPORATION, REPRESENTED BY ITS MANAGING DIRECOTOR, TRIVANDRUM.

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(ADDL.R4 IMPLEADED AS PER ORDER DATED 21/06/2005 ON I.A.NO.8425/05)

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R1 TO R3 BY SRI.P.P.PADMALAYAN, GOVERNMENT PLEADER ADDL.R4 BY ADV.SRI.MAJNU KOMATH, SC, K.S.W.C. SMT.S.K.DEVI SRI.M.RAJ MOHAN SRI.SANTHOSH P.ABRAHAM SRI.FRANKUR D.JAYAN SRI.SHANMUGHAM D.JAYAN SMT.P.K.MAYA DEVI SRI.E.K.NANDAKUMAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 17-06-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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K. Vinod Chandran, J

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---------------------------------------W.P.(C) No.13587 of 2004-P

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Dated this the 14^th day of November, 2016

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JUDGMENT

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The petitioner, State Trading Corporation of India Limited [STC], is aggrieved with Exhibit P7 assessment order and the recovery notices issued at Exhibits P8 and P9.

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Exhibit P7 is an assessment order issued for the year 1986-87 and is dated 30.03.2004 and ideally an appeal ought to have been filed. The aforesaid writ petition, raising contentions under Section 5(2) of the Central Sales Tax Act, 1956 [for brevity “CST Act”] comes up for hearing before this Court after more than a dozen years, and deciding it here itself is difficult and less said the better of a relegation to the appellate authority.

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The issue raised in the assessment was with respect to the high-seas sales of newsprint and also cement. The petitioner was the canalising agency for import of such goods and purchasers in the country; who were purchasing directly from the foreign seller had to make their purchases only through the STC by virtue of an

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WP(C) No.13587 of 2004 - 2 -

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order of the Government of India. Considering the acute shortage of Cement the Warehousing Corporation was appointed as a Nodal Agency by the Government of Kerala; who also could make import of cement only through STC.

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The issue raised on assessment was the exemption claimed by the petitioner under Section 5(2) of the CST Act of the high-seas sales effected of newsprint and imported cement. The assessment was completed, rejecting the prayer of the assessee, since there were no bills of entry produced to establish that there was a sale made in the course of transit, when the goods were on the high-seas and that the sale was effected prior to the goods passing the Customs frontiers as also the clearing having been done by the purchasers. On appeal, the same was remanded as per Exhibit P4. The further assessment made as per Exhibit P7 is the subject matter of challenge in the above writ petition.

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As already stated, ideally, the petitioner ought to have approached the appellate authority. However, the writ petition having been admitted and a stay granted, was pending here for all these years it may not be proper for this Court to relegate the

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WP(C) No.13587 of 2004 - 3 -

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petitioner to the appellate remedy at this stage; nor does the controversy involved warrant such a relegation.

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Exhibit P7 order reveals that despite bills of entry

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being not produced by the purchaser of newsprint, the same was allowed. The purchaser in that case was M/s.Malayala Manorama, who had produced the contract as also admitted to the purchase having been made from the STC, the petitioner. As far as high-seas sales of cement is concerned, the Warehousing Corporation, the purchaser, was summoned. The ledger accounts of the Warehousing Corporation revealed that there was procurement of imported cement from the STC to the extent of Rs.3,05,46,094.38. The total claim of exemption raised on the imported cement was Rs.3,75,46,095/-. Despite having detected Rs. 3,05,46,094.38 in the ledger accounts of the alleged purchaser, the Warehousing Corporation, as procurement made from STC; it was held that there is no document produced to show that the goods were cleared by the Warehousing Corporation. In fact the goods were cleared by the Warehousing Corporation from the Customs authorities; buit, on behalf of the STC.

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WP(C) No.13587 of 2004

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Here, the contention raised by the Warehousing

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Corporation before the Assessing Officer assumes significance. The contention raised is as hereinbelow:

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“Considering the acute shortage for cement in the country, the Government of India made a decision in 1986 or so to import cement for meeting the requirements of its actual users and for this purpose the Government issued a set of guidelines. As per these guidelines, there shall be no “Off the Shelf” sale of imported cement. It was intended exclusively for its actual users.

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The Government of Kerala appointed this Corporation as a Nodal Agency in the State for co-ordinating the above. As per the written directive of the Government of Kerala, the Corporation issued a public notice in newspapers and collected applications from actual users of cement along with approved plan and estimate. After consolidating all these applications, the quantity of cement to be imported was intimated to the STC. Under an agreement with the STC the cement is to be transported to actual users on “High Sea Sales” basis.

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The Corporation had an authorization from the actual users for clearing and forwarding cement brought to the Cochin Port by STC, which activity the Corporation did perform on behalf of the actual users of cement”.

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(emphasis supplied)

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The Warehousing Corporation had claimed for exemption from sales tax of their sales made to their purchasers on the strength of sub-section (2) of Section 5. It is, hence, the purchase made from the STC was described as 'procurement of imported cement'. The Warehousing Corporation had in fact a contention that they had not purchased any cement from the STC; but the entire quantity of cement was sold to the suppliers by the STC. But they themselves admit that they cannot purchase cement from the foreign seller other than through the STC. They also had an agreement (Exhibit P1) to make import of cement through STC. The clear admission made by the Warehousing Corporation itself would substantiate the claim of the STC that they had procured the cement from the foreign seller based on Exhibit P1 agreement and had effected such high-seas sales to the Warehousing Corporation.

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The copy of the bill of entry produced by the Warehousing Corporation was also verified to find that the goods were cleared by the Warehousing Corporation; but, on behalf of the STC. This is only by virtue of the endorsement made by the

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WP(C) No.13587 of 2004 - 6 -

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STC in favour of the Warehousing Corporation, in the bill of entry. The claim of the Warehousing Corporation of high-sea sales made to the actual purchasers in India, by the STC; describing them as a mere agent, is only an attempt to absolve themselves of the liability for payment of sales tax on their sales. Section 5 (2) only permits exemption when the sales have been effected by transfer of documents prior to the goods crossing the customs frontiers of India. If the Warehousing Corporation had effected such sales then necessarily the clearing would have been made by the actual purchaser to whom the documents of title to the goods were transferred. There is no evidence to that effect much less a contention on that count. The transfer of title by the STC in favour of the Warehousing Corporation is clear from the endorsement made in their favour and the clearing having been effected by the Warehousing Corporation.

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It is also pertinent that the STC had claimed exemption on their turnover, claiming the same to be in the course of import; which contention was raised and noticed by the Assessing Officer. It is also specifically pointed out by the petitioner

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that the claim raised by the Warehousing Corporation was declined and the Department has levied sales tax on their sales. This would further fortify the contention of the STC that the imported cement procured by the Warehousing Corporation through the canalizing agency, the petitioner-Corporation, was clearly covered by the exemption as permitted under Section 5(2) of the CST Act.

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The facts as noticed by the Assessing Officer itself would indicate that procurement made by the Warehousing Corporation from the STC admittedly come to a value of Rs.3,05,46,094.38. The said turnover is exempt from tax under Section 5(2) for reason of it having been imported in pursuance to Exhibit P1 agreement and the transfer of title having been effected before the goods passed the customs frontiers. In such circumstance, to that extent, Exhibit P7 assessment order is modified. The petitioner would be granted exemption of Rs.3,05,46,094.38, being the imported cement which was transferred to the Warehousing Corporation. The demand or recovery shall be effected on the basis of the amounts paid by the assessee to the Department.

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WP(C) No.13587 of 2004

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The writ petition would stand allowed, leaving the

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parties to suffer their respective costs.

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Sd/-

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K.Vinod Chandran Judge.

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vku/-

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[ true copy ]

The State Trading Corporation of India v. State of Kerala

Case brief

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The State Trading Corporation of India v. State of Kerala

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