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Judgment
Ramanujam, J.—Since the issues involved in all these cases relating to the same assessee are common, they are dealt with together. In all
these cases since a decision on the main issue has been rendered by the Tribunal in a common judgment, it will suffice to refer to the facts in T.C.
(R) Nos. 654 of 1978 and in detail.
The assessee reported a total turnover of Rs. 2,40,63,735.71 and a taxable turnover of Rs. 1,66,51,094.61 for the assessment year 1962-63
which is the subject-matter of T.C. No. 654 of 1978. The assessing authority found on a check of accounts the total turnover to be Rs.
8,80,51,093.63. After disallowing some of the exemptions claimed by the assessee, he determined the taxable turnover at Rs. 2,08,54,900.60.
The assessee took the matter in appeal before the Appellate Assistant Commissioner disputing the liability of tax on a turnover of Rs.
78,99,670.61 and the rate of tax determined in respect of a turnover of Rs. 4,31,619.88. The Appellate Assistant Commissioner granted partial
relief on a turnover of Rs. 10,25,078.04 but dismissed the claim in respect of the rate of tax. Dissatisfied with the order of the Appellate Assistant
Commissioner, the assessee filed an appeal before the Tribunal disputing its liability on a turnover of Rs. 68,43,169.84 and the rate of tax on a
turnover of Rs. 4,31,619.88. In respect of the assessment year 1965-66 which is the subject-matter of T.C. No. 656 of 1978, the assessee
claimed exemption in respect of a turnover of Rs. 12,60,409.00 on the ground that the turnover represents the sales in the course of the import and
therefore, they have to be exempted u/s 5(2) of the Central Sales Tax Act which is the subject-matter of T.C. No. 655 of 1978. Since the said
claim for exemption was rejected by the assessing authority the matter was taken up in appeal before the Appellate Assistant Commissioner. The
Appellate Assistant Commissioner granted a partial relief on a turnover of Rs. 38,834.17 and dismissed the claim for exemption in relation to the
rest of the turnover. Thereafter the assessee went before the Tribunal disputing his liability on a turnover of Rs. 22,45,221.79. The Tribunal has
held that the disputed turnover in both the years in so far as the claim for exemption u/s 5(2) of the Central Sales Tax Act is concerned, those sales
are not, in fact, sales in the course of import and therefore, the turnover cannot be exempted. Dealing with the rate of tax, the Tribunal held that the
turnover relating to the sales of motor generator welding sets, mobile are welding generator pump sets and other similar machineries cannot be
brought under item 41 as has been done by the assessing authority and therefore, they have to be charged sales tax at multi-point. The Tribunal
also held that the sales of pump sets come under item 41 and therefore, the assessing authority is not justified in charging that portion of the
turnover relating to the pump sets at single point under item 41. The said decision of the Tribunal has been challenged before us.
In respect of the assessment year 1964-65 the decision of the Tribunal, which is the subject-matter of T.C. No. 654 of 1978, has been
followed and the assessee has been denied the relief both in respect of the claim for exemption u/s 5(2) of the Central Sales Tax Act and the claim
relating to the rate of tax. Therefore, the two common questions that arise for consideration in all these cases are (1) whether the disputed turnover
relating to the import of the goods by the assessee and the subsequent sale thereof to the local buyer could be treated as a sale in the course of the
import and exempted from payment of sales tax and (2) what is the rate of tax assessable in relation to the articles sold by the assessee viz., motor
generation welding sets, mobile are welding generator, etc., which have been sold by the assessee and whether the goods sold could be brought
under item 41 of the First Schedule. One additional question has been raised in T.C. No. 502 of 1978. In that case, the assessee claimed exclusion
of excise duty paid from its turnover and that claim was originally allowed by the Appellate Assistant Commissioner which came to be rejected
subsequently by the Tribunal at the instance of the Revenue in an enhancement petition filed by the parties. We will first dispose of the additional
point that has been raised in T.C. No. 502 of 1978 regarding the assessee''s claim for exclusion of excise duty. So far as this question is
concerned, it is seen that rule 6(b) of the Tamil Nadu General Sales Tax (Turnover and Assessment) Rules originally allowed deduction from the
total turnover excise duty paid by the assessee in respect of the goods manufactured; but subsequently, rule 6(b) has been deleted with effect from
5th January, 1957. After the deletion of rule 6(b), we do not see how the assessee could claim the benefit of exclusion of excise duty from the total
turnover. As a matter of fact, the deletion of rule 6(b) with retrospective effect was challenged in writ proceedings and this Court had upheld the
validity of the deletion. Therefore, the Tribunal is right in holding that the claim for deduction cannot be allowed. Therefore, we are not in a position
to interfere with that part of the order of the Tribunal.
Coming to the first and substantial question as to whether the goods imported by the assessee and sold to the local buyer can be taken to be a
sale in the course of the import as contended by the assessee, the Tribunal has chosen to rely on the decision of the Supreme Court in Binani Bros.
(P) Ltd. Vs. Union of India (UOI) and Others, , and the unreported decision of this Court in T.C. No. 227 of 1976 (The Deputy Commissioner
(C.T.), Madras Division, Madras v. Projects of India Factories) and held that there are two sales involved, one sale from the foreign seller to the
assessee and another sale by the assessee to the local buyer and the movement of the goods had been occasioned only by the first sale and not by
the second sale and therefore, the second sale cannot claim the benefit of exemption u/s 5(2) of the Central Sales Tax Act. The question is whether
the view of the Tribunal is tenable in law. In this connection, it is necessary to refer to the nature of the transaction. The disputed turnover on this
part of the case consists of the following items; (i) sales turnover of copra (ii) sales turnover of fish net twine, etc., and general goods including milk
powder, water colour boxes, Alarm clocks, etc., and (iii) sales turnover of machineries.
It is not in dispute that all the above items of goods sold by the assessee to the local buyers have been imported from abroad. After entering into
the contract for sale with the local buyers, the contention of the assessee in general was that since the goods have been imported in pursuance of
the contract entered into by the assessee with the local buyers, the assessee''s sale with the local buyer should be taken to have occasioned the
movement of the goods from abroad and that therefore, that sale will attract section 5(2) of the Central Sales Tax Act. So far as the import of
copra is concerned the assessee had an import entitlement to import copra for a certain specified value. It has also got a letter of authority to
import copra on the basis of the said import entitlement. Before arranging for the imported goods in pursuance of the import entitlement and the
letter of authority got by the assessee, the assessee contacted the local buyers and entered into an agreement to supply copra to the local buyers at
a particular price. The price agreed with the local buyers represented the price paid by the assessee to the foreign seller plus the assessee''s profit.
After entering into such contract and based on this, the assessee had placed orders with the foreign seller for the supply of copra. After making
arrangements for the import of the goods the assessee directs the local purchaser to take delivery of the goods from Tuticorin Port and on the basis
of the authority given by the assessee to deliver the goods to the local buyers. In the light of these admitted facts on which there is no dispute
between the parties, the assessee claimed that its sale to the local buyer is the sale in the course of the import attracting section 5(2) of the Central
Sales Tax Act and therefore, they are exempted from tax under the Tamil Nadu General Sales Tax Act. In support of this plea, the assessee relied
on the decision of this Court in T.C. No. 105 of 1972 which related to the assessee''s own case for the assessment year 1966-67. In that case,
this Court has specifically dealt with the assessee''s plea for exemption and accepted the sale on the ground that its sale to the local buyer had
occasioned the import of the goods and therefore, the said sale to the local buyer attracts section 5(2) of the Central Sales Tax Act. It is also the
assessee''s submission before us that the decision in T.C. No. 105 of 1972 State of Tamil Nadu represented by Deputy Commissioner of
Commercial Taxes, Madras Division, Madras-1 v. East Asiatic Company (India) Private Ltd., Madras which is a decision of a Bench of this Court
and which was rendered on exactly similar facts has to govern these cases as well. The learned Government Pleader on the other hand, however,
submits that the decision in T.C. No. 105 of 1972 has been rendered without reference to the judgment of the Supreme Court in Binani Bros. (P)
Ltd. Vs. Union of India (UOI) and Others, and that the said decision of the Supreme Court squarely applies to the facts of this case and this Court
is not bound by the decision rendered in T.C. No. 105 of 1972. It has also been submitted by the learned Government Pleader that on similar set
of facts, another Division Bench of this Court in T.C. No. 227 of 1976 Deputy Commissioner (CT), Madras Division, Madras v. Projects of India
Factories following the decision of the Supreme Court in Binani Bros. (P) Ltd. Vs. Union of India (UOI) and Others, has held that in a transaction
like the present, there are two sales involved, one between the foreign seller to the assessee and the other is the sale from the assessee to the local
buyer and that it is only the first sale which will come within the purview of section 5(2) of the Central Sales Tax Act and not the second sale. The
learned Government Pleader also relies on the subsequent decision of this Court in Blue Star Ltd. v. State of Tamil Nadu [1984] 56 STC 172
wherein also similar transactions were held to be not the sales effected in the course of the import. It is in the light of these rival submissions we
have to consider the question whether the assessee entered into an agreement of sale with the local buyer and thereafter imported the goods from
abroad and delivered the goods to the local buyer and whether it could be treated as a sale in the course of the import so as to attract section 5(2)
of the Central Sales Tax Act. It is no doubt true that in the assessee''s own case for the assessment year 1966-67 the Sales Tax Tribunal as well as
this Court have chosen to hold that the transactions will be in the nature of sales in the course of the import; but those decisions have been
rendered without reference to the decision of the Supreme Court in Binani Bros. (P) Ltd. Vs. Union of India (UOI) and Others, wherein the
relevant principles to find out whether a sale is in the course of import had been laid down. As already stated, the assessee had an import
entitlement for importing certain quantity of copra and it has also a letter of authority to import the same from the concerned authorities. To exploit
the said import entitlement, the assessee entered into agreements with the local buyers to supply copra at a particular price. Thereafter, it entered
into a contract with the foreign seller and imported the goods. When the goods arrived at the port, the assessee directs the local buyer to take
delivery of the goods at the port premises. The question is whether the sale transaction between the assessee and the local buyer could attract
section 5(2) of the Central Sales Tax Act. In more or less in the same circumstances or on the same facts, the Supreme Court in Binani Bros. (P.)
Ltd. v. Union of India [1974] 33 STC 254 after dealing with the development of the law on the aspects of the case in detail, if we may say so with
respect, have squarely laid down that there are two sales involved in such a transaction, one sale between the foreign seller and the assessee and
the other sale between the assessee and the local buyer and only the first sale between the foreign seller and the assessee that could be considered
to be sale in the course of the import and not the second sale. In that case, the assessee entered into contracts with the Directorate General of
Supplies and Disposals for the supply of certain goods. Thereafter, the assessee procured the requisite import licence and imported the goods from
abroad and supplied the same to DGS & D in fulfilment of the contract entered into by the assessee with DGS & D. The question arose whether
the transaction between the assessee and DGS & D could be treated as a sale in the course of import. Identical contention, which has been put
forward before us by the learned counsel for the assessee, was in fact put forward before the Supreme Court to the effect that the import has been
occasioned by the sale contract entered into by the assessee with the local buyers and therefore had satisfied the criteria laid down by section 5(2)
of the Central Sales Tax Act. That was rejected by the Supreme Court pointing out that it is only the first sale between the foreign seller and the
assessee which has occasioned the import and the import has not been occasioned by the sale between the assessee and the local buyers. The
Supreme Court has observed thus at page 262 :
Be that as it may, in the case under consideration we are concerned with the sales made by the petitioner as principal to the DGS & D. No doubt,
for effecting these sales, the petitioner had to purchase goods from foreign sellers and it was these purchases from the foreign sellers which
occasioned the movement of the goods in the course of import. In other words, the movement of goods was occasioned by the contracts for
purchase which the petitioner entered into with the foreign sellers. No movement of goods in the course of import took place in pursuance to the
contracts of sale made by the petitioner with the DGS & D. The petitioner''s sales to the DGS & D were distinct and separate from his purchases
from the foreign sellers. To put it differently, the sales by the petitioner to the DGS & D did not occasion the import. It was the purchases made by
the petitioner from the foreign sellers which occasioned the import of the goods. The purchases of the goods and import of the goods in pursuance
of the contracts of purchases were, no doubt, for sale to the DGS & D. But it would not follow that the sales or contracts of sales to the DGS & D
occasioned the movement of the goods into this country. There was no privity of contract between the DGS & D and the foreign sellers. The
foreign sellers did not enter into any contract by themselves or through the agency of the petitioner to the DGS & D and the movement of goods
from the foreign countries was not occasioned on account of the sales by the petitioners to the DGS & D.
As pointed out earlier, the assessee has all along been acting as principal on the basis of the import entitlement and the letter of authority. The fact
that before the assessee importing the goods for the contract of sale with the local buyer will not make it an agent of the local buyer for the import
of the goods. Nor can the assessee claim that it is an agent of the foreign seller in supplying goods to the local buyer. As a matter of fact, in this
case, the assessee never put forward a claim of agency either on behalf of the local buyer or on behalf of the foreign seller. Therefore, the decision
of the Supreme Court referred to above squarely applies to the facts of the instant cases and there is no question of the assessee avoiding the
application of the principles laid down in that case to the cases on hand. Though the decision rendered in T.C. No. 105 of 1972 by a Bench of this
Court has taken a contrary view, we are not in a position to accept the said decision as laying down the correct law having regard to the decision
of the Supreme Court in Binani Bros. (P) Ltd. Vs. Union of India (UOI) and Others, which was available at the time of the said judgment but
which has not been referred to and considered therein. As already stated, even if the assessee had not entered into a contract to supply goods to
the local buyer, in view of the import entitlement which it is having the assessee would have imported the goods and then found out the buyer for
the sale of those goods. The fact that the assessee had earlier entered into an agreement to supply the goods before actually importing the same will
not change the character of the sale between the foreign seller and the assessee being a sale in the course of the import. The same view has also
been taken, as already stated, in T.C. No. 227 of 1976 and in a recent decision of this Court in Blue Star Ltd. v. State of Tamil Nadu [1984] 56
STC 172. In those cases also on more or less similar facts, it has been held that the transaction between the importer and the local buyer can never
be treated as a sale in the course of import. Following those decisions, we have to uphold the view taken by the Tribunal on this aspect of the case.
Coming to the rate of tax levied by the assessing authority in respect of certain machineries sold by the assessee, it is seen that the authorities
have brought in the item of machineries sold by the assessee under item 41 of the First Schedule and subjected the same to a single point tax at 6
per cent as against the general rate of tax leviable u/s 3. The assessee has all along contended that the items of goods such as motor generator
welding sets, mobile are welding generation, etc., even if taken to fall under the expression ""machinery"" they cannot be brought in under item 41 of
the First Schedule as has been done by the authorities below. Before 1st September, 1964, item 41 of the First Schedule stood thus :
------------------------------------------------------------------------
Serial Description of the goods Point of Rate of tax
number. levy. (per cent)
------------------------------------------------------------------------
All kinds of electrical At the point 6
goods (other than those of first sale
specified elsewhere in in the State.
this Schedule) including
wires, holders, plugs,
switches, casings, cappings,
reapers, bends, junction
boxes, meter boxes, switch
boxes, meter boards, switch
boards, electrical earthen-ware
and porcelain-ware.
------------------------------------------------------------------------
After that date it was amended. There were subsequent amendments to this item but we are not concerned with those amendments as we are
concerned only with the assessment years 1962-63, 1963-64, 1965-66 and 1966-67. Thus, it is seen that item 41 did not contain the expression
machinery"" and it is only after 1st September, 1964, the expression ""machinery"" is found in the said item. Even after the inclusion of the expression
machinery"" in item 41 on and from 1st September, 1964, the Courts have unanimously taken the view that the expression ""machinery"" occurring in
item 41 should take the colour from the expression ""electrical goods"" occurring in the opening part of item 41 and that it is only such machinery
which will fall within the general expression ""electrical goods"", that will be covered by that item and not all the machineries. In Textool Company
Limited v. State of Madras [1968] 21 STC 232, this Court held that the word ""machinery"" appearing in entry 41 of the First Schedule to the Tamil
Nadu General Sales Tax Act, 1959, as amended by Tamil Nadu Act 15 of 1964 could take its sense and scope from the term ""electrical goods
that precedes it and the several items like fans and other goods, the use of which cannot be had without the use of electricity, which follow it, and
therefore the test whether a particular machinery falls within the broad conception of electrical goods as laid down in William Jacks and Co. Ltd. v.
State of Madras [1960] 11 STC 340 will continue to apply for the interpretation of entry 41 even after the amendment and therefore, textile
machineries, which are not electrical goods, cannot be brought under item 41 for the purpose of single point levy. In Deputy Commissioner of
Commercial Taxes, Madurai Division, Madurai v. Ravi Auto Stores [1968] 22 STC 172, this Court has held that welding electrodes are not by
themselves electrical goods and they do not attract entry 41 of Schedule I of the Tamil Nadu General Sales Tax Act, 1959. In that case, the Court
took note of the fact that the electrodes cannot be used except with the application of electrical energy in welding process but merely because of
that fact, it cannot be said to be the electrical goods. Merely because an article cannot be used without electricity, it may not be decisive and it is
necessary that apart from that fact, the article by its very nature should answer the description of electrical goods so as to come within the entry 41
of the First Schedule. In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Anand Wire and Allied Industries
[1979] 43 STC 273, the question arose as to whether the electric posts are not electrical goods within the meaning of entry 26 of the First
Schedule to the Kerala General Sales Tax Act, which is the same as item 41 of First Schedule to the Tamil Nadu General Sales Tax Act. The
court held that the electric posts and stay-wires used for supporting electric posts are not accessories to electrical goods within the meaning of that
entry and, therefore, they could only be assessed u/s 5 of the Act at multi-point system and not at single point. In Sri Sakthi Textiles Ltd. v. State
of Tamil Nadu [1979] 43 STC 404 the question arose whether the sale of condemned cone winding machines fitted with electric motors could be
taken to fall under entry 41 and the Court held that in the context in which the word ""machinery"" is used in entry 41, it should be understood as
machinery of the same nature as electrical goods, that the expression ""machinery"" should take its sense and scope from the term ""electrical goods
that precedes it and that therefore any other machinery, which could not be characterised as electrical goods, cannot fall within entry 41. The Court
also observed that in order to attract, entry 41 of the First Schedule, intrinsically the goods must be electrical goods and their use cannot be had
without electrical energy and that merely because an article cannot be used without electricity, it may not be decisive. In Deputy Commissioner,
Ernakulam v. Equipment Agencies [1981] 47 STC 68, the question arose whether the pumpsets, grinders, air-compressors, rotaries, etc., sold by
the assessee are liable to be regarded as ""electrical goods"" falling within entry 26 of the First Schedule to the Kerala Sales Tax Act which is the
same as entry 41 of the Tamil Nadu General Sales Tax Act, and it was held that the mere fact that the assessee had simultaneously sold to the
purchasers electrical motors also will not create any difference in the legal position mentioned above with respect to the character of the
aforementioned goods such as pumpsets, grinders, etc., and that the pumpsets, grinders, etc., can be worked either with electricity or by diesel or
steam power. All the above decisions proceed on the basis that though entry 41 of the First Schedule contains the expression ""machinery"" it cannot
be understood in a general sense and its meaning must be restricted to those machineries which can generally be characterised as intrinsically
electrical goods and it will not take in all machineries whatever may be its nature. In this case, the machineries sold by the assessee are motor
generator welding sets, mobile are welding generators, etc. It may be that those articles cannot be used without electricity. But that is not
conclusive. The real nature of the machinery has to be taken into account. The above items cannot in any sense be called electrical goods, though
the generators are used for producing energy. Since the articles sold by the assessee cannot fall within the expression ""electrical goods"", they
cannot be brought under entry 41 as has been done by the authorities below. We therefore hold that the items of machineries sold by the assessee
for the assessment years referred to above have to be charged u/s 3 at multi-point rate and that they cannot be brought under single point rate on
the basis that the machineries fall under entry 41 of the First Schedule.
These tax cases are, therefore, partly allowed to the extent indicated above and in other respects, they are dismissed. There will be no other as to
costs.
Petitions partly allowed.