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Judgment
K. Govindarajan, J.—The appellant-firm has filed the above writ appeal aggrieved by the orders of the learned single Judge passed in W.P.
Nos. 17798, 8343 and 8344 of 1999 dated November 22, 1999.
The appellant participated in the auction conducted by the second respondent for the sale of 20 M.Ts. and 33 M.Ts. of sandal-wood. The said
auction was held on February 25, 1999 and the same was confirmed by the second respondent by the orders dated March 17, 1999. Along with
the confirmation order, a statement showing the amount to be paid by the appellant was furnished. Among other items, as per the condition No. 27
of the sale notice, the appellant was asked to pay a sum of Rs. 6,13,530 by way of sales tax at 8 per cent on the sale of 20 M.Ts. and Rs.
9,12,000 towards the sales tax on the total sale amount of 33 M.Ts. of sandalwood. Though the appellant informed the authorities in their letter
dated April 5, 1999 that they are not liable to pay sales tax, in the letter dated April 13, 1999 the appellant was informed that there is no provision
in the sale notice to avail exemption of the sales tax and they should make the payment of the balance sale amount first and other dues. On receipt
of the said letter, the appellant filed W.P. No. 8343 of 1999 to quash the same with respect to the demand for sales tax and to direct the
respondent to accept the form H filed by the appellant after the export is over without insisting for payment of sales tax and any surcharge thereon
in respect of sandalwood sold to the appellant in the auction conducted by the second respondent in respect of 20 M.Ts. of sandalwood as
confirmed by the second respondent''s order dated March 17, 1999.
The second respondent in the letter dated September 24, 1999 informed that as per the condition No. 12(ii) of this sale notice, penal interest at
18 per cent per annum on over due amount and as per the condition No. 15 of the sale notice, demurrage charges of Rs. 600 per M.T. per day
for the sandalwood so kept in double lock beyond 60 days have to be paid by the purchaser. This demand was on the basis of failure of the
appellant in making payment in time and also to remove the quantity in time. This order has been challenged in W.P. No. 17798 of 1999.
The appellant also has filed another writ petition in W.P. No. 8344 of 1999 challenging the order dated March 17, 1999 with respect to the
demand of sales tax, and to direct the respondents to accept the form H filed by the appellant after the export is over without insisting for payment
of sales tax or any surcharge thereon in respect of 33 M.Ts. of sandalwood sold by second respondent in the auction dated February 25, 1999.
The said writ petitions were contested by the respondents.
The learned Judge in the common order dated November 22, 1999 rejected the writ petitions on the ground that any claim of exemption or
concession has to be referred to the Sales Tax Department and if the Sales Tax Department grants exemption then only the refund of sales tax paid
will arise. The learned Judge also held that the appellant cannot claim as a matter of right that they are not liable to pay the sales tax amount as they
have agreed to pay as per the terms and conditions of the sale notice and no dispute with respect to the sales tax can be raised before this Court,
and the same can be raised only before the Special Sales Tax Tribunal. Aggrieved against the said order, the appellant has filed the above writ
appeals.
We heard the learned Senior Counsel appearing for the appellant and the learned Special Government Pleader for the respondents.
The learned Senior Counsel appearing for the appellant has submitted that the appellant-firm have purchased the sandalwood in the auction
pursuant to the order for export and so they are not liable to pay any sales tax. The learned Senior Counsel has relied on Section 5(3) of the
Central Sales Tax Act, 1956 (hereinafter called ""the Act"") in support of his submission. According to him, though as per sale condition, the
appellant has to pay sales tax to the Forest Department, the appellant is not liable to pay any such sales tax under the provisions of Central Sales
Tax Act as they purchased the goods only to fulfil their export commitments. The learned Senior Counsel has relied on decisions in support of his
submissions, which would be dealt with later.
The learned Special Government Pleader (Forest) has submitted that the Forest Department was not having any sale for export, and the auction
is in general, and so as per condition No. 27 of sale notice, the appellant should pay the sales tax. He has also submitted that on the date of
confirmation of sale, the appellant was not even having valid licence to export goods so as to enable them to claim the benefits u/s 5(3) of the Act.
The learned Government Advocate for Taxes has also submitted that on the date of the sale, it was not established that the sale was for the
purpose of export, and based on the earlier order obtained from foreign buyers. In the absence of any such materials on the date on which sale
was completed, the appellant cannot come forward with the plea that they are entitled to the benefits u/s 5(3) of the Act. He has further submitted
that the export of sandalwood has been banned. Only under the notification, certain exemptions have been given, and so the case of the appellant
cannot be accepted.
In the auction held on February 25, 1999, the appellant participated and was the successful bidder with respect to 20 M.Ts. and 33 M.Ts. of
sandalwood. The same had been confirmed only on March 17, 1999. Thereafter, the impugned letters dated April 13, 1999 and March 17, 1999
were issued to the appellant, asking them to pay the sales tax dues. The case of the appellant is that they are having contract with foreign buyer
which has been executed on December 20, 1998 and extended subsequently, and so they are not liable to pay the sales tax, in view of Section
5(3) of the Act. On perusal of the typed-set furnished by the appellant, we are able to see that the appellant has entered into a contract with M/s.
Omarbeem Enterprise, Singapore under contract No. OME/16/98 dated December 20, 1998 to sell 25 M.Ts. of sandalwood hearwood chips
and 50 M.Ts. of sandalwood mixed chips. It has been agreed to send the same by sea shipment to Singapore/Taiwan/Hongkong. The period to
supply mentioned in the said contract was extended by another letter dated December 25, 1999. On the basis of this contract, the appellant claims
that they purchased the sandalwood in the auction held only to fulfil the said obligation to the foreign buyer and so they are not liable to pay the
sales tax.
Since the appellant claims benefits u/s 5(3) of the Act, it is beneficial to deal with the said section, which reads as follows :
5(3). Notwithstanding anything contained in Sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the
export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place
after, and was for the purpose of complying with, the agreement or order for or in relation to such export.
Section 5(3) of the Act has been enacted to get over the decision of the Supreme Court in Mod. Serajuddin v. State of Orissa [1975] 36 STC
136 because as a result of the said decision, the last sale or purchase is liable to State sales tax leading to corresponding increase in the price of the
goods and making exports uncompetitive in the international market. The said amendment was made in Section 5 by the Central Sales Tax
(Amendment) Act, 1976 inserting Sub-section (3) u/s 5 of the Central Sales Tax Act which came into effect from April 1, 1976.
To invoke Section 5(3) of the Act, two conditions have to be satisfied namely (a) such penultimate sale must take place after the agreement or
order under which goods are to be exported; and (b) it must be for the purpose of complying with such agreement or order and then only such sale
is deemed to be a sale in the course of export.
The apex Court had an occasion to deal with Section 5(3) of the said Act in Consolidated Coffee Ltd. and Another Vs. Coffee Board,
Bangalore, . While dealing with the nature of agreement, which can be relied on, for the purpose of export, to claim benefit u/s 5(3) of the said Act,
and the apex Court has held as follows :
It is true that the language employed in Section 5(3) is a little ambiguous or equivocal and there is no indication in express terms whether the
''agreement'' mentioned therein necessarily refers to the agreement with a foreign buyer or would include any binding or enforceable agreement to
export with a local party and that is why the counsel on either side have heavily relied upon the Statement of Objects and Reasons appended to the
relevant Bill to show what was the legal position u/s 5(1) as interpreted by this Court in the Coffee Board, Bangalore Vs. Joint Commercial Tax
Officer, Madras and Another, and Serajuddin and Others Vs. The State of Orissa, before the proposed amendment and what was the lacuna or
mischief that was sought to be remedied as also the object with which this provision came to be enacted. However, before applying the mischief
rule initially enunciated in Heydon''s case (1584) 3 Co. Rep 7 a for arriving at the true construction we propose to examine the new provision
rather closely with a view to see whether by implication any indication one way or the other is available from the language thereof. The material
words which prescribe the two conditions on satisfying which the penultimate sale is to be regarded as a sale in the course of export are : ''If such
last sale or purchase (meaning the penultimate sale or purchase) took place after, and was for the purpose of complying with, the agreement or
order for or in relation to such export''. It is true that Parliament has not said ''the agreement or order for or in relation to such sale occasioning the
export'', but has used the phrase ''the agreement or order for or in relation to such export''. But in our view two aspects emerge very clearly on a
close scrutiny of this phrase which by implication show that the ''agreement'' spoken of there refers to the agreement with a foreign buyer and not
an agreement with a local party containing a covenant to export.
In the first place the concerned phrase speaks of two things in disjunctive : ''agreement'' or ''order''. The word ''order'' which appears in a statute
dealing with sales tax must be understood in a commercial sense, that is, in the sense in which traders and commercial men will understand it. In
commercial sense an order means a firm request for supply of definite goods emanating from a buyer, an indent placed by a purchaser and,
therefore, an order for or in relation to export would mean an indent from a foreign buyer. It is not possible to accept the contention urged by
counsel for the petitioners that the word ''order'' in this phrase can mean or refer to an order, direction, mandate, command or authorisation to
export that may be issued by a statutory body like the Coffee Board for two reasons: first, occurring in a sales tax statute the word must be given
its commercial meaning and, secondly, while enacting the provision Parliament could not be said to have the only statutory bodies like the Coffee
Board or the S.T.C. in mind. If, therefore, an order for export in the concerned phrase means an indent from a foreign buyer, the preceding word
''agreement'' in the phrase would take colour from the word ''order'' and would on the principle of noscitur a sociis mean an agreement with a
foreign buyer. In Maxwell on the Interpretation of Statutes (at page 289, 12th edition), the rule of noscitur a sociis is explained thus : ''where two
or more words, which are susceptible of analogous meaning, are coupled together, they are understood to be used in their cognate sense. They
take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general''.
Applying this rule of construction it becomes clear that ''the agreement'' occurring in the phrase must mean the agreement with a foreign buyer and
not the agreement with a local party containing a covenant to export. Secondly, and more importantly, the user of the definite article ''the'' before
the word ''agreement'' is, in our view, very significant. Parliament has not said ''an agreement'' or ''any agreement'' for or in relation to such export
and in the context the expression ''the agreement'' would refer to that agreement which is implicit in the sale occasioning the export. Between the
two sales (the penultimate and the final) spoken of in the earlier part of the sub-section ordinarily it is the final sale that would be connected with the
export, and, therefore, the expression ''the agreement'' for export must refer to that agreement which is implicit in the sale that occasions the export.
The user of the definite article ''the'', therefore, clearly suggests that the agreement spoken of must be the agreement with a foreign buyer. As a
matter of pure construction it appears to us clear, therefore, that by necessary implication the expression ''the agreement'' occurring in the relevant
phrase means or refers to the agreement with a foreign buyer and not an agreement or any agreement with a local party containing the covenant to
export.
From the above said decision of the apex Court it is clear that if the appellant is able to establish that he purchased the property on the basis of the
agreement or order, under which the goods are to be exported in compliance with such agreement or order, he is entitled to the benefits given u/s
5(3) of the said Act, and he need not pay the sales tax.
The main objection that has been raised by the learned Special Government Pleader is that at the time of conclusion of sale, the appellant has
not produced any document to show that the purchase was in the course of export. It is relevant to mention here that there is no such condition
contemplated under the sale notice. Merely because the appellant had not produced certain documents at the time of completion of sale, it does
not change the character of sale, if really such a sale was in the course of export.
Then the question now is whether the sale was in the course of export or not. Now, the appellant has come forward with the plea that the
purchase of sandalwood by them in the auction is only pursuant to the agreement with the foreign buyer. So, the objection raised by the learned
Special Government Pleader for the respondent that the appellant has not produced any document at the time of conclusion of the sale and so they
cannot claim any benefit u/s 5(3) of the said Act in view of the condition No. 27 of the sale notice cannot be countenanced. In view of the above
conclusion, there is no need for us to deal with the clarifications issued by the authorities of the Sales Tax Department, though the learned Senior
Counsel heavily relied on the same.
The next objection raised by the learned Special Government Pleader is that as per the sale notice, the appellant has to pay the sales tax ;
otherwise he is not entitled to take delivery of goods, and other consequences would follow. This submission has been made on the basis that the
appellant has accepted the terms and conditions and participated in the auction, and purchased the sandalwood. It is not in dispute that if the
appellant satisfies the condition specified u/s 5(3) of the said Act, he is entitled for the benefit given under the said provision. The contract cannot
stand in the way of the appellant in getting the statutory benefit. No contract tends to circumvent the benefit given under the law. This view of ours
is supported by the decision of the division Bench of the Allahabad High Court in U.P. State Electricity Board Vs. Smt. Lakshmi Devi Sehgal and
Another, , wherein it has been held as follows :
No contract would be enforced which would be contrary to the general policy of the law. The consumer may have agreed to abide by the
conditions subsequently altered or modified by the agreement, nevertheless, what is injurious to and against the public policy, must be forbidden.
Contractual freedom must be fostered but no contract, that tends to circumvent the law creating the corporation, would be countenanced in law.
Judged in that manner, the newly added condition No. 23(a) which the Board seeks to invoke to its aid, is unlawful in the sense that the law will
not enforce it.
It has also been held that it is well-known that no contract would be enforced which is contrary to the general policy of the law or is detrimental to
the interest of the public. In view of the above, merely on the basis of condition No. 27 of the sale notice, the respondents cannot come forward
with the plea even if the appellant is able to establish that he is entitled to the benefits u/s 5(3) of the said Act, the appellant has to comply with the
said condition No. 27 of the sale notice strictly.
Even with respect to the submission of the learned Special Government Pleader regarding the production of the documents to establish the
case of the appellant at the time of sale, as rightly pointed out by the learned Senior Counsel appearing for the appellant, there is no such condition
contemplated in the sale notice. Moreover, similar contention has been rejected by the apex Court in the decision in Consolidated Coffee Ltd. and
Another Vs. Coffee Board, Bangalore, . The learned Government Advocate appearing for the respondents tried to distinguish the said ""decision
saying that the sale of coffee in that case was only for export and so it was being called as ""export auction"". The participants have to register their
name before participation and establish that they are exporters. Only under the said circumstances according to him, the apex Court has held that
the question of insisting upon production of an agreement or an order from the foreign buyer will not arise and so such a condition was set aside.
Such submission of the learned Government Advocate cannot be accepted. The registration is only to show that they are exporters. The apex
Court taking into consideration of the auction condition has held that it is not necessary to produce an agreement or order as contemplated in the
circular even at the time of participating in the auction, and they have to produce the same only at the time of transfer of property in the goods sold
to the buyer. As per the sale notice, the sale is completed only on confirmation. At this stage as per the decision of the apex Court, the authorities
ought to have called for the documents so as to satisfy themselves regarding the claim of the appellant, u/s 5(3) of the said Act.
Here, it is relevant to mention that this problem arises every year and so the respondents should have taken appropriate steps to solve it by
incorporating certain clauses in the sale notice. The Forest Department can also approach the Sales Tax Department to have a concrete guideline
to find out whether the purchasers of sandalwood are entitled to any benefit u/s 5(3) of the said Act. In the sale notice which is the subject-matter
of these writ appeals, no such condition has been contemplated. In the absence of such condition, the appellant cannot be blamed for not
producing the documents at the time of confirmation, when the property in the sandalwood passed on to the appellant. Only on demand of sales
tax the appellant has started to claim the benefits u/s 5(3) of the said Act.
Though the respondents have taken a stand that the sandalwood is a banned item to be exported and so the case of the appellants cannot be
accepted, the same cannot be accepted in view of the notification issued by the Government of India dated June 25, 1999. According to the said
notification, sandalwood in any form can be exported, but it should be with an approval/the export licence from the Directorate General of Foreign
Trade. So it cannot be said that the goods purchased by the appellant cannot be exported at all.
Though an attempt was made to the effect that the goods purchased by the appellant are different from the goods they seek to export, the
same was not persuaded by the learned Counsel for the respondents. The different varieties of sandalwood purchased by the appellant have been
reduced to small pieces for the purpose of export. Even though certain decisions have been cited by the learned Senior Counsel appearing for the
appellant to establish that the sandalwood pieces cannot be construed as different commodities, since no serious argument was raised by the
respondents on this issue, we accept the case of the appellant on this aspect. The learned Senior Counsel also has produced the sandalwood in the
form in which they are going to export the same, which would clearly establish that the character of the goods purchased by the appellant in the
auction have not at all been changed, and so it cannot be said that they are different commodities.
In these cases, admittedly, the appellant have paid 50 per cent of the sales tax and produced bank guarantee for the balance 50 per cent. The
learned Senior Counsel for the appellant has submitted that with respect to 33 M.Ts. of sandalwood, the department have released the same and
export licence was obtained on March 16, 2000 to export the same. With respect to 20 M.Ts. of sandalwood which is the subject-matter in W.A.
Nos. 94 and 95 of 2000, the department have refused to release the same for nonpayment of demurrage and penalty charges. The appellant has
paid 50 per cent of the sales tax and bank guarantee for the balance 50 per cent.
So, the learned single Judge is not correct in holding that the condition in the sale notice would prevail, and the appellant has to approach the
forest department later for refund after paying the sales tax as determined even if the appellant is able to establish that they are entitled to the
benefits u/s 5(3) of the said Act. The appellant has nothing to do with the assessment proceedings. They cannot raise any objection before the
Sales Tax Department. If at all, the Forest Department alone can raise any objection before the sales tax department. Even if the appellant is able
to establish that he is entitled to the benefits u/s 5(3) of the said Act, the appellant will not get the said benefits, if the forest department fails to
prosecute the same by making effective objections regarding the same. So the reasonings given by the learned single Judge cannot be sustained
and the order is set aside.
It is relevant to mention here that the Forest Department is not making any serious step to solve the issue by providing proper guidelines though
they are experiencing such difficulty year after year especially when the purchasers of sandalwood are claiming that they are purchasing the same in
the course of export.
Taking into consideration of the same, and also the facts of these cases, we issue the following directions to the respondents and the appellant :
The appellant should keep alive the bank guarantee for another 6 months from today;
The respondents are directed to release the goods if they are not yet released, without claiming any demurrage or penalty as the appellant is not
responsible for the delay and they are agitating their rights in regards to the payment of sales tax;
The appellant is directed to establish before the concerned authorities that they are entitled to the benefits u/s 5(3) of the said Act with respect to
the sandalwood purchased in the auction held on February 25, 1999;
If the appellant is not able to establish within the period of five months as to their entitlement of benefits as stated in Clause (3) above,
respondents are directed to enforce bank guarantee and realise the amount;
If the appellant is able to establish their case within the said period of five months regarding the benefits u/s 5(3) of the said Act, they are entitled
to get refund of the amount paid towards sales tax and also the respondents have to return the bank guarantee given by the appellant ; and
In any event, a period of five months time given in this judgment will not be extended further.
With the above observations and conditions these writ appeals are allowed accordingly. No costs. Consequently, C.M.P. Nos. 869, 870 and
1036 of 2000 are closed.