The State of Tamil Nadu vs William Jacks and Company (India) Private Limited

Since both the tax revision cases relate to the same assessee but for different assessment years and they arise out of a common judgment

rendered by the Sales Tax Appellate Tribunal, they are dealt with together.

The assessee, M/s. William Jacks & Company (India) Private Limited, reported total and taxable turnovers of Rs. 69,74,726 and Rs.

40,16,719 respectively for the assessment year 1973-74. However on a check of the accounts, the assessing authority disallowed exemptions

among other things a turnover of Rs. 3,86,051.08 which the assessee claimed to relate to sales in the course of import. In the assessment year

1974-75, the assessee reported a total turnover of Rs. 58,60,364.09 and taxable turnover of Rs. 27,50,259.22. The assessing authority on a

check of the accounts, disallowed the exemption, among other things, a turnover of Rs. 14,877.66 which according to the assessee represented

the sales in the course of import.

Aggrieved by the order of disallowance of the exemption claimed by the assessee, it took the matter in appeal to the Appellate Assistant

Commissioner who confirmed the assessment in respect of the turnovers in both the years said to relate to the sales in the course of import. The

assessee took the matter in further appeal to the Sales Tax Appellate Tribunal and the Tribunal has held that the sales involving a turnover of Rs.

3,86,051.08 in 1973-74 and Rs. 12,684.85 in 1974-75 were sales in the course of import and consequently not liable to be taxed under the Tamil

Nadu General Sales Tax Act, 1959. Aggrieved by the said decision of the Tribunal, the Revenue has come up before us by way of these tax

revision cases. Thus the only question for consideration is whether the disputed turnover of Rs. 3,86,051.08 in 1973-74 and Rs. 13,684.85 in

1974-75 are sales in the course of import as contended by the assessee and as held by the Tribunal.

The assessee had entered into contracts with Heavy Vehicles Factory, Avadi, to supply goods. Heavy Vehicles Factory arranged for getting

import licence for transportation of the goods. The assessee placed orders with its principals in U.K. and mentioned to the principles that the

goods were intended for the Heavy Vehicles Factory, Avadi. The import licence issued to the assessee also contained a clause that the goods

imported should be supplied to the Heavy Vehicles Factory, Avadi, and any diversion for any other purpose should be only with the approval of

the licensing authority. The disputed turnover in 1973-74 consists of six consignments and 8 sale invoices. All the transactions are of the same type.

The Heavy Vehicles Factory initially sends tender enquiry for Fellow type super high speed steel gear shaper cutters. The assessee sends its

quotation in pursuance of the said enquiry. The Heavy Vehicles Factory accepts the tender and places the supply order. The supply order specifies

the name of the markers as Messrs. Tay Tools Export Co. Ltd., England. The place of delivery is stated as f.o.r. Madras. The time of delivery is

described as in about 10 to 12 weeks from the date of receipts of the order and the import recommendation certificate is also enclose. The

assessee obtained the import licence on the strength of the import recommendation certificate. In the said import licence specific mention has been

made that the licence has been issued against the order of Ministry of Defence, and one of the terms and conditions of the license is that the licence

is issued subject to the condition that the goods imported shall be utilised or disposed of in the manner as stipulated in the Ministry of Defence

order and the imported goods shall not be used or utilised in any other manner without the prior written authority of the licensing authority. The

assessee then placed an indent on M/s. Tay Tools Company Limited, Staffordshiro, England. The foreign principal manufactured the goods

according to the description given in the assessee''s intend and despatched the goods by air parcel. On receipt of the goods the assessee took

delivery and supplied them to the Heavy Vehicles Factory and raised the final invoice including the difference between the air-freight charges

actually incurred and the ocean freight charges provided in the agreed price. In the assessee''s intend placed with the foreign principals there is a

specific reference to the fact that the goods are covered by the order of the Heavy Vehicles Factory, Avadi, Madras, and that the Heavy Vehicles

Factory has received the foreign exchange sanction. The import licence issued included a condition that the goods should be sold only to the Heavy

Vehicles Factory, Avadi. It is on these facts (that) the assessee contends that the sales made by the assessee to the Heavy Vehicles Factory had

actually occasioned the import of the goods from England and therefore the sales fall within the scope of section 5(2) of the Central Sales Tax Act,

on the analogy of the decision of the Supreme Court in K.G. Khosla and Co. Vs. Deputy Commissioner of Commercial Taxes, and that such sales

cannot be treated as local sales within the State of Tamil Nadu. On the same facts the learned Government Pleader contends that there is no privity

of contract between the Heavy Vehicles Factory and the foreign manufacturers but the contract of sale is only between the Heavy Vehicles

Factory and the assessee and therefore, the sale by the assessee cannot be a sale in the course of import and the transaction in this case is similar

to those dealt with in the decision of the Supreme Court in Binani Bros. (P) Ltd. Vs. Union of India (UOI) and Others, according to which the sale

by a foreign seller occasions the import of goods and the subsequent sale by the assessee was only a local sale attracting liability to tax under the

Tamil Nadu General Sales Tax Act.

After a due consideration of the matter, we are inclined to agree with the Tribunal that the facts of this case fall within the ruling of the Supreme

Court in K.G. Khosla and Co. Vs. Deputy Commissioner of Commercial Taxes, and the decision in Binani Bros. (P) Ltd. Vs. Union of India

(UOI) and Others, cannot be applied. Admittedly in this case the assessee has acted as agent of the foreign principal and therefore the sale by the

assessee to Heavy Vehicles Factory, Avadi, should be taken to be a sale by the foreign seller to the Heavy Vehicles Factory, Avadi, through the

agency of the assessee and therefore, it is that sale which occasioned the movement of the goods. The sale therefore comes within the scope of

section 5(2) of the Central Sales Tax Act. In K.G. Khosla and Co. Vs. Deputy Commissioner of Commercial Taxes, the relevant facts were these

: The assessee entered into a contract with the Director-General of Supplies and Disposals, New Delhi, for the supply of axle-box bodies. The

goods were to be manufactured in Belgium according to the specifications. In order to fulfil the contract, the assessee entered into a contract with

the manufacturer in Belgium. The goods were got manufactured and imported into India and cleared at the Madras Harbour and supplied to

certain parties on the instructions of the Director-General of Supplies and Disposals. There was no privity of contract between the Belgium

manufacturer and the Government departments who ultimately received the supplies. On these facts the Supreme Court held that the movement of

the goods from Belgium into India was incidental to the contract entered into by the assessee with the Director-General of Supplies and Disposals,

that thee was no possibility of the goods being diverted by the assessee for any other purpose and that, therefore, the sale took place in the course

of import of the goods within section 5(2) of the Central Sales Tax Act and exempt from taxation. The basis for the decision of the Supreme Court

is that the assessee in that case was an agent of the foreign seller and therefore the assessee''s sale to the Director-General of Supplies and

Disposals should be taken to be a sale entered with the assessee on behalf of the foreign seller. The said decision of the Supreme Court squarely

applies to the facts of this case where the assessee has acted as the agent of the foreign seller. In The Deputy Commissioner of Agricultural Income

Tax and Sales Tax Central Zone, Ernakulam Vs. Kotak and Co., Bombay, etc. etc., the Supreme Court while dealing with a case of import held

that Kotak and Co. has acted as (the) agent of the local purchaser in importing and supplying the goods and therefore, the sale entered into by

such an agent with the foreign seller should be taken to be a sale between the foreign seller and the local buyer.

The learned Government Pleader would, however submit that the decision of the Supreme Court in K.G. Khosla and Co. Vs. Deputy

Commissioner of Commercial Taxes, cannot any longer hold the field after the decision of the Supreme Court in Serajuddin and Others Vs. The

State of Orissa, and that even otherwise, the facts in Khosla''s case [1966] 17 STC 437 are distinguishable on the ground that there was only one

sale and that sale was the sale by Khosla & Co., as agent of the manufacturers in Belgium while such is not the case here. It is not possible to

agree with the said contention of the learned Government Pleader that the decision in K.G. Khosla and Co. Vs. Deputy Commissioner of

Commercial Taxes, cannot hold the field any longer in view of the decision in Serajuddin and Others Vs. The State of Orissa, . In Serajuddin and

Others Vs. The State of Orissa, it was held that there should be a privity of contract between the exporter and the foreign purchaser in order to

make it an export sale. The assessee in that case pleader that the supplies made by him under a contract entered into with the State Trading

Corporation for the sale of mineral ore was an export sale. The Supreme Court held on those facts that there were two sales, one by the assessee

with the State Trading Corporation and the other by the State Trading Corporation in its turn with the foreign buyer for the sale of the identical

goods purchased by the Corporation from the assessee and it is only the latter sale that occasioned the movement of the goods. We do not see

how the decision in Serajuddin and Others Vs. The State of Orissa, can be taken to throw any doubt on the decision in K.G. Khosla and Co. Vs.

Deputy Commissioner of Commercial Taxes, . In K.G. Khosla and Co. Vs. Deputy Commissioner of Commercial Taxes, the Court after

consideration of the facts held that there was only one sale and that sale was by Khosla''s & Co., as agent of the manufacturer at Belgium to the

local purchaser. The decision in K.G. Khosla and Co. Vs. Deputy Commissioner of Commercial Taxes, does not run counter to Serajuddin and

Others Vs. The State of Orissa, . Therefore, wherever there are two sales transactions without there being any privity of contrary between the

foreign seller and the local buyer, it is only that sale by the foreign seller by himself or through his agent that will be taken to have occasioned the

import of the goods. In this case the assessee is found to be an agent of the foreign manufacturer, and therefore, there is only one sale and that sale

was the one by the assessee as agent of the foreign manufacturer. Thus following the principle laid down by the Supreme Court in K.G. Khosla

and Co. Vs. Deputy Commissioner of Commercial Taxes, we have to hold that the turnovers in dispute in these cases represent the sales in the

course of import and therefore, they are exempt u/s 5(2) of the Central Sales Tax Act.

In this view of the matter, the decision of the Tribunal does not call for any interference. The tax revision cases are, therefore, dismissed. The

Revenue will pay the costs of the assessee. Counsel''s fee Rs. 250 (one set).