K. GOPINATHAN NAIR ETC. v. STATE OF KERALA

p. 266 Copy page pinpoint

A that a bulk order is placed by the canalising agency with the foreign supplier does not snap the link between the transaction of sale by the Cashew Corporation of India to the assessees and the import of cashewnuts by the Cashew Corporation of India. It is the local sale which has given rise to the import. It will qualify as a sale in the course of import. B The respondent-State has placed strong reliance on the case of Md. Serajuddin (supra). It was contended that in the light of the observations made there, unless there is only one sale-the sale which results in import the sale cannot be considered as causing the import. The real test, in my C view, is of inseverable linkage. This is how observations regarding the need for one sale in the earlier Coffee Board's case (supra) have been explained by this Court in the cases of Indian Explosives and Kotak & Co. (supra). In the case of Consolidated Coffee Ltd. & Anr. Etc. v Coffee Board, Bangalore etc. etc., [1980] 3 SCR 625 also, this Court has observed that D Section 5 (1) was construed by this Court in the context of two sales rather very strictly in the two cases, namely, the Coffee Board and Md. Serajuddin cases (supra). Referring to the Statement of Objects and Reasons in respect of the amending Act which brought about the introduction of sub-section (3) in Section 5, this Court observed that from the Statement of Objects and Reasons, it is clear that Md. Serajuddin's decision (supra) E is specifically referred to as having necessitated the amendment. Secondly, from the Statement of Objects and Reasons, it is clear that penultimate sales made by small and medium scale manufactures to an export canalising agency or private export house to enable the latter to export those goods in compliance with existing contracts or orders, are regarded as inextricably connected with the export of the goods and hence earmarked for conferral of the benefit of exemption.

The assessees contend that in any event, the test of one sale laid down in the cases of Coffee Board and Md. Serajuddin (supra) should be confined only to export sales and should not be applied to imports. They further contend that even in the area of export the test has now been ruled out by reason of a subsequent amendment made to Section 5 of the Central Sales Tax Act as a result of which sub-section (3) has been introduced in Section 5. Hence such a test should not now be applied to imports for the first time.

K. GOPINATHAN NAIR v. STATE [SUJATA V. MANO HAR, J.] 2fj7

In view of similarity of language in Sections 5(1) and 5(2), no such distinction is possible between imports and exports. Similar texts will have to be applied to both the sub-sections. There is no express amendment as far as imports are concerned which can assist the processors in the present case. It may be that such an amendment was not necessary in the case of imports because the difficulty with the penultimate sales had mainly arisen in the case of exports. However, whether it is exports or imports or inter-State sales, what needs to be emphasised is the basic requirement prescribed under Sections 3 and 5, namely, that the transaction in question ·must occasion either the export or the import or the movement of goods from one State to another. This clearly postulates an inseverable link between the transaction of sale in question and the import or export or movement of goods from one State to another, as the case may be. The one-sale test referred to in some cases dealing with exports is only an aspects of this basis test. We are concerned with a sale which occasions an import. Therefore, we have to see whether there is such an inextricable and direct link between local sales which are before us and the import of cashewnuts from African countries into India by the Cashew Corporation of India. The facts already set out show that there is such an inseverable link as the import made by the Cashew Corporation of India is a necessary consequence of the specific requirements submitted by the processors and is a result to the obligations which it has undertaken under its arrangement with the local processors which has crystalised later in the form of the contract of sale. The sales in question are, therefore, in the course of import.

It was also argued by Mr. Pot~ learned counsel appearing for the assessees, that in the present case, the sale by the Cashew Corporation of F India to the assessee took place before the goods crossed the customs frontiers of India. Hence it is a sale in the course of import. He placed reliance upon Section 2(ab) of the Central Sales Tax Act, 1956, which defines "cross_ing the customs frontier of India" as crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities. He submitted that G since the goods were sold by the Cashew Corporation of India to the assessees before the goods were cleared by the customs authorities they must be considered as having been sold in the course of import because they were sold before the goods crossed the customs frontiers of India. This definition, however, of crossing the customs frontiers of India has been H

p. 268 Copy page pinpoint

A introduced only by Act 103 of 1976 long after the imports in question took place. It would have no application to the present case. The contention of Mr. Poti that this definition must be applied even to goods imported prior to 1976 because it is only,clarificatory in nature, cannot be accepted. Prior to the introductions of this definition in the Central Sales Tax Act of 1956, B crossing the customs frontiers of India was understood as crossing the limit of territorial waters of India. The definition, therefore, cannot be con- sidered as merely clarificatory. Since it came to be introduced in the Central Sales Tax Act after the imports in question, it cannot be resorted to for the purposes of the present case.

C It was next submitted by Mr. Poti that the sale in the present case was effected by a transfer of documents of title to the goods before the goods crossed the customs frontiers of India even in the sense of crossing the territorial waters of India. Hence it was a sale in the course of import. He relied upon the second part of Section 5(2) of the Central Sales Tax Act for this purpose. The Tribunal, however, has found as a fact that there is no clear evidence as to when the sale by transfer of documents took place. In the absence of any factual basis, therefore, this submission also cannot be accepted .

. However, since there is a direct and inseverable link between the transaction of sale and the import of goods on account of the nature of the understanding between the parties as also by reason of the canalising scheme pertaining to the import of cashewnuts, the sales in question cannot be taxed under the Kerala General Sales Tax Act or the Karnataka General Sales Tax Act, as the case may be. The appeals are accordingly allowed. There will, however, be no order as to costs. F After submitting this judgment, I have had the benefit of reading the judgment of my learned brother S.B. Majumdar J. I have the highest regard for his views. I am, however, unable to agree with him for reasons which, I hope, are clear from what I have already said.

G S.M. C.A. Nos. 4955-77/96 dismissed. C.A. Nos. 1167- 71192, 1546193 and 3647-52/86 allowed.