(Prayer: Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ or order of direction or any other Writ in the nature Writ of Certiorari, calling for the records on the files of the respondent herein in his CST No.732097/2004-05 & TNGST No.6221830/2004-05 dated 24.12.2009 and quash the same.)
1. Two orders of assessments are impugned before me, one framed in terms of the provisions of the Tamil Nadu General Sales Tax Act, 1959 (in short ' TNGST Act') and second in terms of the Central Sales Tax Act, 1956 (in short 'CST Act') for the period 2004-05.
2. The petitioner is a dealer in chemicals and had supplied a chemical by the name (Carnal) Tri-Polyphosphate (in short 'chemical'), against Form H declarations to exporters. The exporters were engaged in the export of shirmp ('seafood') that had been treated by dipping the same in the chemical supplied by the petitioner. Complete documentation in regard to the export transactions including bills of lading have been placed on record by the petitioner at the time of assessment. Admittedly, supplies of the chemicals raw ice and Carnal/Tri-Polyphosphate had been effected by the petitioner to exporters of seafood to various destinations all over the world. The seafood had been treated by dipping in the chemical, the purpose of dipping being the preservation of the seafood to ensure that there is no deterioration thereof during the process of export.
3. On the aforesaid admitted facts, the petitioner claimed an exemption in terms of Section 5(3) of the CST Act on the ground that the transactions of supply of chemicals would constitute sale 'in the course of export', the turnover from which was not liable to tax.
4. Initially proceedings under the TNGST and CST Acts had been completed by orders of assessment both dated 19.10.2006, inter alia, noting specifically the claim of exemption against Form H, both for domestic as well as central sales tax. Notices were thereafter issued by the respondent seeking to revise the grant of exemption on the ground that the chemicals supplied had not themselves been exported and what had been exported was only the seafood. Thus, according to the Assessing Officer, there was a lack of identity between the commodity supplied by the petitioner and that exported, as a result that the sale was not 'in the course of export'. The claim for exemption in terms of Section 5(3) was, according to the officer, liable to be rejected. Despite objections from the petitioner, the pre-assessment proposals were confirmed and the impugned orders passed.
5. Before me Mr.N.Inbarajan, learned counsel appearing for the petitioner points out that the chemicals supplied by the petitioner were in the nature of a chemical dip, controlled by strict percentage of ingredients, time of soaking, stirring methodology and other parameters to ensure a specific concoction into which the seafood would be dipped. The treatment of the seafood and the composition of the dip is recorded in the order of assessment as follows:
“D. CHEMICAL DIP:-the product shall be treated as follows:
(i) Mix, by weight, a solution of 2% Carnal 659s, 2% salt in 96% chilled water in DEPB declaration:-(Annexure-III)
“1. That the quality and specification of the goods as stated in the Shipping Bills are in accordance with the terms of the exports contracts entered into with the buyer/consignee pursuance of which the goods are being exported”.
b) Order dated 9/6/2004 issued by Tvl.Peswcanova Foods (India) P.Ltd.
“Product: Black Tiger Peeled and deveined shrimps block frozen (only dark and blusih color shrimps treated with CARNAL and salt.”
c) Order dated 13/06/2005
“(A) Product to be shipped only on approval of quality after inspection”.
(TREATMENT 2 TO 3 % CARNAL & 2% SALT)
d) Order dated 31/8/2005 issued by Tvl.C.E.P.International Inc., Canada
“Product: EZ Peel Black Tiger Headless Shell On Shrimps
Treated with CARNAL & salt”.
6. The buyer specifically required treatment of the seafood in the specified customised chemical dip supplied by the petitioner to the exporter.
7. Neither the orders of assessment nor Mr. V. Haribabu, learned AGP would dispute the position that the purpose of dipping is to ensure preservation and maintenance of the quality of the seafood till it arrived for consumption in the destination country.
8. Learned counsel for the petitioner relies on the following judgments of the Supreme Court: (i) Vijayalaxmi Cashew Company v. Deputy Commercial Tax Officer [(1996) 100 STC 571]; (ii) Satnam Overseas (Export) v. State of Haryana [(2003) 130 STC 107].
9. The Supreme Court, in the case of State of Karnataka Vs. Azad Coach Builders Pvt. Ltd. and Another [(2010) 36 VST 1] had occasion to decide whether supply of bus bodies by the assessee in that case to an exporter, who had ultimately exported buses that were finished in all respects, would be entitled to a claim under Section 5(3) of the CST Act. The Bench considered the earlier judgments rendered by the Supreme Court in Vijaylaxmi Cashew Company (supra) and Santham Overseas (Export) (supra) and after a detailed examination of the matter, set out the test and principles that would emerge upon analysing the Statement of Objects and Reasons for Amending Act 103 of 1976, that introduced Section 5(3) of the Act, as follows:
When we analyze all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on Section 5(3) of the CST Act, the following principles emerge:
- To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export;
- There must be obligation to export, and there must be an actual export.
- The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export.
- To occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India.
10. The Statement of Objects and Reasons that has been noted by the Supreme Court is extracted hereunder:
Before examining the rival contentions of the parties, it would be appropriate to refer to the Statement of Objects and Reasons of the Amending Act 103 of 1976 by which Section 5(3) of the CST Act was added. The relevant portion of the Statement of Objects and Reasons reads as under:
".....According to the Export Control Orders, exports of certain goods can be made only by specified agencies such as the State Trading Corporations. In other cases also, manufacturers of goods, particularly in the small scale and medium sectors, have to depend upon some experienced export house for exporting the goods because special expertise is needed for carrying on export trade. A sale of goods made to an export canalizing agency such as the State Trading Corporation or to an export house to enable such agency or export house to export those goods in compliance with an existing contract or order is inextricably connected with the export of the goods. Further, if such sales do not qualify as sales in the course of export, they would be liable to States sales tax and there would be a corresponding increase in the price of the goods. This would make our exports uncompetitive in the fiercely competitive international markets. It is, therefore, proposed to amend, with effect from the beginning of the current financial year, Section 5 of the Central Sales Tax Act to provide that the last sale or purchase of any goods preceding the sale or purchase occasioning 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."
11. The provisions of Section 5(3) of the CST Act are relevant for our understanding of the matter and read as follows:
5.When is a sale or purchase of goods said to take place in the course of import or export.-
(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.
12. In conclusion the Bench holds as follows:
It all depends on the question as to whether the sale or purchase is inextricably connected with the export of goods and not a remote connection as tried to be projected by the counsel. The connection between the penultimate sale and the export of goods should not be casual, accidental or fortuitous, but real, intimate and inter linked, which depends upon the nature of the agreement the exporter has with the foreign buyer and the local manufacturer, the integrated nature of the transactions and the
Please Login To View The Full Judgment!
nexus between the penultimate sale and the export sale. 13. In the present case, the chemical dip, which has been supplied by the petitioner to the exporter, forms a critical and vital link in the chain of export seeing as the commodity actually exported, seafood, could not have been exported without chemical dipping. In fact, the invoice of the exporter stipulates that the seafood shall be dipped in the specific chemical mix that has been supplied by the petitioner. Even if that were not so, seafood, being perishable would have to be preserved till such time it is received at its destination. In such a case, all materials utilised/consumed to aid the proper delivery of the seafood at its destination would be necessary for the purpose of export. The use of the phrase occasioning the export in 5(3) refers to all processes that are critical and vital for the process of export itself and the process of dipping as in the present case, is one such process. 14. The impugned orders are set aside and the writ petitions allowed. No costs.