Introduction The sales or purchases taking place in the course of import/export are immune from sales tax as per Article 286 of the Constitution of India. Therefore, such transactions are exempt from sales tax (VAT). The transactions of export sales and sale in the course of export are defined in section 5(1) & 5(3) of the Central Sales Tax Act,1956 (CST) as under;
Section 5. When is a sale or purchase of goods said to take place in the course of import or export. –
(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India, only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(3) Notwithstanding anything contained in s/s.(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.
Controversy
A controversy that had arisen and still remains, is as to whether the export sale is to be first considered as effected within the State in which the goods for export are ascertained and then categorised as ‘export sale’? If the sales are first considered as sales within the State from which export is made then they will form part of the turnover in the said State and then deduction will be given towards export sale. This will have a number of implications as per provisions of the Local Act. On the other hand, if it is considered that they are outside the purview of the Local Act then they will not form part of the turnover in that State and will remain outside the turnover. This may also have its own repercussions as per provisions of the Local Act.
Issue before the Hon’ble Bombay High Court
A controversy arose before the Hon’ble Bombay High Court in respect of interpretation of Rule 42H of the Bombay Sales Tax Rules (BST). The Hon’ble Bombay High Court has reproduced the rule, the relevant portion of which is reproduced below:
“R. 42H. Drawback, setoff etc. of tax paid on goods purchased by a dealer liable for levy of value added of sales tax on goods specified in Schedule C.
(1) While assessing the amount of tax payable by a Registered dealer (hereinafter, in this rule, referred to as “the claimant dealer”) in respect of any period starting on or after the 1st October 1995 on his sales of goods (being goods in respect of which the deduction from turnover of sales has not been allowed under sub-section (1) of section 8 because of the provision contained in s/s. (3) or, as the case may be, in sub-section (3A) of section 12A, the Commissioner shall, subject to the provisions of sub Rule (2), grant him drawback, setoff or, as the case may be, a refund of aggregate of the sums determined in accordance with the provisions of Rule 44D in respect of purchase of such goods including the goods used for packing of such goods.
Provided that, drawback, set off or, as the case may be, refund under this rule shall not exceed the tax payable on the sale of such goods, not being sales against any declaration or certificate prescribed under the Act, Rules or as the case may be, any entry of Schedule to the notification issued u/s. 41:
Provided further that, if the dealer effects any sales by way of a delivery of goods as hire purchase of any system of payment by instalments, then the amount of drawback, setoff, or as the case may be, refund under this rule shall be in proportion to the purchase price of that instalment.”
The appellant dealer has sold goods against form 14B, so as to claim exemption u/s. 5(3) of the CST Act,1956 r/w Rule 21A of the BST Rules.
The department interpreted that since the sales covered by section 5(3) cannot be said to be disallowed because of section 12A of the BST Act,1959, the set off is not admissible on the purchases relating to such sales under rule 42H. On the other hand, the dealer was canvassing that first it is a local sale covered by BST Act, 1959 and since resale is not admissible, he has sold the goods against form 14B and hence, set off is admissible.
After noting the controversy, as above, the Hon’ble High Court observed as under in relation to nature of sales effected u/s. 5(3) of the CST Act:
“13) A bare perusal of this Rule would indicate that a dealer may make a claim that he is not liable to pay tax under the BST in respect of his sale of goods on the ground that the sale of such goods is a sale in the course of export of the goods out of the territory of India within the meaning of sub-section (3) of section 5 of the CST. He can therefore produce a certificate in the Form referred by us above along with evidence of export of such goods and claim exemption in respect of the liability to pay the Sales Tax. Pertinently, this form has to be filled in and signed by the exporter to whom the goods are sold. Section 5 of the CST contains s/s. (3). Section 5 has been inserted in the CST so as to determine as to when a sale or purchase of goods can be said to be taking place in the course of import or export. Sub-Section (3) was inserted therein with retrospective effect from 1st April, 1976, which reads as under:
“(3) Notwithstanding anything contained in s/s. (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.” 14) A bare perusal thereof would indicate that the same has been inserted so as to take out of the purview of the provision namely, section 5, 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. That is also deemed to be in the course of such export, provided such last sale or purchase took place after and was for the purpose of complying with an agreement or order for or in relation to such export. Ordinarily this would not have been within the purview of sub-section (1) of section 5. Therefore, notwithstanding anything contained in sub-section (1) of section 5, such sale or purchase is also deemed to be in the course of the export. This aspect becomes clear if one peruses section 75 of the BST, which specifically excludes, from the purview of the BST, certain sales and purchases. This section reads as under:
Section 75 Certain sales and purchases not to be liable to tax.
Nothing in this Act or the rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, where such sale or purchase takes place (a) (i) outside the State; or (ii) in the course of the import of the goods into the territory of India, or the export of the goods out of such territory; or (b) in the course of interstate trade or commerce, and the provisions of this Act and the said rules shall be read and construed accordingly.
Explanation. For the purpose of this section whether a sale or purchase takes place
(i) outside the State, or
(ii) in the course of the import of the goods into the territory of India or export of the goods out of such territory, or
(iii) in the course of interstate trade or commerce, shall be determined in accordance with the principles specified in section 3, 4 and 5 of the Central Sales Tax Act, 1956.”
15) Therefore, the sales and purchases which are not liable to tax under the BST by virtue of section 75 have been rightly excluded or taken out of the purview of Rule 42H and that is the only interpretation which can be placed on the said Rule. If one peruses section 5 and particularly s/s. (1) and s/s. (3) of the CST together with section 75 of the BST, Rule 21A of the Bombay Sales Tax Rules, Form N14B harmoniously and together, it would be apparent that what is not within the purview of the BST can never be brought in for the purposes of claiming a deduction or setoff under Rule 42H. If that is the intent of legislature and it has been given effect to by the Tribunal in the impugned order, then we do not find that its conclusion is vitiated.”
Conclusion
From the above observations, an inference arises that the sales covered u/s. 5(3) of the CST Act cannot be considered as within the purview of Local Act. The implication is that it cannot be clubbed into turnover under Local Act at all. However, there are earlier judgments like M/s. Onkarlal Nandlal vs.State of Rajasthan (60 STC 314)(SC) and also N. D. Georgopoulos vs. State of Maharashtra (37 STC 187)(bom), wherein it was held that the situs of export sale is in the State, from where the sale is effected i.e., from where the export is made. In other words, it is first considered to be within purview of the Local Act and then the deduction.
The above judgment of the Bombay High Court creates a different scenario. This will certainly be a pointer for debate and a further judgment may have to be awaited to get the clarity.
