Supreme Court of India
M/S VELLANKI FRAME WORKSversusTHE COMMERCIAL TAX OFFICER, VISAKHAPATNAM
- Citation
- 2021 INSC 20
- Decided
- 13 January 2021
- Disposal
- Dismissed
- Bench
- A M KHANWILKAR
Holding
Because the appellant filed the bill of entry and was recorded as the importer, the goods ceased to be in the import stream after clearance, making the subsequent sales inter‑State sales not covered by the exemption under Section 5(2) of the CST Act.
Summary
M/s Vellanki Frame Works imported timber and claimed exemption from Central Sales Tax under Section 5(2) of the CST Act, arguing that the goods were sold on the high seas to end‑buyers before crossing India’s customs frontiers, making the sale a "sale in the course of import". The Commercial Tax Officer and the High Court held that the appellant filed the bill of entry, was recorded as the importer in the Import General Manifest, and cleared the goods for home consumption, after which the goods entered the domestic stream and were sold to buyers in other states, constituting inter‑State sales under Section 3(a). The Supreme Court examined the definitions of "importer" and "sale in the course of import" under the Customs Act and the CST Act, affirmed that the appellant was the importer and that the subsequent sales were not covered by the exemption. It also ruled that the appellant could not revert to a statutory appeal after having invoked writ jurisdiction. Consequently, the appeals were dismissed and the appellant was held liable for CST.
Issues considered
- A sale of goods on high seas, effected by endorsement of a bill of lading before the goods cross the customs frontiers, qualifies as a "sale in the course of import" under Section 5(2) of the Central Sales Tax Act.
- The party whose name appears on the bill of entry and the Import General Manifest is the "importer" for customs and CST purposes, even if they claim to be merely an agent.
- Whether the appellant's sales to end‑buyers after clearing the goods for home consumption constitute inter‑State sales under Section 3(a) of the CST Act.
- Whether the appellant can be relegated to a statutory appeal after having pursued writ jurisdiction against the assessment orders.
- Whether the High Court erred in its interpretation of the Import General Manifest and the effect of the alleged high‑seas sale agreements.
Legislation cited
- Central Sales Tax Act, 1956s. 3, s. 5(2)
- Central Sales Tax (Registration and Turnover) Rules, 1957
- Customs Act, 1962s. 2(23), s. 2(25), s. 2(26), s. 30, s. 47
Subjects
central sales taxsale in the course of importhigh seas salecustoms actimporter definitioninter‑state salewrit jurisdictionexemption under Section 5(2)bill of entry
Judgment
[2021] 3 S.C.R. 903 903
M/S VELLANKI FRAME WORKS A
v.
THE COMMERCIAL TAX OFFICER, VISAKHAPATNAM
(Civil Appeal Nos. 1322-1323 of 2019)
JANUARY, 13 2021 B
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Central Sales Tax Act, 1956: s.5(2) – ‘sale in the course of
import’ – Essential features – The basic principles for determining
as to when a sale or purchase of goods takes place in the course of
C
import or export are contained in s.5 of the CST Act – Under sub-
section (2), a sale or purchase of goods shall be deemed to take
place in the course of the import of the goods into the territory of
India only if the sale or purchase either occasions such import or is
effected by a transfer of documents of title to the goods before the
goods have crossed the customs frontiers of India – The phrase D
‘sale in the course of import’ carries three essential features - (i)
that there must be a sale; (ii) that goods must actually be imported
into the territory of India; and (iii) that the sale must be part and
parcel of the import – A sale would become part and parcel of import
if it either occasions such import or if it occurs by way of a transfer
E
of document of title to the goods before the goods cross the customs
frontiers of India.
Customs Act, 1962: s.2(26) – Importer, who is – Sale on High
Seas – Appellant’s case was that there was a quadripartite agreement
whereby the supplier sold the goods in question to the first-buyer
F
and delivered them at the port of shipment – Thereafter, while the
goods were on high seas, first buyer transferred them to the appellant
by endorsing the bill of lading in favour of the appellant – Further
to this and while the goods were yet on high seas, appellant
allegedly transferred them to the end-buyer by endorsing the bill of
lading in favour of the end-buyer – Appellant also suggested that G
since the end-buyer did not have ‘the requisite infrastructure’ to
undertake importation of goods whereas the appellant had the
requisite infrastructure for importation, therefore, appellant was to
act as an agent of the end-buyer and to clear the goods from customs
authorities – Held: The inclusive definition of “importer” in s.2(26)
H
903
904 SUPREME COURT REPORTS [2021] 3 S.C.R.
A of the Customs Act cannot be used to usurp the identity of an importer
from the person who filed the bill of entry; and the person in whose
name the bill of entry is filed, does not cease to be an importer – In
this case, the name of the appellant was reflected as importer in the
Import General Manifest (IGM) of the vessel/s that brought the goods
in question to the port at Visakhapatnam – High Court observed
B
that if the alleged second high seas sale had taken place, the IGM
would have reflected the name of the last high seas sale purchaser
as the importer and if there was any bonafide omission, the IGM
would have necessitated amendment because only the last purchaser
of the goods on high seas could have been the importer/consignee
C – It is but apparent that that while bringing anything into India
from a place outside India is generally regarded as “import” but,
when the goods are cleared for home consumption, they are no
longer imported goods for the purpose of the Customs Act –
Significantly, in the process of importation, the importer, in relation
to any goods, includes any owner or any other person holding
D
himself to be the importer but, only between the time of their
importation and their clearance for home consumption – In other
words, the net result of the expanded definition of the expression
“importer” is that while any person who imports goods into India
would be an importer but, the owner of the goods or a person holding
E himself to be an importer would also be regarded as an importer
during the period between importation of goods and their clearance
for home consumption – This crucial period would generally be
that period when the goods have been warehoused after importation
and are cleared from warehouse by a person other than the person
who actually imported the goods – That being the position, High
F
Court rightly held that this definition of importer cannot be used to
usurp the identity of an importer from the person who filed the bill
of entry – In other words, the person in whose name the bill of entry
is filed does not cease to be an importer and, if that person claims
to be not the owner or importer, the onus would be heavy on him to
G establish that someone else is the owner or importer of goods –
Further, if the appellant was merely acting as an agent, then bill of
entry would have reflected the name of end-buyer as the importer
and the appellant as an agent of the importer; and further to that,
the said end-buyer would have been assessed for customs duty – It
was not so – Thus, when all official documents as also dealings of
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 905
OFFICER, VISAKHAPATNAM
the appellant clearly establish that the appellant had been the A
importer, the consequences are bound to follow – It gets perforce
reiterated that when the bills of entry recorded the name of the
appellant as importer and the appellant alone was assessed to
customs duty, the so called second high seas sale agreements never
came into operation – Central Sales Tax Act, 1956 – s.5(2).
B
Central Sales Tax Act, 1956: s.5(2) – Claim for exemption
under – Raising of debit notes by the appellant on the end-buyers –
Effect of – Inter State Sales – Appellant had admittedly raised debit
notes on the end-buyers but only after having cleared the goods by
filing the bill of entry for home consumption – Once the suggestion
about the second high seas sales is not accepted and it is found C
that the appellant had been the importer of goods and had cleared
them for home consumption, the natural consequence of raising of
such debit notes on the end-buyers situated in different States and
movement of goods to such end-buyers would be to take these
transactions in the category of inter-State sales in terms of s.3(a) of D
the CST Act – Appellant was not entitled to the exemption of s.5(2)
of the CST Act and rightly been held liable for tax over inter-State
sales – After the appellant got the goods released by filing bill of
entry for home consumption, indisputably, the goods were ultimately
received by various end-buyers in different States and appellant
raised debit notes from the State of Andhra Pradesh – These facts E
were sufficient to establish that the movement of goods inside the
country from one State to another had been on account of the sale
by appellant to the end-buyers; and such sales took place only
after the appellant obtained the goods from the bonded warehouse
for home consumption – High Court was right in observing that F
once the appellant got released the goods after filing the bill of
entry for home consumption, the import stream dried up and the
goods got mixed in the local goods – Any movement of the goods
thereafter was bound to be a sale under s.3(a) of the CST Act; and
such movement being from the State of Andhra Pradesh to other
State, it had been a matter of inter-State sale – The principle that G
actual sale may not necessarily precede the movement of goods, in
its true effect, operates rather against the appellant in relation to
the sale to end-buyers after the goods were cleared for home
consumption – The claimed exemption under s.5(2) of the CST Act
was rightly denied to the appellant and the High Court was justified H
906 SUPREME COURT REPORTS [2021] 3 S.C.R.
A in dismissing the writ petitions filed by the appellant – No case for
interference is made out.
Central Sales Tax Act, 1956: s.5(2) – Whether any case for
relegating the appellant to the remedy of appeal made out –
Appellant, despite being aware of the availability of remedy of
B statutory appeal, consciously chose to file writ petitions against the
assessment orders and consciously contested the entire matter in
the High Court – High Court, even after noticing the framework of
certiorari jurisdiction, examined the merits of the case thoroughly
and even examined the submission made for the first time in writ
petitions that the import of goods was occasioned by the sales in
C question – Of course, in that regard, the High Court pointed out
that it was not a pure question of law but in any case, such
submission was belied by the fact that the name of the appellant
was reflected in the bill of entry as the importer and not that of the
end-buyer – There is no error or fault in the approach of High
D Court in this case – After having consciously invoked the writ
jurisdiction of the High Court and having contested the matter on
merits, the appellant cannot now be allowed to re-open the matter
in appeal – The extraordinary writ jurisdiction cannot be utilised
by a litigant only to take chance and then to seek recourse to the
other remedy after failing in its attempt on the basic merits of the
E case before the High Court – A litigation cannot be allowed to be
unendingly kept alive at the choice of a litigant – Writ jurisdiction.
Dismissing the appeals, the Court
HELD: 1.1 In exercise of its powers under Clause (2) of
F Article 286, the Parliament has enacted the Central Sales Tax
Act, 1956. In Section 3, thereof, it is laid down that a sale or
purchase of goods shall be deemed to take place in the course of
inter-State trade or commerce if the sale or purchase-(a)
occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods
G during their movement from one State to another. [Para 20.2][943-
E-F]
1.2 The basic principles for determining as to when a sale
or purchase of goods takes place in the course of import or export
are contained in Section 5 of the CST Act. Under sub-section (2),
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M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 907
OFFICER, VISAKHAPATNAM
a sale or purchase of goods shall be deemed to take place in the A
course of the import of the goods into the territory of India only
if the sale or purchase either occasions such import or is effected
by a transfer of documents of title to the goods before the goods
have crossed the customs frontiers of India. [Para 20.3][944-D-
F]
B
Hotel Ashoka (Indian Tourist Development Corporation
Ltd.). v. Assistant Commissioner of Commercial Taxes
and Anr. (2012) 3 SCC 204 : [2012] 1 SCR 808 – held
inapplicable.
Tata Iron and Steel Co. Ltd., Bombay v. S.R. Sarkar C
and Ors. AIR 1961 SC 65 : [1961] 1 SCR 379; Minerals
& Metals Trading Corporation of India Ltd. v. Sales
Tax Officer and Ors. (1998) 7 SCC 19 : [1998] 2 Suppl.
SCR 112 – distinguished.
K. Gopinathan Nair and Ors. v. State of Kerala (1997) D
10 SCC 1 : [1997] 3 SCR 226 – relied on.
J.V. Gokal & Co. (Private) Ltd. v. Assistant Collector of
Sales-Tax (Inspection) and Ors. [1960] 2 SCR 852; State
of Maharashtra v. Embee Corporation, Bombay (1997)
7 SCC 190 : [1997] 3 Suppl. SCR 497 – referred to. E
2.1 The appellant has suggested existence of quadripartite
agreement whereby and whereunder, the supplier (party number
1) sold the goods in question to the first-buyer (party number 2)
and delivered them at the port of shipment. Thereafter, while the
goods were on high seas, party number 2 transferred them to the F
appellant (invariably party number 3 in these transactions), by
endorsing the bill of lading in favour of the appellant. Further to
this and while the goods were yet on high seas, the appellant
allegedly transferred them to the end-buyer (party number 4) by
endorsing the bill of lading in favour of the end-buyer. The appellant
has also suggested that though the goods were being purchased G
by the end-buyer and were to move only after inspection and
selection by the end-buyer but the methodology of such
quadripartite agreement was adopted because of the reasons that
the end-buyer was not having ‘the requisite infrastructure’ to
undertake importation of goods whereas the appellant was having
H
908 SUPREME COURT REPORTS [2021] 3 S.C.R.
A the requisite infrastructure for importation and the first-buyer
was having the credit facility with the seller. It has, therefore,
been suggested that there was always a privity of contract between
the seller and the end-buyer; and that the appellant was to act as
an agent of the end-buyer and to clear the goods from customs
authorities. The appellant has also suggested that in each of the
B
transactions, the process was carried out as envisaged in the
quadripartite agreement and in the manner that the first-buyer
endorsed the bill of lading in favour of the appellant when the
goods were on high seas; and while the goods continued to be on
high seas and had not crossed the customs frontiers of India, the
C appellant endorsed the bill of lading in favour of the end-buyer.
According to these suggestions, the appellant only acted as an
agent of the end-buyer while getting the goods cleared from the
customs port at Visakhapatnam. [Para 26][962-F-H; 963-A-D]
2.2 However, the suggestions by the appellant do not remain
D as innocuous and over-simplified as projected, for the reason that
in each of these transactions, when the goods in question reached
the port at Visakhapatnam, the appellant carried out the
proceedings envisaged by the Customs Act and filed a bill of entry
for warehousing and thereafter, filed another bill of entry for home
consumption (ex-bond); and on the basis of such bills of entry,
E the appellant was duly assessed for customs duty. Admittedly,
after the goods were cleared for home consumption, they moved
from the State of Andhra Pradesh to different States where the
respective end-buyers were situated; and the appellant raised
debit notes on the end-buyers.In these transactions, the goods
F in question, upon reaching the port of destination, were not
cleared by the end-buyers after paying the requisite customs
duties.[Para 26.1][963-D-G]
3. Filing of bill of entry for home consumption by the
appellant: Implication
G 3.1 The High Court has observed that the inclusive
definition of “importer” in Section 2(26) of the Customs Act cannot
be used to usurp the identity of an importer from the person who
filed the bill of entry; and the person in whose name the bill of
entry is filed, does not cease to be an importer. In this case, the
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 909
OFFICER, VISAKHAPATNAM
name of the appellant was reflected as importer in the Import A
General Manifest of the vessel/s that brought the goods in
question to the port at Visakhapatnam. The High Court has
meticulously examined the entire process relating to the arrival
of goods as cargo in a vessel; and filing of IGM as also the contents
of the bill of entry and has pointed out that the cargo declaration
B
form, an essential part of IGM, was required to carry, amongst
others, the particulars of bill of lading and the name of consignee/
importer. After finding that the name of the appellant was reflected
as importer in IGM, the High Court has observed that if the
alleged second high seas sale had taken place, the IGM would
have reflected the name of the last high seas sale purchaser as C
the importer and if there was any bonafide omission, the IGM
would have necessitated amendment because only the last
purchaser of the goods on high seas could have been the importer/
consignee. The High Court has also observed that there was no
material on record to show that either the IGM contained the
D
name of end-buyer as the importer/consignee or that the same
was subsequently amended in terms of Section 30(3) of the
Customs Act. These had been the pivotal reasons for which the
High Court rejected the suggestion of second high seas sales in
favour of the end-buyers and held that the only attempt of the
appellant had been to avoid inter-State sales under the CST Act. E
In the given facts, the High Court specifically recorded the
findings that the sale of goods by appellant to the end-buyers had
not been high seas sales; and such sales could have been effected
only after the appellant was assessed to customs duty and had
cleared the goods for home consumption. [Para 27.1][964-D-H;
F
965-A-C]
3.2 It is but apparent that that while bringing anything into
India from a place outside India is generally regarded as “import”
and the imported goods are those goods which are brought into
India from a place outside but, when the goods are cleared for
home consumption, they are no longer imported goods for the G
purpose of the Customs Act. Significantly, in the process of
importation, the importer, in relation to any goods, includes any
owner or any other person holding himself to be the importer
but, only between the time of their importation and their clearance
for home consumption. In other words, the net result of the H
910 SUPREME COURT REPORTS [2021] 3 S.C.R.
A expanded definition of the expression “importer” is that while
any person who imports goods into India would be an importer
but, the owner of the goods or a person holding himself to be an
importer would also be regarded as an importer during the period
between importation of goods and their clearance for home
consumption. This crucial period would generally be that period
B
when the goods have been warehoused after importation and are
cleared from warehouse by a person other than the person who
actually imported the goods. That being the position, the High
Court has rightly said that this definition of importer cannot be
used to usurp the identity of an importer from the person who
C filed the bill of entry. In other words, the person in whose name
the bill of entry is filed does not cease to be an importer and, if
that person claims to be not the owner or importer, the onus
would be heavy on him to establish that someone else is the owner
or importer of goods. [Para 30][967-B-C; 968-A-C]
D Union of India and Anr. v. Sampat Raj Dugar and Anr.
(1992) 2 SCC 66 : [1992] 1 SCR 269 – held
inapplicable.
3.3 The definition of “importer” in Section 2(26) of the
Customs Act, even if not directly decisive of the question of title,
E has its implications on the facts of the present case for the reason
that the appellant alone filed the bills of entry for warehousing as
also for home consumption. Yet further, the requirements of filing
import manifest, as per Section 30 of the Customs Act, have their
own bearing on the present case. It remains indisputable that
the name of the appellant was reflected as importer in IGM. If,
F as asserted by the appellant, the goods had been sold on the high
seas, the cargo declaration of IGM would have reflected the name
of last high seas purchaser as importer and in other event, the
IGM would have necessitated amendment because only the last
purchaser of the goods on high seas would have been declared
G as consignee/importer in IGM. The fact that the name of Radha
(and other end-buyers) was not mentioned in IGM as the
importer/consignee nor the relevant IGM was amended, the
suggestion about second high seas sale in favour of Radha (and
other end-buyers) turns out to be only a self-serving suggestion
of the appellant, which has no corroboration on the record; rather
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 911
OFFICER, VISAKHAPATNAM
the official records totally belie the suggestion of the appellant. A
[Para 32][973-D-G; 974-A]
3.4 The fact of the matter remains that even though the
appellant has suggested that the bills of lading were endorsed in
favour of Radha (and other end-buyers) when goods were on high
seas but this bald assertion is not corroborated by any of the B
official documents which form the part of the process of
importation, warehousing and clearance of goods. On the contrary,
the High Court has pointed out as illustration the details of one
of the bills of entry, which distinctively gave out all the particulars
of IGM, the invoice, the value of cargo, etc. and the High Court
has found that in the bill of entry, the name of appellant alone was C
shown as the importer who cleared the goods from customs with
the assistance of the Customs House Agent. In the given set of
facts, if the goods were at all sold to Radha (and other end-buyers)
on high seas, the name of such end-buyer would have appeared
as importer and not that of the appellant. The same considerations D
operate against the assertion that the appellant was only acting
as an agent of the end-buyers. The High Court has rightly pointed
out that the Customs House Agent is an entirely different person
who acts only to present papers for clearance of the imported
goods under a bill of entry. Of course, under Section 147 of the
Customs Act, a person could act on behalf of importer or owner E
but such a person cannot be treated as owner of the goods nor
could be made liable for customs duty. If the appellant was merely
acting as an agent, then bill of entry would have reflected the
name of end-buyer as the importer and the appellant as an agent
of the importer; and further to that, the said end-buyer would F
have been assessed for customs duty. It were not so. [Paras 32.1,
33][974-A-F]
3.5 Though the definition of importer includes owner or
any person holding out himself as the importer; and this definition
of importer is not really relevant to the question of title but, that G
does not mean that a person who holds out himself to be the
importer; and who files the bill of entry for home consumption;
and who is assessed for customs duty; and whose suggestion
about transfer of title to a third person is not established by any
reference to any official record, the transfer on high seas may be
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912 SUPREME COURT REPORTS [2021] 3 S.C.R.
A presumed on mere suggestion about the alleged endorsement of
bill of lading.When all other official documents as also dealings of
the appellant clearly establish that the appellant had been the
importer, the consequences are bound to follow. It gets perforce
reiterated that when the bills of entry recorded the name of the
appellant as importer and the appellant alone was assessed to
B
customs duty, the so called second high seas sale agreements
never came into operation. [Paras 34, 34.1][974-F-H; 975-A-B]
4. Whether sale in question occasioned import of goods:
The CTO specifically observed that it had not been the
C case of the appellant that the sale in question occasioned the
import of goods into the country. However, an attempt was made
before the High Court to suggest that the entire import was
occasioned by ultimate sale in favour of Radha and, therefore,
the matter would also be covered in the first part of sub-section
D (2) of Section 5 of the CST Act. The High Court noticed that such
a plea could not have been raised for the first time in the writ
petition for being a mixed question of facts and law. The High
Court also observed that even such suggestion was belied by
the fact that only the name of the appellant was reflected in the
bill of entry as importer and not of Radha. The argument was
E made that the quadripartite agreement triggered the movement
of goods from foreign country to India and not merely from Andhra
Pradesh to other States; that, in fact, the sales in question had
not been inter-State sales but these sales had occasioned the
movement of goods from outside India into India; and that the
F Indian leg of the integrated transaction cannot be segregated so
as to be taxed as inter-State sale under the CST Act. These
suggestions also remain totally baseless. [Para 35][975-B-F]
5. These had been inter-State sales
5.1 The effect of raising of debit notes by the appellant on
G
the end-buyers has its own bearing in the present case.The
appellant had admittedly raised such debit notes on the end-buyers
but only after having cleared the goods by filing the bill of entry
for home consumption. Once the suggestion about the second
high seas sales is not accepted and it is found that the appellant
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M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 913
OFFICER, VISAKHAPATNAM
had been the importer of goods and had cleared them for home A
consumption, the natural consequence of raising of such debit
notes on the end-buyers situated in different States and movement
of goods to such end-buyers would be to take these transactions
in the category of inter-State sales in terms of Section 3(a) of the
CST Act. The appellant was not entitled to the exemption of
B
Section 5(2) of the CST Act and has rightly been held liable for
tax over inter-State sales. [Para 37][978-G-H; 979-A-B]
5.2 After the appellant got the goods released by filing bill
of entry for home consumption, indisputably, the goods were
ultimately received by Radha at Lucknow in the State of Uttar C
Pradesh (and other end-buyers in different States) and appellant
raised debit notes from the State of Andhra Pradesh. These facts
are sufficient to establish that the movement of goods inside the
country from one State to another had been on account of the
sale by appellant to the end-buyers; and such sales took place
only after the appellant obtained the goods from the bonded D
warehouse for home consumption. [Para 38][979-B-D]
5.3 The High Court was right in observing that once the
appellant got released the goods after filing the bill of entry for
home consumption, the import stream dried up and the goods
got mixed in the local goods. Any movement of the goods E
thereafter was bound to be a sale under Section 3(a) of the CST
Act; and such movement being from the State of Andhra Pradesh
to other State, it had been a matter of inter-State sale. The
principle that actual sale may not necessarily precede the
movement of goods, in its true effect, operates rather against F
the appellant in relation to the sale to end-buyers after the goods
were cleared for home consumption. [Para 39][979-D-F]
6. If any case for relegating the appellant to the remedy of
appeal made out
G
The appellant, despite being aware of the availability of
remedy of statutory appeal, consciously chose to file writ petitions
against the assessment orders aforesaid and consciously
H
914 SUPREME COURT REPORTS [2021] 3 S.C.R.
A contested the entire matter in the High Court. The High Court,
even after noticing the framework of certiorari jurisdiction,
examined the merits of the case thoroughly and even examined
the submission made for the first time in writ petitions that the
import of goods was occasioned by the sales in question. Of
course, in that regard, the High Court pointed out that it was not
B
a pure question of law but in any case, such submission was belied
by the fact that the name of the appellant was reflected in the bill
of entry as the importer and not that of the end-buyer. There is
no error or fault in the approach of High Court in this case. After
having consciously invoked the writ jurisdiction of the High Court
C and having contested the matter on merits, the appellant cannot
now be allowed to re-open the matter in appeal. The extraordinary
writ jurisdiction cannot be utilised by a litigant only to take chance
and then to seek recourse to the other remedy after failing in its
attempt on the basic merits of the case before the High Court. A
litigation cannot be allowed to be unendingly kept alive at the
D
choice of a litigant. [Paras 40.1, 40.2, 40.3][979-G-H; 980-A-C;
981-C-D]
Star Paper Mills Ltd. v. Union of India and Ors. (1995)
4 Suppl. SCC 674 – held inapplicable.
E Minerals and Metals Trading Corporation of India Ltd.
v. State of Andhra Pradesh 1999 (106) ELT 23; State
of Travancore-Cochin and Ors. v. Shanmugha Vilas
Cashewnut Factory, Quilon AIR 1953 SC 333 : [1954]
SCR 53 – referred to.
F Case Law Reference
[2012] 1 SCR 808 held inapplicable Para 14.6
[1997] 3 Suppl. SCR 497 referred to Para 16.2
[1961] 1 SCR 379 distinguished Para 16.2
G [1960] 2 SCR 852 referred to Para 16.3
[1998] 2 Suppl. SCR 112 distinguished Para 16.3
[1954] SCR 53 referred to Para 16.5
[1992] 1 SCR 66 referred to Para 16.6
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 915
OFFICER, VISAKHAPATNAM
(1995) 4 Suppl. SCC 674 held inapplicable Para 16.8 A
[1997] 3 SCR 226 referred to Para 24
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1322-
1323 of 2019.
From the Judgment and Order dated 18.12.2014 of the High Court B
of Judicature at Hyderabad for the State of Telangana and the State of
Andhra Pradesh in Writ Petition Nos. 4552 of 2013 and 6258 of 2013.
Siddharth Bhatnagar, R. Venkataramani, Sr. Advs., Ms. Charanya
Lakshmikumaran, Aaditya Bhattacharya, Ms. Apeksha Mehta, Ms. Ishita
Mathur, Dhruv Surana, Aditya Sidhra, Joydeep Mazumdar, Ashish C
Choudhary, Ms. Shalini Kaul, Rohit Dutta, Ms. Priyata Chakraborty,
Ms. Sujatha Bagadhi, Praveen Vignesh, T. Vijaya Bhaskar Reddy, G. N.
Reddy, Ms. Urmila Kar Purkayastha, Sandeep, Ms. Madhumita
Bhattacharjee, Advs. for the appearing parties.
The Judgment of the Court was delivered by D
DINESH MAHESHWARI, J.
Preliminary and brief outline
1. These appeals by special leave are directed against the common
judgment and order dated 18.12.2014 in Writ Petition Nos. 2552 of 2013
and 6258 of 2013 whereby, the High Court of Judicature at Hyderabad E
for the State of Telangana and the State of Andhra Pradesh1 upheld the
assessment orders dated 20.01.2010 and 18.05.2010 passed by the
Commercial Tax Officer, Chinawaltair Circle 2 and held that the
transactionsin question were not the sales in the course of import but
had been inter-State sales, liable to Central Sales Tax; and denied the F
exemption claimed under Section 5(2) of the Central Sales Tax Act,
19563 while granting time to the appellant to produce the prescribed
C-Forms to the assessing authority for availing the benefit of concessional
rate of tax.
2. We may usefully observe at the outset that, in all, seven G
transactions of similar nature form the subject matter of these appeals;
one relating to the assessment for the year 2005-06 and others relating
1
Hereinafter referred to as ‘the High Court’
2
Hereinafter referred to as ‘the CTO’.
3
Hereinafter referred to as ‘the CST Act’. H
916 SUPREME COURT REPORTS [2021] 3 S.C.R.
A to the assessment for the year 2006-07. The common salient features of
all these transactions had been that they were for supply of timber from
a foreign country and were allegedly executed in a similar fashion thus:
The supplier (party number 1) sold the goods in question to the first
buyer (party number 2) and delivered them at the port of shipment.
Thereafter, while the goods were in transit on high seas, party number 2
B
transferred the goods to the appellant (who was invariably party number
3 in these transactions) by endorsing the bill of lading in favour of the
appellant. Further to this and while the goods were on high seas, the
appellant allegedly transferred them to the end-buyer (party number 4)
by endorsing the bill of lading in favour of the end-buyer.
C 2.1. However, in each of these transactions, when the goods in
question reached the port at Visakhapatnam (also known as Vizag), the
appellant carried out the proceedings envisaged by the Customs Act,
19624 and filed a bill of entry for warehousing and thereafter, filed another
bill of entry for home consumption (ex-bond). Accordingly and on the
D basis of such bills of entry, the appellant was duly assessed for customs
duty. The appellant later on raised debit notes on the end-buyers.
3. With reference to the aforementioned transactions and the high
seas sale agreements, the case of appellant had been that it had only
acted as an agent of the end-buyers while filing the bills of entry; and the
E sales of the goods in question to the end-buyers, being the sales taking
place in the course of import of goods into the territory of India,were
eligible for exemption from payment of sales tax by virtue of Section
5(2) of the CST Act. However, in the assessment orders dated
20.01.2010 and 18.05.2010, the CTO denied the benefit of exemption to
the appellant, particularly for the reason that the appellant cleared the
F goods from the customs after filing the bills of entry and later on raised
debit notes, showing sales to the end-buyers. The CTO held that the
goods in question had crossed the customs frontiers of India when the
bills of entry were filed by the appellant and the goods were assessed to
customs duty and hence, the sales effected by the appellant to the end-
G buyers could not be said to be high sea sales.
4. The appellant felt aggrieved of the orders so passed by the
CTO but, instead of availing the statutory remedy of appeal, chose to
challenge the same by way of writ petitions in the High Court. These
writ petitions have been considered and dismissed by the High Court by
H 4
Hereinafter referred to as ‘the Customs Act’.
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 917
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
way of the impugned judgment and order dated 18.12.2014. The High A
Court rejected the contention that the appellant had only acted as an
agent of the respective end-buyers while filing the bills of entry at the
port of destination with the findings, inter alia, to the effect that customs
duty could be assessed only on the importer of goods; that neither in the
bill of entry nor in the Import General Manifest5 the name of end-buyer
B
was reflected as the importer; that it was the appellant alone who had
imported the goods; and that the sale by the appellant to the end-buyer
could have only been effected after the goods were cleared for home
consumption. The High Court also rejected the contention that high seas
sale to end-buyer had occasioned the import of goods into the territory
of India. The appellant has challenged the decision of the High Court by C
way of these appeals on a variety of grounds as shall be noticed hereafter.
5. As noticed, the transactions involved in the present matters had
been of similar nature. For appropriate dealing with the issues involved,
we may take note of the facts relating to the assessment order dated
20.01.2010 pertaining to the tax period 2005-06 and the assessment order D
dated 18.05.2010 pertaining to the tax period 2006-07 in necessary details.
Assessment Order dated 20.01.2010: relevant facts and
background
6. The appellant M/s. Vellanki Frame Works is said to be a sole
proprietary concern, engaged in the business of sale and purchase of E
logs, timber and wooden batons; and in the course of its business, the
appellant also imports timber from other countries.
7. For the tax period 2005-06, in respect of inter-State sales falling
within clause (a) of Section 3 of the CST Act, the appellant claimed
payment of tax at the concessional rate of 4% covering a turnover of F
Rs. 55,23,233/- and in support thereof, furnished 9-Nos. of C-Forms;
and also sought exemption from payment of tax on a turnover of
Rs. 1,14,86,342/- on the ground that these sales were effected by transfer
of title documents before the goods had crossed the customs frontiers of
India. Even while accepting the claim of the appellant for concessional G
rate of tax on the inter-State sales turnover, the CTO proposed to reject
the claim for exemption for want of evidence and to treat the transactions
in question as inter-State sales under Section 3(a) of the CST Act. Hence,
the CTO issued show-cause notice dated 19.11.2009 to the appellant
5
‘IGM’ for short. H
918 SUPREME COURT REPORTS [2021] 3 S.C.R.
A stating, inter alia, that the appellant had claimed exemption on the ground
that the said sales were effected by transfer of the document of title
before the goods had crossed customs frontiers of India but had not
furnished any evidence in support thereof.
7.1. In response to the said show-cause notice, the appellant
B asserted that the transactions in question were covered by Section 5(2)
of the CST Act; and furnished seven documents being the sales invoice,
bill of lading, two high seas sale agreements, bill of entry for warehousing,
bill of entry for ex-bond and the debit note raised on the end-buyer. The
CTO, however, found that on filing of the said bills of entry, the appellant
alone was assessed to customs duty at both the stages. Hence, the CTO
C was of opinion that the import stream dried up on such clearance by the
customs authorities and the goods got mixed into the stream of local
goods; and any subsequent sale by the appellant would constitute a sale
of local goods exigible to tax. In view of this opinion, the CTO proposed
to treat the sale by the appellant to the end-buyer as inter-State sale
D falling under Section 3(a) of the CST Act and issued further show-cause
notice dated 02.12.2009 inviting objections, if any, from the appellant.
8. After taking a few adjournments, the appellant filed its letter of
objection to the show-cause notice dated 02.12.2009 while giving out
the particulars of the transactions in question and the details of its stand
E which could be usefully noticed as follows:
8.1. The case of the appellant had been that M/s. Radha Industries,
Lucknow (Uttar Pradesh)6 was its close business associate; that Radha
desired to purchase the subject goods from M/s. World Best Trading
Co. (L.L.C.), Dubai (U.A.E.) 7 but, for not having the requisite
F infrastructure with the Customs Department, approached the appellant
for help; that though the appellant had the requisite infrastructure facilities
at Visakhapatnam Customs, but was not having the letter of credit facilities
for import; that in the given circumstances, the appellant and Radha
entered into a quadripartite agreement with the seller and Indus Tropics
Ltd.8 whereby, it was agreed that Indus would purchase the goods and
G during the course of transit of the goods from the port of shipment,
would sell them to the appellant; that the appellant would purchase the
said goods from Indus as the agent of Radha and transfer the documents
6
The end-buyer, hereinafter also referred to as ‘Radha’.
7
The seller, hereinafter also referred to as ‘WBT’.
8
H The first buyer, hereinafter also referred to as ‘Indus’.
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 919
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
on high seas in favour of Radha for which, Radha would pay the appellant A
commission of 2% plus bank charges.
8.2. It was asserted by the appellant that pursuant to the said
quadripartite agreement, Indus purchased the goods from WBT and the
seller sent the consignment from the port of shipment with bill of lading
dated 09.12.2005; that on 10.12.2005, Indus caused transfer of the bill B
of lading on high seas in favour of the appellant; and that on 12.12.2005,
another high seas sale agreement was entered into between the appellant
and Radha whereby the bill of lading was sold in favour of Radha. It
was further asserted by the appellant that on and from 12.12.2005, the
appellant did not have control over the bill of lading dated 09.12.2005, as
the same had been parted in favour of Radha by then. It was yet further C
asserted that since Radha did not have the customs facility at
Visakhapatnam customs port, the appellant had extended its help by
filing the bills of entry in its name for the purpose of customs bonding as
well as customs clearance but, it had only been a friendly transaction
arranged by the appellant in favour of Radha and the appellant paid the D
entire amount to Indus without retaining anything as commission.
8.3. The submissions of the appellant had been that the
circumstance of its filing the bill of entry had no relevance in determining
the nature of transaction which was evidenced by the relevant documents,
including (i) quadripartite Master Agreement dated 21.11.2005; and (ii) E
High Seas Sale Agreement dated 12.12.2005. According to the appellant,
it had transferred the import document on high seas and at any rate, the
title in the goods always stood vested in Radha, as the owner of the
goods; and that the appellant was merely acting as an agent of Radha at
all points of time. The appellant maintained that by reason of transfer of
the import document, it could not be said that it had sold the goods to F
Radha; on the contrary, as the appellant had acted as the agent of Radha,
at all points of time including at the time of purchase,the transactions
between the appellant and Radha cannot be treated as between one
principal and another. The appellant further maintained that it had charged
commission at 2% plus bank charges to Radha and had parted with the G
entire amount to Indus, which was the proof that it had only acted as a
conduit, as a friendly gesture to Radha. It was also submitted that the
transaction was accounted in the books of accounts of the appellant as
an agency purchase; that receipt and payment of commission was also
accounted in its books of accounts; and the balance sheet for the year
H
920 SUPREME COURT REPORTS [2021] 3 S.C.R.
A also supported this submission. Put in a nutshell, the appellant asserted
that the transfer of imported goods by it to Radha did not partake the
character of sale of goods and that, in any event, the transfer, having
been effected over high seas before bonding with the customs authorities,
cannot be treated as inter-State sale in the State of Andhra Pradesh.
B 9. The contentions of the appellant were examined by the CTO in
the impugned assessment order dated 20.01.2010.For their relevance,
the observations and findings in this assessment order could be usefully
noticed as follows:
9.1. The CTO summed up the stand of the appellant that the
C documents of title to the goods were transferred to Radha on high seas
by virtue of the High Seas Sale Agreement dated 12.12.2005; that the
transaction did not attain the character of an inter-State sale; and that
filing of the bill of entry had no relevance in determining the nature of
the transaction. The CTO observed that it was not the case of the appellant
that the sale or purchase had occasioned the import falling under the
D first limb of Section 5(2) of the CST Act and the question which
necessitated examination was as to whether there was a sale of goods
by the appellant, or it had been a commission transaction as stated by
the appellant. The CTO examined the computer printout of the Trading
Account for the year 2005-2006 where the purchase was shown as
E purchase trading (high seas), and the relevant sale was shown as sales
trading (high seas). After referring to a few other details of the ledger
account and debit note etc., the CTO noted the contents of High Seas
Sale Agreement dated 10.12.2005 entered into between Indus and the
appellant wherein the appellant was described as ‘the buyer’; the contents
of second High Seas Sale Agreement dated 12.12.2005 wherein the
F appellant and Radha were described as ‘the seller’ and ‘the buyer’
respectively; and the letter of the appellant dated 25.11.2009 wherein,
while submitting certain documents like the sales invoice, the bill of lading,
high seas sale agreement, bill of entry for warehousing and the bill of
entry for home consumption, the appellant had stated that exemption
G from payment of tax was claimed on the ground that the said sales were
effected by transfer of documents of title to the goods before the goods
had crossed the customs frontiers of India. The CTO, therefore, observed
that obviously, the intention of the appellant was to sell the goods and, in
fact, there was a sale; and there was no truth in the statement of appellant
that it had acted as the agent of Radha.The relevant part of the order
H reads as follows:
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 921
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
“1)….In the High Sea sale agreement dated 10.12.2005 entered A
into between M/s Indus Tropics Ld and M/s Vellanki Frame Works
the assessee was described as ‘the buyer’.
In the 2nd High Sea sale agreement dated 12.12.2005 entered into
between the assessee M/s Vellanki frame Works and M/s Radha
Industries -the parties were described as ‘the seller’ and ‘the B
buyer’ respectively.
Similarly in the letter dated 25.11.2009…..the assessee stated that
they claimed exemption from payment of tax on the ground that
the said sales were effected by the transfer of document of title
to the goods before the goods have crossed the customs frontiers C
of India.
Therefore, it is obvious that there is intention to sell the goods and
infact there was sale. There is no truth in their statement that
they acted as an agent to M/s Radha Industries.”
9.2. In regard to the main contention of the appellant that document D
of title was transferred before the goods had crossed the customs frontier
of Indiaand the transaction fell within Section 5(2) of the Act, the CTO
examined the documentary evidence placed on record and found the
facts that: (i) Indus had imported 324 PCS of Myanmar Hardwood Gurjan
Round Logs from Yangon (Myanmar) to Vizag (India) and the bill of E
lading No. 01/YGN-VZG dated 09.12.2005 was endorsed by the importer
in favour of the appellant; (ii) on the strength of such endorsed documents,
Sri Sanjiv Kumar Agarwal (sole proprietor of the appellant) presented
the bill of entry No. 804116 dated 12.12.2005 for warehousing and customs
duty was assessed on the appellant alone on this bill of entry for
warehousing; and (iii) subsequently, the appellant filed the bill of entry F
for home consumption No. 804353 dated 28.12.2005 and customs duty
was assessed on the appellant alone on this bill of entry. The CTO also
referred to the debit note dated 12.01.2006 raised by the appellant on
Radha for a sum of Rs. 1,14,86,342/-and observed that though the intention
of the parties in High Seas Sale Agreement dated 12.12.2005 was to G
effect the transfer before the goods crossed the customs frontiers in
India but, in fact, the said agreement did not come into operation and the
sale took place on 12.01.2006, as shown in the debit note.
9.3. The CTO further held that the goods must be treated as
having crossed the customs frontiers of India when the bill of entry was
H
922 SUPREME COURT REPORTS [2021] 3 S.C.R.
A made and the goods were assessed to customs duty; and the sale effected
by the appellant could not be said to be sale in the course of import or
high seas sale inasmuch as the goods had crossed the customs frontiers.
The CTO reiterated that the second high seas sale agreement had not
come into operation; and there was no case for claiming that the transfer
of documents was effected by virtue of the said agreement itself. With
B
reference to the facts of the case and the relevant case-law, the CTO
held that the sale in fact took place only after customs clearance and
proceeded to overrule the contentions of the appellant. The CTO, inter
alia, observed and held as under:
“2)…. In view of the above legal position and the facts of the
C case, it is to be treated that the goods had crossed customs frontiers
of India when the bill of entry having been made, the goods were
assessed to customs duty, Hence the sales effected by the assesees
can’t be said to be sales in the course of import or High Sea Sales
in as much as the goods had crossed the customs frontiers.
D *** *** ***
4) It may not be out of place to mention that as far as the
quadripartite agreement to have been entered into on 21.11.05 is
concerned, it has not come into operation while the transactionsis
taking place. Had there been any nexus in respect thereof the
E necessity of the subsequent two high sea sale agreements dated
10.12.2005 and 12.12.2005 would not have arose in the scheme.
5) It is to be further noted that obviously the 2nd high sea sale
agreement has not come into operation when the sale is taking
place. Thus there is no case in claiming that the transfer of
F documents was effected by virtue of the said agreement itself.
As. was held by the Honourable Apex Court in the case of Tata
Iron & Steel Co Ltd, Bombay Vs. S.R. Sarkar and others 11 STC
655 – a sale will be reckoned as a sale on completion of such sale
and a mere contract of sale is not a sale within the definition of
G sale in Section 2(a). Therefore, it is to be observed that the sale
has not taken place in the manner contemplated in the agreement.
The sale in fact took place after-customs clearance only. Thus,
there is no nexus to the said agreement.”
9.4. In view of the above, the CTO disallowed the exemptions
claimed by the appellant on the turnover of Rs. 1,14,86,342/- while treating
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 923
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
the transactions as inter-State sales falling under Section 3(a) of the A
CST Act and carried out assessment accordingly, holding the appellant
liable to pay balance tax to the tune of Rs. 14,35,793/-.
Assessment Order dated 18.05.2010: relevant facts and
background
10. Six other transactions of similar nature formed the subject B
matter of the assessment order dated 18.05.2010 relating to the tax period
2006-07. The CTO found that the appellant had claimed exemption from
payment of tax, in respect of a turnover of Rs. 4,05,09,427/-, while
contending that this turnover represented the sales effected by transfer
of documents of title before the goods had crossed the customs frontiers C
of India but, had not filed any evidence to show that the said sales were
effected in such a manner. Accordingly, a show-cause notice dated
26.11.2009 was issued. In response thereto, the appellant furnished
certain documents relating to these six transactions of similar nature
involving four parties, being the seller, the first buyer, the appellant, and
the end-buyer respectively. D
10.1. As regards first transaction, Master Agreement dated
01.04.2006 for supply of timber logs was entered into amongst Alkemal
Singapore Pte Ltd. (seller), Purbanchal Lumbers Pvt. Ltd. (first buyer),
Vellanki Frame Works (appellant) and the said Radha Industries (end-
buyer). Purbanchal Lumbers Pvt. Ltd., imported 155 PCS of Myanmar E
Hardwood Gurjan Round logs from Yangon (Myanmar) to Vizag (India);
the bill of lading No. GCTC/531/06/11 dated 08.04.2016 was endorsed
in favour of the appellant on 11.04.2006 pursuant to the High SeasSale
Agreement; and on 11.04.2006 itself, bill of lading was endorsed by the
appellant in favour of Radha. Thereafter, on 12.04.2006, bill of entry for F
warehousing (B/E No. 601744) was filed by the appellant for warehousing
of timber and then, on 26.04.2006, bill of entry for home consumption
(B/E No. 602044) was filed by the appellant.
10.2. As regards second transaction, Master Agreement dated
01.08.2006 for supply of timber was entered into amongst Wood Craft G
International Pte. Ltd. (seller), Alpine Panels Pvt. Ltd. (first buyer),
Vellanki Frame Works (appellant) and M/s. Indo Bitumen Products,
Rajasthan (end-buyer). M/s. Alpine Panels Pvt. Ltd., imported 273 PCS
of Malaysian Round Logs from Singapore to Vizag; the bill of lading No.
AMB1106/VIZ-05 dated 20.08.2006 was endorsed in favour of the
H
924 SUPREME COURT REPORTS [2021] 3 S.C.R.
A appellant on 26.08.2006 and on this very date, the bill of lading was
endorsed by the appellant in favour of the end-buyer M/s. Indo Bitumen
Products. Thereafter, on 30.08.2006, bill of entry for warehousing (B/E
No. 604498) was filed by the appellant for warehousing of timber and
then, on 07.09.2006, bill of entry for home consumption (B/E No. 604677)
was filed by the appellant. Here again, customs duty was assessed on
B
Sri Sanjiv Kumar Agarwal, Vellanki Frame Works, Vizag (the appellant).
10.3. The third and fourth transactions in this assessment had
been of the same nature wherein two Master Agreements dated
01.10.2006 for supply of timber were asserted involving the said Wood
Craft International Pte Ltd. (seller), Purbanchal Lumbers Pvt. Ltd. (first
C buyer), Vellanki Frame Works (appellant) and M/s. Pine Exporter, New
Delhi (end-buyer). These transactions involved two bills of lading, Nos.
AMB1306/VIZ-01 and AMB1306/VIZ-02 dated 08.10.2006, which were
similarly endorsed by the first buyer in favour of the appellant on
18.10.2006 and on the same date, the appellant endorsed the same in
D favour of the end-buyer. Thereafter, in a similar fashion, the appellant
filed the bills of entry on 19.10.2006 for warehousing and then, on
31.10.2006 for home consumption.
10.4. Again, the fifth and sixth transactions in this assessment
had also been of the same nature wherein two Master Agreements dated
E 11.12.2006 and 15.12.2006 for supply of timber were asserted involving
the said Wood Craft International Pte Ltd. (seller), M/s. G.K. Ganeriwala
& Sons (first buyer), Vellanki Frame Works (appellant) and M/s. Esskay
Impex, New Delhi (end-buyer). These transactions involved two bills of
lading, Nos. CON1206/VIZ-04 and CON1206/VIZ-05 dated 21.12.2006
which were similarly endorsed by the first buyer in favour of the appellant
F on 04.01.2007 and on the same date, the appellant endorsed the same in
favour of the end-buyer. Thereafter, in the similar fashion, the appellant
filed the bills of entry on 05.01.2007 for warehousing and then, on
18.01.2007 for home consumption.
10.5. In all these transactions and dealings, after filing of bills of
G entry, customs duty was assessed on Sri Sanjiv Kumar Agarwal, the
proprietor of appellant firm. However, the appellant maintained that the
said transactions had been of high seas sales to the respective end-
buyers, on whom the debit notes were raised by the appellant later.
11. In the assessment order dated 18.05.2010, the CTO held, inter
H alia, that on filing the bill of entry for warehousing and the bill of entry
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 925
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
for ex-bond (home consumption), the appellant alone was assessed to A
customs duty; that the import stream dried upon such clearance by the
customs authorities and the goods mixed into the stream of local goods;
that any subsequent sale by the appellant, therefore, constituted sale of
local goods exigible to tax; and that the transactions, for which the
appellant had claimed exemption as high sea sales, were liable to be
B
treated as inter-State sales falling under Section 3(a) of the CST Act. In
other words, the assessing authority held that the sales by the appellant
to the end-buyers took place only after assessment of customs duty on
the appellant upon filing the bills of entry and thus, the said sales attained
the character of sale of local goods, for the goods in question having
crossed the customs frontiers of India. C
11.1. Apart from the above, the CTO also pointed out that when
the letters were addressed to the dealers at the other end (i.e., the end-
buyers), one of them, M/s. Pine Exporters, New Delhi, stated that the
referred party (i.e., the appellant) was not known to them and that they
had never received any Malaysian Round logs from the appellant whereas D
the letter sent to M/s. Esskay Impex, New Delhi, was returned with the
postal endorsement that no such firm was existing at the given address.
These factors were also taken into account by the assessing authority to
hold that the claim of the appellant was not genuine; and the transactions,
on which the appellant had claimed exemption as high sea sales, should
be treated as inter-State sales falling under Section 3(a) of the CST Act. E
11.2. The relevant part of the observations and findings of the
CTO in the assessment order dated 18.05.2010 could also be usefully
extracted as under:-
“When these settled principles are applied to the instant F
case, as is ascertainable from the bills of entry for ware-house
and the ex-bond of entry-transfer of title deeds has not taken
place before filing the bills of entry and the assessment of duty.
The sale took place after the assessment is made on the assessee
and on filing of the bills of entry. Thus the said sales attained the
character of sales of local goods. G
Therefore, in view of the above legal position and the facts
of the case, it is to be treated that the goods had crossed customs
frontiers of India when the bill of entry having been made, the
goods were assessed to customs duty. Hence the sales effected
by the assessee cant be said to be sales in the course of import or H
926 SUPREME COURT REPORTS [2021] 3 S.C.R.
A high sea sales in as much as the goods had crossed the customs
frontiers.
Further, when addressed the dealers at the other end
requesting to confirm the purchase from the assessee- M/s Pine
Exporters, New Delhi (sale reported at transaction No.3
B Rs.11057059/- and transaction No.4 Rs.4124375/- total 15581434-
00) the party replied that they do not know the referred party and
have never received any Malaysian Round Logs from the said
party which shows that the dealer’s claim is not genuine.
Further, the letter sent to M/s Esskay Impex, New Delhi
C requesting to confirm the purchase from the assessee in transaction
No. 5 Rs.8277263 and transaction No.6 Rs.3454968 total =
11732231/-, was returned by the postal authorities with an
endorsement “No such firm at this place” which also shows that
the dealer’s claim is not genuine.
D In view of this position, the transactions on which the
assessee has claimed exemption being high sea sales are treated
as interstate sales falling under Section 3(a) of CST Act.”
Writ Petitions before the High Court
12. As noticed, the assessment orders aforesaid could have been
E challenged in statutory appeal but the appellant chose to challenge the
same by way of writ petitions, being W.P. No. 4552 of 2013 (against the
assessment order dated 20.01.2010) and W.P. No. 6258 of 2013 (against
the assessment order dated 18.05.2010). Both these writ petitions were
taken up for consideration together by the High Court and were dismissed
F by the common judgment and order dated 18.12.2014.
13. The High Court, in the impugned judgment and order dated
18.12.2014, examined the variety of contentions urged by the parties
and took up for determination the issues arising in the matter under different
headings while primarily dealing with the facts relating to the assessment
order dated 20.01.2010 as involved in W.P. No. 4552 of 2013.The High
G
Court examined the issues: (i) as to whether the CTO before whom the
dealer had filed returns under CST Act was having authority to pass the
assessment order in the absence of authorisation from the Deputy
Commissioner; (ii) the extent, scope and contours of judicial review of
assessment order in the writ jurisdiction; (iii) as to whether the sale by
H appellant to Radha was an inter-State sale for the appellant having filed
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 927
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
the bill of entry and having been assessed to customs duty; (iv) as to A
whether the sale in favour of Radha occasioned movement of goods
into the country; (v) as to whether the procedure prescribed for duty-
free shop was applicable to the present case; and (vi) as to whether the
appellant was entitled to be granted time to submit C-Forms?
14. Having regard to the facts and circumstance of the case, we B
may briefly summarise the observations and findings of the High Court
in relation to these issues.
14.1. As regards the question of the authority of CTO to pass the
assessment order in question, the High Court extensively examined the
scope of the provisions contained in A.P. Value Added Tax Act, 2005, C
A.P. Value Added Tax Rules, 2005 and Section 9(2) of the CST Act and
ultimately rejected the contentions urged on behalf of the appellant that
the CTO was lacking authority to assess the appellant to tax under the
CST Act.
14.2. As regards judicial review of assessment order in writ D
jurisdiction, the High Court took note of the extensive arguments on
behalf of the appellant as regards nature of transaction with reference
to quadripartite agreement and endorsement of bill of lading by the
importer in favour of the appellant and subsequently by the appellant in
favour of Radha (end-buyer) while the goods were on high seas as also
the argument that there was no finding against genuineness of the E
endorsements on the bill of lading. The High Court observed that the
appellant had invoked writ jurisdiction against the assessment order
without availing the statutory remedy of appeal; and also pointed out
that though certiorari was the appropriate remedy in challenge to a quasi-
judicial order, the appellant had sought a writ of mandamus. The High F
Court further observed that it was not even the case of the appellant
that the first respondent had failed to perform a statutory duty or that the
appellant’s legal rights were adversely affected and therefore, the
appellant was not entitled to a writ of mandamus. The High Court,
thereafter, pointed out the limited parameters within which the validity
of assessment orders and findings therein could be examined in certiorari G
jurisdiction. The High Court took note of the consideration adopted and
the findings recorded in the impugned assessment orders and observed
that the assessing authority had not taken into consideration the effect
of high seas sale agreement and bill of lading etc., but has held the sales
by appellant to Radha and other end-buyers outside the State to be inter- H
928 SUPREME COURT REPORTS [2021] 3 S.C.R.
A State sales for the reason that those sales could only have been effected
after the appellant had filed the bills of entry for home consumption and
was assessed to customs duty. The High Court observed that only if
those findings were set aside would the matter call for remand with
direction to the assessing authority to consider the other documents relied
upon by the appellant. The High Court observed thus:
B
“In passing the impugned assessment orders, and in
subjecting the transactions to tax as an inter-state sale under
Section 3(a) of the CST Act, the assessing authority has not taken
into consideration the effect of the High Sea sales agreements
and other agreements, the bill of lading or the provisions of the
C Indian Bill of Lading Act. He has held that the sale of goods by
the petitioner to Radha Industries (and other outside the State
purchasers) was an inter-state sale on the ground that these sales
could only have been effected after the petitioner had filed the bill
of entry for home consumption, and after he was assessed to
D customs duty. It is only if these findings are set aside, would the
matter necessitate remand, and the assessing authority being
directed to consider the other documents relied upon by the
petitioner.”
14.3. After having dealt with the aforesaid preliminary aspects,
E the High Court entered into the core issue involved in the matter i.e., as
to whether the sale by appellant to Radha was an inter-State sale for the
appellant having filed the bill of entry and having been assessed to customs
duty. The High Court took note of the rival submission where, on one
hand, it was contended on behalf of the appellant that there was no
prohibition under the Customs Act or the Rules/Regulations made
F thereunder, for clearance of goods by the holder of an authorisation by
the endorsee of the bill of lading; that even otherwise, an importer under
the Customs Act includes any owner or any person holding himself out
to be an importer and, as the bill of lading had been endorsed in his
favour, the appellant was entitled to file the bill of entry as an importer;
G and that the department’s contention, that payment of customs duty by
the appellant was conclusive of the import having ended and any sale by
the appellant thereafter could only be a domestic sale, was not flowing
from the provisions of the Customs Act.On the other hand,it was
contended on behalf of the department that the appellant alone was
assessed to customs duty by virtue of his filing the bill of entry as the
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 929
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
importer; that the system permitted only the appellant to file the bill of A
entry as his name alone was recorded in the Import General Manifest
(IGM) as the importer; that the contents of the bill of entry made it clear
that there was no high seas sale, subsequent to the high seas sale in
favour of the appellant asthe bill of entry was generated on the basis of
the IGM; that Radha was not assessed to customs duty and if Radha
B
was the last buyer during importation, IGM would have reflected the
same; that the appellant was assessed to customs duty as being the last
buyer/final importer of the goods before the goods got mixed with the
general goods and the sale of goods by appellant to Radha was not a
sale in the course of import, rather it was an inter-State sale as Radha
was located outside the State of Andhra Pradesh; and that if the C
appellanthad sold the goods to Radha and yet gotitself assessed to
customs duty, it could only mean that the appellant and Radha had
colluded to evade customs duty on the sale transaction value.
14.4. In view of the rival submissions, the High Court took note of
the requirements of Section 5(2) of the CST Act that, for a sale to be ‘in D
the course of import’, it has to be either the one which has occasioned
the import or the one which has been effected by a transfer of document
of title to the goods before the goods had crossed the customs frontiers
of India. As the claim of the appellant, for treating the sale in question to
be in the course of import, was being denied by the department for the
reason that the appellant alone had filed the bill of entry for warehousing E
as also the bill of entry for home consumption, the High Court proceeded
to examine the facts of the case vis-a-vis the essential features related
with the processes of importation and filing of bill of entry while sub-
dividing its consideration with reference to various terms in, and various
provisions of, the Customs Act and the CST Act. F
14.4.1. The High Court took note that the expression ‘‘crossing
the customs frontiers of India” was defined in Section 2(ab) of the CST
Act to mean crossing the limits of the area of a customs station in which
the imported goods or exported goods are ordinarily kept before clearance
by customs authorities; and as per the Explanation thereto, “customs G
station” and “customs authorities” shall have the same meaning as in
the Customs Act. The High Court observed that “the customs frontiers”,
for the purpose of the CST Act, was equated to the limits of the area of
the customs station in which the goods were stored; and crossing of
such station being regarded as amounting to crossing the customs frontiers
of India. H
930 SUPREME COURT REPORTS [2021] 3 S.C.R.
A 14.4.2. As regards connotation of the term “importer”, the High
Court examined the definition of “import” in Section 2(23) and of
“imported goods” in Section 2(25) of the Customs Act and observed
that the moment goods, brought into India from a foreign country, are
cleared for home consumption, they get mixed with the local goods and
cease to be imported goods thereafter. The High Court also examined
B
the inclusive definition of “importer” in Section 2(26) of the Customs
Act and observed that any person who imports goods from a foreign
country to India would undoubtedly be an importer; and the owner of the
goods and a person holding himself out be an importer would also be an
importer, but only during the period between the importation of the goods
C and the time they are cleared for home consumption, and not prior thereto
or thereafter. The High Court observed that the expanded definition of
“importer” could not be used to usurp the identity of an importer from
the person who has filed the bill of entry; and as the bill of entry showed
the goods to have been cleared by the appellant for home consumption,
the appellant was the importer of the goods. The High Court also observed
D
that if the appellant had sold the goods on high seas to Radha, it was only
Radha who would be the importer and not the appellant and the very
fact that the name of Radha was not reflected as the importer in the bill
of entry for home consumption belied the contention of the appellant
about high seas sale to Radha. The relevant parts of observations and
E findings of the High Court could be usefully extracted as under:-
“Section 2(23) of the Customs Act defines import, with its
grammatical variations and cognate expressions, to mean bringing
into India from a place outside India. Section 2(25) defines imported
goods to mean any goods brought into India from a place outside
F India but does not include goods which have been cleared for
home consumption. Use of the words does not include in Section
2(25) would mean that the moment goods, brought into India from
a foreign country, are cleared for home consumption, they get
mixed with the local goods and cease to be imported goods
thereafter. Going by the definition of the term ‘import’ under
G Section 2(25) of the Act as “to bring into India from a place outside
India,” and as he has imported the goods (his name being reflected
in the Bill of Entry as the importer), the petitioner has rightly been
held to be the importer.
*** *** ***
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 931
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
In view of the expanded definition of importer in Section A
2(26), while any person who imports goods from a foreign country
to India would undoubtedly be an importer, the owner of the goods
and a person holding himself out be an importer would also be an
importer, however only during the period between the importation
of the goods and the time they are cleared for home consumption,
B
and not prior thereto or thereafter. This period is when the goods
are warehoused after importation, and are cleared from such
warehouse by a person other than the person who actually
imported the goods. That limb of the definition of importer, in
Section 2(26) of the Customs Act, is designed to protect the interests
of the owner or the exporter where the goods have not been C
claimed or redeemed by the designated importer in India. The
definition cannot be used to usurp the identity of an importer from
the person who filed the bill of entry. As Section 2(26) is an
inclusive definition, the person in whose name the bill of entry is
filed does not cease to be the importer. In other words, the person
D
who has secured the release of the goods from the carrier, who
has filed the bill of entry, and who has undertaken the work of
clearance, continues to be an importer. The bill of entry shows
the goods to have been cleared for home consumption by the
petitioner who is, therefore, the importer of the goods.
The person who holds himself out to be the importer of the E
goods must furnish proof of being the importer before the goods
are cleared for home consumption. No doubt, Section 2(26) permits
any one holding himself out to be the importer between the date
of importation and clearance of the goods for home consumption.
But here the petitioner, in whose name the goods have been F
manifested, has, by filing a Bill of Entry, already held himself out
to be the importer. As shall be detailed hereinafter, the import
manifest has not been amended, the petitioner has filed the Bill of
Entry for clearance of the goods for home consumption, and has
held himself out to be the importer. …. It is evident, therefore,
that, before its importation, it is only the person who imported the G
goods who would be the importer. If, as contended by the petitioner,
they had sold the goods on high seas to Radha, it is only Radha
who would be the importer and not the petitioner. The very fact
that the name of Radha is not reflected as the importer in the bill
H
932 SUPREME COURT REPORTS [2021] 3 S.C.R.
A of entry ex-bond (home consumption) belies the petitioners
contention of a high sea sale by them to Radha Industries.”
14.4.3. The High Court, thereafter, proceeded to examine the
relevance and importance of Import General Manifest required to be
delivered prior to the arrival of vessel at the customs station in terms of
B Section 30 of the Customs Act; permissibility of its amendment or
supplementation under the Levy of Fee (Customs Documents)
Regulations, 1970; and its contents in terms of Import Manifest (Vessels)
Regulations, 1971. The High Court observed that as per the requirements
of IGM, it should have reflected the name of the last high sea sale
purchaser as the importer; and otherwise, the IGM would have
C necessitated amendment, as it is only the last purchaser of the goods on
high seas who would be the importer/consignee. The High Court observed
that there was no material on record to show that either the IGM
contained the name of Radha as the importer/consignee or that it was
subsequently amended in terms of Section 30(3) of the Customs Act;
D and hence, held that the contention of high seas sales was raised by the
appellant only to avoid the goods being subjected to tax as inter-State
sales under the CST Act. The High Court observed and held as under:-
“The Import General Manifest contains a cargo declaration
wherein, among others, the name of the importer, the importers
E code number, IGM number and date are required to be detailed.
It is not even the petitioners case that his name is not reflected as
the importer in the Import General Manifest. If, as is now contended
by him, the goods had been sold on the high seas, the Import
General Manifest should have reflected the name of the last high
sea sale purchaser as the importer. Otherwise, the Import General
F Manifest would have necessitated amendment as it is only the
last purchaser of the goods on high seas who would be the
importer/consignee. There is no material on record to show that
either the Import General Manifest contained the name of Radha
as the importer/consignee or that it was subsequently amended in
G terms of Section 30(3) of the Customs Act. It is evident, therefore,
that the contention of high seas sales has been raised by the
petitioner only to avoid the goods being subjected to tax as inter-
state sales under the CST Act.”
14.4.4. After having found that the appellant was rightly held to
H be the importer of goods and such a conclusion was fortified by the
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 933
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
contents of IGM, the High Court proceeded to further examine the effect A
of filing of bill of entry for home consumption by the appellant. In this
regard, the High Court examined the scope and requirements of the
provisions contained in the Customs Act relating to entry of goods on
importation; clearance of goods for home consumption as also the
requirements of the Bill of Entry (Electronic Declaration) Regulations,
B
1995. The High Court further examined the contents of one of the bills
of entry, as placed on the record of W.P. No. 6258 of 2013 where the
second party (first buyer) was Purbanchal Lumbers Pvt. Ltd. and found
that the said bill of entry made no reference to Radha and held that this
omission made it clear that the goods were imported by the appellant on
a high seas sale effected in its favour by the said first buyer. The High C
Court, accordingly, concluded that the appellant had imported the goods;
and the sale of goods by the appellant to Radha could have only been
effected after the goods had been cleared for home consumption. The
High Court, inter alia, observed and held as under:-
“…..It is evident, from the said Bill of Entry, that the goods were D
imported by the petitioner, and were cleared from customs with
the assistance of the customs house agent M/s.Srinivasa
Transports. If, as contended by the petitioner, the goods were
sold by them to M/s. Radha Industries on high seas, and before
the goods entered the customs port, the name of the importer
should have been shown as Radha Industries, and not as Sanjiv E
Kumar Agarwal, Vellanki Frameworks. The fact that the name
of the importer is shown as Sanjiv Kumar Agarwal, Vellanki
Frameworks, and the Bill of Entry makes no reference to Radha
Industries, goes to show that the goods were imported by the
petitioner on a high sea sale effected in their favour by Purbanchal F
Lumbers Private Limited; it is they who had imported the goods;
and sale of goods by them to Radha Industries could only have
been effected after the goods had been cleared for home
consumption.”
14.4.5. The High Court also examined the submissions that the G
appellant acted merely as an agent of the end-buyer and rejected the
same, again with reference to the contents of the bill of entry where the
name of appellant was shown as the importer and there was no reference
to Radha. The High Court also observed that customs duty could be
assessed only on the importer of goods and not on his agent; and found
H
934 SUPREME COURT REPORTS [2021] 3 S.C.R.
A that the appellant alone was assessed to customs duty and not Radha. In
view of the given facts, the High Court reiterated its findings that the
sale of goods by appellant to Radha was not a high seas sale; and such
a sale could have been effected only after the appellant was assessed to
customs duty and had cleared the goods for home consumption. The
High Court observed and held, inter alia, as follows:-
B
“If, as contended by him, the petitioner was merely acting
as an agent, the bill of entry would have reflected the name of the
importer as M/s.Radha Industries and the petitioner as their agent
instead of M/s. Srinivasa Traders as the clearing house agent;
and the petitioners name would have been recorded in the bill of
C entry, along with Purbanchal Lumbers Private Limited. The very
fact that the name of the importer is shown as Sanjiv Kumar
Agarwal, Vellanki Frameworks, and the Bill of Entry makes no
reference to Radha Industries, shows that the goods were imported
by the petitioner, on the goods being sold to them on high seas by
D Purbanchal Lumbers Private Limited. Sale of goods by them to
Radha Industries could only have been effected after the goods
had been cleared for home consumption.
*** *** ***
Transfer of title to the goods on high seas would make the
E person, who purchased the goods on high seas, the importer of
the goods and it is he who would be liable to be assessed to customs
duty. As the Bill of Entry records the petitioners name as the
importer, and as it is not in dispute that it was he who was assessed
to customs duty, and not Radha, it is evident that the sale of goods
F by the petitioner to Radha is not a high seas sale. Such a sale
could only have been effected after the petitioner was assessed
to customs duty, and he had cleared the goods for home
consumption.”
14.4.6. With reference to a Division Bench decision of Andhra
G Pradesh High Court in the case of Minerals and Metals Trading
Corporation of India Ltd. v. State of Andhra Pradesh: 1999 (106)
ELT 23, an argument was advanced on behalf of the appellant that the
name on the bill of entry was irrelevant because the name of the importer
alone would be recorded in it, even if the transfer of title deeds was
effected before filing of the bill of entry and assessment of duty. The
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 935
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
High Court took note of the principal issue involved in the said case of A
Minerals and Metals and held that the question, as to whether name on
the bill of entry was relevant or not and as to whether the name of
importer alone would be recorded therein, even if transfer by title deed
was effected before filing of bill of entry and assessment of duty, did not
arise for consideration therein. Therefore, the observations occurring in
B
said decision as regards the relevance of name in the bill of entry were
held to be not of a binding declaration of law.
14.5. Having thus held that CTO was justified in holding that sale
of goods by appellant to Radha was an inter-State sale liable to tax
under the CST Act, the High Court took note of another submission
made on behalf of the appellant that the sale in favour of Radha C
occasioned the movement of goods into the country. It was contended
on behalf of the appellant that the entire import of the goods was
occasioned by the ultimate sale by the appellant in favour of Radha and
even though the documents executed referred to the sale as a high seas
sale, but when the very sale itself occasioned the movement of goods D
across the customs barrier, it had been a sale in the course of import. It
was also submitted on behalf of the appellant that though the case was
not presented in this light before the assessing officer, it being a pure
question of law, could be considered by the High Court. Per contra, it
was submitted on behalf of the department that such submissions were
inconsistent and contrary to the earlier stand of the appellant that it had E
been a high seas sale. It was also submitted, again with reference to bill
of entry, that the name of Radha was not reflected there as the last
buyer.
14.5.1. The High Court observed that it was for the first time
such a plea was taken in the writ proceedings that the sale of goods to F
Radha occasioned the import of goods; and the writ Court would be
disinclined to entertain this plea, being based on certain clauses of
agreements and being a mixed question of facts and law. This apart, the
High Court also observed that even otherwise, such a submission was
belied by the fact that the name of the appellant, and not Radha, was G
reflected in the bill of entry as the importer of the goods.
14.6. Another argument advanced on behalf of the appellant before
the High Court had been that the principles enunciated in the said Division
Bench decision of Andhra Pradesh High Court in the case of Minerals
and Metals and another decision of Madras High Court got tacit approval H
936 SUPREME COURT REPORTS [2021] 3 S.C.R.
A in the decision of this Court in the case of Hotel Ashoka (Indian Tourist
Development Corporation Ltd.). v. Assistant Commissioner of
Commercial Taxes and Anr.: (2012) 3 SCC 204. The High Court
distinguished the said decision of this Court while pointing out that it
related to the goods sold at duty-free shops which are beyond the customs
frontier of India; the goods sold thereat must be said to have been sold
B
before having crossed the customs frontiers of India; and consequently,
the sale of goods thereat is in the course of import.
14.7. Having thus held that the sale in question was an inter-State
sale, the High Court took note of the alternative prayer made on behalf
of the appellant for an opportunity to submit C-Forms from the buyers
C and granted this prayer with reference to Rule 12(7) of the Central
Sales Tax (Registration and Turnover) Rules, 1957.
14.8. With the aforesaid findings and liberty, the High Court
proceeded to reject the challenge to the impugned assessment orders
while granting three months’ time to the appellant to produce the prescribed
D C-Forms. The High Court also commented on the doubts expressed by
the assessing officer about existence of some of the dealers and observed
that the appellant would be able to procure C-Forms only if such dealers
were in existence. The High Court concluded on the writ petitions in the
following words:-
E “For the reasons aforementioned, the impugned assessment
orders do not necessitate interference, and the challenge thereto
by the petitioner is rejected. The petitioner is, however, granted
three months time from today to produce the prescribed C-Forms.
While the assessing authority has expressed his doubts regarding
F the very existence of some of the dealers outside the State, it is
not necessary for us to delve on this aspect any further, as it is
only if such dealers are in existence would the petitioner be able
to procure C-Forms from them, and furnish it to the assessing
authority. While the prescribed concessional rate of tax, payable
by the petitioner on the inter-state sale of goods, shall be paid by
G them forthwith, the respondents shall not take coercive steps for
recovery of the balance tax for a period of three months from
today. In case the petitioner produces C-Forms within the aforesaid
three month period, they shall be extended the benefit of
concessional rate of tax to the extent for which C-Forms are
H produced. It is made clear that, in case the petitioner fails to submit
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 937
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
the C-Forms within three months from today, it is open to the A
respondents thereafter to proceed and recover the balance tax
due from them in accordance with law.
Subject to the above observations, both the Writ Petitions
fail and are, accordingly, dismissed. The miscellaneous petitions
pending, if any, shall also stand automatically dismissed. However, B
in the circumstances, without costs.”
Rival Submissions and the issues involved
15. The aforesaid decision of the High Court is questioned in these
appeals. We may now summarize the principal submissions made on
behalf of the parties. C
16. Assailing the impugned judgment, learned counsel for the
appellant has made elaborate reference to the quadripartite agreement
dated 21.11.2005 involving four parties and stipulating that Indus would
raise the purchase order on the foreign exporter i.e., WBT and thereafter,
when the goods were on high seas, Indus would transfer the documents D
of title (bill of lading) in favour of the appellant; and the appellant would
then transfer the documents of title to the goods in favour of Radha
before the goods cross the customs frontiers of India. The learned counsel
would submit that the intention behind entering into a quadripartite
agreement was that Indus enjoyed a 180-day line of credit with WBT E
while the appellant had the requisite infrastructure to undertake
importation of goods but the agreement specifically identified Radha as
final buyer of the goods and stipulated that the goods would move only
after inspection and selection by Radha and hence, there was always a
privity of contract between WBT (the seller) and Radha (the end-buyer).
The learned counsel has further submitted that as per Schedule I to the F
agreement, the appellant was to act as an agent of Radha and to clear
the goods from customs authorities where delivery of goods was to be
completed once the appellant had issued a delivery note to Radha; and
the responsibility of carriage of goods, after clearance, from the port to
the factory premises in the State of Uttar Pradesh was that of Radha. G
16.1. In the aforesaid backdrop, the learned counsel for the
appellant has strenuously contended that the sale in question, being in
the nature of “sale in the course of import”, is not taxable under the CST
Act; that the sale in question, having not occasioned movement of goods
between two States within India, is not an “inter-State sale” under Section
H
938 SUPREME COURT REPORTS [2021] 3 S.C.R.
A 3(a) of the CST Act and rather, this sale has occasioned movement of
goods from outside India into India; and that the department had been
unjustified and wrong in ignoring the second high seas sale agreement
between the appellant and Radha and by treating the appellant as owner
of goods only for having filed the bill of entry and having raised the debit
note.
B
16.2. Elaborating on the submissions, learned counsel has referred
to Article 286 of the Constitution of India while pointing out that it prohibits
the State Government from imposing sales tax on sales made in the
course of import or export; and the Parliament could formulate the
principles to determine as to when a sale takes place in the course of
C import or export. The learned counsel has referred to Section 5 of the
CST Act, laying down as to when a sale is treated to have taken place in
the course of import or export and has referred to sub-section (2) thereof,
providing that sale of goods is deemed to take place in the course of
import of the goods into the territory of India only if the sale occasions
D such import or is effected by a transfer of document of title to the goods
before they have crossed the customs frontiers of India. Learned counsel
has also referred to Section 3 of the CST Act and the decision of this
Court in the case of State of Maharashtra v. Embee Corporation,
Bombay: (1997) 7 SCC 190 to submitthat the terms ‘sale occasioning
movement of goods’ and ‘sale occasioning import of goods’ carry the
E same meaning insofar as Sections 3 and 5 of the CST Act are concerned;
and that the words “sale of goods” in Section 3 and the words “contract
of sale” in Section 4(2) of the CST Act have been assigned the same
meaning, which is wider to the meaning of sale in the general law. While
also relying on the decision of this Court in Tata Iron and Steel Co.
F Ltd., Bombay v. S.R. Sarkar and Ors.: AIR1961 SC 65, the learned
counsel has submitted that in both the situations where sale occasions
movement of goods and sale occasions import of goods, the contract of
sale or a covenant of a contract of sale triggers the movement from
either one State to another or from outside India into India.
G 16.3. Learned counsel for the appellant has contended that to
qualify under Section 5(2) of the CST Act, the essential ingredients of
high sea sales would be of the transfer of document of title and transfer
of goods to be made while the goods are on high seas. With reference to
the definition of term “crossing the customs frontiers of India”, as
occurring in Section 2(ab) of the CST Act, learned counsel has pointed
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 939
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
out that this term means crossing the limits of the area of customs station A
in which imported goods or exported goods are ordinarily kept before
clearance by customs authorities. Then, with reference to Section 2(4)
of the Sale of Goods Act, 19309 and the decisions of this Court in J.V.
Gokal& Co. (Private) Ltd. v. Assistant Collector of Sales-Tax
(Inspection) and Ors: (1960) 2 SCR 852 and Minerals & Metals
B
Trading Corporation of India Ltd. v. Sales Tax Officer and Ors:
(1998) 7 SCC 1910, learned counsel has submitted that the transfer of
bill of lading signifies transfer of title in the goods. As regards transfer
before the goods crossing customs frontiers of India, the learned counsel
has referred to the decision of this Court in Hotel Ashoka (supra) to
submit that when the goods are kept in the bonded warehouse, they C
cannot be said to have crossed the customs frontiers of India.
16.4. As regards the facts of the case, learned counsel would
submit that the endorsement by appellant on the bill of lading in favour of
Radha was made on 12.12.2005 when the goods were on the high seas
and had not even reached the customs frontiers of India and then, the D
bill of entry for home consumption was filed on 28.12.2005. Therefore,
according to the learned counsel, the title to the goods in question was
transferred in favour of Radha before the goods crossed the customs
frontiers of India and, accordingly, the transaction between the petitioner
and Radha had been a sale in the course of import not liable to be taxed
under the CST Act. E
16.5. The learned counsel has also contended that the transaction
in question is sought to be taxed as inter-State sale within the ambit of
Section 3(a) of the CST Act, for being not covered under Section 5(2) of
the CST Act but, for a transaction to be covered under Section 3(a) of
the CST Act, the agreement of sale must trigger the movement of goods F
and the goods must move between one State to another within India as
a consequence of such agreement. The learned counsel has referred to
the decision of this Court in State of Travancore-Cochin and Ors. v.
Shanmugha Vilas Cashewnut Factory, Quilon: AIR 1953 SC 333
and has strenuously argued that in the present case, the goods moved G
into India from outside as a result of the quadripartite agreement; that
9
Hereinafter referred to as ‘the Sale of Goods Act’.
10
Hereinafter this case of Minerals & Metals has also been referred to as ‘Orissa case’,
in order to maintain the distinction with the other decision of Andhra Pradesh High
Court carrying the same first name, which was referred to by the High Court in the
impugned judgment. H
940 SUPREME COURT REPORTS [2021] 3 S.C.R.
A the inter-State movement within India was only a part of one whole
integrated transaction of sale; that when a part of integrated import
transaction involves movement of goods within India, the department
cannot selectively question only one part of the transaction; and that the
quadripartite agreement, clearly establishing the privity amongst the
parties involved, could not have been ignored in part and the Indian leg
B
of the transaction could not have been dissected in order to be taxed.
16.6. In another leg of principal submissions, learned counsel has
contended that the High Court has fallen in error in using the bill of entry
to determine the ownership of goods. Learned counsel would submit
that the ownership of goods could only be determined under the Sale of
C Goods Act read with the Indian Contract Act; that the customs duty is
collected from the person having possession of goods at the time of
importation, who need not be the owner of good, as appearing from the
definition of “importer” under the Customs Act, which includes “owner
and any other person”; that in distinction to the customs duty, sales tax is
D a tax on the transaction of sales or purchase when ownership of goods
is transferred and the questions as to when does the sale take place and
who is the owner of goods would be determined only under the Sale of
Goods Act, and not under the Customs Act. With a strong reliance on
the decision of this Court in the case of Union of India and Anr. v.
Sampat Raj Dugar and Anr.: (1992) 2 SCC 66, learned counsel has
E submitted that the definition of importer in the Customs Act only indicates
the person who is in possession of goods at the time of filing of bill of
entry but does not indicate the title to the goods.
16.7. As regards raising of debit note, learned counsel has argued
that the respondent has tried to rely upon a subsequent debit note raised
F by the appellant on Radha to conclude that the sale took place after the
goods crossed the customs frontiers of India but, as per the definition
contained in Section 2(g) of the CST Act, “sale” includes transfer of
property in goods for deferred payment and therefore, issuance of debit
note on a later date is of no effect on the passing of title of goods, which
G had taken place before the goods crossed the customs frontiers of India.
According to the learned counsel, endorsement of the bill of lading and
its date are the only factors relevant for determination as to whether the
sale in question is covered by Section 5(2) of the CST Act or not; and all
other factors are irrelevant for determining the core issue regarding point
of sale; and the High Court has been in error in proceeding on irrelevant
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 941
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
considerations while ignoring the relevant aspects and the law applicable A
to the case.
16.8. In the alternative part, learned counsel has contended that
the High Court, despite indicating its disinclination to reappreciate the
evidence in writ jurisdiction, has proceeded to render findings on fact
rather than relegating the matter to the appellate authority. While relying B
on the decision in the case of Star Paper Mills Ltd. v. Union of India
and Ors.: 1995 Supp (4) SCC 674, the learned counsel would submit
that the appellant may be allowed to contest the matter in the statutory
appeal, particularly in view of the facts involved.
17. Per contra, learned counsel for the respondent has contended C
that on a conjoint reading of the agreements sought to be relied upon by
the appellant and the appellant’s dealing with the goods before the customs
frontier at Visakhapatnam, make it clear that the alleged agency
agreement between the appellant and Radha was a sham and nominal
document, drawn only for the purpose of evasion of tax liability under
the CST Act. The learned counsel would submit that the alleged agency D
agreement played no role at all in the import transaction and it was the
appellant alone who was the real importer and was rightly treated so.
The learned counsel would further submit that the documents presented
by the appellant before the customs frontier at Visakhapatnam could not
have shown Radha as the real importer since the high seas sale E
agreement designated appellant as the buyer; and the customs frontier
at Visakhapatnam was not called upon to even consider the agency
agreement as the basis for the bill of entry.
17.1. Learned counsel for the respondent has emphatically argued
that in the given set of facts and circumstances, while reading the F
agreements in question and the real intent behind them, coupled with
filing of bill of entry by the appellant, the conclusion drawn by the High
Court that the appellant alone was the importer remains unexceptionable.
Learned counsel would also submit that the import was complete only
by and through the appellant and until completion of importation, Radha
was nowhere in picture; and the monetary transactions between the G
appellant and Radha are proof enough of the transaction of sale between
them after the goods had crossed the customs frontiers of India. In
other words, according to the learned counsel, delivery of goods to Radha
by the appellant and their movement from Visakhapatnam (in the State
of Andhra Pradesh) on way to Lucknow (in the State of Uttar Pradesh) H
942 SUPREME COURT REPORTS [2021] 3 S.C.R.
A constituted an inter-State sale and hence, the appellant has rightly been
held liable to tax for this inter-State sale.
17.2. While distinguishing the decisions cited on behalf of the
appellant, learned counsel for the respondent has argued that the relied
upon decisions, essentially relating to the questions as to what triggered
B an import and when did the title pass on to an importer, are not relevant
for the purpose of deciding as to who has been the importer in the present
case. This question, according to the learned counsel, has rightly been
examined by the Assessing Officer with reference to the nature of dealings
of the parties and such conclusions have rightly been endorsed by the
High Court.
C
18. We have heard learned counsel for the parties at length and
have scanned the record with reference to the law applicable.
19. In summation of what has been noticed hereinabove, it is
apparent that while asserting that the sales in question took place “in the
D course of the import” and do qualify for exemption under Section 5(2) of
the CST Act, the main plank of the case of the appellant is that in
accordance with the quadripartite agreements, the appellant had
transferred the goods on high seas (before goods had crossed the customs
frontiers of India) by endorsing the bills of lading in favour of the
respective end-buyers and that had completed the sale. On the other
E hand, the mainstay of the department is that the appellant alone cleared
the goods from the customs area after filing the respective bills of entry
and thereafter raised debit notes showing sales to the end-buyers; and
such sales having taken place only after the goods crossing the customs
frontiers of India and the end-buyers being situated outside the State of
F Andhra Pradesh to whom the goods were dispatched, the sales in
question had only been inter-State sales. The appellant’s counter to such
a stand of the department is that filing of bill of entry and assessment to
customs duty in accordance with the Customs Act are not the factors
determinative of the ownership of goods because the importer could be
the owner or even any other person and merely becausethe appellant
G filed the bills of entry, the legal consequences of transfer of bill of lading
when the goods were on high seas cannot be ignored.
19.1. Therefore, the principal issue in these appeals is as to whether
the sales in question took place in the course of the import of the goods
into the territory of India and qualify for exemption under Section 5(2) of
H the CST Act?
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 943
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
Sale in the course of import: Connotations A
20. For determination of the principal issue and variety of questions
arising in this matter, at the outset, a brief insight into the constitutional
and statutory provisions relating to the “sale in the course of import”
shall be apposite.
20.1. Under Article 286 of the Constitution of India, restrictions B
have been placed on the power of the State as to imposition of tax on the
specified category of sales and purchases. At the relevant point of time,
Clauses (1) and (2) of Article 286 read as under11:-
“286.Restrictions as to imposition of tax on the sale or
purchase of goods.-(1) No law of a State shall impose, or C
authorize the imposition of, a tax on the sale or purchase of goods
where such sale or purchase takes place—
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the D
goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
mentioned in clause (1).”
20.2. In exercise of its powers under Clause (2) of Article 286, E
the Parliament has enacted the Central Sales Tax Act, 1956. In Section
3, thereof, it is laid down that a sale or purchase of goods shall be deemed
to take place in the course of inter-State trade or commerce if the sale
or purchase-(a) occasions the movement of goods from one State to
another; or (b) is effected by a transfer of documents of title to the
F
goods during their movement from one State to another. Section 3 with
its Explanation 1 and Explanation 2 could also be usefully extracted as
under12:-
“3.When is a sale or purchase of goods said to take place
in the course of inter-State trade or commerce. —
G
11
This Article 286 has undergone a few amendments later which need not be referred
herein.
12
Explanation 3 inserted to this Section 3 by Act 28 of 2016 is not relevant for the
present purpose. H
944 SUPREME COURT REPORTS [2021] 3 S.C.R.
A A sale or purchase of goods shall be deemed to take place in the
course of inter-State trade or commerce if the sale or purchase—
(a) occasions the movement of goods from one State to another;
or
(b) is effected by a transfer of documents of title to the goods
B during their movement from one State to another.
Explanation 1. — Where goods are delivered to a carrier or other
bailee for transmission, the movement of the goods shall, for the
purposes of clause (b), be deemed to commence at the time of
such delivery and terminate at the time when delivery is taken
C from such carrier or bailee.
Explanation 2. — Where the movement of goods commences
and terminates in the same State it shall not be deemed to be a
movement of goods from one State to another by reason merely
of the fact that in the course of such movement the goods pass
D through the territory of any other State.”
20.3. The basic principles for determining as to when a sale or
purchase of goods takes place in the course of import or export are
contained in Section 5 of the CST Act. As per sub-section (1) of Section
5, a sale or purchase of goods shall be deemed to take place in the
E 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. Under sub-section (2), a sale or purchase of
goods shall be deemed to take place in the course of the import of the
F goods into the territory of India only if the sale or purchase either occasions
such import or is effected by a transfer of documents of title to the
goods before the goods have crossed the customs frontiers of India.In
the present case, we are only concerned with sub-section (2) of Section
5 relating to the course of import and hence, may extract the relevant
part of Section 5 of the CST Act as under:-
G
“5. When is a sale or purchase of goods said to take place
in the course of import or export. —
xxx. xxx xxx
(2) A sale or purchase of goods shall be deemed to take place in
H the course of the import of the goods into the territory of India
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 945
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
only if the sale or purchase either occasions such import or is A
effected by a transfer of documents of title to the goods before
the goods have crossed the customs frontiers of India.
xxx xxx xxx”
20.4. The definition/meaning of the expressions “crossing the
customs frontiers of India” and “sale”, as occurring at the relevant time B
in Clauses (ab) and (g) of Section 2 of the CST Actmay also be usefully
noticed as under13:-
“(ab) “crossing the customs frontiers of India” means crossing
in the limits of the area of a customs station in which imported
goods or export goods are ordinarily kept before clearance by C
customs authorities.
Explanation.- For the purposes of this clause, “customs station”
and “customs authorities” shall have the same meanings as in
the Customs Act, 1962 (52 of 1962);
D
(g) “sale”, with its grammatical variations and cognate expressions,
means any transfer of property in goods by one person to another
for cash or deferred payment or for any other valuable
consideration, and includes,—
(i) a transfer, otherwise than in pursuance of a contract, of property
E
in any goods for cash, deferred payment or other valuable
consideration;
(ii) a transfer of property in goods (whether as goods or in some
other form) involved in the execution of a works contract;
(iii) a delivery of goods on hire-purchase or any system of payment F
by instalments;
(iv) a transfer of the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred payment
or other valuable consideration;
G
13
At the relevant time, the expression goods was defined in the CST Act in Section 2(d)
as under:-
“(d) “goods” includes all materials, articles, commodities and all other kinds of
movable property, but does not include newspapers actionable claims, stocks,
shares and securities.”
Indisputably, the goods in question were covered in the said definition. H
946 SUPREME COURT REPORTS [2021] 3 S.C.R.
A (v) a supply of goods by any unincorporated association or body
of persons to a member thereof for cash, deferred payment or
other valuable consideration; (vi) a supply, by way of or as part of
any service or in any other manner whatsoever, of goods, being
food or any other article for human consumption or any drink
(whether or not intoxicating), where such supply or service, is for
B
cash, deferred payment or other valuable consideration, but does
not include a mortgage or hypothecation of or a charge or pledge
on goods;”
20.5. The expression “crossing the customs frontiers of India”
refers to “customs port” and “customs station”, as defined in the Customs
C Act. Hence, we may usefully refer to the relevant definitions in Clauses
(11), (12), (13) and (29) of Section 2 of the Customs Act, as applicable
at the relevant time, asunder:-
“(11) “customs area” means the area of a customs station14 and
includes any area in which imported goods or export goods are
D ordinarily kept before clearance by Customs Authorities;
(12) “customs port” means any port appointed under clause (a)
of section 7 to be a customs port and includes a place appointed
under clause (aa) of that section to be an inland container depot;
E (13) “customs station” means any customs port, customs airport 15
or land customs station;
(29) “land customs station” means any place appointed under
clause (b) of section 7 to be aland customs station;”
20.6. Having regard to the submissions made and the questions
F raised, we may also take note of the definition of the expression
“document of title to goods” in Section 2(4) ofthe Sale of Goods Actas
under:-
“(4) “document of title to goods” includes a bill of lading, dock-
warrant, warehouse keeper’s certificate, wharfingers’ certificate,
G railway receipt, multimodal transport document, warrant or order
for the delivery of goods and any other document used in the
ordinary course of business as proof of the possession or control
14
The words “or a warehouse” inserted at this place by Act 18 of 2017
15
The words “customs airport, international courier terminal, foreign post office”
H substituted in place of “customs airport” at this place by Act 7 of 2017
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 947
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
of goods, or authorizing or purporting to authorise, either by A
endorsement or by delivery, the possessor of the document to
transfer or receive goods thereby represented;”
21. The meaning, connotation, effect and operation of the said
provisions related with ‘sale in the course of import’ had come up for
consideration in several decisions of this Court and had been the subject B
matter of adjudication in variegated factual setups concerning the
transactions and the dealings of the parties involved. Before entering
into all the necessary niceties, we may usefully notice that the phrase
‘sale in the course of import’carries three essential features - (i) that
there must be a sale; (ii) that goods must actually be imported into the
territory of India; and (iii) that the sale must be part and parcel of the C
import. A sale would become part and parcel of import if it either
occasions such import or if it occursby way of a transfer of document of
title to the goods before the goods cross the customs frontiers of India.
22. Having taken note of the essential features of the phrase ‘sale
in the course of import’, we may now refer to the cited decisions, to find D
the expositions therein and examine their applicability to the present case.
22.1. In the Constitution Bench decision of this Court in the case
of J. V. Gokal & Co. (supra), the petitioner company entered into two
contracts on 24.03.1954 and 15.04.1954 with Government of India for
selling two consignments of sugar - One of 9,500 long tons of Peruvian E
origin and the other of 25,000 metric tons of continental origin. The
petitioner placed orders with dealers in foreign countries. Some weeks
before the vessel carrying the goods in question arrived at the Bombay
harbour i.e., when the vessels were on the high seas, the Government of
India received the documents of title, including bills of lading, pertaining F
to the sugar purchased by them and paid the price to the petitioner. After
the goods reached the port, they were unloaded, taken delivery of, and
cleared by the Government of India after paying the requisite customs
duties.For the assessment year 1954-55, the petitioner was assessed to
sales tax wherethe Sales Tax Officer deducted the price of the said two
sales from the petitioner’s turnover. However, on 31.01.1958, the G
Assistant Collector of Sales Tax issued notice to the petitioner, proposing
to review the said assessment. The petitioner filed its objections
contending, inter alia, that the sales had taken place in the course of
import and therefore they were not liable to sales tax. The first respondent
rejected the contentions of the petitioner and held that sales tax was H
948 SUPREME COURT REPORTS [2021] 3 S.C.R.
A payable in respect of said two transactions. The petitioner questioned
the demand notice consequently issued against it by way of the petition
in this Court. It was contented, inter alia, that the sales in question were
not liable to sales tax inasmuch as they took place in course of import of
the goods into the territory of India. This Court examined the questions
as to what does the phrase “in the course of the import of the goods into
B
the territory of India” convey and when could it be said that a sale has
taken place in the course of import journey. This Court referred to various
decisions including the opinions expressed in the case of Shanmugha
Vilas Cashew Nut Factory (supra) and said as under:-
“9……We respectfully agree with the aforesaid observations of
C the learned Judges. The course of the import of the goods may be
said to begin when the goods enter their import journey i.e. when
they cross the customs barrier of the foreign country and end
when they cross the customs barrier of the importing country.
10. The next question is, when can it be said that a sale
D takes place in the course of import journey? This Court in State
of Travancore-Cochinv. The Bombay Co. Ltd., held that a sale
which occasioned the export was a sale that took place in the
course of export of the goods. If A, a merchant in India, sells his
goods to a merchant in London and puts through the transaction
E by transporting the goods by a ship to London, the said sale which
occasioned the export is exempted under Art. 286(1)(b) of the
Constitution from the levy of sales-tax. The same principle applies
to a converse case of goods which occasioned the import of the
goods into India. This Court again inState of Travancore-Cochhin
and Ors. v. Shanmugha Vilas Cashewnut Factory extended
F the doctrine to a case of sale or a purchase of goods effected
within the State by transfer of shipping documents while the goods
were in the course of transit. The decision dealt with three types
of purchases viz. (i) purchases made in the local marker; (ii)
purchases made in the neighbouring districts of an adjacent State;
G and (iii) imports from Africa. The imports from Africa consisted
of two groups - one group consisted of goods that were purchased
when they were on the high seas and shipped from the African
ports to Cochin or Quilon: we are not concerned with the other
group. In the said case some commission agents at Bombay
arranged for the purchase on behalf of the assessee, got delivery
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 949
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
of the shipping documents at Bombay through a bank which A
advanced money against the shipping documents and collected
the same from the assesses at destination. This Court, by a majority,
held that, in respect of the purchases falling under the first group
of imports, the commission agents acted merely as agents of the
respondents therein and that the said purchases occasioned the
B
import and therefore came within the exemption. That was not a
case where the goods were sold by an importer in India to a third
party when the goods were on the high seas. It was a case where
a party in Cochin purchased goods which were on the high seas
through his agent at Bombay and the agent paid the price through
a bank against the shipping documents. But the learned Judge, C
Patanjali Sastri, C.J., expressing the majority view, considered
the scope of the exemption in all its aspects and summarized the
conclusions thus p. 69 :
“Our conclusion may be summed up as follows:(1) Sales by
export and purchases by import fall within the exemption under D
article 286(1)(b) ...... (2) Purchases in the State by the exporter
for the purpose of export as well as sales in the State by the
importer after the goods have crossed the customs barrier are
not within the exemption. (3) Sales in the State by the exporter
or importer by transfer of shipping documents while the goods
are beyond the customs barrier are within the exemption, E
assuming that the State power of taxation extends to such
transactions.”
Das, J., as he then was, in his dissenting judgment, agreed with
Patanjali Sastri, C.J., on the third conclusion with which we are
now concerned. The learned Judge put forward his view at p. 94 F
thus:
“Such sales or purchases, by delivery of shipping documents
while the goods are on the high seas on their import journey
were and are well recognised species of transactions done
every day on a large scale in big commercial towns like Bombay G
and Calcutta and are indeed the necessary and concomitant
incidents of foreign trade. To hold that these sales or purchases
do not take place ‘in the course of’ import or export but are to
be regarded as purely ordinary local or home transactions
distinct from foreign trade, is to ignore the realities of the H
950 SUPREME COURT REPORTS [2021] 3 S.C.R.
A situation. Such a construction will permit the imposition of tax
by a State over and above the customs duty or export duty
levied by Parliament. Such double taxation on the same lot of
goods will increase the price of the goods and, in the case of
export, may prevent the exporters from competing in the world
market and, in the case of import, will put a greater burden on
B
the consumers. This will eventually hamper and prejudicially
affect our foreign trade and will bring about precisely that
calamity which it is the intention and purpose of our Constitution
to prevent.”
The learned Judge also in his judgment elaborately considered the
C great hardship that would be caused to an Indian importer if he
was not permitted to sell the goods which were on the high seas
by delivery of shipping documents against payment. Though that
case dealt with a different situation, we agree with the learned
Judge’s observations that an importer can, if he receives the
D shipping documents, transfer the property in the goods when they
are on the high seas to a third party by delivering to him shipping
documents against payment and such a sale is one made in the
course of import.”
22.1.1. The Court thereafter proceeded to summarize the legal
E position in respect of import sale in the following words:-
“11. The legal position vis-a-vis the import-sale can be
summarized thus; (1) The course of import of goods starts at a
point when the goods cross the customs barrier of the foreign
country and ends at a point in the importing country after the
F goods cross the customs barrier; (2) the sale which occasions the
import is a sale in the course of import; (3) a purchase by an
importer of goods when they are on the high seas by payment
against shipping documents is also a purchase in the course of
import, and (4) a sale by an importer of goods, after the property
in the goods passed to him either after the receipt of the documents
G of title against payment or otherwise, to a third party by a similar
process is also a sale in the course of import.”
22.1.2. Having expounded on the legal position, the Court
examined the facts of the case and held that the case fell under the
fourth principle aforesaid when the petitioner, pursuant to the earlier
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 951
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
contract with the Government, delivered the shipping documents including A
the bill of lading to the Government against payment when the goods
were on high seas. Hence, it was held that the sales in question took
place in the course of imports of goods into India. The Court also
scrutinized the terms of contract to ascertain whether they disclosed
any intention of the parties that notwithstanding the delivery of bills of
B
lading against payment, the property in the goods should not pass to the
Government and held, after scrutiny of all the terms of contract that
they did not indicate any such intention. Though the scrutiny and analysis
of the terms of contract relates to the facts of that case only but
worthwhile it would be to reproduce the same to indicate that ultimately,
on the facts, the Court found that the sale took place in the course of C
import. The Court analysed and held as follows:-
“13. Let us now scrutinize the terms of the contract to
ascertain whether they disclose any intention of the parties that
notwithstanding the delivery of the bill of lading against payment
the property in the goods should not pass to the Government. The D
circumstances under which the contracts were entered into
between the parties indicate that both the parties were interested
to see that property in the goods passed in the ordinary way when
the shipping documents were handed over to the Government
against payment. The sellers had to meet their liability to the foreign
companies with whom they opened letters of credit and the E
Government must have been anxious to get the title to the goods
so that the sellers might not divert the goods towards their other
commitments or to other buyers for more tempting prices. Under
the contract every safeguard for securing the goods of agreed
specifications was provided for in the earlier clauses and therefore F
there was no reason for postponing the passing of the property in
the goods to the buyer till the goods were actually delivered in the
port. The sellers on their side would have been anxious that the
property should pass when the goods were on the high seas, for
otherwise they would be compelled to pay sales-tax. Nor are the
clauses of the contracts relied upon by the respondents inconsistent G
with the property in the goods passing in accordance with the
mercantile usage. ……….
14. Apart from the terms of the contract, reliance is also
placed by the learned counsel for the respondents on the following
H
952 SUPREME COURT REPORTS [2021] 3 S.C.R.
A circumstances: (i) the seller himself chartered the ship; and (ii)
the licence issued by the Government was made non-transferable.
We do not see how these two facts indicate the contrary intention.
If the seller himself chartered a steamer, when the goods he
purchased were loaded in the ship, the property in the goods passed
to him and therefore he was in a position to sell the same to the
B
Government. The fact that the licence was non-transferable has
no relation to the property in the goods passing to the Government.
……….
15. For all the foregoing reasons we hold that the property
in the goods passed to the Government of India when the shipping
C documents were delivered to them against payment. It follows
that the sale of the goods by the petitioner to the Government of
India took place when the goods were on the high seas.
16. That being so, the sales in question must be held to
have taken place in the course of the import into India and therefore
D they would be exempted from sales tax under Art. 286(1)(b) of
the Constitution.”
22.2. It does not appear necessary to dilate further on the decision
in the case of Shanmugha Vilas Cashew Nut Factory (supra) which
had been, as noticed, considered in detail in the case of J.V. Gokal &
E Co. (supra). However, another decision cited on behalf of the appellant
and relating to multiple transactions involving import, being the Orissa
case of Minerals & Metals (supra), need to be noticed. The fact situation
in that case had been that the appellant, a Government of India
undertaking,was functioning as a canalising agent for import and export
F of minerals and metals. On 31.03.1991, Steel Authority of India Limited
(SAIL) requested appellant to register import of 15,000MT of tin mill
black plate coils. On 14.07.1991, SAIL opened a letter of credit directly
in favour of the exporter, M/s. Samsung Co. Ltd., Seoul, South Korea.
The consignee therein was shown as SAIL. On 02.08.1991, the appellant
placed a purchase order with the exporter for and on behalf of SAIL.
G On 16.08.1991, the appellant wrote to SAIL enclosing a copy of its
purchase order and stating that they shall arrange delivery on high seas
by endorsement and transfer of shipping documents after the documents
have been paid by the banker. On 23.10.1991, the appellant sent to SAIL
its invoice, adjusting the amount that had already been paid by SAIL
H through its bankers. On 28.10.1991, the appellant wrote to SAIL that it
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 953
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
had decided to make a high seas sale of the said coils to SAIL. Accordingly, A
the documents, including the original bill of lading, with due endorsement,
were sent to SAIL to get the said coils cleared. On the same day, the
appellant wrote to Assistant Collector of Customs, Paradeep Port, Cuttack
that the said coils had been imported by the appellant and had been sold
to SAIL on high seas basis and SAIL would process the bill of entry and
B
pay the customs duty. The vessel arrived at Paradeep Port on 11.11.1991.
Then, on 18.11.1991, the bill of entry in respect of the said coils was
submitted and processed by SAIL. However, on 31.12.1994, the Sales
Tax Officer levied sales tax on the aforesaid sale while rejecting the
case of the appellant that no sales tax was payable, this being a sale in
the course of import covered by Section 5(2) of the Central Sales Tax C
Act, 1956. The Sales Tax Officer held that there had been two sales,
one between the exporter and the appellant and the other between the
appellant and SAIL; and that the sale to SAIL had not occasioned the
import. There had been another sale made by the appellant to Paradeep
Phosphates Ltd., the facts whereof were similar. The appellant’s
D
challenge to the levy of sales tax on the aforesaid sales failed in the High
Court and hence, the matter was before this Court.
22.2.1. After taking note of the relevant constitutional and statutory
provisions as also the decision in J.V. Gokal & Co. (supra), this Court
said thus:-
E
“The judgment states that it is well settled in the commercial
world that a bill of lading represents the goods and the transfer of
it operates as the transfer of goods. The delivery of the bill of
lading while the goods are afloat is equivalent to the delivery of
the goods themselves.”
F
22.2.2. The Court examined the facts of the case and held the
sales in question to be those in the course of import in the following
words:-
“9. The facts aforestated, based upon documents, show
that the bill of lading had been endorsed in favour of SAIL while G
the consignment of the said coils was still upon the high seas. The
sale, therefore, was a sale in the course of the import of the said
coils into the territory of India; it was effected by transfer of the
documents to the said coils before they had crossed the limits of
the customs station at Paradeep Port. The position would be the
same in respect of the goods sold to Paradeep Phosphates Ltd.” H
954 SUPREME COURT REPORTS [2021] 3 S.C.R.
A 22.3. The appellants have cited the decision in the case of Embee
Corporation (supra) to submit that the terms ‘sale occasioning movement
of goods’ and ‘sale occasioning import of goods’ in Sections 3 and 5 of
the CST Act carry the same meaning; and that the use of words “sale of
goods” in Section 3 of the CST Act and the words “contract of sale” in
Section 4(2) of the Sales Tax Act were assigned the same meaning,
B
which is much wider than the meaning of sale in general law. In the said
case, this Court examined the definition of sale as existing at the relevant
time in Section 2(g) of the CST Act and held as under:-
“6. On perusal of the aforesaid provisions of the Act, the
question that arises for consideration herein is, what meaning should
C be given to the expression “sale occasions import”. It is almost
settled by numerous decisions of the Supreme Court that the
expression “sale occasions import” is to be interpreted in the same
manner in which the expression “occasions the movement of
goods” occurring in Section 3(a) of the Act has received
D interpretation. In other words, the expression “sale occasions
import” has to be given the same meaning which the expression
“occasions the movement of goods” has received by the Courts.
In the light of aforesaid settled legal position emerging from the
Constitution Bench decisions, we will now examine the meaning
of “sale” as defined in the Act. Section 2(g) of the Act defines
E “sale” thus:
2(g) ‘sale’, with its grammatical variations and cognate
expressions, means any transfer of property in goods by one
person to another for cash or for deferred payment or for any
other valuable consideration, and includes a transfer of goods
F on the hire-purchase or other system of payment by
installments, but does not include a mortgage or hypothecation
of or a charge or pledge on goods;
7. The above definition of “sale” in the Act shows that the
word “sale” has been given a very wide meaning so as to include
G not only the sale of goods, but also the transactions, namely, a
transfer of goods on hire-purchase system. Further, the use of
words “sale of goods” in Section 3 of the Act and the words
“contract of sale” occurring in Section 4(2) of the Act have been
assigned the same meaning which is wider than the meaning of
H sale in the general law. In such a situation the word “sale” defined
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 955
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
in Section 2(g) of the Act and employed in Section 3 and other A
sections of the Act would embrace not only completed contract,
but also the contract of sale or agreement of sale if such contract
of sale or agreement of sale provides for movement of goods or
movement of goods is incident of the contract of sale. This matter
may be examined from another angle. An agreement to transfer
B
goods to the buyer for a price is an important element of sale and
the same is also borne out from Section 4 of Sale of Goods Act. If
Section 4 of the Sale of Goods Act is read along with Sections 3
and 4 of the Act, it would mean an agreement to sell would also
be a sale within the meaning of sale provided such agreement of
sale stipulates for transfer or movement of goods or movement of C
goods is incident of the contract of sale and in that case, such
movement of goods would be deemed to be occasioned by the
sale. It is immaterial that actual sale does not take place at that
time of movement of goods and takes place later on. This
interpretation of Section 3(a) of the Act if applied to sub-section(2)
D
of Section 5 of the Act, would mean that if an agreement for sale
stipulates import of goods or import of goods is incident of contract
of sale and goods have entered the import stream, such import
would fall within the expression “sale occasions import”.In the
present case, the import of Carbamite is direct result of the
contract of sale and as such it can be safely held in the present E
case that sale has occasioned the import.”
22.3.1. In the said case of Embee Corporation, the respondent/
assessee, who was engaged in the business of buying and selling chemical,
replied to the invitation of tender of Director General of Supplies and
Disposal (DGS&D) for the supply of Carbamite. The tender of the F
respondent was accepted by DGS&D with a few conditions including
the one that the contracted material shall be inspected by the Chief
Inspector, C.I.M.E., Kirkee, Pune at Bombay Port and the General
Manager, Cordite Factory, Aruvankadu was mentioned as the indentor.
The respondent mentioned the name of the supplier from Germany from
whom the materials were to be imported and for which, import G
recommendation certificate was required. The required import
recommendation certificate was issued whereupon the authority
concerned issued the requisite licence with the condition, inter alia, that
the goods imported shall be utilised in the manner stipulated in DGS&D’s
letter and the imported materials shall not be utilised or disposed of in H
956 SUPREME COURT REPORTS [2021] 3 S.C.R.
A any other manner. The DGS&D also furnished the necessary end-use
certificate. In the bill of lading, the name of respondent was shown as a
party to be notified and the General Manager, Cordite Factory Aruvankadu
was described as the consignee of Carbamite. After the consignment
arrived, the same was forwarded to the consignee so named in the
contract.Once the goods were supplied to DGS&D, the respondent
B
claimed exemption from levy of sales tax on the ground that the supply
under the contract was a sale in the course of import of goods into India.
The plea of the respondent was rejected by the department and the
Tribunal. The High Court, however, held that there were two sales: One
between the respondent and DGS&D and the other between the foreign
C supplier and the respondent; and that the sale had occasioned the import
of material, liable for exemption from sales tax under the CST Act. In
the appeal, this Court while dismissing the appeal of the State, was of
the view that while interpreting the expression “sale occasions import”
occurring in Section 5(2) of the Act, it was not necessary that a completed
sale should precede the import.
D
22.4. In the case of Tata Iron and Steel Co. (supra), the petitioner
was engaged in the business of manufacturing and selling iron and steel
goods and had its factory at Jamshedpur in the State of Bihar and Head
Sales office at Calcutta in the State of West Bengal. The petitioner was
registered as dealer under the Bihar Sales Tax Act as also under the
E Central Sales Tax Act in the State of West Bengal. For the period of
assessment 01.07.1957 to 31.03.1958, the petitioner submitted its return
of taxable sales to the Commercial Tax Officer, Lyons Range, Calcutta,
disclosing the gross taxable turnover in respect of sales liable to Central
Sales Tax in the State of West Bengal. The said Commercial Tax Officer
F directed the petitioner to submit a statement of sales from Jamshedpur
for the period under assessment, “documents relating to which were
transferred in West Bengal or of any other sales that may have taken
place in West Bengal under Section3(b) of the Central Sales Tax Act,
1956”. The petitioner, by its letter dated 30.09.1959, informed the Tax
Officer that the requisition for production of statement of sales made
G from Jamshedpur in the course of inter-State trade or commerce was
without jurisdiction while contending that “all the sales from Jamshedpur
were of the type mentioned in Section 3(a) of the Central Sales Tax Act
and at the same time, some of them also fell within the category mentioned
in Section 3(b) of the Act”; that even if the sales were “of the type
H mentioned in Section 3(b) of the Act, the appropriate State of the place
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 957
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
where the sales take place or are effected alone had jurisdiction to assess A
such sales to Central sales tax”; and that in respect of inter-State sales
from Jamshedpur, the situs of the sale was always the State of Bihar as
the goods were in Bihar either at the time of the contract of sale or at
the time of appropriation to the contract. However, the Tax Officer
proceeded to make ‘best judgment assessment’ on a gross turnover while
B
including the disputed sales too which were accounted for in the return
filed with the Sales Tax Officer, Jamshedpur. Hence, in the said case,
the petitioner Company felt aggrieved of the proposition of the Tax Officer
at Calcutta to recover Central Sales Tax in respect of the sales which
were included in the assessment proceedings before the Bihar Sales
Tax Authorities. In the given backdrop, this Court expounded on the C
scope of Section 3 of the CST Act, inter alia, in the following:-
“18. In our view, therefore, within clause (b) of section 3 are
included sales in which property in the goods passes during the
movement of the goods from one State to another by transfer of
documents of title thereto: clause (a) of Section 3 covers sales, D
other than those included in clause (b), in which the movement of
goods from one State to another is the result of a covenant or
incident of the contract of sale, and property in the goods passes
in either State”
This Court pointed out the error on the part of the Tax Officer at E
Calcutta and held as under:-
“30. The Commercial Tax Officer has taxed all the sales effected
by the company under Section 3, clause (b), on the view that
sales in which the documents of title were handed over in Calcutta
were taxable in the State of West Bengal. The assessment is F
made on two assumptions, (1) that all the sales effected in favour
of West Bengal parties satisfied the conditions prescribed by
Section 3(b), and (2) that the place where the documents are
delivered by the company through its Head Sales Office to the
purchaser is the place where the sale is effected. Neither of these
assumptions is correct. The Commercial Tax Officer had, in our G
judgment, to ascertain before he could order payment of tax under
the Central Sales Tax Act, whether on the materials he was
satisfied, (a) that the goods at the time of transfer of documents
of title were in movement from the State of Bihar to the State of
West Bengal, (b) that the place where the sale was effected was H
958 SUPREME COURT REPORTS [2021] 3 S.C.R.
A under Section 4, clause (2), within the State of West Bengal. The
Commercial Tax Officer has, in our view, failed to apply the correct
tests and has made assumptions which are not warranted and on
a true interpretation of the provisions of the Central Sales Tax
Act, the order of assessment discloses an error apparent on its
face and a writ of certiorari must issue quashing the assessment.
B
It will be for the Commercial Tax Officer of West Bengal to re-
assess the company in respect of transactions of sale which are
properly taxable within the State of West Bengal by the application
of the test which we have already set out.”
22.5. Learned counsel for the appellant has also attempted to rely
C upon the decision in the case of Hotel Ashoka (supra) which was
rendered in the fact situation where the goods were kept in the bonded
warehouse and were made available in the duty-free shops for sale.
This Court opined that since the goods were supplied to the duty-free
shops situated at the International Airport, Bengaluru for sale, it cannot
D be said that the said goods had crossed the customs frontiers of India.
The Court finally answered the claim of the appellants therein on the
finding that the liquor, cigarettes, perfumes and food articles were sold
“at the duty-free shops” at the International Airport, Bengaluru, for which
no tax was payable by the appellants as the goods sold at the duty-free
shops were sold directly to the passengers and even the delivery of
E goods took place at the duty-free shops before importing the goods or
before the goods had crossed the customs frontiers of India. The issue
considered in the said decision, therefore, was as to whether the sale at
the duty-free shops situated at the Bengaluru International Airport would
attract levy of sales tax.
F 23. Before proceeding further, we may cull out the relevant
attributes of the decisions aforesaid vis-à-vis the questions involved in
the present case.
23.1. The basic question in the case of Hotel Ashoka (supra)
was as to whether the sales at duty-free shops would attract levy of
G sales tax. As noticed earlier, the definition of “customs station” clearly
refers to customs airport as defined in Section 2(10) of the Customs
Act. As the duty-free shop is situated in airport area, the sale of goods at
the duty-free shop was deemed to have taken place in the course of
import of the goods into the territory of India and before the goods crossing
H customs frontiers of India. In the present case, the appellant alleges that
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 959
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
the sale took place on high seas before goods had crossed customs A
frontiers of India, whereas the department contends that the sale in
question took place after the appellant had filed the bill of entry for home
consumption and the goods were taken out of the bonded warehouse. It
is but apparent that the decision in Hotel Ashoka (supra), relating to the
sale of goods at duty-free shops, has no relevance whatsoever to the
B
present case. The decision in Tata Iron and Steel Co. (supra) also
related to an entirely different factual set up and the question involved
therein was also different. The said case related to the movement of
goods from one State to another on the sale made by the petitioner-
company having its works in the State of Bihar and having sales office
at Calcutta in the State of West Bengal. What was sought to be taxed in C
the State of West Bengal were the sales in which the documents of title
were handed over in that State on the assumption that the sales effected
in favour of West Bengal parties satisfied the conditions prescribed by
Section 3(b) of CST Act; and that the place where the documents were
delivered by the company to the purchaser was the place where the sale
D
was effected. The enunciations in the said case as regards the operation
of Section 3 of CST Act do not call for any debate but they hardly
provide any guide for determination of the real questions involved in the
present matter. Similarly, the observations in Embee Corporation (supra)
to the effect that “sale occasioning movement of goods” and “sale
occasioning import of goods” respectively in Section 3 and Section 5 of E
CST Act carry the same meaning are not of much dispute. The other
observations, that for interpreting the expression “sale occasions import”
occurring in Section 5(2) of the Act, it is not necessary that a completed
sale should precede the import, shall have their implication only when
the nature of dealings of the parties in the transactions in question and
F
the effect of movement of goodsare examined.
23.2. This takes us to the decisions of this Court in Minerals &
Metals (Orissa case) and in J. V. Gokal & Co. (supra).
23.2.1. As noticed, in the case of Minerals & Metals (Orissa
case), the appellant, a Government of India undertaking, had been G
functioning as canalising agent for import and export of minerals. It was
in such a capacity that the appellant was requested by SAIL to ensure
import of the goods in question and the appellant took up the proceedings
accordingly. The dealings of the parties made it clear that the appellant
had sold the goods to SAIL on high seas by endorsement on the bill of
H
960 SUPREME COURT REPORTS [2021] 3 S.C.R.
A lading. The fact was duly communicated to the port authorities too.
Significantly, when the vessel arrived at the port of destination, the bill of
entry in respect of the goods was submitted and processed by SAIL, the
end-buyer. This Court specifically found that bill of lading had been
endorsed in favour of SAIL while the consignment of goods was still
upon the high seas. It had been, on such findings of fact, that the sale in
B
question was held to be a sale in the course of import and having been
effected by transfer of goods (bill of lading) before they had crossed the
limits of customs frontiers of India.
23.2.2.The law declared in J. V. Gokal & Co. (supra) that bill of
lading represents the goods and its transfer operates as transfer of goods;
C and delivery of bill of lading while the goods are afloat is equivalent to
the delivery of goods (as duly applied by this Court in Minerals & Metals)
is neither of any doubt nor could be a matter of debate. However, in the
said case of J. V. Gokal & Co. too, on facts, it was found by the Court
that the petitioner, pursuant to the earlier contract with the Government,
D delivered the shipping documents including the bill of lading to the
Government against payment when the goods were on high seas. It was
also noticed that after the goods reached the port, they were unloaded,
taken delivery of, and cleared by the Government (the end-buyer) after
paying the requisite customs duties. Significantly, in J. V.Gokal & Co.,
the Constitution Bench went on to scrutinize the terms of contract to
E ascertain whether they disclosed any intention of the parties that
notwithstanding delivery of bill of lading against payment, the property in
goods should not pass and then, the Court found no such intention being
indicated. It was only after such finding on facts the Court held that the
sale of goods by the petitioner to the Government took place when the
F goods were on the high seas and hence, the sales took place in the
course of import into India.
23.2.3. Noteworthy common features in the decisions of this Court
in J. V. Gokal & Co. and Orissa case of Minerals & Metals (supra)
had been that pursuant to a previous contract with the end-buyer, the
G seller concerned arranged for importation of goods; and transferred the
property in goods in favour of the end-buyer by endorsement of bill of
lading when the goods were on high seas. Coupled with these, another
common feature had been that in both those cases, the goods in question,
upon reaching the port of destination, were taken delivery of, and cleared
by the end-buyer after paying the requisite customs duties. Those had
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 961
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
not been the cases like the present one where the seller purportedly A
acted as an intermediary and even after alleged transfer of bill of lading
when the goods were on high seas, filed the bill of entry for home
consumption at the port of destination and got the goods cleared from
the customs.
24. Apart from the decisions so cited, for taking into comprehension B
the nuances of ‘sale in the course of import’ with involvement of an
intermediary, we may take note of the case of K. Gopinathan Nair
and Ors. v. State of Kerala: (1997) 10 SSC 1 wherein, after a detailed
reference to various Constitution Bench decisions, this Court has
expounded on the factors to be reckoned for determining as to whether
a particular sale or purchase could be deemed to have taken place in the C
course of import. We may point out that the decision in this case of
K. Gopinathan Nair had been by a 3-Judge Bench of this Court where
the learned Judges differed in their views on the question as to whether
the transactions in question were in the course of import and, therefore,
immune under Section 5(2) of the CST Act. We shall refer to this decision D
and implication of different views therein over the factual setup of the
present case in the later part of this judgment. At present, we may
reproduce the relevant part of the decision of majority, delineating the
basic factors which are germane to determination of the question as to
whether a particular sale had been in the course of import or not, as
under:- E
“14. In the light of the aforesaid settled legal position emerging
from the Constitution Bench decisions of this Court the following
propositions clearly get projected for deciding whether the
concerned sale or purchase of goods can be deemed to take place
in the course of import as laid down by Section 5(2) of the Central F
Sales Tax Act:
(1) The sale or the purchase, as the case may be, must actually
take place.
(2) Such sale or purchase in India must itself occasion such import, G
and not vice versa i.e. import should not occasion such sale.
(3) The goods must have entered the import stream when they
are subjected to sale or purchase.
(4) The import of the goods concerned must be effected as a
direct result of the sale or purchase transaction concerned. H
962 SUPREME COURT REPORTS [2021] 3 S.C.R.
A (5) The course of import can be taken to have continued till the
imported goods reach the local users only if the import has
commenced through the agreement between foreign exporter and
an intermediary who does not act on his own in the transaction
with the foreign exporter and who in his turn does not sell as
principal the imported goods to the local users.
B
(6) There must be either a single sale which itself causes the
import or is in the progress or process of import or though there
may appear to be two sale transactions they are so integrally
interconnected that they almost resemble one transaction so that
the movement of goods from a foreign country to India can be
C ascribed to such a composite well-integrated transaction consisting
of two transactions dovetailing into each other.
(7) A sale or purchase can be treated to be in the course of import
if there is a direct privity of contract between the Indian importer
and the foreign exporter and the intermediary through which such
D import is effected merely acts as an agent or a contractor for and
on behalf of the Indian importer.
(8) The transaction in substance must be such that the canalizing
agency or the intermediary agency through which the imports are
effected into India so as to reach the ultimate local users appears
E only as a mere name lender through whom it is the local importer-
cum-local user who masquerades.”
25. The principles aforesaid would obviously apply to the present
case; and if the factors so indicated are answered in favour of the
appellant, it could be treated to be a matter of sale in the course of
F import.
26. In order to bring the case within the four-corners of the factors
aforesaid, the appellant has suggested existence of quadripartite
agreement whereby and whereunder,the supplier (party number 1) sold
the goods in question to the first-buyer (party number 2) and delivered
G them at the port of shipment. Thereafter, while the goods were on high
seas, party number 2 transferred them to the appellant (invariably party
number 3 in these transactions), by endorsing the bill of lading in favour
of the appellant. Further to this and while the goods were yet on high
seas, the appellant allegedly transferred them to the end-buyer (party
number 4) by endorsing the bill of lading in favour of the end-buyer. The
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 963
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
appellant has also suggested that though the goods were being purchased A
by the end-buyer and were to move only after inspection and selection
by the end-buyer but the methodology of such quadripartite agreement
was adopted because of the reasons that the end-buyer was not having
‘the requisite infrastructure’ to undertake importation of goods whereas
the appellant was having the requisite infrastructure for importation and
B
the first-buyer was having the credit facility with the seller. It has,
therefore, been suggested that there was always a privity of contract
between the seller and the end-buyer; and that the appellant was to act
as an agent of the end-buyer and to clear the goods from customs
authorities. The appellant has also suggested that in each of the
transactions, the process was carried out as envisaged in the quadripartite C
agreement and in the manner that the first-buyer endorsed the bill of
lading in favour of the appellant when the goods were on high seas; and
while the goods continued to be on high seas and had not crossed the
customs frontiers of India, the appellant endorsed the bill of lading in
favour of the end-buyer. According to these suggestions, the appellant
D
only acted as an agent of the end-buyer while getting the goods cleared
from the customs port at Visakhapatnam.
26.1. However, the suggestions by the appellant do not remain as
innocuous and over-simplified as projected, for the reason that in each
of these transactions, when the goods in question reached the port at
Visakhapatnam, the appellant carried out the proceedings envisaged by E
the Customs Act and filed a bill of entry for warehousing and thereafter,
filed another bill of entry for home consumption (ex-bond); and on the
basis of such bills of entry, the appellant was duly assessed for customs
duty. Admittedly, after the goods were cleared for home consumption,
they moved from the State of Andhra Pradesh to different States where F
the respective end-buyers were situated; and the appellant raised debit
notes on the end-buyers.In these transactions, the goods in question,
upon reaching the port of destination, were not cleared by the end-buyers
after paying the requisite customs duties, as had been the fact situation
in the case of J. V. Gokal & Co. as also in Orissa case of Minerals &
Metals (supra). While examining the question pertinent if the appellant G
acted merely as an intermediary or name-lender through whom the import
was effected and merely acted as an agent for and on behalf of the
Indian importer that is, the end-buyer, the significant facts of the present
case cannot be overlooked that in relation to the goods in question, only
the appellant filed the bill of entry for warehousing as also the bill of H
964 SUPREME COURT REPORTS [2021] 3 S.C.R.
A entry for home consumption and was assessed to customs duty and
further that before the customs authorities, there was no suggestion that
the goods in question had already been transferred, on high seas, to the
alleged real importer. Obviously, on the facts of the present case, the
effect of dealings of the appellant before the customs authorities at
Visakhapatnamwith filing the bill of entry for home consumption need to
B
be examined.
Filing of bill of entry for home consumption by the appellant:
Implication
27. As noticed, the High Court examined the contention of the
C appellant that while filing the bills of entry, the appellant had acted merely
as an agent of the end-buyers and rejected the same, with reference to
the contents of the bills of entry where the name of appellant was shown
as the importer and there was no reference to the end-buyers; as also
with reference to the facts that the appellant alone was the importer
who filed the bills of entry for home consumption and was assessed to
D the customs duty and that the IGM did not contain the name of end-
buyers.
27.1. The High Court has observed that the inclusive definition
of “importer” in Section 2(26) of the Customs Act cannot be used to
usurp the identity of an importer from the person who filed the bill of
E entry; and the person in whose name the bill of entry is filed, does not
cease to be an importer.In this case, the name of the appellant was
reflected as importer in the Import General Manifest of the vessel/s that
brought the goods in question to the port at Visakhapatnam.The High
Court has meticulously examined the entire process relating to the arrival
F of goods as cargo in a vessel; and filing of IGM as also the contents of
the bill of entry and has pointed out that the cargo declaration form,an
essential part of IGM, was required to carry, amongst others, the
particulars of bill of lading and the name of consignee/importer. After
finding that the name of the appellant was reflected as importer in IGM,
the High Court has observed that if the alleged second high seas sale
G had taken place, the IGM would have reflected the name of the last high
seas sale purchaser as the importer and if there was any bonafide
omission, the IGM would have necessitated amendment because only
the last purchaser of the goods on high seas could have been the importer/
consignee. The High Court has also observed that there was no material
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 965
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
on record to show that either the IGM contained the name of end-buyer A
as the importer/consignee or that the same was subsequently amended
in terms of Section 30(3) of the Customs Act. These had been the pivotal
reasons for which the High Court rejected the suggestion of second high
seas sales in favour of the end-buyers and held that the only attempt of
the appellant had been to avoid inter-State sales under the CST Act. In
B
the given facts, the High Court specifically recorded the findings that
the sale of goods by appellant to the end-buyers had not been high seas
sales; and such sales could have been effected only after the appellant
was assessed to customs duty and had cleared the goods for home
consumption.
28. To get over the aforesaid findings of the High Court, learned C
counsel for the appellant has argued, with strong reliance on the decision
of this Court in the case of Sampat Raj Dugar (supra), that the definition
of importer in the Customs Act only indicates the person who is in
possession of goods at the time of filing of bill of entry but does not
indicate the title to the goods; and that the questions as to when does the D
sale take place and who is the owner of goods would be determined only
under the Sale of Goods Act and not under the Customs Act.
29. For dealing with this part of submissions, we may usefully
take note of the relevant definitions in Clauses (23), (24), (25) and (26)
of Section 2 as also the other provisions in Sections 30 and 47 (1) of the E
Customs Act,as applicable and effective at the relevant point of time,as
follows: -
“(23) “import”, with its grammatical variations and cognate
expressions, means bringing into India from a place outside India;
(24) “import manifest”16 or “import report” means the manifest F
or reportrequired to be delivered under section 30;
(25) “imported goods” means any goods brought into India from a
place outside India but does not include goods which have been
cleared for home consumption;
G
(26) “importer”, in relation to any goods at any time between their
importation and the time when they are cleared for home
16
The words “arrival manifest or import manifest” were substituted in place of the
words “import manifest” by Act 13 of 2018. H
966 SUPREME COURT REPORTS [2021] 3 S.C.R.
A consumption, includes any owner17 or any person holding himself
out to be the importer;
30. Delivery of import manifest or import report.-
(1) The person-in-charge of-
B (i) a vessel; or
(ii) an aircraft; or
(iii) a vehicle,
carrying imported goods or any other person as may be specified
by the Central Government, by notification in the Official Gazette,
C
in this behalf shall, in the case of a vessel or an aircraft, deliver to
the proper officer an import manifest prior to arrival of the vessel
or the aircraft, as the case may be, and in the case of a vehicle, an
import report within twelve hours after its arrival in the customs
station, in the prescribed form and if the import manifest or the
D import report or any part thereof, is not delivered to the proper
officer within the time specified in this sub-section and if the proper
officer is satisfied that there was no sufficient cause for such
delay, the person-in-charge or any other person referred to in this
sub-section, who caused such delay, shall be liable to a penalty
not exceeding fifty thousand rupees.
E
(2) The person delivering the import manifest or import report
shall at the foot thereof make and subscribe to a declaration as to
the truth of its contents.
(3) If the proper officer is satisfied that the import manifest or
F import report is in any way incorrect or incomplete, and that there
was no fraudulent intention, he may permit it to be amended or
supplemented.18
47. Clearance of goods for home consumption.- (1) Where
the proper officer is satisfied that any goods entered for home
G consumption are not prohibited goods and the importer has paid
the import duty, if any, assessed thereon and any charges payable
17
The words “any owner, beneficial owner” were substituted in place of the words
“any owner” by Act 7 of 2017.
18
This Section 30 has undergone several amendments over the course of time. In its
H present form, it reads as under:-
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 967
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
under this Act in respect of the same, the proper officer may A
make an order permitting clearance of the goods for home
consumption:
xxx xxx xxx”19
30. It is but apparent that that while bringing anything into India
from a place outside India is generally regarded as “import” and the B
imported goods are those goods which are brought into India from a
place outside but, when the goods are cleared for home consumption,
they are no longer imported goods for the purpose of the Customs Act.
Significantly, in the process of importation, the importer, in relation to
any goods, includes any owner or any other person holding himself to be C
the importer but, only between the time of their importation and their
clearance for home consumption. In other words, the net result of the
“30. Delivery of arrival manifest or import manifest or import report.-
(1) The person-in-charge of-
(i) a vessel; or
(ii) an aircraft; or D
(iii) a vehicle,
carrying imported goods or export goods or any other person as may be specified
by the Central Government, by notification in the Official Gazette, in this
behalf shall, in the case of a vessel or an aircraft, deliver to the proper officer an
arrival manifest or import manifest by presenting electronically prior to the
arrival of the vessel or the aircraft, as the case may be, and in the case of a E
vehicle, an import report within twelve hours after its arrival in the customs
station, in such form and manner as may be prescribed and if the arrival manifest
or import manifest or the import report or any part thereof, is not delivered to
the proper officer within the time specified in this sub-section and if the proper
officer is satisfied that there was no sufficient cause for such delay, the person-
in-charge or any other person referred to in this sub-section, who caused such
delay, shall be liable to a penalty not exceeding fifty thousand rupees: F
Provided that the Principal Commissioner of Customs or Commissioner
of Customs may, in cases where it is not feasible to deliver arrival manifest or
import manifest by presenting electronically, allow the same to be delivered in
any other manner.
(2) The person delivering the arrival manifest or import manifest or import
report shall at the foot thereof make and subscribe to a declaration as to the
truth of its contents. G
(3) If the proper officer is satisfied that the arrival manifest or import manifest
or import report is in any way incorrect or incomplete, and that there was no
fraudulent intention, he may permit it to be amended or supplemented.’’
19
The provisos to sub-section (1) which came to be inserted and amended later on as
also sub section (2) and its proviso, which were also amended several times are not
reproduced for being not directly relevant for the purpose of the present case.
H
968 SUPREME COURT REPORTS [2021] 3 S.C.R.
A expanded definition of the expression “importer” is that while any person
who imports goods into India would be an importer but, the owner of the
goods or a person holding himself to be an importer would also be
regarded as an importer during the period between importation of goods
and their clearance for home consumption. This crucial period would
generally be that period when the goods have been warehoused after
B
importation and are cleared from warehouse by a person other than the
person who actually imported the goods. That being the position, in our
view, the High Court has rightly said that this definition of importer cannot
be used to usurp the identity of an importer from the person who filed
the bill of entry. In other words, the person in whose name the bill of
C entry is filed does not cease to be an importer and, if that person claims
to be not the owner or importer, the ouns would be heavy on him to
establish that someone else is the owner or importer of goods.
31. As noticed, on the connotation of the term “importer” for the
purpose of the Customs Act, learned counsel for the appellant has placed
D reliance upon the decision in Sampat Raj Dugar (supra). We may
examine the facts and the ratio of the case of Sampat Raj Dugar, to
appreciate the implication, if any, of the observations occurring therein
on the questions involved in the present case.
31.1. In the case of Sampat Raj Dugar (supra), the relevant
E factual aspects had been that the second respondent Ms. Renu Pahilaj
was doing business at Delhi in the name and style of “Acquarius.”
whereas the first respondent, an Indian national resident abroad, was
doing business at Hong Kong in the name and style of UNISILK. The
second respondent obtained an advance import licence on 20.05.1985
for importing raw silk that was valid for 18 months. The import licence
F was granted subject to the condition that raw silk imported should be
utilised for manufacturing garments which ought to be exported. Sometime
prior to the month of October, 1985, the second respondent received
three consignments sent by the first respondent from Hong Kong but did
not fulfil the said condition of import licence. Then, during the months of
G October-November, 1985 the first respondent sent to India certain
quantities of raw silk in four lots, to be delivered to the second respondent.
The requisite documents were sent to the banker of the second respondent
with instructions to deliver the same on receiving the payment. However,
by the time the consignments arrived at Bombay, the customs authorities
had come to know about the non-compliance of the aforesaid condition
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 969
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
of licence with respect to the three earlier consignments and also of the A
alleged misrepresentation while obtaining the advance import licence.
Accordingly, the proceedings were initiated against the second respondent
by the Collector of Customs. On the other hand, the second respondent
failed to make the payment and receive the documents of title and did
not clear the goods. While the proceedings were pending before the
B
Collector of Customs, the said advance import licence was cancelled
but no orders were passed with respect to the said goods. The first
respondent, who appeared in the proceedings of his own, contended
before the Collector that title to the goods had not passed to second
respondent; that he was still the owner of the goods; and that therefore,
the said goods could not be confiscated or proceeded against for the C
violations, if any, by the second respondent. He submitted that he was
not a party to the misuse of the earlier imports nor was he aware of the
alleged fraud practised by the second respondent in obtaining the advance
import licence and prayed that he may be permitted to re-export the
goods to Hong Kong. The Collector of Customs took the view that
D
permission for re-export could not be granted for the reasons that the
advance import licence having been cancelled, there was no valid licence
for clearance of those goods; that for re-exporting the goods, a valid
import licence was necessary which was not there; and also because
the second respondent had abandoned the goods. On that basis, the
Collector of Customs rejected the claims of the first respondent and E
imposed a penalty of Rs. 5 lakhs on him.
31.2. In the aforesaid background, the first respondent, who had
sent the goods from Hong Kong, filed a writ petition before the High
Court. The case of the Collector of Customs and the Union of India was
that the second respondent must be deemed to be the owner of the F
consignments by virtue of the definition of “importer” in Section 2 (26)
of the Customs Act read with Clause 5(3)(ii) of the Imports (Control)
Order, 1955. Reliance was also placed upon Para 26(iv) of the Imports
and Exports Policy issued for the year 1985-86 and it was submitted that
the goods were liable to be confiscated for the acts and defaults of
respondent. It was also submitted that in view of non-compliance with G
the condition relating to export of garments manufactured out of the
imported raw silk yarn, the second respondent had rendered all the goods
covered by the import licence liable to confiscation. The High Court,
however, allowed the writ petition and directed re-export of the goods to
first respondent. Hence, the matter was in appeal before this Court. H
970 SUPREME COURT REPORTS [2021] 3 S.C.R.
A 31.3. A bare look at the relevant background aspects of the said
case makes it clear that essentially, the effect of the conditions in the
import licence and non-compliance thereof had been the subject matter
of consideration therein; and particularly Clause 5(3)(ii) of the import
licence, deeming the imported goods as being the property of licensee,
was under consideration in view of the facts that the imported goods
B
were abandoned by the importer and were not cleared from customs by
making payments and receiving documents of title sent by the seller.
While examining such a condition of licence and its impact, this Court
observed that the definition of “importer” in Section 2(26) of the Customs
Act was not really relevant to the question of title. The Court also
C examined the object of the said Clause 5(3)(ii) of the import licence and
observed that the idea had been to hold the licensee responsible for
anything and everything that would happen from the time of import till
the goods were cleared through customs. The Court found that when
the goods were imported into the country at the instance of the licensee,
the Imports (Control) Order created a fiction that such licensee shall be
D
deemed to be the owner of such goods from the time of their import till
they were cleared through customs; and observed that this fiction, meant
for proper and effective implementation of Imports and Exports (Control)
Act, could not be carried beyond that; and it could not have been employed
to attribute ownership of the imported goods to the importer even in a
E case where he abandons them. This Court also indicated that holding
otherwise would be putting the exporter in a position of losing goods
without receiving payment with only remedy to sue the importer for
price and damages which would not be conducive to international trade.
The relevant parts of observations and consideration in paragraph 19 of
the said decision could be usefully reproduced as under: –
F
“19. We may first consider the question of title to the said
goods. If we keep aside the provisions of law relied upon by the
appellants viz., definition of ‘importer’ in Section 2(26) of the
Customs Act, clause 5(3)(ii) of the Imports (Control) Order as
well as para 26(iv) of the Import-Export Policy, the position is
G quite simple. Since respondent 2 did not pay for and receive the
documents of the title she did not become the owner of the said
goods, which means that respondent 1 continued to be the owner.
How do the aforesaid provisions make any difference to this
position? The definition of ‘importer’ in Section 2(26) of the
H Customs Act is not really relevant to the question of title. It only
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 971
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
defines the expression ‘importer’. Respondent 1 does not claim A
to be the importer. The provision upon which strong reliance is
placed by the appellants in this behalf is the one contained in clause
5(3)(ii) of the Imports (Control) Order. Sub-clause (1) of clause
5 specifies conditions which can be attached to an import licence
at the time of its grant. Sub-clause (2) says that a licence granted
B
under the Order shall be subject to the conditions specified in
Fifth Schedule to the Order. Sub-clause (3) sets out three other
conditions mentioned as (i), (ii), and (iii) which shall attach to
every import licence granted under the Order. First of these
conditions says that the import licence shall be non-transferable
except under the written permission of the licensing authority or C
other competent authority. Condition (ii)-which is the provision
relevant herein-says that the goods for the import of which a licence
is granted “shall be the property of the licensee at the time of
import and thereafter upto the time of clearance through customs.”
This condition, however, does not apply to STC, MMTC and other
D
similar institutions entrusted with canalisation of imports. It also
does not apply to certain eligible export houses, trading houses
and public sector agencies mentioned in the second proviso.
Condition (iii) says that the goods for which the import licence is
granted shall be new goods unless otherwise mentioned in the
licence. Now coming back to condition (ii), the question is what E
does it mean and what is the object underlying it when it says that
the imported goods shall be the property of the licensee from the
time of import till they are cleared through customs. It is necessary
to notice the language of the sub-clause. It says “it shall be deemed
to be a condition of every such licence that-the goods for the
F
import of which a licence is granted shall be the property of the
licensee at the time of import and thereafter upto the time of
clearance through customs.” The rule-making authority (Central
Government), which issued the order, must be presumed to be
aware of the fact that in many cases, the importer is not the owner
of the goods imported at the time of their import and that he G
becomes their owner only at a later stage, i.e., when he pays for
and obtains the relevant documents. Why did the Central
Government declare that such goods shall be the property of the
licensee from the time of import? For appreciating this, one has to
ascertain the object underlying the said provision. The interpretation
H
972 SUPREME COURT REPORTS [2021] 3 S.C.R.
A to be placed upon the provision should be consistent with and
should be designed to achieve such object. In this context, it should
also be remembered that expressions like ‘property of’ and ‘vest’
do not have a single universal meaning. Their content varies with
the context. The aphorism that a word is not a crystal and that it
takes its colour from the context is no less true in the case of
B
these words. In our opinion the object underlying condition (ii) in
clause 5(3) is to ensure a proper implementation of the Imports
(Control) Order and the Imports and Exports (Control) Act, 1947.
The idea is to hold the licensee responsible for anything and
everything that happens from the time of import till they are cleared
C through customs. The exporter is outside the country, while the
importer, i.e., the licensee is in India. It is at the instance of the
licensee that the goods are imported into this country. Whether or
not he is the owner of such goods in law, the Imports (Control)
Order creates a fiction that he shall be deemed to be the owner of
the such goods from the time of their import till they are cleared
D
through customs. This fiction is created for the proper and effective
implementation of the said order and the Imports and Exports
(Control) Act. The fiction however cannot be carried beyond that.
It cannot be employed to attribute ownership of the imported goods
to the importer even in a case where he abandons them, that is, in
E a situation where he does not pay for and receive the documents
of title. It may be that for such act of abandonment, action may
be taken against him for suspension/cancellation of licence. May
be, some other proceedings can also be taken against him. But
certainly he cannot be treated as the owner of the goods even in
such a case. Holding otherwise would place the exporter in a
F
very difficult position; he loses the goods without receiving the
payment and his only remedy is to sue the importer for the price
of goods and for such damage as he may have suffered. This
would not be conducive to international trade. We can well imagine
situations where for one or other reason, an importer chooses or
G fails to pay for and take delivery of the imported goods. He just
abandons them. (We may reiterate that we are speaking of a
case where the import is not contrary to law). It is only with such
a situation that we are concerned in this case and our decision is
also confined only to such a situation. Condition (ii) in sub-clause
(3) of clause 5, in our opinion, does not operate to deprive the
H exporter of his title to said goods in such a situation.”
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 973
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
31.4. A close look at the discussion and observations above- A
quoted makes it clear that basically, the fiction created under the Imports
(Control) Order, to the effect that the licensee shall be deemed to be the
owner of goods from the time of their import till they were cleared through
customs, was under consideration in that case; and having examined the
object behind such a fiction, this Court observed that the same was
B
meant for proper and effective implementation of Imports and Exports
(Control) Act and could not be carried beyond that, so as to attribute
ownership of the imported goods to the importer even when the importer
abandons them. The observations of this Court, when read and understood
in their context, make it clear that they are of no bearing on the facts of
the present case as also the questions involved herein. It has not been C
laid down that in Sampat Raj Dugar (supra) that a person who is shown
to be the importer by virtue of his filing bills of entry for warehousing
and for home consumption, as also for his having been assessed to customs
duty, would yet fall outside the definition of “importer” in Section 2 (26)
of the Customs Act. The said decision in Sampat Raj Dugar does not
D
advance the cause of the appellant in any manner.
32. As noticed, the definition of “importer” in Section 2(26) of the
Customs Act, even if not directly decisive of the question of title, has its
implications on the facts of the present case for the reason that the
appellant alone filed the bills of entry for warehousing as also for home
consumption. Yet further, the requirements of filing import manifest, as E
per Section 30 of the Customs Act, have their own bearing on the present
case. It remains indisputable that the name of the appellant was reflected
as importer in IGM. If, as asserted by the appellant, the goods had been
sold on the high seas, the cargo declaration of IGM20 would have
reflected the name of last high seas purchaser as importer and in other F
event, the IGM would have necessitated amendment because only the
last purchaser of the goods on high seas would have been declared as
consignee/importer in IGM. The fact that the name of Radha (and other
end-buyers) was not mentioned in IGM as the importer/consignee nor
the relevant IGM was amended, the suggestion about second high seas
sale in favour of Radha (and other end-buyers) turns out to be only a G
self-serving suggestion of the appellant, which has no corroboration on
20
As per the requirements of Regulation 3 (c) (iii) of Import Manifest (Vessels)
Regulations, 1971, the import manifest has to consist, inter alia, of a ‘cargo declaration’
in Form No. III. Such ‘cargo declaration’ is required to carry, amongst others, particulars
of ‘bill of lading’ and ‘the name of consignee/importer, if different’. H
974 SUPREME COURT REPORTS [2021] 3 S.C.R.
A the record; rather the official records totally belie the suggestion of the
appellant.
32.1. The fact of the matter remains that even though the appellant
has suggested that the bills of lading were endorsed in favour of Radha
(and other end-buyers) when goods were on high seas but this bald
B assertionis not corroborated by any of the official documents which form
the part of the process of importation, warehousing and clearance of
goods. On the contrary, the High Court has pointed out as illustration the
details of one of the bills of entry, which distinctively gave out all the
particulars of IGM, the invoice, the value of cargo, etc. and the High
Court has found that in the bill of entry, the name of appellant alone was
C shown as the importer who cleared the goods from customs with the
assistance of the Customs House Agent.In the given set of facts, if the
goods were at all sold to Radha (and other end-buyers)on high seas, the
name of such end-buyer would have appeared as importer and not that
of the appellant.
D 33. The same considerations operate against the assertion that
the appellant was only acting as an agent of the end-buyers. The High
Court has rightly pointed out that the Customs House Agent is an entirely
different person who acts only to present papers for clearance of the
imported goods under a bill of entry. Of course, under Section 147 of the
E Customs Act, a person could act on behalf of importer or owner but
such a person cannot be treated as owner of the goods nor could be
made liable for customs duty. If the appellant was merely acting as an
agent, then bill of entry would have reflected the name of end-buyer as
the importer and the appellant as an agent of the importer; and further to
that, the said end-buyer would have been assessed for customs duty. It
F were not so.
34. The discussion foregoing leads to the position that though the
definition of importer includes owner or any person holding out himself
as the importer; and this definition of importer is not really relevant to
the question of title but, that does not mean that a person who holds out
G himself to be the importer; and who files the bill of entry for home
consumption; and who is assessed for customs duty; and whose
suggestion about transfer of title to a third person is not established by
any reference to any official record, the transfer on high seas may be
presumed on mere suggestion about the alleged endorsement of bill of
H lading.
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 975
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
34.1. When all other official documents as also dealings of the A
appellant clearly establish that the appellant had been the importer, the
consequences are bound to follow. It gets perforce reiterated that when
the bills of entry recorded the name of the appellant as importer and the
appellant alone was assessed to customs duty, the so called second high
seas sale agreementsnever came into operation.
B
Whether sale in question occasioned import of goods:
35. As noticed, the CTO specifically observed that it had not been
the case of the appellant that the sale in question occasioned the import
of goods into the country. However, an attempt was made before the
High Court to suggest that the entire import was occasioned by ultimate C
sale in favour of Radha and, therefore, the matter would also be covered
in the first part of sub-section (2) of Section 5 of the CST Act. The High
Court noticed that such a plea could not have been raised for the first
time in the writ petition for being a mixed question of facts and law. The
High Court also observed that even such suggestion was belied by the
fact that only the name of the appellant was reflected in the bill of entry D
as importer and not of Radha. It has been argued before us too that the
quadripartite agreement triggered the movement of goods from foreign
country to India and not merely from Andhra Pradesh to other States;
that, in fact, the sales in question had not been inter-State sales but these
sales had occasioned the movement of goods from outside India into E
India; and that the Indian leg of the integrated transaction cannot be
segregated so as to be taxed as inter-State sale under the CST Act.
These suggestions also remain totally baseless as noticed infra.
36. We had indicated in the earlier part of the judgment that the
decision in the case of K.Gopinathan Nair (supra) shall be referred at F
a later stage. We are impelled to refer to the said decision now to deal
with the aforesaid suggestions of the appellant. We may, however, observe
that this suggestion, that the sales in question had occasioned import of
goods into the country, is incompatible with the other assertion that the
sales were effected by transfer of documents of title when the goods
were on high seas. The two alternative parts of sub-section (2) of Section G
5 cannot ordinarily go together.
36.1. Be that as it may, the submissions made by the appellant
about the inter-linked nature of transactions under the quadripartite
agreements and the suggestion about the sales in question occasioning
H
976 SUPREME COURT REPORTS [2021] 3 S.C.R.
A import stand effectively repelled by the decision of this Court in
K.Gopinathan Nair (supra). In the said case, this Court dealt with the
set of appeals arising from the decisions of Kerala High Court and
Karnataka High Court. The background aspects had been that the
appellants before Kerala High Court were the persons importing cashew
nuts from African countries directly but after issuance of a Import Trade
B
(Control) Order on 31.08.1970, cashew nuts could be imported only
through a canalising agency namely, the Cashew Corporation of India
(CCI). Consequently, the said appellants imported cashew nuts from
African countries through CCI. The CCI used to collect the information
regarding requirement of actual users but was thereafter importing
C cashew nuts on its own by entering into independent contracts with the
foreign exporters and then, the goods were obtained by local users. In
the appeal arising from the decision of Karnataka High Court, CCI itself
was the appellant. The principal contention of the appellants before the
taxing authorities had been that transaction of sale by CCI to actual
users was in the course of import and, therefore, the State Sales Tax
D
Act could not encompass such a transaction. The contentions were
rejected by the respective Tax Tribunals as also by the respective High
Courts. The common question for determination before this Court was
as to whether the import of raw cashew nuts by CCI from African
exporters was in the course of import and, therefore, eligible for
E exemption under Sections 5(2) of the CST Act. As noticed, the learned
Judges of this Court differed in their views. In the majority decision,
after delineating the determinative factors, the Court examined the facts
of the case and the nature of transactions and dealings of the parties
andobserved that clearly, there were two transactions: one being of the
import of raw cashew by CCI from foreign exporters; and the second
F
being back-to-back sale by the canalising agency like CCI in favour of
the local users for whom the goods were indented. The Court held that
independent sale which may be based even on a prior agreement of sale
by CCI to local users would remain an independent transaction between
the importer CCI and the local purchaser but there was noprivity of
G contract between the local users and the foreign exporter. Hence, this
Court rejected the contention of the appellants that transaction of sale
by CCI to actual users was in the course of import in the following
passage:-
“19…..All the aforesaid features which are well established
H on record leave no room for doubt that it is on account of the sale
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 977
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
to CCI by foreign exporter that the raw cashew get imported in A
India and the importer is CCI and not the local user. It is the
demand of the local users which prompted the canalising agency
like CCI to place orders for import of the quantities concerned.
But CCI deals with foreign exporter on its own and gets bulk
imports of cashewnuts. It is the sale to the CCI by the foreign
B
exporter or conversely the purchase by the CCI of the raw cashew
from the foreign exporter that occasions the movement of raw
cashew from African countries to India. The imported cashew
remains of the ownership of the importer CCI and only on
retirement of documents on payment of value of the allotted cashew
by the local users and on their getting the goods cleared from C
customs that the property in the imported goods concerned would
pass from CCI to the local users. Thus there are two clear
transactions. One transaction is the import of raw cashew by
CCI from foreign exporters. The second transaction which is a
back-to-back transaction is of sale by the canalising agency like
D
CCI which is the wholesale importer in favour of the local users
for whom the goods are indented. That independent sale which
may be based even on a prior agreement of sale by CCI to local
users would remain an independent transaction between importer
CCI and the local purchaser, namely, the local user. There is no
privity of contract between the local users on the one hand and E
the foreign exporter on the other. These two transactions cannot
be said to be so integrally interconnected as to represent one
composite transaction in the course of import of raw cashewnuts
as tried to be submitted by the learned Senior Counsel for the
appellants….”
F
36.2. For yet further clarity, we may refer to the relevant parts of
the minority view, wherein the import of goods and sale to the local
purchasers were taken to be inextricably linked hence, the contentions
of the said appellants were proposed to be accepted with the following
observations:-
G
“48. This seldom happens in the case of imports whenever the
local seller imports the goods as per the specifications of a specific
local buyer and on the mutual understanding between the local
buyer and the local seller that the goods so imported by the local
seller will be purchased by the local buyer. There is in such cases,
H
978 SUPREME COURT REPORTS [2021] 3 S.C.R.
A a direct link between the local sale and the import. In fact it is this
mutual understanding between the local buyer and the local seller
which occasions the import. That is why the cases dealing with
imports have not resorted to differentiating between one sale or
two sales. They have applied the test as prescribed by Section 5:
Whether the import is a result of understanding/contract between
B
the local buyer and local seller? If it is, the local sale falls under
Section 5. If it is not — as may well happen if the importer sells
his goods after they arrive to the best available offeror in the
market, then the sale is not covered by Section 5. That is why
there has been no need to amend Section 5 to expressly cover a
C local sale following import.
49. Now, if we apply this test of inseverable link between the
local sale and import to the transaction in the present case, it is
clear that the local sale which is between the assessees and the
Cashew Corporation of India is inextricably linked with the import
D of cashewnuts by the Cashew Corporation of India….
… … …
56. 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
E 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….”
36.3. The case of the present appellant, as regards the effect of
F quadripartite agreement and the suggestion about the sale having
occasioned import is, at best, the one as would appear in the minority
view in the case of K.Gopinathan Nair (supra). The said minority view
being not the dictum of this Court and rather, the contra view being the
law declared, the contentions of the appellant must fail.
G These had been inter-State sales
37. The effect of raising of debit notes by the appellant on the
end-buyers has its own bearing in the present case. The appellant had
admittedly raised such debit notes on the end-buyers but only after having
cleared the goods by filing the bill of entry for home consumption. Once
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 979
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
the suggestion about the second high seas sales is not accepted and it is A
found that the appellant had been the importer of goods and had cleared
them for home consumption, the natural consequence of raising of such
debit notes on the end-buyers situated in different States and movement
of goods to such end-buyers would be to take these transactions in the
category of inter-State sales in terms of Section 3(a) of the CST Act.
B
The appellant was not entitled to the exemption of Section 5(2) of the
CST Actand has rightly been held liable for tax over inter-State sales.
38. After the appellant got the goods released by filing bill of entry
for home consumption, indisputably, the goods were ultimately received
by Radha at Lucknow in the State of Uttar Pradesh (and other end-
buyers in different States) and appellant raised debit notes from the C
State of Andhra Pradesh. These facts are sufficient to establish that the
movement of goods inside the country from one State to another had
been on account of the sale by appellant to the end-buyers; and such
sales took place only after the appellant obtained the goods from the
bonded warehouse for home consumption. D
39. In our view, the High Court was right in observing that once
the appellant got released the goods after filing the bill of entry for home
consumption, the import stream dried up and the goods got mixed in the
local goods. Any movement of the goods thereafter was bound to be a
sale under Section 3(a) of the CST Act; and such movement being from E
the State of Andhra Pradesh to other State, it had been a matter of inter-
State sale. The principle that actual sale may not necessarily precede
the movement of goods, in its true effect, operates rather against the
appellant in relation to the sale to end-buyers after the goods were cleared
for home consumption.
F
If any case for relegating the appellant to the remedy of
appeal made out
40. This takes us to the alternative submission on behalf of the
appellant that in view of the disputed questions of fact involved, the
appellant may be relegated to the remedy of appeal. These submissions G
fail to impress even a bit.
40.1. The appellant, despite being aware of the availability of
remedy of statutory appeal, consciously chose to file writ petitions against
the assessment orders aforesaid and consciously contested theentire
matter in the High Court. The High Court, even after noticing the
H
980 SUPREME COURT REPORTS [2021] 3 S.C.R.
A framework of certiorari jurisdiction, examined the merits of the case
thoroughly and even examined the submission made for the first time in
writ petitions that the import of goods was occasioned by the sales in
question. Of course, in that regard, the High Court pointed out that it
was not a pure question of law but in any case, such submission was
belied by the fact that the name of the appellant was reflected in the bill
B
of entry as the importer and not that of the end-buyer. We are unable to
find any error or fault in the approach of High Court in this case.
40.2. The prayer that the appellant may now be allowed to contest
the matter in statutory appeal has only been noted to be rejected. After
having consciously invoked the writ jurisdiction of the High Court and
C having contested the matter on merits, the appellant cannot now be
allowed to re-open the matter in appeal. Reference to the decision of
this Court in the case of Star Paper Mills Ltd. (supra) is entirely
inapposite. In that case, by a format order dated 23.11.1987, the High
Court of Delhi remitted the matter pending before it in a writ petition to
D the Assistant Collector who, accordingly, made an adjudication on
30.05.1988. This order of the Assistant Collector was permitted to be
brought on record in the pending writ petition and the petition was
ultimately disposed of on 05.07.1993. The contentions in the writ petition
by the petitioner related to the deductions as post-manufacturing expenses
towards freight subsidies, additional trade discounts and cost of special
E packing.Though the High Court observed that the claims involved
investigation into disputed question of fact but, in effect, declined the
relief claimed under those heads of the alleged post-manufacturing costs
on the ground that sufficient material was not placed by the petitioner in
support of the claims for deductions. In those circumstances, this Court
F extended liberty of appeal to the petitionerwhile observing as under:-
“4. On a consideration of the matter, we are of the view
that against the adjudication made by the Assistant Collector, the
petitioner should have one effective opportunity of an appeal. The
High Court could have declined to interfere with the matter under
G Article 226 if, in its view, the matter involved investigation of
disputed facts and relegated the petitioner to the statutory records.
But it rejected the claim on the ground of insufficiency of material-
a situation which might be susceptible of an irreconcilability with
its view that disputed questions of fact could not be investigated
in these proceedings.
H
M/S VELLANKI FRAME WORKS v. THE COMMERCIAL TAX 981
OFFICER, VISAKHAPATNAM [DINESH MAHESHWARI, J.]
5. We, therefore, permit the petitioner to lodge an appeal A
against the order of the Assistant Collector dated 30-5-1988 with
the CEGAT insofar as and confined to the three ‘Heads’ of the
deductions for the alleged post-manufacturing expenses, namely:
(a) freight subsidy; (b) additional trade discount; and (c) cost of
special packing.”
B
40.3. The observations aforesaid and the course permitted in the
given set of facts of the case of Star Paper Mills Ltd. (supra) cannot
be employed in the present case because the findings against the appellant
are not on the ground of insufficiency of material but are essentially the
result of analysis of the material placed on record with reference to the
law applicable. In our view, the extraordinary writ jurisdiction cannot be C
utilised by a litigant only to take chance and then to seek recourse to the
other remedy after failing in its attempt on the basic merits of the case
before the High Court. A litigation cannot be allowed to be unendinglykept
alive at the choice of a litigant.
Another feature of the case D
41. Before parting, we may also point out that suggestions of the
appellant about such transactions with involvement of multiple parties
had undergone thorough scrutiny by the concerned CTO and significantly,
the suggestions about such quadripartite agreements and arrangements
were found to be rather false in relation to at least two of the alleged E
end-buyers, where one of the end-buyer firm21 denied having received
the goods in question or even knowing the appellant; and the other end-
buyer firm22 was not even found at the given address. As noticed
hereinbefore, the overall dealings indicate that the attempt on the part of
the appellant had only been to distort the facts and by alleging multiple F
transactions, to somehow avoid the operation of law relating to Central
Sales Tax. Such attempt has rightly met with its disapproval at the hands
of the CTO and the High Court. We have no hesitation in endorsing their
views.
G
21
M/s. Pine Exporters, New Delhi, the alleged end-buyer in third and fourth transactions
in the assessment order dated 18.05.2010 (vide paragraphs 10.3, 11.1 and 11.2 supra)
22
M/s. Esskay Impex, New Delhi, the alleged end-buyer in fifth and sixth transactions
in the assessment order dated 18.05.2010 (vide paragraphs 10.4, 11.1 and 11.2 supra) H
982 SUPREME COURT REPORTS [2021] 3 S.C.R.
A Conclusion and directions
42. For what has been discussed hereinabove, we are clearly of
the view that the claimed exemption under Section 5(2) of the CST Act
has rightly been denied to the appellant and the High Court has been
justified in dismissing the writ petitions filed by the appellant. The High
B Court has yet been considerate and gave time to the appellant to submit
C-Forms for availing the benefit of concessional rate of tax. No case for
interference is made out.
43. Lastly, we may observe that in terms of the orders passed in
these appeals, the appellant has deposited an amount of Rs. 7,07,325/-
C (rupees seven lakhs seven thousand three hundred and twentyfive) with
the respondent.As these appeals are being dismissed, the respondent
shall be entitled to adjust the same against the dues of the appellant.
44. In the result, these appeals fail and are dismissed with costs
and with the observations foregoing.
D
Devika Gujral Appeals dismissed.
E
F
G
H
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