MINERALS AND METALS TRADING CORPORATION OF INDIA LTD.versusSALES TAX OFFICER AND ORS.

A                     MINERALS AND METALS TRADING
                        CORPORATION OF INDIA LTD.
                                         11.
                       SALES TAX OFFICER AND ORS.

                              SEPTEMBER 25, 1998
B
                   [S.P. BHARUCHA AND V.N. KHARE, JJ.]


         Sales Tax:

C        Central Sales Tax Act, 1956 :

          Section 5(2) read with Section 2(ab)-Sales tax liability-Sale in the
    course of import-Appel/ant-Corporation-Agent for import and export of
    minerals and metals-Placement of purchase order of coils with foreign
    exporter for and on behalf of SAlL-High sea sale of coils to SAlL by
D   Corporation by transferring shipping documents-SAJL clearing the
    consignment by paying customs duty-lmposition of sales tax on appel/ant-
    Corporation-Validity of-Held, sale cf coils by appellant-Corporation to
    SAIL is covered by the provisions of latter part of Section 5(2) read with
    Section 2 (ab) of the Act and amounts to sale in the course of import-Thus,
E   no liability to pay sales tax-Constitution of lndia, 1950-Article 286(1)(b).

         Section 2(ab)-Definition of phrase "crossing the customs frontier of
    India"-lnserted by an amendment in 1976-0bject and necessity of-
    Explained.

          Words & Phrases :
F
         "Crossing the customs frontier of India," "Customs Station" and
    "Customs port" meaning of in the context of Section 2(ab) of Central Sales


G
    Tax Act, 19:6.

          Appellant-corporation was functioning as a canalising agent for import
    and export of minerals and metals. The Steel Authority of India (SAIL)
    requested the appellant-corporation to import tin mill black plate coils.
                                                                                    c
    Consequently, appellant-corporation placed purchase order of said coils with
    the foreign exporter for and on behalf of SAIL. The responsibility of payment
    of import duties, port charges and other expenses was on SAIL. The Appellant-
H                                        112
              MINERALS AND METALS TRADINGCORPN. OF INDIA LTD. v. S.T.O. 113

         corporation made hjgh seas sale of the coils to SAIL by transferring the            A
         shipping documents and bill of lading in its favour. Subsequently, on arrival
         of the consignment, SAIL cleared the coils by processing the bill of entry•
..,, .   The respondent-Sales tax officer levied sales tax on the aforesaid sale
         rejecting appellant-corporation's plea that no sale tax was payable as the sale
         was in the course of import covered by Section 5(2) of the Central Sales Tax        B
         Act, 1956. On challenge, High Court dismissed the writ petition holding that
         appellant was liable to pay sales tax. Hence the present appeal.

               Allowing the appeal, this Court

              HELD : 1. The sale of coils by appellant-corporation to SAIL is covered
         by the provisions of latter part of Section 5(2) read with Section 2(ab) of         C
         Central Sales Tax Act, 1956, and amounted to sale in the coune of import.
         Thus, it is not liable to sales tax. (118-E)

                2.1. Article 286(1 )(b) of Constitution provides that no law ofa State
         shall impose, or authorise the imposition of, a tax on the sale or purchase
         of goods where such sale or purchase takes place in the course of import            D
         of the goods into, or export of the goods out of, the territory of India. Section
         5(2) of the Act states that 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
         if the sale or purchase either (i) occasions such import or (ii) it is effecte.d
         by a transfer of documents of title to the goods before the goods have crossed      E
         the customs frontiers oflndia. (116-F, HJ

               2.2. 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. (117-H; 118•AI                                p
               In the instant case, the bill of lading had been endorsed in favour of
         SAIL while 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. The High      G
         Court failed to notice that the sales had taken place long after the introduction
         of Section 2(ab) and, therefore, the question whether they were sales in the
         course of import had to be judged on the basis of its provisions.
                                                                        (117-H; 118-A-D)

               J. V. Gokal & Co. {Private) Ltd. v. The Assistant Collector of Sale-Tax       H
    114                        SUPREME COURT REPORTS (1998] SUPP. 2 S.C.R.

A (Inspection) & Ors., (1960) 2 SCR 852, relied on.
           Cashew Corporation of India v. State of Karnatalca, (1986) 63 STC
    90, disapproved.

        3. Section 2(ob) of the Act inserted by amendment in 1976, defines the
B phrase "crossing the customs frontiers of India" as crossing the oreo of
  customs station in which imported goods or exports goods are ordinarily
  kept before clearance by customs authorities. The Objects and Reasons of
  the amendment were that the phrase had been interpreted to mean,
  coterminous with the extent of the territorial waters. This hod given rise to
C practical difficultiu os it was difficult to determine whether, ot the time of
  the sale or purchaise, the goods had entered or crossed the territorilll 'n'Cten.
  The cctual checking of the goods took piece in the customs statio11 oed not
  at the edge of the territorial waters. It was, therefore, necem:iry to so defice
  the expression. A customs station hos by reason of the Explllnntlun to Section
  2(nb), the some meaning as in the Customs Act, 1962 nod that is "nny
D customs port, customs airport or land customs station." A customs port is
  any port appointed under clause (a) of Section 7 of the Customs Act to be
  n Customs Port. (117-A-C)

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8870 1996.

E         From the Judgment and Order dated 8.5.96 of the Orissa High Court in
    0.J.C. No. 793of1995.

         Soli J. Sorabjee, Attorney General, H.N Salve, Nikhil Sakhardande, Ms.
    Meenakshi Sakhardande, Ashok Sharma, Ms. Devika and S.R. Grover for the
    Appellant.
F
         Joseph Vellapally, V.A. Bobde, R. Mohan, Ms. Meera Mathur, Dinesh
    Mathur, Ms. Kirti Misra, Ms. Renu George and V.K. Verma for the Respondents.

          The Jt:dgment of the Court was delivered by

G         The appeal impugns the correctness of a judgment of a Division Bench
    of the High court ofOrissa dismissing the writ petitions filed by the appellant.

        The appellant is a Government of India undertaking. It functions as a
  canalising agent for the purpose of import and export of minerals and metals.
• ;, had, for this purpose, issued guidelines to actual users in the matter of
H applications for the import of iron and steel items to be canalised through it.
              MINERALSANDMETALSTRADINGCORPN.OFINDIALTD.v.S.T.O.                  ll5
         Thereby the actual user was informed that the formal purchase order on the A
         foreign exporter would be released by the appellant after the actual user had
         made financial arrangements to cover the purchase. The actual user had the
;
    ~.   option to open either a domestic letter of credit in favour of the appellant or
         a direct letter of credit in favour of the exporter, but the facility of opening
         a direct letter of credit was to be given only on the merits of the case and B
         provided an undertaking in the stated proforma was given. In other cases a
         back-to-back letter of credit favouring the appellant had to be established. On
         31st March, 1991, the Steel Authority of India Limited (hereinafter referred to
         as 'SAIL') requested the appellant to register the import of 15,000 MT of tin
         mill black plate (TMBP) coils. An application was enclosed. The applicants
         stated that the said coils were required for production by them of electrolytic C
         tin plates. The said 'coils would be utilised in their factory for their purposes
         and no portion thereof would be sold to or be permitted to be used by any
         other party or for any other purpose. On 14th July, 1991, SAIL opened a letter
         of credit directly in favour of the exporter, Mis. Samsung Co. Ltd., Seoul,
         South Korea, in the sum of US S 1,895,475.00. The consignee therein was D
         shown as SAIL. On 2nd August, 1991, the appellant placed a purchase order
         with the exporter for on behalf of SAIL. On 16th August, 1991, the appellant
         wrote to SAIL enclosing a copy of its purchase order. The letter stated:

                 "We shall arrange delivery of the material to you on 'high-seas' basis
                 by endorsement and transfer of shipping documents in your favour E
                 after the documents have been paid for by your banker against L/C
                 established by you."

         SAIL was requested to make arrangements for clearing the cargo, including
         arrangements for clearance thereof from customs. The letter stated that the
         responsibility for "payment of Import duties, Port charges and other expenses F
         subsequent to sale on 'high seas' also will be to your account." On 23rd
         October, 1991, the appellant sent to SAIL its invoice, adjusting the amount
         that had already been paid by SAIL through its bankers. On 28th October,
         1991, the appellant wrote to SAIL stating that it had decided to make a high
         seas sale of the said coils to SAIL. Accordingly, documents with due G
         endorsement thereon were sent to SAIL to get the said coils cleared. The
         documents that were enclosed included the original bill of lading dated 30th
         September, 1991, for the said coils, duly endorsed in favour of SAIL. On the
         same day the appellant wrote to Assistant Collector of Customs, Paradeep
         Port, Cuttack, where the consignment of the said coils would arrive on the
         vessel M. V. State of Tripura. The letter stated that the said coils had been H
    116                            SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A imported by ~e appellant and had been sold to SAIL on high seas basis and
    SAIL would process the bill of entry and pay the customs duty. The vessel
    ar:ived at Paradeep Port on 11th November, 1991 and berthed on 30th November,
    1991. On 18th November, 1991, the bill of entry in respect of the said coils       · .L-
    was submitted and processed by SAIL.

B          On 31st December, 1994, the Sales Tax Officer levied sales tax on the
    aforesaid sale. He rejected the appellants, case 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 Act, 1956. He held that there had been two sales, one b:tween the
    exporter and the appellant and the other between the appellant and SAIL and
C   that the sale to SAIL had not occasioned the import.

          In regard to the sale made by the appellant to Paradeep Phosphates
    Ltd., the facts are similar.

          The appellant filed writ petitions in the High Court of Orissa challenging
D the levy of sales tax on the aforesaid sales. The High Court noted the
    argument that the aforesaid sales on high seas basis ha~ been effected prior
    to the imported goods "crossing the customs frontier of India", which
    expression was defined in Section 2 (ab) of the Central Sales Tax Act by an
    a:mendment which had taken place prior to the aforesaid sales. The High
    Court, However, relying upon the judgment of the Kamataka High Court in
E   th~ case of Cashew Corporation of India v. State of Karnataka, (1986) 63
    STC 90, held that the appellant was liable to sales tax and dismissed the writ
    petitions.

        By reason of the provisions of Article 286( IXb) no law of a State shall
F impose, or authorise the imposition of, a tax on the sale or purchase of goods
  where such sale or purchase takes place in the course of import of the goods
  into, or export of the goods out of the territory of India. Section 5 of the
  Central Sales Tax Act deals with this : "When is sale or purchase of goods
  said to take place in the course of import or export." Sub-section (1) thereof
  deals with exports and sub-section (2) with. imports. Sub-section (2) reads
G thus:
            "A sale or purchase s>f 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
H           crossed the customs frontiers of India. ·
          MINERALSANDMETALSTRADINGCORPN.OFINDIALTD.v.S.T.O.                    117
     '\    The definition in Section 2 (ab) of the phrase "crossing the customs A
    front~ India" reads_ thus: "crossing the customs frontiers of India means
    crossiitg;he area of a customs station in which imported goods or expert
    goods are ordinarily kept before clearance by customs authorities." It was
    inserted by an amendment in 1976. The Objects and Reasons of the amendment
    were that the phrase had been interpreted to meall, coterminous with the
    extent of the territorial waters. This had given rise to practical difficulties as B
    it was difficult to determine whether, at the time of the sale or purchase, the
    goods had entered or crossed the territorial waters. The actual checking of
    the goods took place in the customs s~tion and not at the edge of the
    territorial waters. It was, therefore, necessary to so define the expression. A
    customs station has, by reason of the Explanation to Section 2 (ab), the same· C
    meaning as in the Customs Act, 1962, and that is : "any customs port,
    customs airport or land customs station". A customs port is any port appointed
    under Clause (a) of Section 7 of the Customs Act to be a customs port. (That
.   Paradeep Port is a customs port is not in dispute.)
           Section 5, sub-section 2 has two parts. A sale or purchase of goods D
    shall be deemed to take place in the course of the import of the goods into
    the territory of India if the sale or purchase either (i) occasions such import
    or (ii) it is effected by a transfer of documents of title to the goods before·
    the goods have crossed the customs frontiers of India, that is to say, before
    the goods have crossed the limits of the area of the customs station in which
    they are kept before clearance by the customs authorities.                      E
          The judgment of a Constitution Bench of this Court in J. V. Go/cal & Co.
    (Private) Ltd. v. The Assistant Collector of Sales Tax (Inspection) & Ors.,
    [ 1960) 2 SCR 852, has set out the legal position of import sales thus:
                "The legal position vis-a-vis the import-sale can be summarized F
            thus: (!) 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 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 G
            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 of title against _payment or otherwise, to a
            third party by a similar process is also a -sitle in the course of import."
    The judgment states that it is well settled in the commercial wcirld that a bill H
    118                         SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A 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.

          The facts aforestated, based upon documents, show that the bill of
    lading had been endorsed in favour of SAIL while the consignment of the
B   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.
c        The High Court noticed the argument based on the latter part of Section
  5 but did not address it. It relied upon the judgment of the Karnataka High
  Court in the case of Cashew Corporation of India. That was a case where
  notice was taken of the amendment introducing Section 2 (ab) into the Central
  Sales Tax Act in 1976. It was held to be prospective in operation and,
D therefore, of no assistance in construing the meaning of the expression
  'customs frontier of India' prior thereto. The High Court failed to notice that
  in the case in hand the aforesaid sales had taken place long after the
  introduction of Section 2 (ab) and, therefore, the question whether they were
  sales in the course of import had to be judged on the basis of its provisions.

E         The aforesaid sales being covered by the provisions of the latter part
    of Section 5(2) read with Section 2(ab) of Central Sales Tax Act, they are sales
    in the course of import and not liable to sales tax.

          It is now not necessary to consider the argument that, in any event the
F provisions of the earlier part of Section 5(2) apply.
          The appeals are allowed. The judgment under appeal is set aside. The
    writ petitions filed by the appellants in the High Court are made absolute.

          No order as to costs.

G S.V.K.I.                                                         Appeals allowed.