THE INDURE LTD. AND ANOTHERversusCOMMERCIAL TAX OFFICER AND ORS.

                     (2010] 11 S.C.R. 556


A             THE INDURE LTD. AND ANOTHER
                              v.
            COMMERCIAL TAX OFFICER AND ORS.
               (Civil Appeal No. 1123 of 2003)
                      SEPTEMBER 20, 2010
B
      [DALVEER BHANDARI AND DEEPAK VERMA, JJ.]

       Central Sales Tax Act, 1956 - s. 5(2) - Sales tax
  exemption - Award of works contract by NTPC to appellant
c Company - For erection of plant on turnkey basis - Appellant
  Company importing pipes and thereafter, selling them to
  NTPC - Claim for sales tax exemption u/s. 5(2) by appellant
  Company - Held: Appellant Company is entitled to claim
  benefit uls. 5(2) - Pipes were imported on account of the
D contract entered into between the Company and NTPC, and
  were used exclusively for erection and commissioning of plant
  - Failure on part of Revenue Authorities to establish that the
  pipes were not used in the plant - Goods were imported for
  completion of project of NTPC on turnkey basis - Thus, by
E virtue of Article 286(1)(b) pipes not taxable - Also certain
  other items imported by the Company to be used in the plant
  were given benefit of sales tax - Thus, order passed by
  Authorities, tribunal as also High Court rejecting the claim not
  sustainable and are set aside - Constitution of India, 1950 -
F Article 286(1)(b).
       N.T.P.C awarded contracts to the appellant-Company
  for performing the work of erection of Ash Handling plant
  on Turnkey Basis. Certain items were sought to be
  imported for completion of the project. The Company was
G granted Special Import License for importing 'MS' Pipes.
  The pipes were imported and, thereafter, sold to N.T.P.C.
  The Company sought exemption from imposition of sales
  tax under Section 5(2) of the Central Sales Tax Act, 1956
  as the sale was in the course of import. The Commercial
H                             556
    INDURE LTD. AND ANR. v. COMMERCIAL TAX               557
               OFFICER AND ORS.
Tax Officer, rejected the claim and raised a demand of          A
certain amount as sales tax. The other Authorities, the
tribunal and the Division Bench of the High Court upheld
the order. Therefore, the appellant filed the instant appeal.

     Allowing the appeal, the Court                             B
    HELD: 1.1 Import had occasioned only on account
of the covenant entered into between the appellant-
Company and N.T.P.C. and the imported pipes were used
exclusively for erection and commissioning of the plant.
The respondents failed to establish that these pipes were       C
not used in the plant of N.T.P.C. [Para 37] [571-B-C]

    Mis. Binani Bros (P)" Ltd. vs. Union of India and Ors.
(1974) 1 sec 459, held inapplicable.
                                                                D
     K.G. Khosla and Co. vs. Deputy Commissioner of
Commercial Taxes (1966) 3 SCR 352; State of Maharashtra
vs. Embee Corporation, Bombay 1997' (7) SCC 190; Deputy
Commissioner of Agricultural Income Tax And Sales Tax,
Ernakulam vs. Indian Explosives Ltd. 1985 (4) SCC 119,
referred to.                                                    E

     1.2. The appellant-Company had imported the goods
into India for completion of the Project on Turnkey Basis
of N.T.P.C. Such import would fall within the
Constitutional umbrella. Thus, by virtue of Article 286(1)(b)   F
of the Constitution of India, 1950, it would not be taxable.
[Para 43] (576-E-F]

     Minerals and Metals trading Corporation of India Ltd. v.
 Sales Tax Officer 1998 (7) SCC 19, referred to.
                                                                G
       1.3. The ground sought to be raised for the first time
  before this Court that 'MS' Pipes were put to
  manufacturing process and thereby converted into
· distinct end product, had not been raised before any of
  the Authorities earlier. It was not the respondent's case     H
    558     SUPREME COURT REPORTS              [2010] 11 S.C.R.


A that pipes so imported were not necessary components
  for the erection and commissioning of the plant. The said
  pipes were used as components in the Ash Handling
  Plant in the same condition as they were imported
  without altering its originality. Thus, the ground which
B was sought to be raised before this Court for the first time
  was not rightly considered by any of the Authorities. It is
  not fit and proper to consider the same at this belated
  stage. [Para 42) [576-C-E]

         1.4. Alongwith 'MS' Pipes, the Company also
C   imported 11 other components/ items to be used in the
    plant for its .erection and commissioning. Other 11
    imported goods, utilised by the Company in the erection
    of the plant were held to be sales in the course of import
    made by the Company to N.T.P.C and accordingly benefit
D   under Section 5(2) of the Central Sales Tax Act, 1956 was
    granted by the State Government. Only the component
    'MS' Pipes was denied the benefit. The Sales Tax
    Assessment Order passed by Assistant Commissioner
    (Commercial Tax), Ghaziabad, State of Uttar Pradesh
E   shows that such benefit accrued to the Company for
    remaining 11 items. Since 'MS' Pipes were shipped at
    Calcutta Port, thus, it was the respondents who treated
    them exigible for Sales Tax. If the benefit of the Sales Tax
    exemption was given to the Company for 11 components/
F   items, there is no reason to deny the benefit in respect
    of 'MS' Pipes. [Paras 34 and 35) [569-F-H; 570-A-C]

      1.5. In the facts and circumstances of the case, the
  order passed by Division Bench of the High Court as also
G the orders passed by the Tribunal and the other
  Authorities cannot be sustained in law, and are set aside
  and quashed. The appellant is entitled to claim benefit of
  Section 5(2) of the Act. [Para 44] [577-8-C]


H
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                 559
              OFFICER AND ORS.
                     Case Law Reference:                          A
    (1966) 3 SCR 352          Referred to.          Para 36
    (1997) 1 sec 190          Referred to.          Para 37
    (1985) 4 sec 119          Referred to.          Para 38
                                                                  .B
    (1974) 1 sec 459          Referred to.          Para 39

    (1998) 1 sec 19           Held inapplicable     Para 43

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1123 of 2003.                                                     C

    From the Judgment & Order dated 19.10.2001 of the High
Court at Calcutta in W.P.T.T. No. 7 of 2000.

    S. Ganesh, Amar Dave, Gaurav Goel, Mahesh Agarwal,
Rishi Agrawala (for E.C. Agrawala) for the Appellants.            D

     A.K. Ganguli, Avijit Bhattacharjee, Ananya Kar, Sarbani
Kar, Bidyabrata Acharya for the Respondents.

    The Judgment of the Court was delivered by
                                                                  E
     DEEPAK VERMA, J. 1. Following questions of law
projected, are required to be adjudicated by this Court in the
aforesaid Appeal:-

          (i) Whether import of MS Pipes by Appellants was        F
    pursuant to a term of contracts between Appellant No.1 and
    National Thermal Power Corporation Limited (for short
    'N.T.P.C.').                                              .

          (ii) Whether import of said MS Pipes and supply
    thereof by the Appellant No. 1 to N.T.P.C. Constitutes an     G
    integral and inseparable part of the Contracts between
    them.

    2. Brief history of the case is as under:-
                                                                  H
    560      SUPREME COURT REPORTS                [201 OJ 11 S.C.R.


A        Appellant No. 1 is a Limited Company duly incorporated
    under the provisions of Companies Act, 1956, engaged in the
    business of Works contract. Appellant No. 2 was working for
    gain as Senior Manager of Appellant No. 1 (hereinafter referred
    to as 'the Company').
B       3. Tenders were invited by N.T.P.C on 08.01.1988 for
    submitting bids for Ash Handling Plant Package for its Farakka
    Super Thermal Power Project, Stage-II, by way of International
    Competitive Bidding, popularly known as Global Tender.

C      4. The scope of work involved in such package included
  designing and engineering, manufacture, inspection and testing
  at suppliers works, packing, transportation to site, unloading,
  storage and handling at site, erection, testing and
  commissioning of complete Ash Handling Plant for 2 x 500 MW
D Steam Generating Units (for short 'the plant'). Such type of
  works contract is known as 'On Turnkey Basis'. Bids made by
  bidders were to cover whole of the work as abovementioned.
  Bid made by any person not covering the entire scope of work
  was liable to be treated as incomplete and could be rejected
E on that ground only. The bidder was required to quote a lump
  sum price in its proposal for the entire scope of work covered
  under the bid documents. It further required that bidders shall
  indicate the bid price in their home currency or in US dollars.

       5. The aforesaid project of Ash Handling Plant for 2 x 500
F MW Steam Generating Units was to be partially financed by a
  credit/loan from International Bank for Reconstruction and
  Development (for short 'IBRD') or by International Development
  Association (for short 'IDA').

G        6. Pursuant to issuance of notice to invite tender, the
    Company submitted its bid furnishing therein all the information
    as required by the aforesaid notice and also indicated its bid
    price inclusive of foreign expenditure.

          7. Thereafter, a meeting was convened between the
H
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                   561
     OFFICER AND ORS. [DEEPAK VERMA, J.]

officials of N.T.P.C. and authorized representatives of the        A
Company, at N.T.P.C's Office on 21.07.1988, wherein various
terms and conditions were discussed between the parties
regarding erection of plant for which the Company had
submitted its bid.
                                                                   B
     8. Since project was partially financed by credit/loan from
IDA or IBRD and in view of the terms of Import Export Policy,
Volume-I (April, 1988 to March, 1991) supplies made in such
project under the procedure of International Competitive
Bidding were to be treated as 'deemed exports'. Suppliers to       C
such project enjoyed benefit of customs duty exemption for
import and unless the part of the contract involving importation
of equipments and accessories for use in such project is not
separately treated as a supply contract such benefit cannot be
availed of at all by the importer on such importation.
                                                                   D
     9. The total contract was agreed to be divided into two
separate contracts, (i) Supply Contract, and (ii) Erection
Contract, with a cross fall breach clause wherein breach of
either of the contracts would entitle the owner/ contractee
(N.T.P.C) to cancel the other contract also.                       E
     10. In the said meeting itself, it was agreed between the
Company and N.T.P.C that separate formulae shall be
applicable in respect of calculation of price adjustment for
indigenous supplies and imported supplies. It was, further,
                                                                  F
agreed that if Sales Tax on imported items is leviable due to
future enactment of sale/interpretation of law/ interpretation of
law by court, the same will be reimbursed by N.T.P.C to the.
Company at actuals a~ainst documentary evidence.

     11. By way of Letter of Award dated 16.08.1988, N.T.P.C       G
awarded two contracts to the Company for performing the work
of erection of aforesaid plant on Turnkey Basis. Even though,
two contracts were entered into between the parties but in
nutshell it was only one contract for the simple reason that
N.T.P.C kept a right with it with regard to cross fall breach      H
    562      SUPREME COURT REPORTS                   (2010] 11 S.C.R.


A   clause meaning thereby that default in one contract would
    tantamount to default in another and whole contract was liable
    to be cancelled.

        12. In the said Letter of Award, clause 2 deals with intent
    and scope of award and is reproduced hereinbelow:-
8
          "2.1. We confirm having accepted your proposal dated
          March 28, 1988 and mentioned in at para 1.1 (ii) above,
          read in accordance with communications/ clarifications/
          agreements referred to at para 1.1 above and award on
C         you the 'Supply Contract' for the work of design,
          engineering, manufacture, shop testing, inspection and
          testing of manufacture works, inspection and testing at
          manufacturer's works, packing and forwarding from your
          manufacturing works/ place of despatch (both in India) and
D         successful performance testing at NTPC site and handling
          over of the 2 x 500 MW Ash Handling Plant for Farakka
          STPP, Stage-II on F.O.R. place of despatch in India basis.
          The items which are not specifically mentioned in the
          specifications, but are needed to complete the equipment
E         package shall also be furnished by you unless otherwise
          specifically excluded in our bid documents read with
          Agreed Amendments."

         In clause 4.5, the exchange rate of currencies of the
    various countries had been indicated.
F
         In clause 4.5.1 and 4.5.2, Price Adjustment is indicated but
    relevant portion thereof. is reproduced hereinbelow:-

          "4.5.1 ......... For equipment of Non-Indian origin, you shall
G         submit the details of the indices and co-efficient in line with
          the provisions of Bid Documents within three months of the
          date of this Award Letter.

          4.5.2. The list of components/ material/ equipment to be
          imported by you, for which the adjustment on exchange rate
H         variation is to be made under US$, OM and J Yen will be
    INDURE LTD. AND ANR. v. COMMERCIAL TAX                    563
      OFFICER AND ORS. [DEEPAK VERMA, J.]
      furnished by you within three months of the date of this       A
      Award Letter. The items as declared as per these lists shall
      only be eligible for exchange rate variation claims."

        13. It, further, contemplated that ownership of equipment
  supplied by the Company, under the supply portion of the
                                                                     B
  contract shall vest exclusively with N.T.P.C upon despatch in
  India and negotiation of despatch document with N.T.P.C. Term
  of Contract Agreement contemplated that the Company
  guaranteed to the N.T.P.C that the equipment package under
  the contract shall meet the ratings and performance parameters,
  as stipulated in the Technical Specifications (Volume-II) and in
                                                                     c
  the event of any deficiencies found in the requisite performance
· figures, N.T.P.C. may at its option reject the equipment
  package and recover the payment already made or alternatively
  accept it on the terms and conditions and subject to levy of the
  liquidated damages in terms of cohtract.                           D

      14. Since during the course of the discussion it was
 decided that project would need certain imported items to be
 used exclusively for the plant, the Company had written a letter
 to N.T.P.C on 02.11.1988 inviting its attention, with regard to     E
 clause 4.5.2 of the Letter of Award, giving details of the items
 to be imported for the said project. As many as twelve different
 type of components were sought to be imported for completion
 of the project.

      15. MS Pipe to be imported from M/s. Daewoo                    F
 Corporation, South Korea, was one of the items shown in the
 list prepared by the Company which was subsequently
 presented to N.T.P.C.

     16 .. The Company, thereafter, submitted an application         G
 before DGTD, Import Export Directorate. New Delhi on
 23.02.1989 for Special Imprest Import License against Turnkey
 contract for supply of complete Ash Handling System to
 N.T.P.C's Farakka Super Thermal Power Project (2 x 500 MW).
                                                                     H
    564      SUPREME COURT REPORTS                 (2010] 11 S.C.R.


A         17. Alongwith the Annexures submitted by the Company
    full specifications of the MS Pipes were also given. It also
    contained details of other items required to be imported by the
    Company in accordance with the list presented to N.T.P.C., for
    completion of the project.
B
       18. Necessary declaration required to be furnished by the
  Company was complied with, the Licensing Authority clearly
  mentioning therein that all.components sought to be imported
  were to be exclusively used by it for the aforesaid project of
  N.T.P.C. Accordingly, Special Import License was granted to
C the Company for importing MS Pipes of various diameters upto
  500 MB with different wall thickness together with other
  components to be imported for usage in the said plant.

       19. Admittedly, there is no dispute that MS Pipes were
D imported from outside India (South Korea) and were sold to
  N.T.P.C., Farakka. According to Appellant such sales were
  covered under Section 5(2) of the Central Sales Tax Act, 1956
  (hereinafter shall be referred as 'Act') and had been exempted
  from imposition of Sales Tax under Section 5(2)(a)(v) of the
E Bengal Finance (Sales Tax) Act, 1941 (for short 'BFST Act').

        20. It is worth mentioning here that M/s. Daewoo
    Corporation Limited, South Korea was specifically directed by
    the Company to emboss on each pipe the following marking:

F         "NTPC-FARAKKA STG-11 (2 X 500 MW)

          INDURE LIMITED (ASH HANDLING)"

       21. The special marking on each pipe would go to show
  that it was to be exclusively used as an integral component of
G the said project. The Special Imprest Import License was
  granted to the Company on 21.08.1989 by Controller of Imports
  and Exports with specific condition that the goods supplied
  therein shall be used exclusively for the plant of N.T.P.C. only.

H         22. After the pipes were received at Calcutta port the same
       INDURE LTD. AND ANR. v. COMMERCIAL TAX                      565
         OFFICER AND ORS .. [DEEPAK VERMA, J.]

   were transported to Farakka in the month of December, 1989            A
   and End Use Certificate was issued on 03.06.1991 by
   N.T.P.C., Farakka Super Thermal Power Project certifying that
   MS Pipes imported from Mis. Daewoo Corporation of South
   Korea had been supplied fully to N.T.P.C. in terms of their Letter
   of Award/ purchase order.                                              B

         23. The Company, thereafter, filed its Return claiming
    benefit under Section 5(2) of the Act as sale in the course of
    import. The Commercial Tax Officer, Durgapur Charge, in
    assessment proceedings disallowed the claim of the Company C
    and raised a demand of Rs. 12,60, 795.00/- as Sales Tax.
    Company preferred an appeal under Section 11 (1) of the
    BFST Act before Assistant Commissioner (Commercial Taxes)
    but the same also came to be dismissed and the order of the
    Commercial Tax Officer was confirmed. The Revision
    Application was moved against the said order before West D
    Bengal Commercial Taxes Appellate and Revisional Board, but
    after contest the said Revision Application was also dismissed
    against the Company. It, thereafter, preferred an application
    under S.8 of the West Bengal Taxation Tribunal Act, 1987
.. -before the West-BeAga~-Taxatlo.n_1ribuo_~L__c_~9l~_~gi.n_g __t!l~- . ~- _...
    orders passed by the authorities below but the same was also
    rejected. The Appellants were then constrained to file a Writ
    Petition before Division Bench of the High Court of Calcutta,
    challenging ·ttre-·said--ofders. -However, the Appellant's Writ
    Petition also came to be dismissed by the Division Bench of F
    the said Court on 19.10.2001, giving rise to this appeal.

        24. The case of the Respondents right from the very
   beginning had been that it was neither obligatory nor mandatorily
   required for the Company to have imported the goods in                 G
   question. There was no contractual or legal obligation on their
   part to do so. The only obligation required to be performed by
   the Company under the terms of the Letter of Award and the
   contract was to desigri. supply, erect and commissioning the
   Ash Handling Plant for N.T.P.C., irrespective of the components
                                                                          H
    566     SUPREME COURT REPORTS                 [2010] 11 S.C.R.


A   to be used therein. Appellant's further obligation was that the
    materials used in the execution of the said contract should
    conform to the specification stipulated by N.T.P.C. Such
    supplies would be effected by the Company either from imports
    or procured from within the country.
B
       25. Furthermore, learned counsel for the Respondents
  have contended that the imports effected by the Company were
  on its own accord and under special licensing scheme which
  enabled it to import raw materials and components, for
C manufacturing in India. The imports if at all to be made were
  subject to a further condition that the Company would in the
  process of manufacturing of the goods add at least 33 percent
  value to them before exporting the manufactured goods. In
  terms of the declarations made by the Company to the
  Licensing Authority, the Appellant was not to 'trade' in the
D imported goods and undertook to re-export them after further
  manufacturing and value addition of atleast 33 percent. The sale
  made to N.T.P.C. by the Company was, therefore, not of the
  goods which were imported by the Company. Thus, provisions
  contained in Section 5(2) of the Act would not at all be attracted.
E
         26. As per the Special Import License granted to the
    Company, it was entitled to divert the goods by re-using them
    in the manufacture of other goods or by transferring them to
    another actual user in accordance with the Import Export Policy.
F      27. The imports thus, made by the Company was neither
  pursuant to any stipulation in the Contract nor as an incidence
  thereof. Section 5(2) of the Act, covers only those cases, which
  occasions the import. The decisions on which the Appellants
  have placed reliance have considered the question whether the
G sales therein had occasioned the import. In none of those cases
  did the contracts for sale stipulate any condition with regard to
  the imports in question. In other words, they have contended
  that imports or exports, as the case may be, did not occasion
  the sales in question. It has also been their case that actual user
H license had not been obtained by the assessee. The Company
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                     567
     OFFICER AND ORS. [DEEPAK VERMA, J.]

was only acting on behalf of the ultimate purchaser for whom         A
the work was being conducted.                   "-

     28. It has also been contended by them that the decisions
on which reliance has been placed by the Appellants, in
unequivocal terms emphasised that the transaction of import
                                                                     B
and the transaction of sale have to be so integrated to each
other as to form one single chain without a break. The various
factors, including contractual stipulation, are considered only to
ascertain if the integrated chain is maintained to fulfill the
conditions laid down in Section 5(2) of the Act. That is to say
such sale or purchase occasioned the import.                         C

      29. They have, therefore. strenuously submitted that the
Appellants have lost before all the Authorities below and the
reasoning adopted by West Bengal Taxation Tribunal has been
affirmed by Division Bench of the High Court, thus, no case for      D
interferer.ce has been made out in this Appeal, which deserves
dismissal.

    30. In the Written Submissions of the Respondents, they
have further taken the following plea:-
                                                                     E
            lt is thus clearly established that the goods which
     were imported by the Appellant, were to be imported by
     them for their own purposes though ultimately to be utilised
     for N T.P.C'S Ash Handling Plant. The goods were to
     undergo processing at the premises of the Appellant and         F
     only after their conversion into a final product were to be
     handed over to N.T.P.C. The Appellants thus clearly
     admitted that there was to be a value addition to the
     equipments which were to be imported from the foreign
     sellers before they could be utilised for the Ash Handling      G
     Plant.

           Not only the Appellant utilised the Special Imprest
     License on import of the goods with the declaration that
     the imports were in the nature of raw material components
                                                                     H
    568       SUPREME COURT REPORTS                 [2010] 11 S.C.R.


A         which would be utilised for further manufacturing in its
          premises and with value addition thereon would be sold
          to N.T.P.C, but even when the imported goods were
          dispatched to the site office of the Appellant at N.T.P.C
          Farakka, the Appellant made a declaration under FORM
B         XXX, prescribed under the West Bengal Sales Tax Rules
          to the following effect:

                 "We also undertake to duly account to you the
          disposal of above goods and to pay tax on the sales
          thereof in accordance with the provisions of the said Act."
C         ('Act' in this context, refers to Bengal Finance (Sales_ Tax)
          Act. 1941)

        31. In this Court Respondents have taken a further plea that
  Company had admitted that the raw materials imported by it
o were manufactured by it. Further, with a view to secure the value
  addition of at least 33 percent, such raw materials cannot
  remain the same after being processed into final product. At
  least the Company has produced no material to substantiate
  the claim that the raw material imported by it remained the same
E even after value addition. Since the Company was seeking
  exemption under the Act, the burden squarely fell on it to
  establish that they were entitled to such exemption.
  Furthermore, the Respondents have also argued that it was
  required to be established by the Company that the goods
F imported and dispatched to Farakka would also be in the nature
  of raw materials or components or it underwent further
  processing at the site office of the Company and then with value
  addition thereon were sold to N.T.P.C to be used exclusively
  for the plant which it failed to establish or prove. For all these
  reasons Respondents have contended that the matter having
G been dealt with and considered from all angles, no case for
  interference has been made out and the Appeal being devoid
  of any merit and substance deseNes to be dismissed.

       32. We have, accordingly, heard learned Senior Counsel
H Shri S. Ganesh and Mr. Amar Dave, Mr. Gaurav Goel, Mr.
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                     569
     OFFICER AND ORS. [DEEPAK VERMA, J.]

Mahesh Agarwal, Mr. Rishi Agrawala and Mr. E.C. Agrawala,           A
Advocates for the Appellants and Mr. A.K. Ganguli, learned
Senior Counsel and Mr. Avijit Bhattacharjee, Advocate for
Respondents at length and perused the record.

    33. For proper adjudication of the Appeal it is foremost        B
important to consider the provision of Section 5(2) of the Act,
which is reproduced hereinbelow:-

    "5. When is a sale or purchase of goods said to take place
    in the course of import or export.
                                                                    c
    5.1. xxx                     xxx              xxx   xxx

    5.2. 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           D~
    documents of title to the goods before the goods have
    crossed the customs frontiers of India."

    5.3. xxx      xxx    xxx           xxx
                                                                    E
     5.4. xxx     xxx    xxx           xxx
     5.5. xxx     xxx    xxx           xxx"
     34. Before we proceed to decide the questions of law as
projected hereinabove, one material fact pertinent to the issue     F
involved in this Appeal requires special mention. We have
already mentioned hereinabove that alongwith MS Pipes, the
disputed goods in this Appeal, the Company had also imported
11 other components/ items to be used in the plant for its
erection and commissioning. Other 11 imported goods, utilised       G
by the Company in the erection of the plant have been held to
be sales in the course of import made by Company to N.T.P.C
and accordingly benefit under Section 5(2) of the Act has been
granted by the concerned State Government. It was only this
particular component MS Pipes, which has been denied this           H
    570        SUPREME COURT REPORTS                  [2010] 11 S.C.R.


A   benefit.

       35. Sales Tax Assessment Order passed by Assistant
  Commissioner (Commercial Tax), Ghaziabad, State Of Uttar
  Pradesh has been filed before us to show that such benefit has
B been accrued to the Company for remaining 11 items. Since
  MS Pipes were shipped at Calcutta Port, thus it was
  Respondents who treated them exigible for Sales Tax. If the
  benefit of the Sales Tax exemption has been given to the
  Company for 11 components/ items there is no reason why it
C is to be denied in respect of MS Pipes. This we are quoting
  so that the facts may be put on record correctly.

         36. Leading case dealing with Section 5(2) of the Act is
  reported in (1966) 3 SCR 352, K.G. Khosla & Co. Vs. Deputy
  Commissioner of Commercial Taxes decided by a
D Constitution Bench of this Court. In the aforesaid judgment, two
  questions were projected for consideration by the Constitution
  Bench namely, if the sales were in the course of import within
  the meaning of Section 5(2) of the Act; and, secondly if the
  property in the goods passed in Belgium and consequently the
E sales were outside the State within the meaning of Article
  286(1 )(a) of the Constitution. The Constitution Bench was of the
  opinion that the assessee must succeed on the first point and
  it will not be necessary to deal with the second point. Court has
  held as under:-
F               "The next question that arises is whether the
          movement of axle-box bodies from Belgium into Madras
          was the result of a covenant in the contract of sale or an
          incident of such contract. It seems to us that it is quite clear
          from the contract that it was incidental to the contract that
G         the axle-box bodies would be manufactured in Belgium,
          inspected there and imported into India for the consignee.
          Movement of goods from Belgium to India was in
          pursuance of the conditions of the contract between the
          assessee and the Director-General of Supplies. There was
H         no possibility of these goods being diverted by the
   IN DURE LTD. AND ANR. v. COMMERCIAL TAX                    571
      OFFICER AND ORS. [DEEPAK VERMA,. J.]
    assessee for any other purpose. Consequently we hold              A
    that the sales took place in the course of import of goods
    within Section 5(2) of the Act, and are, therefore, exempt
    from taxation."

     37. In the case in hand, it is to be noted that import had
                                                                      B
occasioned only on account of the covenant entered into
between the Company and N.T.P.C. and the imported pipes
were used exclusively for erection and commissioning of the
plant. Respondents have failed to establish that these pipes
were not used in the plant of N.T.P.C, Similar question had           C
again come up for consideration before two learned Judges
of this Court reported in (1997} 7 SCC 190, State of
Maharashtra Vs. Embee Corporation, Bombay wherein it has
been held as under:-

    "9. In this case (K. G. Khosla & Co. (P) Ltd. Vs. Dy.             D
    Commissioner of Commercial Taxes), the Constitution
    Bench specifically held that sale need not precede the
    import and this decision is a complete answer to the
    argument advanced by the learned counsel for the
    appellant.                                                        E

    10. Learned counsel then tried to argue that the decision
    of the Constitution Bench in Khosla case is not applicable
    to the present case as in the said case, the materials were
    to be inspected at Belgium and London and thereafter the
    goods were to enter into India. This argument is not correct.     F
    In Khosla case the inspection of goods was to be carried
    out in Belgium as well as on arrival into India. In the present
    case, the inspection was to be done on arrival of goods
    into India and as such, there is no distinction on facts
    between the present case and that of Khosla. Learned              G
    counsel then urged that the decision of the Constitution
    Bench in Khosla case has not been correctly decided and
    as such this case be referred to a larger Bench. We have
    considered the matter and found that Khosla case has held
    the field nearly more than three decades and its                  H
                                                                       -   ...
    572       SUPREME COURT REPORTS                  (2010] 11 S.C.R.


A         correctness has not been doubted so far. We, therefore,
          reject the prayer of learned counsel for the appellant.

          11. Learned counsel then urged that this case is covered
          by decisions of this Court in the cases of Binani Bros. (P)
          Ltd. v. Union of India, Mohd. Serajuddin v. State of Orissa
B
          and K. Gopinathan Nair v. State of Kera/a. The decision
          of this Court in the case of Binani Bros is distinguishable
          as in that case no obligation was imposed on the appellant
          to supply the imported goods to DGS&D after they had
          been imported and the same could be directed to other
c         channels. Similarly, the decision of this Court in the case
          of Mohd. Serajuddin is not applicable to the present case
          as in that case it was found that the appellant in the said
          case sold the goods directly to the Corporation which
          entered into a contract with a foreign buyer and it was found
D         that the immediate cause of export was the contract
          between the foreign buyer who was the importer and the
          Corporation who was the exporter. Such sales were
          described as back-to-back contract. This decision rested
          on the peculiar facts of that case. We are, therefore. of the
E         view that the appeHant cannot derive any assistance from
          the said decision. The last case which was brought to our
          notice was K. Gopinathan Nair v. State of Kera/a. In the
          said case, on facts it was found that on account of the sale
          to CCI by foreign exporters raw cashewnuts were
F         imported into India. The importer being the CCI and not
          the local user, this Court held that principles evolved by it
          in para 12 of the judgment were not applicable to that
          case. We do not, therefore. find that this decision is helpful
          to the appellant's case.
G
          12. The result of the aforesaid discussion is that while
          interpreting the expression "sale occasions import"
          occurring in sub-section (2) of Section 5 of the Act, it is
          not necessary that a completed sale should precede the
          import."
H
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                   573
     OFFICER AND ORS. [DEEPAK VERMA, J.]
     38. Test to determine if the sales were in the course of       A
import has been elaborately considered in a judgment of
learned three Judges' Bench of this Court reported in (1985)
4 SCC 119, Deputy Commissioner of Agricultural Income
Tax And Sales Tax, Ernakulam Vs. Indian Explosives Ltd.
                                                                    B
     39. Para 4 thereof dealing with the issue is reproduced
hereinbelow and finally in para 6 while distinguishing (1974) 1
SCC 459 in the matter of Mis. Binani Bros (P) Ltd. Vs. Union
of India and Others, it has been held as under:-

    "4. The test of integral connection or inextricable link        C
    between the sale and the actual import or export in order
    that the sale could become a sale in the course of import
    or export has been clearly enunciated by this Court in Ben
    Gorm Ni/giri Plantations Company case. There the
    question related to sale of tea which was claimed to be in      D
    the course of export out of the territory of India and though
    by majority it was held that the sales in question were not
    "in the course of export", the Court at p. 711 of the Report
    laid down the test thus:
                                                                    E
           A sale in the course of export predicates a
    connection between· the salP, and export, the two activities
    being so integrated that tho:: connection between the two
    cannot be voluntarily interrupted, without a breach of the
                                                                        ,.,
    contract or the compulsion arising from the nature of the
    transaction. In this sense to constitute a sale in the course
                                                                    F
    of export it may be said that there must be an intention on
    the part of both the buyer and the seller to export, there
    must be obligation to export, and there must be an actual
    export. The obligation may arise by reason of statute,
    contract between the parties, or from mutual understanding      G
    or agreement between them, or even from the nature of
    the transaction which links the sale to export. A transaction
    of sale which is a preliminary to export of the commodity
    sold may be regarded as a sale for export, but is not
    necessarily to be regarded as one in the course of export,      H
    574      SUPREME COURT REPORTS                   [2010] 11 S.C.R.


A         unless the sale occasions export. And to occasion export
          there must exist such a bond between the contract of sale
          and the actual exportation. that each link is inextricably
          connected with the one immediately preceding it. Without
          such a bond, a transaction of sale cannot be called a sale
B         in the course of export of goods out of the territory of India.

          Conversely, in order that the sale should be one in the
          course of import it must occasion the import and to
          occasion the import there must be integral connection or
          inextricable link between the first sale following the import
c         and the actual import provided by an obligation to import
          arising from statute, contract or mutual understanding or
          nature of the transaction which links the sale fo import
          which cannot, without committing a breach of statute or
          contract or mutual understanding, be sapped (sic snapped).
D
          6. Counsel for the appellant fairly conceded that the facts
          in K. G. Khos/a & Co. case were on all fours with the facts
          obtaining in the instant appeals and that the ratio of that
          decision would appear to govern the question arising in
E         these appeals, but he contended that a different view has
          been taken by this Court in Binani Bros {P) Ltd. v. Union
          of India and in view of this later decision the High Court
          ought not to have applied the ratio of K. G. Khosla & Co.
          decision to this case. It is not possible to accept this
F         contention as in our view Binani Bros. case is clearly
          distinguishable on two material aspects. In that case the
          assessee itself held the import licence and the goods were
          imported on the strength of such import licence and not on
          the strength of any Actual Users' Licence as is the case
          here. Secondly, unlike in the present case there was no
G
          term or condition prohibiting diversion of the goods after
          the import. In fact, it is these two factors obtaining in the
          instant case which establish the integral connection or
          inextricable link between the transactions of sale and the
          actual import making the sales in the course of import. In
H         fact as pointed out earlier, the movement of the goods from
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                    575
     OFFICER AND ORS. [DEEPAK VERMA, J.]
    the foreign country to India was in pursuance of the             A
    requirements flowing from the contract of sale between the
    respondent-assessee and the local purchaser and as such
    the sales in question must be held to be in the course of
    import."
                                                                     B
    40. Learned Counsel for Respondents has placed reliance
on Binani Bros. supra specially para 14, reproduced
hereinbelow:-

    "14. Be that as it may, in the case under consideration we
    are concerned with the sales made by the petitioner as           C
    principal to the DGS&D. No doubt, for effecting these
    sales, the petitioner had to purchase goods from foreign
    sellers and it was these purchases from the foreign sellers
    which occasioned the movement of goods in the course
    of import. In other words, the movement of goods was             D
    occasioned by the contracts for purchase which the
    petitioner entered into with the foreign sellers. No
    movement of goods in the course of import took place in
    pursuance to the contracts of sale made by the petitioner
    with the DGS&D. The petitioner's sales to DGS&D were             E
    distinct and separate from his purchases from foreign
    sellers. To put it differently. the sales by the petitioner to
    the DGS&D did not occasiu:i the import. It was purchases
    made by the petitioner from the foreign sellers which
    occasioned the import of the goods. The purchases of the         F
    goods and import of the goods in pursuance to the
    contracts of purchases were, no doubt, for sale to the
    DGS&D. But it would not follow that the sales or contracts
    of sales to DGS&D occasioned the movement of the
    goods into this country. There was no privity of contract        G
    between DGS&D and the foreign sellers. The foreign
    sellers did not enter into any contract by themselves or
    through the agency of the petitioner to the DGS&D and the
    movement of goods from the foreign countries was not
    occasioned on account of the sales by the petitioner to
                                                                     H
    DGS&D."
    576      SUPREME COURT REPORTS                   [2010] 11 S.C.R.


A        41. However, we are of the considered opinion that it has
    not been the Respondents' case that the MS Pipes imported
    by the Company were not used for the erection and
    commissioning of the plant for N.T.P.C. Thus, from the facts of
    Binani Bros supra, it is clearly spelt out that the facts of the case
B   in hand are different. Thus, the ratio of the said case would not
    be applicable to it.

       42. In fact, the ground, sought to be raised for the first time
  before this Court that MS Pipes were put to manufacturing
  process and thereby converted into distinct end product had
C not been raised before any of the Authorities earlier. It was not
  the Respondents case that pipes so imported were not
  necessary components for the erection and commissioning of
  the plant. Admittedly, the said pipes were used as components
  in the Ash Handling Plant in the same condition as they were
D imported without altering its originality. Thus, the ground which
  was sought to be raised before us for the first time has not been
  considered by any of the Authorities and in our opinion rightly
  so. Thus, we also do not deem it fit and proper to consider the
  same at this belated stage.
E
       43. Apart from the aforesaid reasons, we are also of the
  considered opinion that such import would fall within the
  Constitutional umbrella. It is also to be noted that Company had
  admittedly imported the goods into India for completion of the
F Project on Turnkey Basis of N.T.P.C. Thus, by virtue of Article
  286 (1) (b) of the Constitution, it would not be taxable. For ready
  reference, Article 286 (1) (b} of the Constitution is reproduced
  hereinbelow:

          "286. Restrictions as to imposition of tax on the sale or
G         purchase of goods - (1) No law of a State shall impose,
          or authorise the imposition of, a tax on the sale or
          purchase of goods where such sale or purchase takes
          place-

H              (a) outside the State; or
   INDURE LTD. AND ANR. v. COMMERCIAL TAX                     577
     OFFICER AND ORS. [DEEPAK VERMA, J.]
             (b) in the course of the import of the goods into,     A
       or export of the goods out of, the territory of India.
                                             '
       See (1998) (7) SCC 19 Minerals & Metals Trading
       Corporation of India Ltd. Vs. Sa/es Tax Officer.

     44. In the facts and circumstances of the .ca.se we are of £
the opinion that the order passed by Division Bench of the High
Court as also the orders passed by Tribunal and other
Auth9rities cannot be sustained in law. Same are hereby set
aside and quashed. Appellant is held entitled to claim benefit
of Section 5(2) of the Act.                                     C

     45. We have been given to understand that pursuant to the
demand notice issued by Respondents, the Company has
already deposited the Sales Tax liability "under protest".
Respondent State would refund the same to the Company with D
Simple Interest at the rate of 6 percent from the date of its
deposit till its refund within a period of three months, from the
date of communication of the said order. In case amount is not
refunded within three months, from the date of communication
of said order, then Respondents would be liable to pay E
Compound Interest on the amount deposited by Appellants with
the Respondents at the rate of ~ 2 percent per annum.

   46. The Appeal thus, stands allowed with costs throughout;
Counsel's fee Rs. 50,000/-.

N.J.                                             Appeal allowed.