THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, CENTRAL ZONE, ERNAKULAM vs. M/S. KOTAK & CO., BOMBAY, ETC. ETC.

CIVIL APPEAL No. 1889/1970Supreme Court[1973] 3 S.C.R. 88303 April 1973Bench: 2 JudgesAuthor: K.S. HEGDE, HANS RAJ KHANNA6 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, holding that the sales occasioned the import. The Court affirmed the decision of the Sales Tax Tribunal and the High Court. The reasoning was based on the established principle that a sale occasions import if it is the direct cause for the goods to be brought into India. The Court found that the facts of the present case were similar to those in K. G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes, where it was held that sales necessitating import were exempt under Section 5(2) of the Central Sales Tax Act, 1956. The Court distinguished the Coffee Board case, finding it inapplicable. The operative direction was the dismissal of the appeals, upholding the exemption from tax.

What were the facts?

The assessee, Kotak & Co., supplied foreign cotton to textile mills in South India. The mills held import licenses, and the assessee acted as an agent for them in importing the cotton. Contracts stipulated that the goods imported were for the specific mills and could not be diverted. Shipping documents were issued in the names of the mills, not the assessee. Import licenses stated that the goods should be the property of the licensees at customs clearance. The Sales Tax Officer and Appellate Assistant Commissioner held the sales to be intra-state and taxable. The Sales Tax Tribunal, however, ruled that the sales fell under Section 5(2) of the Central Sales Tax Act, read with Article 286 of the Constitution, a decision affirmed by the High Court. The Revenue appealed this decision.

What were the issues?

1. Whether the sales made by the assessee to the textile mills occasioned the import of goods into India, thereby falling under Section 5(2) of the Central Sales Tax Act, 1956, read with Article 286 of the Constitution, and thus being exempt from intra-state sales tax. Assessee's Contention: The sales occasioned the import and were therefore in the course of import, exempt from tax. The assessee relied on the principle that if a sale necessitates an import, it is a sale in the course of import. Revenue's Contention: The sales were intra-state sales and therefore liable to tax. The Revenue argued that the High Court's observation regarding contract terms was incorrect and attempted to distinguish the present case from the precedent set in K. G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes by stating there were two sales in this case, unlike the single sale in Khosla's case. The Revenue also relied on Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras.

Which sections of the Income-tax Act were involved?

Section 5(2)

AI-generated summary — verify with the full judgment below

' _. • t_ ·~ " • ( ~- ~~----------------~ A B c D E F G H 883'" THE DEPUTY COMMISSIONER OF AGRICULTURAL INCOME TAX AND SALES TAX, CENTRAL ZONE, ERNAKULAM . v . M/S. KOTAK & CO., !JOMBAY, ETC. ETC.

April 3, 1973 (K, S. HEGDE AND H. R. KHANNA, JJ.] Central Sr.ies Tax Act 1956--S. 5(2) read with Art. 286 of the Consti-· uuion. A.~essee Company sold to bu,ver · ilr the course of import-- JVhether an inter-State sale. ~·.

The respondent was engaged in the supply of foreign cotton to texti!e- milis. in South India on the basis·of import.Jic.cnces issued to the mills-. 3uthori!~Og import of foreign cotton· by them.. The firm supplied cotton to the mills on the basis of specific written contracts. One of the co.rrditicns in the -contract is that _the goods imported· should not under any cir:"Umstances, be diverted· fiom its d.:termined destination, i.e. the mills. _ Secor.dly~ the relative. shipping docum~nts ·were issued by the- foreign seHer in the names of the respective mills and not in the name- Of the assessee-firm.

Again;_ the import licences issued to 'the mills. authorise the mills to import the goods; and o:n the reverse of. these· licence

The order continues below.

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