Supreme Court clarifies the applicability of Section 5(2) of the Central Sales Tax Act in import-related sales: Commissioner of Sales Tax vs. M/s. Tata Iron & Steel Co. Ltd. (2008)

Date of the Judgment: September 16, 2008
Judges: S.H. Kapadia, J. and B. Sudershan Reddy, J.

When does a sale occasion the import of goods, thus falling under the purview of Section 5(2) of the Central Sales Tax Act, 1956? This question was at the heart of a dispute between the Commissioner of Sales Tax and M/s. Tata Iron & Steel Co. Ltd. (TISCO). The Supreme Court addressed whether the contracts between TISCO, Indian buyers, and Tata Inc. (USA) were so intertwined that sales to Indian buyers could be considered import-occasioned, thereby exempting them from sales tax. The bench, comprising Justice S.H. Kapadia and Justice B. Sudershan Reddy, ultimately remitted the matter back to the High Court for fresh consideration.

Case Background:

The dispute arose from sales made by TISCO to Indian buyers, which the Sales Tax Department sought to tax. TISCO contended that these sales occasioned the import of goods and were thus exempt under Section 5(2) of the Central Sales Tax Act, 1956.

The transactions involved two sets of contracts: one between TISCO and the Indian buyer(s), and another between TISCO and Tata Inc. (USA). The core issue was whether these contracts were integrated to the extent that they constituted a “sale” that directly led to the import of goods. TISCO argued that the Indian buyer(s) had entered into a tripartite contract, the terms of which stipulated the import of goods from the USA to the Indian buyer(s) in India.

Timeline:

Legal Framework:

The central legal provision in question is Section 5(2) of the Central Sales Tax Act, 1956, which defines when a sale is deemed to take place during the import of goods. The relevant portion states:

“A sale shall be deemed to take place in the course of the import of goods into the territory of India only if it occasions such import.”

This provision implies that for a sale to be considered as occurring during import, it must be the direct cause or occasion for the import of the goods into India.

Arguments:

Arguments on behalf of the Assessee (M/s. Tata Iron & Steel Co. Ltd.):

• TISCO contended that there was a tripartite agreement between the Indian buyer(s), TISCO, and Tata Inc. (USA), which stipulated the import of goods from the USA directly to the Indian buyer(s).
• TISCO argued that the contract with the Indian buyer(s) was not merely for the sale of goods but specifically for the import of goods that could only be supplied to that buyer and could not be diverted elsewhere.
• TISCO submitted that the foreign source was clearly identifiable under the contract, and it was unnecessary for the foreign supplier to know the identity of the Indian buyer.
• TISCO asserted that the import was specifically for the Indian buyer, thus falling under the first limb of Section 5(2) of the Central Sales Tax Act, 1956.

Arguments on behalf of the Department:

• The Department argued that TISCO promised the Indian buyer(s) to procure goods from the USA, but the two contracts (TISCO-Indian buyer and TISCO-Tata Inc.) were not inextricably interlinked.
• The Department contended that TISCO was the sole supplier of goods to the Indian buyer, and its only obligation was to arrange for imports from abroad.
• The Department submitted that the sales by TISCO to the Indian buyer(s) did not fall within the first limb of Section 5(2) of the Central Sales Tax Act, 1956.

Issues Framed by the Supreme Court:

The Supreme Court re-framed the question to be addressed by the High Court as follows:

“Whether on the facts and circumstances of the case, could it be said that the contract between the Indian buyer and TISCO on the one hand and the contract between TISCO and Tata Incorporated, USA on the other are so inextricably interlinked so as to attract the first limb of Section 5(2) of the 1956 Act?”

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities:

The judgment does not explicitly cite specific cases or books as authorities. However, it refers to:

• Section 5(2) of the Central Sales Tax Act, 1956: This is the primary legal provision under consideration, which defines the conditions under which a sale is deemed to occur during the import of goods.

Judgment:

The Supreme Court allowed the Department’s appeal and remitted the matter to the High Court for reconsideration. The High Court was directed to examine whether the contracts between TISCO, the Indian buyers, and Tata Inc. (USA) were so inextricably linked as to attract the first limb of Section 5(2) of the Central Sales Tax Act, 1956. Additionally, the High Court was instructed to consider whether the sales were exempt under the second limb of Section 5(2) of the Act.

“How each submission made by the Parties was treated by the Court?” in TABLE

“How each authority was viewed by the Court?”

• Section 5(2) of the Central Sales Tax Act, 1956: The Court considered this provision as the central point of interpretation to determine whether the sales by TISCO occasioned the import of goods, thus warranting an exemption from sales tax.

What weighed in the mind of the Court?:

The Supreme Court’s decision to remit the case back to the High Court indicates that it found the High Court’s initial assessment to be incomplete. The key factors that weighed in the mind of the Court included:

• The need for a thorough examination of the documents, such as invoices and bills of lading, to ascertain the nature and linkage of the contracts.
• The importance of determining whether the contracts between TISCO, the Indian buyers, and Tata Inc. (USA) were inextricably linked, thereby occasioning the import of goods.
• The necessity of considering both limbs of Section 5(2) of the Central Sales Tax Act, 1956, to determine whether the sales were exempt from sales tax.

Fact:Law

Key Takeaways:

• The Supreme Court emphasized the importance of thoroughly examining all relevant documents to determine whether a sale occasions the import of goods under Section 5(2) of the Central Sales Tax Act, 1956.
• The decision highlights the need to assess the nature and linkage of contracts between parties involved in import transactions to ascertain tax liabilities.

Development of Law:

The case clarifies the approach to determining whether a sale occasions the import of goods under Section 5(2) of the Central Sales Tax Act, 1956, emphasizing the need for a detailed examination of the factual matrix and contractual relationships.

Conclusion:

The Supreme Court’s decision in Commissioner of Sales Tax vs. M/s. Tata Iron & Steel Co. Ltd. (2008) underscores the importance of a comprehensive assessment of contractual relationships and factual circumstances in determining whether a sale occasions the import of goods under Section 5(2) of the Central Sales Tax Act, 1956. The matter was remitted to the High Court for a fresh examination, emphasizing the need to consider all relevant documents and both limbs of Section 5(2) of the Act.