M/s Vellanki Frame Works vs The Commercial Tax Officer, Visakhapatnam

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 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 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) 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 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 – 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 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 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 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 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 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 customs duty, the so called second high seas sale agreements never came into operation – Central Sales Tax Act, 1956 – s.5(2).

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 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 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 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 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 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 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 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 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 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 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 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 during their movement from one State to another. [Para 20.2][943E-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), 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. [Para 20.3][944-DF]

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 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)

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.

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 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 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 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 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 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 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, 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 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

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 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 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 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 on record to show that either the IGM contained the 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. 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; 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 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 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 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 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] 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, 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, 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 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 the official records totally belie the suggestion of the appellant. [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 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 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 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 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 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 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 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 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 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

(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 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 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 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 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. The appellant was not entitled to the exemption of 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 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 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 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 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

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 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 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 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 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.

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.