1. These two applications under Article 226 of the Constitution of India were filed before the High Court of Calcutta in its original side and numbered there as matter Nos. 1059 and 2294 of 1988. By virtue of Section 15 of the West Bengal Taxation Tribunal Act, 1987, enacted under Article 423B of the Constitution of India, these stood transferred to this Tribunal for disposal and were registered here as RN-119(T) and RN-120(T) of 1989. We heard the matters together, as the facts are similar and a common question of law arises for consideration, namely, whether the purchases of tea by the applicant-companies from wholesalers/tea brokers for ultimate export to Iran were the last sales or purchases preceding the sale or purchase occasioning export of those goods and deemed to be in the course of export within the meaning of Sub-section (3) of Section 5 of the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act").
2. The applicant-companies are exporters of Indian tea to foreign countries on the strength of licences/permits issued to them according to the provisions of the Tea Act, 1953 and the Tea (Distribution and Export) Control Order, 1967. In or about the year 1983, the State Trading Corporation of India Ltd. ("the STC", for short) intervened in the export market by introducing what is termed by the applicants as the "consortium approach" for eliminating unhealthy competition among the Indian exporters. The STC entered into export contracts with foreign buyers and entrusted performance of those contracts to the Indian companies, like the present applicants, who shipped the specified quantities of lea of the agreed quality "a/c STC" on the strength of their own export licences. Letter of credit was opened in favour of the STC which realised price from the foreign buyers and made payments to the Indian companies, having retained an agreed percentage (here one per cent of FOB value) as service charge. All benefits accruing out of the exports are to go to the applicants and all expenses and obligations towards performance of the contracts are to the account of the applicants. For the purpose of performance of the export contracts the applicants purchased tea from either wholesalers or tea brokers at the tea auctions. The STC and the applicants respectively entered into written agreements containing terms for performance of the export contracts. In the cases before us the exports were effected to the Government Trading Corporation of Iran.
3. According to the applicants, the exports were directly made by themselves and therefore the sales of tea were made by them to the foreign buyer and the STC acted merely as their agent. No sale of goods between them and STC was involved in the process. There was no transfer of title in the goods to the STC. Hence, the exports by them to the foreign buyer are exempted under Sub-clause (b) of Clause (1) of Article 286 of the Constitution of India and Sub-section (1) of Section 5 of the CST Act. Their purchases from wholesalers or tea brokers at the auctions are accordingly exempted under Sub-section (3) of Section 5 of the CST Act. The department's move by way of letters to the tea brokers for realisation of sales tax under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as "the BFST Act"), on the purchases of the applicants from the tea brokers is unwarranted and illegal.
4. But the case of the Revenue is that the export sales were actually made by the STC. The applicants sold the teas to the STC and shipped the same as its agent. Therefore, the export itself constituted a sale to the foreign buyer, being exempt from payment of State sales tax by virtue of Section 5(1) of the CST Act read with Article 286(1)(b). The Revenue further pleads that the sales by the applicants to the STC for export are the last sales preceding the sales occasioning the export, being exempt from payment of State sales tax in view of Section 5(3) of the CST Act. There was, according to the department, no privity of contract between the foreign buyer and the applicants. Therefore, the purchases from the tea brokers at the auctions are exigible to sales tax under the BFST Act, since no exemption under Section 5 of the CST Act was available to these purchases/ sales.
5. Mr. B. Gupta, the learned Advocate for the applicants, did not press the point taken in the applications that the actions of the department claiming to realise sales tax on the sales of tea to the applicants by the tea brokers were hit by Articles 14 and 19(1)(g) of the Constitution of India. The facts as such are not really disputed. What is disputed is the legal position arising out of the facts. The decision on the dispute in these two cases really turns upon the correct construction of the written agreements executed between the STC and the applicants regarding compliance of the export contracts. In other words, the central question is whether it was an agency agreement or an agreement for sale of goods for export.
6. It is well-settled that construction of a document of this nature depends on the substance rather than the form and such documents deserve to be considered as a whole. Annexure "A" to the application in RN-119(T) is the relevant part of the export contract entered into by the STC with the foreign buyer. Admittedly, the export contract between the STC and the foreign buyer in case No. 120(T) is of identical nature. Annexure "B" to the application in RN-119(T) at pages 31-39 is the agreement between the applicant and the STC. Similarly, the agreement in RN-120(T) is annexure "B" to that application at pages 33-37. The two agreements are substantially the same and Mr. Gupta, on behalf of the applicants, argued the cases on that footing.
7. The following recitals, among others, may be noticed for a true construction of the agreement between the applicants and the STC : (a) Admittedly, the export contracts with the buyer of Iran were entered by the STC for the sale of agreed quantities of tea.
(b) The applicant-companies were described in the agreements either as "shipper" or as "supplier" and the foreign buyer was described as "buyer", there being no designation for the STC. (c) The STC entrusted the applicants with the obligation for supply and shipment of tea.
(d) The applicants, being the shipper/supplier agreed to perform this function/obligation.
(e) The shipper/supplier agreed to perform and observe all obligations which the STC undertook in terms of the export contract.
Such obligations included shipping of the goods.
(g) The price was inclusive of STC's service charge of one per cent on FOB value to be retained by STC out of the price. All other charges were to be borne by the shipper/supplier.
(h) The buyer was to pay the price to the STC by opening an irrevocable, non-transferable and non-confirmed letter of credit in favour of the STC against specified shipping documents which were to be drawn up by the shipper/supplier marked "a/c STC" and submitted along with the required number of copies to the STC immediately after shipment.
(i) Payment would be released to the shipper/supplier immediately after negotiation of documents by the STC. (j) Any export benefits arising from the export would accrue to the account of the shipper/supplier and the STC will have no share therein.
(k) In the event of any default on the part of the shipper/supplier, STC was free to purchase the defaulted quantity at the risk and costs of the shipper/supplier (obviously from the market for performing the contract).
(1) Without prior consent of the STC, the shipper/supplier had no right to assign to any party its rights and obligations arising out of this contract.
8. It was contended by Mr. Gupta on behalf of the applicants that the goods were shipped on the strength of the export licences/permits of the applicants. According to him, this indicated that the STC was acting as the agent of the applicants whether or not the principals, namely, the applicant-companies, have been disclosed to the foreign buyer. In order to persuade us to accept his point, he referred to a decision of Madras High Court in the case of Transformer and Switchgear Ltd. v. State of Tamil Nadu [1986] 62 STC 445. In that case there was no privity of contract between the local seller and the foreign buyer.
There was, however, a contract between the assessee and the selling agent, according to which the export was made. It was held that non-disclosure of the principal by the agent in his dealing with the foreign buyer will not make the agent an independent dealer with respect to the goods exported. The ratio of that decision has no application to the cases before us, since the question of agency is disputed here, whereas there was a clear contract of selling agency between the parties in that case. Mr. Chakraborty, the State Representative, relied on AIR 1962 Ker 243 (Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer). At page 249 of the Report in paragraph 27 the learned Judge held that the fact that the petitioners might have export quota permits under the Tea Act has no bearing in considering the question whether the particular sales are covered by the exemption provided in Article 286(1)(b), or for that matter, Section 5(1) of the CST Act. In the cases before us, the applicants have argued that since the exports were made by using their export licences/ permits, the exports should be taken to have been made directly by them to the foreign buyer and therefore such sales were exempt under Section 5(1) of the CST Act and Article 286(1)(b). If this contention is accepted, then the purchases by the applicants preceding the exports from the tea brokers at auctions would be exempt from State sales tax under Section 5(3) of the CST Act. Moreover, this contention was made in support of the case that the applicants are the principals and the STC is their agent. At this stage, without anything more, we are of the opinion that the mere fact that the goods were shipped to the foreign buyer using the export licences/permits of the applicants does not make or unmake it to be a direct export by them to the foreign buyer. To put in a different way, use of the export licences of the applicants for the exports has no bearing in considering the question as to whether the export-sale was directly made by the applicants or was made by the STC to the foreign buyer. We agree with the ratio of the decision of the learned Judge in Ben Gorm Nilgiri Plantations Co.
v. Sales Tax Officer AIR 9. There is a distinction between a contract of sale and a contract of agency for sale. It is settled that the essence of sale is the transfer of title to the goods for a price paid or promised to be paid. But the essence of agency to sell is the delivery of the goods to a person who is to sell them not as his own property, but as that of the principal who remains the owner of goods. In order to constitute selling agency, goods should be sold to the customer introduced by the agent not on behalf of the agent, but on behalf of the principal. Having regard to the terms in the agreements between the STC and the applicants and the surrounding circumstances and also having regard to the principles of law underlying the distinction between a contract of sale and a contract of agency for sale, we are clearly of the opinion that the agreements between the STC and the applicants for performing the obligations of the export contracts were contracts for sale of tea by the applicants to the STC with a stipulation of discharging the obligation of actually shipping on behalf of the STC as its agent for that limited purpose. The mere fact that out of the sale proceeds, the STC retained or enjoyed only one per cent or that the amount was described in the documents as service charge is immaterial and has no bearing on the construction of the documents as a whole. Thus, in our view, the documents contemplated two contracts, one for sale of goods to the STC and the other for shipment of goods to the foreign buyer.
The contract never envisaged that the applicants were directly dealing with the foreign buyer either as disclosed or as undisclosed principals. The contract with the foreign buyer was independently entered by the STC, not as an agent of the applicants and the contract was performed by the STC. It purchased the goods from the applicants and the shipment was done "a/c STC" by the applicants showing that the applicants were doing so on behalf of the STC as its carriers. The despatch of goods in ships to Iran followed by transfer of the documents of title to the goods to the STC resulted in a sale to the STC, which, in turn, sold the same to the foreign buyer by way of performing the export contract.
10. The question is whether the agreement between STC and the applicants can be so interpreted as to conclude that the STC was their agent. The obvious answer is in the negative. Admittedly, there was no agreement of agency between the applicants and the STC before or contemporaneous to entering the export contracts with the foreign buyer. The STC entered into the export contracts independently. It has not been argued on behalf of the applicants, nor could it be contended on their behalf that the applicants had any privity of contract with the foreign buyer. Mr. Gupta, learned Advocate for the applicants, made an alternative submission that if the terms of the agreements do not lead to a conclusion that the STC was an agent of the applicants, the terms may be so construed as to mean that the STC was the principal and the applicants were the agents. He naturally implied that in case of such a finding, the sale by the tea brokers to the applicants could not be said to be a third sale in the chain of sales starting from the actual export sale to the foreign buyer. In other words, if this alternative submission is accepted, then also the sale by the tea brokers to the applicants would be the second sale enjoying exemption under sub-section(3) of Section 5 of the CST Act, 1956. What Mr. Gupta wanted to say is that in case the STC is taken as the principal for the whole transaction and the applicants to be the agents, the export sale was made by the STC through the agency of the applicants and no sale was involved as between the applicants and STC, because there could be no sale between an agent and his principal. But the terms of the agreements and the surrounding circumstances do not indicate that except for specified duties such as shipping the goods to the foreign buyer, there was any other contractual agency between the STC and the applicants. The STC had entrusted its own job of sale by export to the applicants for performance, but it never intended that the applicants would be its agents except for certain specific duties such as shipping the goods. The documents of transfer of title to the goods in favour of the foreign buyer were not to be directly forwarded/negotiated by the applicants to the foreign buyer. The applicants were to submit the papers to the STC for negotiation to the foreign buyer. As soon as the documents were made over to the STC, title was transferred from the applicants to the STC and then again as soon as the goods crossed the customs frontiers of India and documents of title to the goods were transferred to the foreign buyer by the STC, there was a sale of the goods to the foreign buyer by export within the meaning of Sub-section (1) of Section 5 of the CST Act, 1956. We conclude that there was a sale from the applicants to the STC and there was another sale from the STC to the foreign buyer and there is no escape from this conclusion.
That being the position, the alternative case of the applicants that the STC was the principal and they were the agents for the purpose of the export sale does not stand to reason. We are unable to accept this contention.
11. Mr. P.K. Chakraborty, the learned State Representative, cited in support of the contention of the Revenue, a decision of Madras High Court in the case of Lakshmi Machine Works Ltd. [1981] 48 STC 342. In that case in almost similar circumstances the Madras High Court held that there was no privity of contract between the assessee and the foreign customer and the sale by the assessee in favour of STC was only a local sale liable to tax. With the object of countering the said decision Mr. B. Gupta, the learned Advocate for the applicants, cited two other decisions of the Madras High Court, namely, Transformer and Switchgear Ltd. v. State of Tamil Nadu [1986] 62 STC 445 and State of Tamil Nadu v. Rafeeq Ahmed & Co. [1983] 52 STC 281. We have already discussed the case reported in [1986] 62 STC 445 (Mad.) (Transformer and Switchgear Ltd. v. State of Tamil Nadu), which was decided on a different set of facts. As regards [1983] 52 STC 281 (Mad.) (State of Tamil Nadu v. R. Ahmed & Co.), it was a case where the assessee entered into an export contract with a foreign buyer through the medium of an agent and the principal remained undis-closed. Thus the basic fact governing that case was different and hence the conclusion drawn by the Madras High Court in that case does not help the contention of the applicants in the present cases. Mr. P.K. Chakraborty, appearing for the respondents, drew support from a single Bench decision of the Allahabad High Court in the case of Liberty Footwear Co. [1983] 52 STC 273. In that case the facts were also similar to those of the cases before us. As in the present cases, so also in that case, there was no contractual obligation on the part of the dealer to export the goods directly to the foreign buyer. The contractual obligation was of the STC and therefore the purchases by the dealer who complied with the export contract by virtue of another agreement with the STC (similar to the agreements in these cases) were not part of any integrated activity in the course of export by him and therefore were not exempt under Section 5. On behalf of the Revenue, reliance was also placed on [1977] 40 STC 367 (SC) (Member, Board of Revenue, West Bengal v. Swaika Oil Mills). The facts in that case were that Swaika Oil Mills on the one hand and the Netherlands Selling Organisation (hereinafter referred to as "N.S.O."), their buyer in India, on the other, entered into a direct, distinct and independent contract of sale. The sale effected under that contract was wholly unconnected with the sale by NSO to their foreign buyer. The two sales were not a part of one integral transaction. There was no privity of contract between Swaika Oil Mills and the foreign buyer. It was held by the Supreme Court that Swaika Oil Mills put the goods sold by them to the NSO on board the ship merely to facilitate the intended export of goods by NSO and in loading the goods on the ship, the respondents were acting as mere carriers, since they were under an obligation to do so under their contract with NSO.Applying the ratio in Serajuddin's case [1975] 36 STC 136 (SC), it was held by the Supreme Court that the sale effected by Swaika Oil Mills in favour of NSO was not a sale in the course of export. The ratio of this decision, in our view, is that on the facts of that case the exportation of the goods to the foreign buyer was, not a sale by Swaika Oil Mills directly to the foreign buyer, but was a sale by NSO to whom Swaika Oil Mills sold the goods in India. We agree with Mr.
Chakraborty, appearing for the respondents, that the ratio of this decision is applicable to the facts of the cases under our consideration.
12. Mr. Gupta, learned Advocate for the applicants, made a reference to the decision of the Supreme Court in Consolidated Coffee Ltd. v. Coffee Board [1980] 46 STC 164, in which the court laid down the conditions which were required to be fulfilled for availing of the exemption under Section 5(3) of the CST Act, 1956. The court held that Section 5(3) has been enacted to extend the exemption from tax liability not to any kind of penultimate sale, but only to such penultimate sale as satisfied the two conditions specified therein, namely, (a) that such penultimate sale must take place (i.e. become complete) after the agreement or order under which the goods are to be exported, and (b) it must be for the purpose of complying with such agreement or order and it is only then that such penultimate sale is deemed to be a sale in the course of export. It was further held that "the agreement" occurring in the phrase--"agreement or order for or in relation to such export" in Section 5(3) means or refers to the agreement with a foreign buyer and not an agreement or order with a local party containing the covenant to export. The Supreme Court went on to hold that the word "order" must be understood in a commercial sense and in that sense an order means a firm request for supply of definite goods emanating from a buyer, an indent placed by a purchaser and therefore an order for or in relation to export would mean an indent from a foreign buyer. In the present cases before us, there was no agreement between the applicants and the foreign buyer and no order from the foreign buyer on the applicants for the sale of tea. There was no indent or request from the foreign buyer to the applicants for such sale. There was no obligation on the part of the applicants to export the goods arising from an agreement with or order from a foreign buyer. That being the case, there was no sale by the applicants to the foreign buyer and their purchases at the tea auctions or elsewhere for performing the agreement with STC was not entitled to exemption under Sub-section (3) of Section 5 of the CST Act.
13. Accordingly, the two writ petitions which have been registered as RN-119(T) and RN-120(T) of 1989 upon transfer from the High Court are dismissed without costs. The interim orders stand vacated.