B.N. Mahapatra, J.
1. The Orissa Sales Tax Tribunal (hereinafter referred to as the 'Tribunal') has referred the following-question of law to this Court for its opinion under Section 24(1) of the Orissa Sales Tax Act, 1947 (hereinafter referred to as the 'OST Act'):
Whether on the facts and in the circumstances of the case, the purchases of the dealer-applicant are not exempted being not the penultimate purchases within the provisions contained in Section 5(3) of the Central Sales Tax Act, 1956
2. This reference application has subsequently been converted to Sales Tax Revision bearing STREV No. 64 of 2008.
3. Shorn of unnecessary details, the short fact and circumstances giving rise to this revision are that during the relevant period the Petitioner-dealer was dealing in groundnuts, groundnut seeds, groundnut oil and cattle feed (oil cake). During the year 1995-96 the Petitioner purchased groundnut worth Rs. 10,27,948.45 from the local cultivators. It did not pay any tax on turnover of such purchases on the ground that the same were sold to M/s. Peanut Product, Vijayawada and M/s. Essel International, Vijayawada and those two Indian exporters have sold the said goods to foreign buyer M/s. Export Khleb, Moscow. The copy of the contract has been produced before the Learned Assessing Officer along with 'H' Forms. On the basis of above documents the Learned Assessing Officer has allowed claim of exemption of Rs. 10,27,948.45 under Section 5(3) of the Central Sales Tax Act, 1956 (hereinafter referred to as the 'CST Act'). However, the Learned Asst. Commissioner, Commercial Taxes, Cuttack Range, Cuttack (hereinafter referred to as the 'first Appellate authority') held that the dealer is not entitled to such exemption. Relying on the decision of the Andhra Pradesh High Court in Bismillah & Co. v. State of Andhra Pradesh (1989) 73 STC 135, he held that purchase of groundnut by the Petitioner from the cultivators is not the last purchase of goods preceding the purchase occasioning export of such goods, but a purchase removed by one more step. Hence, the Petitioner is not entitled to avail exemption of payment of purchase tax on purchase turnover of Rs. 10,27,948.45. Being aggrieved by the said order, second appeal was carried to the Tribunal, wherein the Learned Tribunal upheld the view expressed by the first Appellate authority observing that the transaction of purchase made by the Indian Export Houses are penultimate purchase. This leaves the purchases made by the dealer to be exigible to tax in view of the provisions of Sub-section (3) of Section 5 of the CST Act. The purchases made by the Petitioner-assessee cannot be deemed to be the transaction in course of export. Hence, the present Sales Tax Revision.
4. Mr. Ray, Learned Counsel for the Petitioner, submitted that the Petitioner supplied groundnut to Indian Exporters to fulfil the contract with the foreign buyer M/s. Export Khleb, Moscow. The supply so made by the Petitioner was for the purpose of complying with the agreement/order for/or in relation to export and, therefore, the purchase and of supply of groundnut by the Petitioner to the exporters was deemed to be in course of export in terms of Sub-section (3) of Section 5 of the CST Act. He further argued that the agreements of the exporters with the foreign buyers were prior to the agreements entered into between the exporters and the Petitioner. The Indian Exporters after receiving the purchase order from the foreign buyers placed orders for purchase of groundnut with the Petitioner and only thereafter the Petitioner effected purchase of groundnut from the cultivators for supplying those to the exporters. Hence, the Petitioner is not liable to pay sales tax on purchase of groundnut as per the embargo put by Article 286(b) of the Constitution.
5. Mr. Dalei appearing for the Revenue submitted that purchase of groundnut by the Petitioner is not the penultimate purchase preceding to the purchase occasioning export of those goods to foreign buyers. During the relevant time groundnut was liable to tax on purchase turnover and the liability to pay tax arose at the time the purchase of groundnut was effected by the Petitioner. Since the purchases of groundnut effected by the Petitioner were not covered under Sub-section (3) of Section 5 of the CST Act, the Petitioner is liable to pay tax on purchase turnover of groundnut.
6. At this juncture, it is necessary to refer to the provisions contained in Section 5(3) of the CST Act. Section 5(3) runs as follows:
The last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.
As per Sub-section (3) of Section 5, a penultimate sale or purchase preceding the sale or purchase occasioning such export shall also deem to be a sale or purchase in course of export out of the territory of India, which means the last but one sale or purchase preceding the sale or purchase occasioning such export shall be deemed to be a sale or purchase in course of export out of the territory of India.
7. Hon'ble Andhra Pradesh High Court in George Maijo & Co. v. State of Andhra Pradesh and Ors. 46 STC 41, held that in order to come within the purview of Sub-section (3) of Section 5 the following three conditions should be fulfilled:
(1) There must have been pre-existing agreement or order to sell the specific goods to a foreign buyer.
(2) The last purchase referred to in Section 5(3) must have taken place after that agreement with the foreign buyer was entered into.
(3) The last purchase must have been made for the purpose of complying with the pre-existing agreement or order.
Only when these conditions are fulfilled, the transaction falls under Section 5(3) and such preceding sale is entitled to exemption under Sub-section (3) of Section 5.
8. The Hon'ble Supreme Court in Consolidated Coffee Ltd. v. Coffee Board, Bangalore (1980) 46 STC 164, held that Section 5(3) formulates a principle of general applicability in regard to all penultimate sales provided they satisfy the specified conditions mentioned therein and it does not at all create a legal fiction. This Section has been enacted to extend the exemption from tax liability under the Act not to any kind of penultimate sale but only to such penultimate sale, which satisfies the two conditions specified therein, namely, (i) such penultimate sale must take place after the agreement or order, under which the goods are to be exported, and (ii) it must be for the purpose of complying with such agreement or order.
9. Hon'ble Andhra Pradesh High Court in Bismillah & Co. v. State of Andhra Pradesh (supra) while dealing with Section 5(3) of the CST Act held as follows:
Under Sub-section (1) of Section 5 of the Central Sales Tax Act the purchase of the goods which occasions the export is exempted. This Sub-section does hot further exempt the purchase by the exporter. That is done by Sub-section (3) of Section 5 of the Central Sales Tax Act. Sub-section (3) of Section 5 of the Central Sales Tax Act extends the exemption to the purchase preceding to the purchase referred to in Sub-section (1) of Section 5 of the Central Sales Tax Act. In other words by virtue of Sub-section (3) of Section 5 of the Central Sales Tax Act, the purchase by exporter is also exempted. But Sub-section (3) of Section 5 of the Central Sales Tax Act cannot be extended to the purchase of the said goods by the Petitioner, since the purchase by the Petitioner is not a purchase preceding the export purchase, but is a purchase removed by one more step.
In Bismillah & Co. (supra), Hon'ble Andhra Pradesh High Court held that exemption under Section 5(3) cannot be extended to purchase of raw hides and skins by the Petitioner because it was not the purchase preceding the purchase occasioning export but a purchase removed by one more step.
10. The Learned Tribunal did not allow the exemption as provided under Section 5(3) of the CST Act to the Petitioner with the following observation:
5.2. Now coming to the claim of deduction of Rs. 10,27,948.45, representing the purchase price of the groundnuts sold to the Indian exporters, it is seen that the foreign buyers have entered into agreement with Indian Export Houses for purchase of groundnut seeds. The Indian Export Houses in turn purchased these goods from the dealer-assessee. Thus, the transaction of purchases made by the Indian Export Houses are penultimate purchases. This leaves the purchases made by the dealer-assessee are exigible to tax in view of the provisions of Sub-section (3) of Section 5 of the CST Act. The purchases made by the dealer-assessee cannot be deemed to be purchases in course of export. Hence, the claim put forth ,on behalf of the dealer-assessee is not sustained.
11. In the present case, the Petitioner has purchased goods from the cultivators. The Indian exporters, namely, M/s. Peanut Product, Vijayawada and M/s. Essel International, Vijayawada, have purchased goods from the Petitioner and sold those goods to the foreign buyer M/s. Export Khleb, Moscow. Hence, purchase of groundnut by the Petitioner from the cultivators is not the last purchase of goods preceding the purchase occasioning export of such goods to the foreign buyers outside the territory of India. It is a purchase removed by one more step.
12. (SIC) In view of the above, the purchase of groundnut effected by the Petitioner from cultivators is not exempted being not the penultimate purchase within the provisions contained in Section 5(3) of the CST Act.
13. In the result, the question referred to above is answered in affirmative, i.e., in favour of the Revenue and against the Petitioner dealer.
B.S. Chauhan, C.J.
I agree.