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Ferro Alloys Corporation Ltd. Vs. R.C. Mishra and ors. - Court Judgment

SooperKanoon Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberCivil Writ Appeal Nos. 1494 of 1973 and 1265 of 1976
Judge
Reported inILR1978Delhi735; [1978]114ITR753(Delhi)
ActsIncome Tax Act, 1961 - Sections 280
AppellantFerro Alloys Corporation Ltd.
RespondentR.C. Mishra and ors.
Advocates: A.S. Bobde,; G.L. Sanghvi, ; M.L. Vaidya,;
Excerpt:
income tax act (1961) - section 280zc--tax credit--benefit of--available to--export channelised through m.m.t.c.--entitlement to the benefit of tax credit.; in the instant case, the export of ferro manganeze and chrome concentrates by the petitioner's company were made thought the minerals and metals trading corporation, to bring it within the system of private barter introduced by government with a view to promote exports. under the private barters against export of certain goods, the indian exporting firms were given a certificate of foreign exchange earned by the exports and the exporter is allowed to sell the foreign exchange to approved license holders for import of essential materials at a premium. in this way, the exporter was enable to export goods at higher competitive prices to.....h.l. anand, j. (1) what was the precise jural relationship between the petitioners, some of whose exports were routed through the minerals and metals trading corporation of india ltd. for short, the corporation, and the corporation in relation to these exports, and who,. out of these, was entitled to the benefit of the tax credit as an exporter under section 280zc of the income tax act, are the interesting questions that these petitions by the exporters pose turn consideration (2) the petitioners are manufacturer-exporters of ferro manganese and chrome concentrates and have over the years been manufacturing and exporting these commodities to different buyers, inter alia, with a view to earn foreign exchange. between the years 1964 and 1965, the petitioners entered into different contracts.....
Judgment:

H.L. Anand, J.

(1) What was the precise jural relationship between the petitioners, some of whose exports were routed through the Minerals and Metals Trading Corporation of India Ltd. for short, the Corporation, and the Corporation in relation to these exports, and who,. out of these, was entitled to the benefit of the tax credit as an exporter under Section 280ZC of the Income Tax Act, are the interesting questions that these petitions by the exporters pose turn consideration

(2) The petitioners are manufacturer-exporters of Ferro Manganese and Chrome Concentrates and have over the years been manufacturing and exporting these commodities to different buyers, inter alia, with a view to earn foreign exchange. Between the years 1964 and 1965, the petitioners entered into different contracts with a number of foreign buyers for the sale of the two commodities which were, however, routed through the Corporation, an undertaking of the Central Government, to bring it within the system of private barter introduced by Government with a view to promote exports. Under these private bartere against export of certain goods, the Indian exporting firms were given a certificate of foreign exchange earned by the exports and the exporters is allowed to sell the foreign exchange to approved license holders for import of essential materials at a premium. In this way, the exporter was enabled to export goods at higher competitive prices to the foreign buyers mostly at a loss which is partially compensated by sale of foreign exchange at a premium in the open market. The sales under the barter system have of necessity to be arranged through the Corporation which was appointed to supervise and watch the implementation of the Scheme in terms of Government policy. The general terms and conditions under which barter deals are carried out. inter alia, visualise that the export sales contract are to be concluded between the foreign buyers and the Corporation on a principal to principal basis in accordance with the Corporation's standard terms and conditions with a corresponding contract between the Indian exporter and the Corporation for the purchase of the material. The Scheme further stipulates that the foreign buyer will have to open a letter of credit in favor of the Corporation. The arrangement further visualises that on the export being canalised in this way through the Corporation, the Corporation would be entitled to a Commission. For the proper implementation of the Scheme, the contracts between the exporters and the foreign buyers contain a special provision entitled 'special clause' which is in the following terms :-

'SPECIALClause (i) In case the freight is to be paid at the destination the sellers will deduct the freight amount from their provisional invoice and will advise the buyers , payment of the freight. In such case the Bill of lading will be made freight payable at destination.

(II)To make export possible at such a low price it may become necessary for Sellers to channel the export through the Minerals & Metals Trading Corporation of India Ltd., New Delhi, for barter purposes. In such a case the Buyers shall agree to sign, an agreement with the Minerals & Metals Trading Corporation of India Ltd., as Sellers and to open the Letters of Credit for 100 per cent value in favor of the Minerals & Metals Trading Corporation of India Ltd., with the State Bank of India, New Delhi as per payment clause.

(III)To make barter possible, it may be necessary for the agreement to be executed directly with the suppliers of the barter commodity who in turn shall execute the agreement with Minerals & Metals' Trading Corporation of India Ltd., for barter. In such a case the Buyers shall enter into an agreement with the suppliers of the barter commodity and open the Letter of Credit in their favor who in turn shall open the Letter of Credit in favor of Minerals & Metals Trading Corporation of India Limited. In either case the Sellers under this agreement shall be responsible to the Buyers for the quality and the quantity of the material'.

It further appears that although all the exports were being thus routed through the Corporation, the Corporation, is the exporter of the goods for all outward appearances in that the letters of credit by the foreign buyers is opened in favor of the Corporation and the shipping documents are also made in the name of the Corporation though on account of the real exporter. In actual practice, however, the bilateral contracts between the Corporation and the foreign buyer on the one hand and the Corporation and the Indian exporter on the other are generally n,ever completed, and the letters of credit opened by the foreign buyer is invariably endorsed in favor of the real exporter and the interest of the Corporation is confined to its commission for its supervisory and overseeing function which is intended to ensure that foreign trade is properly regulated and is kept free from under-hand dealings. In the case of the two petitioners, none of the contracts with the Corporation were actually executed and while the shipping document in most of the cases mentioned the name of the Corporation on account of the exporter concerned, some of the shipping documents were in the name of the actual exporter, but on account of the Corporation. It may be mentioned that when these exports were' made, the only importance of routing of the transactions through the Corporation was to give the benefit of the barter system to the exporter as a possible incentive to furthef exporters and which out of the two would to the ostensible and which out of them the real exporter was of little significance. The true nature of the transaction between the exporters and the Corporation and which out of these was the ostensible and the real exporter, however, become significant when pursuant to Government policy to provide further incentive to the credit certificate turn an amount not exceeding 15 per cent on the amount of such proceeds. This is how the new section, which was added by Act 15 of 1965, with effect from April 1, 1965, reaids :- 280ZC(1) Subject to the provisions of the section, a person who exports any goods or merchandise out of India after the 20th day of February, 1965, and receives the sale proceeds thereof in India in accordance with the Foreign Exchange Regulation Act, 1947, and the rules made there under, shall be granted a tax credit certificate for an amount calculated at a rate not exceeding fifteen per cent, on the amount of such sale proceeds.

ExplanationN1.-For the removal of doubts it is hereby declared that the expression 'sale proceeds' in this sub-section does not indude freight or insurance attributable to the transpart of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962.

ExplanationN2.-For the purposes of this sub-section , a person who exports any goods or-merchandise in respect of which the declaration in pursuance of Rule 3 of the Foreign Exchange Regulation Rules, 1952 is required to be in Form E.P., or Form E.P.I in the First Schedule to the said rules, shall not in respect of such goods or merchandise be deemed to have received the sale proceeds in India in accordance with the Foreign Exchange Regulation Act, 1947, and the rules made there under unless he receives the same in India through an authorised dealer as defined in the said Act.

(2)The goods or merchandise in respect of which a tax credit certificate shall be granted under sub-section (1) (including the destination of their export) and the rate at which the amount of such certificate shall be calculated shall be such as may be specified in the scheme:

Provided that different rates may be specified in respect of different goods or merchandise.

(3)In specifying the goods or merchandise (including the destination of their export) and the rates, the Central Government shall have regard to the following factors, namely:-

(A)the cost of manufacture or production of such goods or merchandise and prices of similar goods in the foreign markets;

(B)the need to develop foreign markets for such goods or merchandise;

(C)the need to earn foreign exchange ;

(D)any other relevant factor.

(4)The amount shown on a tax credit certificate granted to any person under this section shall, on the certificate being produced before the Income-tax Officer, be adjusted against any liability of that person under the Indian Income-tax Act, 1922, or this Act, existing on the date on which the certificate was produced before the Income-tax Officer and where the amount of such certificate exceeds such liability, or where there is no such liability, the excess or the whole of such amount, as the case may be, shall, notwithstanding anything contained in Chapter Xix, be deemed, on the said date, to be refund due to such person under that Chapter and the provisions of this Act shall apply accordingly.'

Conflicting claims were made by the petitioners and the Corporation for the grant of tax credit certificate, both claiming to be the exporter who had exported the goods and received the sale proceeds in India and, thereforee, entitled to the benefit of the provision. The claims made by the petitioners, as well as the Corporation, were rejected by the Assistant Director Tax Credit, though for different reasons. Claims of the petitioners were rejected on the ground that the petitioners were not the exporters of the goods and as such they were riot entitled to the grant of tax credit certificates. According to the Assistant Director the exporter was one whose name was shown as such in the G.R.I. declaration filed with Reserve Bank of ln,dia and as the name of the Corporation was shown as the Exporters in all these declarations, the petitioners could not be considered as,the exporters of the goods. The claim of the Corporation was rejected by the Assistant Director on the grounds that the notices annexed in form A were not accompanied by a copy of relevant invoices duly certified and that the applications in form D were not accompanied by the copies of the intimation in form D issued by the various dealers. The petitioners as well as the Corporation appealed to the Director, Tax Credit and by the impugned orders the Director confirmed the order of the Assistant Director in relation to the petitioners and reversed the order of the Assistant Director made with regard to the claims of the Corporation.

(3) Before the Appellate Authority, the claim of the petitioners to the tax credit certificates arising out of the various transactions of export was based on the contention that in spite of the external appearance of the various transactions from the shipping documents, the letters of credit in substance the exports were made by the petitioners even though they had to be routed through the Corporation for the purpose of the barter system, and that the petitioners were, thereforee, the real exporters of the commodity in that the property in the goods never passed to the Corporation, there was never any privity of contract between the Corporation and the foreign buyers, and no part of the sale proceeds was really earned by the Corporation, its interest in the transaction being confined to a nominal commission. On the contrary, the claim of the Corporation to the tax credit certificates was primarily based on the outward appearance of the transactions in that the scheme of barter visualised that there would be principal to principal contracts between the petitioners and the Corporation as well as between the Corporation and the foreign buyers, and that according to the shipping documents and G.R. I form, the exporter was the Corporation and the letters of credit were also opened by the foreign buyers infavor of the Corporation.

(4) On a consideration of the rival contentions and the material documents the Appellate Authority came to the conclusion that the question as to who was the exporter for the purposes of the Income Tax Act had to be considered in the totality of all the circumstances and that the entries in G.R. I Form were not conclusive of the question. The Appellate Authority came to the conclusion that the Corporation could not be said to have acted as an agent or the nominee of the petitioners; that the barter system itself visualised principal to 'principal dealings an,d not as agents, nominees or benamidars of the petitioners; that when the goods were exported the Corporation had definite interest in the goods; that the routing of the export through barter system changed the character of the transaction between the petitioners and the foreign buyers and the status of the part's concerned ; that the sale proceeds were, in fact and in law, received by the petitioners only on behalf of the Corporation by virtue of the assignment of the letters of credit opened by the foreign buyers in the name of the Corporation and that there was a privity of contract between the foreign buyers and the Corporation, even though the contracts had not been executed. It was, thereforee, held, that having regard to the contents of G.R. I Form, the entries in the Shipping Bills, the essential requirements of the barter system and the routing of the export through the Corporation, the petitioners could not be said to be the exporters for the purpose of the Income Tax Act. The Appellate Authority accordingly rejected the claim of the petitioners. The claim of the Corporation to the Certificates was upheld. The appeals of the petitioners were, thereforee, rejctcd and that ef the Corporation were accepted.

(5) The petitioners assail these orders and pray that the same be quashed and a direction be issued to the appropriate authorities under the Act to grant the requisite tax credit certificate to the petitioners on the basis of the sales proceeds of the aforesaid exports on the ground that the petitioners were the real exporters of the goods and had received the sale proceeds thereof in India in accordance with the Foreign Exchange Regulation, Act, 1947, and were, thereforee, rightly entitled to the tax credit certificates on the basis of the sale proceeds. The claim of the petitioners is resisted on behalf of the Corporation on the grounds which prevailed with the Appellate Authority and, in particular on the ground that, having regard to the true nature of the relationship between the parties, the provisions of the barter scheme, the shipping documents and the letters of credit pursuant to which the sale proceeds were received in India, the Corporation was not only the apparent, but the real exporter of these goods.

(6) The bulky petitions, the counter affidavits, plethora of documents marshalled by the parties and the elaborate order of the appellate authority do not bring out any controversy of fact between the parties which are, by and large, admitted. It has been a common case of the parties that the petitioners have been over the years manufacturing and exporting the commodities concerned on their own and have been earning foreign exchange. It has also never been, in doubt that free export trade leaves quite a few loopholes and Government have assumed power from time to time to regulate such trade with a view to ensure against any leakage of foreign exchange so badly needed for development. It is also beyond doubt that the Corporation is part of the machinery set up by Government, inter alia, with a view to facilitate and regulate export trade, even though it may in the process enter the export trade itself by buying from the domestic market and exporting the goods by itself as part of its foreign trade enterprise. Where the export is carried out through n,ormal trade channels, even though subject to various statutory regulations, or administrative instructions but without the direct intervention of Government or a Government undertaking, the question, as to who is the exporter of the goods for the purposes of various incentives and benefits does not present any difficulty. Similarly, where the Government or any of its unertakings, such as the Corporation, carries on export trade on its own, either by taking up manufacture of the commodity to be exported or by entering the domestic market and by buying or otherwise arranging for the commodity to be exported by it on. its own or through any other agency, the question as to the entitlement of the .benefits on such export would also present no legal difficulty. This is so because in each of these events, there can be co doubt as to who was the real exporter of the goods. Where, however, the export of any commodity is canalised by law or by administrative instructions, thereby disabling an exporter of a commodity from carrying on the export trade in such a canalised item, on its own, without the intervention of a Government agency or authority in some form irrespective of what precise form it may take, the determination of the question as to who was the real exporter is not easy of determination. In such cases, Government regulations may merely insist on the prior consent of the Government or its undertaking for such export. Such a pattern would perhaps be innocuous and may not present any difficulty. In another case, Government may insist that all such export transactions would be carried out by the industry or the trade through a Governmental agency and even in the name of the Government agency giving out for all outward appearances as if the commodity either belonged to the Government or had otherwise been procured by Government and had been exported by Government on its own account even though such an arrangement may merely entitle the Government to an agreed commission and be intended to primarily enable the Government agency to keep a strict watch on the conduct of what could otherwise have been, a normal transaction in international trade without Government intervention. Here again, the precise written arrangement between the Government agpncy and the exporter may take! different forms. There may, for example, be complete substitution of the Government agency for the exporter in the contracts with the foreign buyers. The letters of credit, the bills of lading, the proceeds of the sale may all be made in the name of the Government agency in the account of the exporter or in, some cases in the name of the exporter but on the account of the Government, agency. In these cases also, the question as to who was the real exporter as distinguished from an ostensible one or the apparent one would not be so easy of determination. There may be yet another instance in which Government agency may intervene in the normal international trade relations like in terms of the barter arrangement. Now the barter arrangement is distinguishable from canalisation because the barter arrangement does not impose any ban on normal international trade channel, in that an Indian exporter woluld be free to enter into international deals outside the barter arrangement but the routing of the ordinary transaction, through the Government agency under the barter arrangement would be in the expoters own interest because what may otherwise be a transaction at a discount or perhaps a marginal profit may, on account of the scheme of barter, enable the exporter to get a virtual subsidy in the form of the entitlement to sell the foreign exchange at a premium and, thereforee, convert a normal loss transaction into a profitable one. Here again, , form of Government intervention may vary. In such cases also, the problem as to who was the real exporter for the purpose of certain benefits would throw up a number of legal questions. Rival claims in the present case to the entitlement of tax credit certificates have posed the following two questions for decision :-

1.What was the precise legal relationship between the exporters and the Corporation in relation to the exports having regard to the scheme of barter, the various agreements entered into between the parties from time to time, the contemporaneous exchange of letters, the conduct of the parties and their true intention ?

2.Which of the two parties would be entitled to the benefit of the tax credit certificates under Section 280ZC of the Income Tax Act ?

(7) Question No. I : The jurat relationship between the parties. For a proper determination of the precise legal relationship between the petitioners on the one hand and the Corporation on the other, it would be necessary to examine the provisions of the scheme of barter, as indeed the system of canalisation, and to construe the various instruments executed between the exporters and their foreign buyers, as indeed the exporters and the Corporation and together the true effect and the real intent from the various communications exchanged between the parties from time to time, the maon,er of shipment of the goods, the situs of the title in the goods before export, the terms of the letters of credit, bills of landing and the remittances. It 'would also be necessary to determine if the parties were acting on a principal to principal basis or could be said to be acting as agents for the other.

(8) A. The barter scheme : A copy of the general terms and conditions under which barter deals are to be implemented is enclosed as Annexure R-l to the return filed on behalf of respondents 1, 3 and 4. The enclosure is at page 292 of Civil Writ Petition No. 1494/73. The Scheme of barter visualises the linkage of foreign exchange earnings on export of goods with the foreign exchange required for the importation of certain permissible item into India.. The prospective exporter is required in the first instance to have a firm contract with his foreign buyer and then to find out ah Indian importer who could utilize the foreign exchange that the exporter would thus be able to earn to enable the exporter to make the foreign exchange available to the importer to be utilized for the purpose of import. The export and the import-export linkage has to be approved by the Corporation. Clause 4 of the general terms and conditions which visualises a substitution of contracts between the exporter and the foreign buyer by principal to principal contracts between the foreign buyer and the Corporation, as also between the Corporation and the Indian supplier and the substitution is subject to the payment to the Corporation of a Commission to be mutually agreed upon. The Scheme visualises that the overseas buyer will have to open a confirmed irrevocable, transferable, assignable unrestricted letter of credit in favor of the Corporation. For the purpose of the Scheme, form of agreements that the exporter would enter into with the foreign buyer and the substituted agreements that the foreign buyer would enter into with the Corporation have been prescribed. The form prescribed for the contract between the foreign buyer and the exporter, inter alia, contains a sub-clause with regard to the canalisation of the export through the Corporation, which has been extracted above.

(9) The mechanics : While the terms of the Scheme of barter and the arrangement between the exporter and the Corporation visualises in theory that,the contracts to be entered into between the exporter and the foreign buyer would be duly substituted by principal to principal contracts between the foreign buyer and the Corporation as well as the Corporation and the Indian supplier of the goods, so that the Corporation virtually gets substituted for the exporter for all external appearances, in, actual practice, however, it appears that the substituted contracts are rarely executed and were, in any event, not executed in the present case at either of the two ends although the letter of credits were opened by the foreign buyers in favor of the Corporation and the shipments were made in some cases in the name of the Corporation on account of the exporter while in the others in the name of the exporter on account of the Corporation. No consideration, however, passed between the Corporation and the exporter on account of any sale of the commodity to the Corporation. The letters of credit being transferable are endorsed immediately on receipt in favor of the exporter by the Corporation and the sale proceeds are directly realised by the exporters through their bankers and the commission of the Corporation agreed to is paid by the exporter to the Corporation. The declaration under Section 12 of the Foreign Exchange (Regulation) Act in Form CR-1 contains the name of the Corporation as the exporter. But the form lists the name of the exporters' banker as the banker concerned.

(10) Local effect : The petitioners being admittedly manufacturing exporters were the real source of the commodity to be exported. The title in the goods admittedly vested initially in the petitioners. Before the transactions were routed through the Corporation to avail of the benefit of barter Scheme, the exporters entered into formal contracts with the foreign buyers for the export of the commodity concerned to the foreign buyers for the consideration and on the terms set out in the respective agreements. The provision in the agreement by sub-clause referred to above, however, entitled the parties to have the original agreements suitably substituted by fresh contracts between the Corporation and the foreign buyers which would also make it obligatory for the foreign buyer to open the letter of credit in favor of the Corporation, even though the exporter continues to be 'responsible to the buyer for the quality and the quantity of the material'. These contracts are then approved of by the Corporation in terms of the Scheme of barter and although the substituted contracts are anticipated at both ends by the Scheme, this is apparently treated as a mere formality and are perhaps rarely entered or formally executed and, in any event, admittedly were not executed in the present case. Nevertheless, in the actual shipment of the goods for which arrangements were made by the exporters themeselves, the name of the Corporation is introduced and the bills of lading in some cases mentioned that the exporter is the Corporation on a'ccount of the exporter concerned while in the other it is the other way round indicating thereby that the contracts in that behalf are not uniform, but a definite intention was to enable the Corporaion to know & to which of the exporter the shipment forming subject matter of a particular bill of lading had reference. Such a system is perhaps intended to have the additional advantage of involving the name of the Corporation in the process of shipment as a possible means of safeguard against any leakage of goods and the foreign exchange. The letters of credit are specifically made transferable or assignable and although they are inveriably issued in favor of the Corporation, the same are immediately assigned even before the proceeds are received in India and are presented through the bankers of the exporters and the amounts are realised through such banker. The commission of the Corporation is separately remitted by the exporters to the Corporation after the sale proceeds have been realised through their bankers. As has been pointed out above, the declaration under the Foreign Exchange Act in Form G-l clearly mentions the name of the Corporation as the exporter for the purpose of Foreign Exchange Act even though the name of the bank listed in the form is admittedly the banker of the exporters concerned. The sale proceeds of the export transaction less the commission that is payable to the Corporation represents the extent to which the foreign exchange is earned by the exporters while the only income the Corporation makes out of the transaction is confined to its commission of 2 per cent. There is nothing on record which may indicate an express contract between the exporter and the Corporation for the sale of the commodity to the Corporation before shipment or which may otherwise expressly transfer title in the goods in favor of the Corporation.

(11) What then is the nature of the relationship between the Corporation and the exporters that can be spelt out of the various documents, the conduct of the parties in relation to the transactions and the intention of the parties as may be gathered there from Was the Corporation only acting as a Government agency to route the exports by the exporters Was the Corporation merely as an agent of the exporters or had the Corporation title in the goods before shipment and the exporters were merely the sellers of goods in India to the Corporation for the purpose of eventual export

(12) On the material on record and having regard to the totally of the circumstances in which and the manner by which known exporters of commodities agreed to divert their exports from their normal trade channel and routed through a virtual Government agency set up, faster alia; for the purpose of regulating foreign trade, it is not possible to hold that there was a concluded contract of sale of the commodities, which were eventually exported, between the exporters on the one hand and the Corporation on the other. But what resulted was an arrangement between the two by which, either on account of executive compulsions or to avail of certain benefits arising out of Govern ment policy with regard to export, the exports were routed through the Corporation in such a way that while for all external appearances, the Corporation was given out as the exporter, the petitioners, who were the real exporters, had made the commodity available, had entered into contracts with the foreign buyers, had made all the investments required, were responsible for the quality and quantity to be exported, earned the foreign exchange, realised the proceeds and made the income arising out of the transactions, subject, however, to the payment of 2 per cent commission to the Corporation, as indeed submitting to the discipline of the Corporation in terms of the policy to regulate the export trade. It may be useful to mention that the routing of the transactions was under the compulsions of executive policy where the commodity concerned had already been canalised which would disentitle the exporter to enter into any foreign trade transaction and the routing through the Corporation in such cases was the only possible way for the exporters to continue their foreign trade. Where, however, as in most of the transactions in the present case, system of canalisation had not been introduced, the routing was because of the lever arrising out of the barter system which, as pointed dut above, when invoked, entitled the exporter to substantial benefit of the import entitlement, but for which, admittedly, export trade in the commodities concerned could not have been a profitable business proposition.

(13) An interesting argument was, however, raised by Mr. Bhat on behalf of the Corporation in support of the contention that notwithstanding the various unfavorable features of the arrangement on account of which the arrangement fell short of a concluded contract of sale with the resultant vesting and divesting of title in the property before export, title into the goods clearly passed in favor of the Corporation or would in any event be deemed to have passed because the shipping documents in respect of the various shipment, being documents of title, were sufficient, without anything more, to effect transfer of title into the goods. Now, this is true that, except in one or two instances in the case of one of the petitioners (C.W. 1265/76), the shipping documents, which, admittedly, are documents of title, mention the Corporation as the exporter of the goods and would ordinarily entitle the Corporation to deal with the goods as absolute owners and entitle the Corporation to transfer title in the goods by virtue of delivery of documents. It is, however, not possible to construe the relationship between the parties merely by a reference to the shipping documents and where from the contemporaneous conduct and arrangement, it is clear that the parties did not intend to transfer title, the shipping documents by themselves would not be determinative of the situs of the true title in the goods. It has already been observed above that the intention of the parties merely was to enter into an arrangement by which the export was being routed through a Government agency. The shipping documents have, thereforee, to be viewed in that context and could not thereforee, be seen in isolation.

(14) That leaves for consideration the second question as to who could be the exporter for the purpose of Section 280ZC of the Income Tax Act and be entitled to the tax credit certificates by virtue of the exports.

(15) If what was entered into between the parties was a mere arrangement for the routing of export through the Corporation and the title in the goods never passed from the petitioners who had exported the goods, earned the foreign exchange and received the proceeds in India in accordance with the Foreign .Exchange (Regulation) Act, even though through the Instrumentality of the Corporation, then the answer to the second question hardly presents any difficulty, because then it follows a' fortiori that it is the petitioners who were the exporters for all purposes, except the external appearances, including the purpose of the aforesaid provision and it is the petitioners alone who would be entitled to the tax credit certificates on the basis of the sale proceeds and the income arising there-from to the total exclusion of the Corporation.

(16) It, however, appears to us that even if it be assumed that the arrangement between the parties had the legal effect of transferring title in the goods in favor of the Corporation, the petitioners would still be the real exporters for the purpose of the aforesaid provision and be entitled to the tax credit certificate.

(17) Section 280ZC provides that 'a person who exports any goods' during the material period 'and receives the sale proceeds thereof in India' in accordance with law 'shall be granted a tax credit certificate for an amount calculated at a rate not exceeding 15 per cent on the amount of such sale proceeds' and had been added pursuant to a Government decision, to provide an additional incentive for export trade, inter alia, with a view to augment foreign exchange. It is quite obvious that (the incentive was intended to be given to the real exporter and not merely to the ostensible exporter. Where the export had to be diverted through a Government agency either because of the system of canalisation or because of the incentive provided by the Scheme of barter, the exporter would not cease to be the person who exports merely because of the intervention of the Government agency irrespective of the precise legal form that the intervention takes. If the effect of routing is that for all external appearances, the Government agency has to be shown as the exporter although the goods are made available by the real exporter, 752 the arrangements are entered linto between him and the foreign buyer, the risk involved continues throughout to be his as also the financial investments and the sale proceeds come into his hands and it is he who makes the income to which the tax credit would ultimately relate, he would nevertheless be the real exporter and, thereforee, the exporter within the meaning of section 280ZC. The form of the arrangement between the exporter and the' Corporation would not change the substance even if the legal effect may be the vesting of title in the Corporation and the Corresponding divesting in the exporter. The position would, however, be different where the Corporation itself, enteres the export trade by procuring goods for export, enters into regular agreements with the foreign buyers and not only invests in the transactions but receives the sale proceeds in ln,dia and it constitutes the income of the Corporation but where the Corporation merely acts as Government agency to facilitate the course of foreign trade for obvious policy reasons, the benefit of the tax credit scheme incorporated in the section could not be given to the agency for it is not intended for such an agency, but is in the nature of an incentive offered to the industry and the export trade as a means of export promotion. To hold to the contrary would be to frustrate the very object for which the tax credit scheme was incorporated in the Income Tax Act. A reference 'to the object of the scheme as outlined in the Ministerial statement extracted above is self evident and clearly brings out the real intention.

(18) In rejecting the claims of the petitioners to the tax credit certificates merely on the basis of the form of the arrangement ignoring its substance and real intention of the parties, the authorities have applied a wholly erroneous approach to the question before them and completely misdirected themselves thereby vitiating the impugned orders. The impugned orders in so far as they reject the claims of the Corporation are, thereforee, liable to be quashed.

(19) For all these reasons, we would accept the petitions, quash the impugned orders and direct that the competent authority would determine afresh the entitlement of the petitioners to the tax cre3it certificates under Section 280ZC of the Income Tax Act on the basis of the various transactions in accordance with law in the light of the observations made above.

(20) The petitioners would also have their costs. Counsel's fees is assessed in each case of Rs. 750.


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