Holding

Transactions that qualify as being in the course of export under Section 5(3) of the Central Sales Tax Act are exempt from State sales/purchase tax, and the use of Form III‑A does not create a tax liability.

Summary

Leather Facts Co., a dealer in hides and skins that exported its goods, filed purchases using Form III‑A under the Uttar Pradesh Sales Tax Act because no specific form existed for export transactions. The Commissioner held that purchases made against Form III‑A were liable to purchase tax, whereas those against Form H were exempt. The Sales Tax Tribunal and the High Court rejected the revenue's claim, holding that transactions in the course of export are exempt under Section 5(3) of the Central Sales Tax Act and the constitutional bar of Article 286(1)(a). The Supreme Court affirmed that the mere use of Form III‑A does not empower the State to levy tax on such export transactions and that the State lacks authority to tax them. It directed that, pending a suitable form, the respondent may furnish a copy of Form H for future purchases, and past transactions are not taxable if they satisfy the export criteria.

Issues considered

Whether a transaction in the course of export, made using Form III‑A under the U.P. Sales Tax Act, is liable to purchase tax under Section 3‑AAAA of that Act.
Whether a State can levy sales/purchase tax on export transactions notwithstanding the constitutional prohibition under Article 286(1)(a).
Whether the use of an inappropriate form creates tax liability for export‑related purchases.
What procedural form should be used for future export‑related purchases under the sales tax regime.

Legislation cited

Central Sales Tax Act, 1956s. 5(3)
Constitution of Indias. Article 286(1)(a)
U.P. Sales Tax Act, 1948s. 3-AAAA

Subjects

sales taxpurchase taxexportconstitutional barArticle 286Central Sales Tax ActU.P. Sales Tax ActForm III-AForm Htax exemption

Judgment

A COMMISSIONER OF SALES TAX
v. '
LEATHER FACTS CO.
Y'-
•
MARCH 24, 1987

B [M.P. THAKKAR AND B.C. RAY, JJ.]

Central Sales Tax Act, 1956-Section 5(3)-Transaction of sale/
purchase 'in course of export'-Not exigible to tax-Use of Form III-A
under Rule 12-A of U.P. Sales Tax Act, 1948 by trader-Whether
State empowered to levy tax.
+-
.A.,
c U. P. Sales Tax Act, 1948-Rule 12-A Form III-A-Trader
using such Form-Whether liable to tax on transactions 'in course of
export.'
y
The respondent, a dealer in hides and skins and exporting the
D same out of the territory of India, entered into transactions falling
within the purview of sub-section (3) of Section 5 of the Central Sales
Tax Act, 1956 and which could not be taxed because of constitutional
bar under Article 286(l)(a) of the Constitution oflndla, furnished Form
III-A under Rule 12-A of the U.P. Sales Tax Act, as an appropriate
form to meet the situation was not devised under the U.P. Sales Tax
E Act, and sought a clarification from the Commissioner, Sales Tax, as to
whether the firm was liable to tax under Section 3-AAAA of the U.P.
r--
Sales Tax Act on the purchases made against Form III-A or H under the
Cen~al Sales Tax Act, when such dressed hides and skins were
exported beyond the territory of India. The Commissioner, Sales Tax
--
clarified and held that the purchases of dressed hides and skins made
F against Form H were not liable to purchase tax under Section 3-AAAA ~

~'·.
of the U.P. Sales Tax Act provided the same were exported outside the
territory of India and the conditions laid down in Section 5(3) of the
Central Sales Tax Act were satisfied, but if the purchases were made
against Form III-A and exported outside the territory of India, they
shall be liable to purchase tax under Section 3-AAAA.
G
On appeal, the Sales Tax Tribunal held that the respondent was
not liable to any purchase tax under Section 3-AAAA of the U.P. Sales
Tax Act whether they were purchased against or without Form III-A or >.......
H, as the same were exported outside the territory of India in comp-
liance with the order received from the foreign buyers and those trans-
H actions were exempted under Section 6 of the Central Sales Tax Act.

630
COMMR. SALES TAX v. LEATHER FACTS CO. 631

A Revision Petition filed before the High Court by the appellant A
Revenue, contending that the decision of the Tribunal was bad in law
was dismissed.

Disposing of the appeal by the U.P. Sales Tax authorities, this
Court,
B
HELD: 1.1 The mere fact that Form III-A bas been given will
not empower the State to collect or levy the sales tax/purchase tax in
respect of a transaction in the course of export which satisfies the tests
---~ prescribed hy Section 5(3) of the Central Sales Tax Act. It would be
unconstitutional in view of the constitutional bar to levy tax on sales in
the course of export regardless of the fact whether an appropriate form C
is used or not. [633E-F]

1.2 The transactions entered into by the respondent which are
such on which sales tax/purchase tax cannot be levied on account of the
constitutional bar read with sub-section (3) of Section 5 of the Central
Sales Tax Act, cannot become exigible to tax merely because a wrong D
form is used (particularly when the appropriate form has not been
devised by the rule making authority). [633F-G]

1.3 Liability for tax in respect of such transactions cannot be
fastened on the respondent for the very good reason that the State bas

- no power to collect or levy sales tax/purchase tax on such transactions. E
The U.P. Sales Tax authorities should have devised an appropriate
form in this behalf. They can do so even now (as bas been done under
the Delhi Sales Tax Act, by prescribing Form 49 to meet such a
situation). [633G-H; 634A]

1.4 For the future purposes instead of furnishing Form III-A F
under rule 12-A of the U.P. Sales Tax Act, the respondent will furnish a
photostat copy of Form H under the Central Sales Tax Act. [634B]

So fas as the past transactions are concerned, the respondent will
not be liable provided the tests prescribed under Section 5(3) of the
Central Sales Tax Act, are satisfied. [6340] G

Consolidated Coffee Ltd. v. Coffee Board, Bangalore, A.I.R.
(Vol. 46) p. 164 refferred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 350 H
(NT) of 1987.
632 SUPREME COURT REPORTS [1987] 2 S.C.R.
,.
From the Judgment and Order dated 19 .1L1985 of the Allaha-
A
bad in S.T. R. No. 401of1985.

S.C. Manchanda and Ashok K. Srivastava for the Appellant.

Raja Ram Agarwal, Ajay Kumar Jain, Pramod Dayal and A.O.
B Sanger for the Respondent.

The Order of the Court was delivered by

THAKKAR, J. A transaction of sale or purchase which takes
place 'in the course of export' falling within the purview of sub-section
A-
. -
(3) of Section 51 of the Central Sales-tax Act. 1956 (hereinafter called
c the 'Act') cannot be subjected to sales-tax by any State. The said
provision inter alia provides that 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.
D (i) provided such last sale or purchase took place 'after' and

(ii) was for the purpose of complying with, the agreement or
order for or in relation to such export --y-
Such a transaction cannot be subjected to sales tax/purchase tax by any
E State in view of the embargo imposed by Art. 286(1) (a).' The con-
troversy centering around this question has been set at rest in Con-
solidated Coffee Ltd. v. Coffee Board, Bangalore, A.LR. (Vol. 46) p.
164. Under the circumstances, if the last sale in favour of the respon- ~
dent who is a de'!iler in hides and skins and exports the same out of the
F territory of India has taken place (1) after an agreement was entered ;Jr
I. "5. When a sale or purchase of goods said to take place in the course of import or
export -( 1) X X X X (2) X X X (3) Notwithstanding anything contained in
sub-section(l), 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
G order for or in relation to such export."

1. ''286(1) (a) No law of a State shall impose, or authorise the imposition of a tax on the
sale or purchase of goods where such sale or purchase takes place-
( a) outside the State; or
{b) in the course of the import of the goods, or export of the goods out, of the
H territory of India.
COMMR. SALES TAX v. LEATIIER FACTS CO. [TIIAKKAR, J.l 633

,,,,y into for such export or order for such export had been accepted by A
him, (2) last sale made in his favour was for the purpose of complying
' with the obligation undertaken under the said agreement or order, the
transaction reflected in such last sale or purchase cannot be lawfully
taxed under the Sales Tax Act. It cannot be taxed because of the
constitutional bar embodied in Article 286 (1) (a) of the Constitution
of India. The view taken by the High Court in the Judgment under B
-~- appeal that such transactions are not exigible to sales tax/purchase tax
under the U.P. Sales Tax Act, is unexceptionable in the light of the
.. -+ aforesaid provisions of the Constitution and sub-section (3) of Section
5 of the Act and the law declared by this Court in Consolidated Coffee
Ltd. We, therefore, see no reason to interfere with the order of the
High Court.
c
-~ It is no doubt true that Fonn III-A under Rule 12-A of the U .P.
Sales Tax Act is not an appropriate form to use in the context of such a
transaction of last sale or purchase for the purpose of complying with
an agreement or order for export which has already come into exis-
tence. However, it is equally true that an appropriate form to meet the D
situation in relation to such last sales which are not exigible to sales/
purchase tax under the U.P. Sales Tax Act having regard to the

·-r constitutional bar and having regard to the provision contained in
sub-section (3) of Section 5 of the Act has not been devised under the
afore-said Rules. It was under these circumstances that the respondent
has furnished to his vendors form III-A which is not appropriate E
except in regard to purchases made for sales of undressed hides as such
within the State or in the course of inter-State trade. But the mere fact
:).. that such a form has been given will not empower the State to collect
or levy the sales tax/purchase tax in respect of a transaction in the
->. course of export which satisfies the aforesaid tests prescribed by Sec-
tion 5 (3) of the Central Sales Tax Act. It would be unconstitutional in F·
view of the constitutional bar to levy tax on sales in the course of
export regardless of the fact whether an appropriate form is used or
not. The transactions entered into by him which are such on which
sales tax/purchase tax cannot be levied on account of the constitutional
bar read with sub-section (3) of Section 5 of the Central Sales Tax Act
cannot become exigible to tax merely because a wrong form is used G
_,,_1, (particularly when the appropriate form has not been devised by the
Rule making authority). Liability for tax in respect of such trans-
actions cannot be fastened on the respondent for the very good reason
that the State has no power to collect or levy sales tax/purchase tax on
such transactions. The U .P. Sales Tax authorities should have devised
an appropriate form in this behalf. They can do so even now (as has H
634 SUPREME COURT REPORTS (1987] 2 S.C.R.

A been dol)e under the Delhi Sales Tax Act by prescribing Form 49 to
meet such a situation). Learned counsel for the appellant submits that
till such a form is prescribed the respondent who claims to have
entered into these transactions in the course of export as defined by
sub-section (3) of Section 5 of the Act may furnish to his vendor a copy
of Form-H as provided by the .Central Sales Tax Act, 1956. The
B
respondent has no objection and is prepared to do so. Under the
circumstances, for the future purposes instead of furnishing form III-A
under Rule 12-A of the Sales Tax Act, the respondent will furnish a
photostat copy of form H under the Central Sales Tax Act. Learned
counsel for the respondent states that if such a copy is furnished to the
vendor it will be accepted by the competent authority and the vendor
c will not be held liable for payment of sales tax/purchase tax in respect
of such transactions subject to the rider that respondent will be held
liable in case the purchases made by him do not satisfy the conditions
and tests prescribed by sub-section (3) of Section 5 of the Central Sales
Tax Act and are not made in the course of export within the meaning
of the said provision. So far as the past transactions are concerned the
D respondent will not be liable provided he satisfies the aforesaid tests
and the transactions of last sales made to him are in the course of
export within the deeming clause of sub-section (3) of Section 5 of the
Act.
Y-·
'
The appeal is disposed of accordingly. There will be no order as
E to costs.

N.P.V Appeal disposed of.
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