Holding

M.M.T.C. is the exporter for the purposes of Section 280(Z)(C) of the Income‑Tax Act, 1961.

Summary

Minerals and Metals Trading Corporation (M.M.T.C.) acted as the intermediary in a private barter scheme through which Ferro Alloys Corporation exported manganese and chrome concentrates. The parties executed contracts whereby title to the goods passed to M.M.T.C., which issued letters of credit, shipping documents and GR‑I forms in its own name as exporter. A dispute arose over the issuance of a Tax Credit Certificate under Section 280(Z)(C) of the Income‑Tax Act, 1961, with Ferro Alloys claiming to be the real exporter and M.M.T.C. asserting that it was the exporter for statutory purposes. The High Court held in favour of Ferro Alloys, reasoning that despite the formal documents, the actual receipt of foreign exchange was by Ferro Alloys. The Supreme Court rejected this view, emphasizing that the barter system required the exporter to be the party holding title and that all statutory documents named M.M.T.C., making it the exporter under the provision. Consequently, the Court restored the Government of India's order that M.M.T.C. was the exporter and set aside the High Court judgment.

Issues considered

Who qualifies as the exporter for the purpose of Section 280(Z)(C) of the Income‑Tax Act, 1961 in a private barter transaction?
Does the objective of providing export incentives to the 'real exporter' override the statutory documentation naming the exporter?

Legislation cited

Subjects

Tax Credit CertificateSection 280(Z)(C)Income Tax ActPrivate barter systemExporter definitionExport incentivesForeign exchangeTitle transfer

Judgment

A MINERAL AND METAL TRADING CORPORATION

v.

R. C. MISHRA AND ORS.

APRIL 7, 1~93
B
[B.P.JEEVANREDDYANDN. VENKATACHALA,.J.J.]

/11co111e tax Act. 19611 Tax credit Certificate (£.\ports) Scheme
1965:

c Section 280ZC/Paragrap'1 9-Tax credit Scl1eme-Objectire-
prol'idi11g additional i11ce111ire to exporter-System r~f barter-Rea!
exporter-Who is.

The Second Respondent (Ferro Alloys Corporation), manuf'ac-
D turer-exporter offerro-maganese and chrome concentrates, entered
into a numher of agreements with foreign hu:rers for sale of the said
commodity. The export was routed through the appellant (1\1.1\J.T.C.)
to bring it .within the system of private barter introduced h)· the
Government of India with a \'iew to encourage exports. The main
objective of barter system was to provide a mechanism which would
E result in increased export of particular commodities which were
·ordinarily difficult to sell abroad where the selling countries were not
ahle to get a foot-hold. This objective was sought to be achie\·ed by
linking them to exports of an equirnlent or lesser value of essential
commodities which in any event had to be imported. As for as
purchase and sale contracts were concerned, M.l\1.T.C. insisted that
F
there should be one contract of sale between the local supplier and the
M.M.T.C. and another contract of sale b)' the M.M. T .C. to the foreign
buyer on principal to principal basis.

It was agreed that Ferro Alloys should intimate the foreign buyer
G to enter into a direct contract with M.1\1.T.C. treating it as the seller ..
Also, the G.R.I. form prescribed by the Resene Bank of India under
the Rules framed under FERA was to be signed byl\1.!Vl.T.C.showing
it as the exporter and seller. Letters of credit was opened in the name ~
of M.M.T.C. which was to be assigned to Ferro Alloys so that Ferro-
H Alloys could receive the payment directly for the goods supplied to

12
M. M.T. C. i:. R.C. MISRA 13

J\.1.1\1.T.C. The shipping documents also showed M.M.T.C. as the A
exporter.

The transactions were gone through. Dispute arose between the
parties when the question of issuance of Tax Credit Certificate u/s
280ZC of the Income tax arose as to who could be said to have exported
B
the goods and received the sale proceeds in the shape of foreign
exchange. The matter was taken in appeal before the Government of
India. It held that M.M.T.C. was the exporter for the purpose of
S.280ZC. Ferro Alloys challenged the said order. before the High
Court b.)· way of a Writ Petition. The High Court allowed the Writ
Petition, and held that the real exporter was Ferro Alloys which C

... earned and receiYed the foreign exchange and M.M.T.C. got only its
commission of 2% and nothing more. Aggrie,·ed by the judgment of
the High Court, M.M.T.C. preferred the present appeal.

Allowing the appeal, this Court,
D

HELD: 1. The entire export was done through M.M.T.C. in
accordance with the S)'Stem of barter. There is no half-way house;
either it is not barter system or it is in accordance with the S)'Stem of
barter. This is an undisputed fact as are the several statutory docu-
ments made out in the name of M.M.T.C. Thus M.M.T.C. is the E
exporter for the purpose of Section 280ZC of the Income tax Act, 1961.
The entire S)'Stem of barter and the several documents executed in
that behalfincludingthose required by statutory provisions cannot be
explained awa)· as mere "external appearances". Ferro-alloys cannot
come to M.M.T.C. when it is profitable to it and disavow it when it is F
not profitable to it. It cannot haYe it both ways. The title to goods
passed to l\'l.M.T.C by virtue of the several documents executed
he tween the parties. Indeed, that \Vas the fulcrum of the entire scheme
of Barter. (19-E-F).

G
2. This Court is not com'inced with the alternative reasoning of
the High Court - that even if it is viewed that the title to the goods
passed to M.M.T.C., even so - Ferro-allors must be held to be the real
=- exporter, in view of the objective underlying Section 280ZC. If
M.M.T.C. has acquired the title to the goods and is the exporter for
all other purposes, it is equally the exporter for the purpose of Section H
)-
14 SllPREME COURT REPORTS (1993) 3 S.C.R.

A 280ZC. There can be no dichotom}· of the nature propounded by the
High Court. (19-H, 20-A).

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 372 of
1979.

B
From the Judgment and Order dated 25.5.1978 of the Delhi High
Court in Civil Writ Petition No. 1494 of 1973.

Dr. N.M. Ghatate and D.N. Mishra (for J.B.D. & Co.) for the
Appellant.
c
V.C. Mahajan, C. Ramesh and C. V. Subba Rao for the Respon-
dents.

The Judgment of the Court was delivered by
D
B.P. JEEVAN REDDY, J. The appeal is preferred against the
judgment of the Delhi High Court allowing the writ petition filed by
the second respondent-Mis Ferro Alloys Corporation Ltd. The writ
petition was directed against the judgment and order of the Govern-
E ment of India, Ministry of Finance, dated September 19, 1973 in an
appeal preferred under paragraph (9) of the Tax Credit Certificate
(Exports) Scheme, 1965.

The second respondent is the manufacturer-exporter of ferro-
manganese and chrome-concentrates. During the year 1964-65 (from
F February 28. 1965 to June 5, 1965) the second respondent entered into
a number of agreements with the foreign buyers for the sale of the
aforesaid two commodities. The export was routed through the
M.M. T.C. - the appellant herein, to bringit within the system of private
barter introduced by the Government of India with a view to encourage
G exports. It would be appropriate to notice the essential features of the
barter system in vogue during the relevant period at this stage. The
main objective behind the system was to provide a mechanism which
would result in increased export of particular conunodities which were
ordinarily difficult to sell abroad and to destinations, in which the
selling countries were not able to get a foot-hold. This objective was
H sought to be achieved by linking them to imports of an equivalent or
M.M.T.C. v. R.C. MV)_RA [JEEVAN REDDY,J] 15

lesser value of essential commodities, which, in any event, the country A
had to import. All barter proposals were scrutinized in the first instance
by the M.M.T.C. and then by the Barter Committee. The essential
stipulations were:

"(i) All imports made under barter deals were subject
B
to such sale price and distribution control as were laid
down by the Government and

(ii) All barter deals were to be routed through S.T.C./
M. M. T. C. unless otherwise decided upon by barter
committee." c
• As and when approval was given by the. Government of India, a letter
of indent used to be issued by the M.M.T.C. to the bartering firm or the
local supplier, as the case may be. (In this case, there was no bartering
firm. Ferro Alloys was directly sending the goods). As far as purchase D
and sale contracts were concerned, the M.M.T.C. insisted that there
should be one contract of sale between the local supplier and the
M.M.T.C. and another contract of sale by the M.M.T.C. to the foreign
buyer on principal to principal basis. The foreign exchange so gener-
ated under this arrangement was the basis for issue of import licences,
which were issued inthe name ofM.M.T.C. with the letter of authority E
in favour of the bartering firm orthe local supplier, as the case may be.
This enabled the bartering firm/local supplier to import the approved
commodity under its approval barter and thus be in a position to recoup
the losses incurred by it in arranging the supply-or in supplying, as
the case may be-ofexportcommodities to the M.M.T.C. It was agreed F
and understood that the ferro-alloys should intimate the foreign buyer
to enter into a direct contract with the M.M.T.C. treating it as the seller.
It was also agreed that G.R.I. Form prescribed by the Reserve Bank of
India under the Rules framed under the Foreign Exchange Regulation
Act (for accounting the receipt of foreign exchange) was to be signed
by the M.M.T.C. showing it as the exporter and seller vis-a-vis the G
foreign buyer. Letters of credit was also to be opened in the name of

•
M.M.T.C.? which was to be assigned to the Ferro-alloys. This was
done with a view to enable the Ferro-alloys to receive the payment
directly for the goods supplied to M.M.T.C.. The Shipping Bill, which is a
document prescribed under the Customs Act, was also to be made out H
16 SL:PRE!\fE COURT REPORTS [1993] 3 S.C.R.

A showing M.M.T.C. as the exporter.

The transactions were gone through. Dispute arose between the
parties when the question of issuance of a tax credit certificate under
Section 280 (Z) (C) of the Income Tax Act arose. Sub-section (i) of
section 280 (Z) (C), as in force at the relevant time, read as follows :
B

"Tax Credit Certificate in relation to exports - (1)
Subjects to the provisions of this section. n person who
exports any goods or merchandise out of India after
the 28th day of February, 1965, and receives the sale
c proceeds thereof in India in accordance with the
Foreign Exchange Regulation Act, 1947 (7 of 1947),
and the rules made thereunder, 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
D
proceeds."

A reading of the sub-section shows that the tax Credit Certificate
is issued to the person "who exports any goods or merchandise out of
India after the 28th day of February, 1965, and receives the sale
proceeds thereof in India in accordance with the Foreign Exchange
E Regulation Act, 1947 and the Rules made thereunder." Question,
therefore, arose who is the person, in the case ofthis transaction~ who
can be said to have exported the goods and received the sale proceeds •
in the shape of foreign exchange. The matter was taken in appeal
before the Government of India under paragraph (9) of the Tax Credit
F Certificate Exports Scheme, 1965. On an elaborate consideration of
the bartering scheme and the several documents which came into
existence in connection with the transactions between the parties, the
Government of India held that the M.M.T.C. must be held to be the
exporter for the purpose of Section 280(Z)( C) - and not the Ferro.:
alloys. This brder was challenged by Ferro-alloys by way of a writ
G petition in the High Court.

The High Court allowed the writ petition on the following
reasoning:

H "While the terms of the scheme of barter and the
M.M.T.C. ''· R.C. MISRA [JEEVAN ~DDY.J] 17

arrangement between the exporter and the Corpora- A
tion visualizes in theory that the contracts to be
entered iW-9. 9etween the exporter and the foreign
buyers 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 B
gets substituted for the exporter for all external ap-
pearance, 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 c
opened by the foreign buyers in favour of the Corpo-
ration and the shipments were made in some cases in
the name of. the Corporation on account of the ex-
porter while in the others in the name of the exporter
on account of the Corporation. No. consideration, l/i •. D
however, passed between the Corporation and ttie.
exporter on account of any sale of the commodfty'.t~
the Corporation. The letters qf credit being transfer-
able are endorsed inunediately d1Wetelpt ii1 favour of
the exporter by the corporation and the· s~le proceeds
are directly realized by the exporters through their E
bankers and the conunission of the Corporation agreed
to is paid by the exporter to the Corporation. The
declaration under Section 12 of the Foreign Exchange
(Regulations) Act inFonn GR-1 contains the name of
the Corporation as the exporter. But the form lists the
F
name of the exporters, banker as the banker con-
cerned."

In other words, the High Court's approach was that whjle for
external appearances, the corporation was given out as the exporters,
Ferro-alloys was the real exporter for all purposes and it was Ferro- G
alloys which earned and received the foreign exchange. M.M.T.C. got
only its commission of 2% and nothing more. Alternatively - held the
High Court - even if it is held that the documents executed between the
parties had the legal ~feet of transferring title in the goods to and in
favour of the Corporation, even so Ferro: alloys must be deemed to be H
18 SUPREME COURT REPORTS {1993) 3 S.C.R.

A the real exporter for the purposes of Section 280(Z)(C), having regard
to the objective underlying the said section viz., providing an addi-
tional incentive to the real exporter. The correctness of the said view
, is questioned in this appeal. Though the second respondent, Ferro-
alloys Corporation Ltd., has been served, no one appears on its behalf.
We are, therefore, obliged to dispose of this appeal only with the
B assistance of the counsel for the M.M.T.C.

May be that there are factors in this case supporting the conten-
tions of both the parties. In such a case, we have to decide the question
on a totality of relevant factors applying the test of predominance. It
C is true that there was initially an agreement or contract between Ferro-
alloys and the foreign buyer for export of manganese and other goods
but that was substituted and superseded by the two contracts entered
--
into with respect to the very same goods. One contract was between
Ferro-alloys and M.M.T.C. for sale of the said goods to and in favour
D of M.M.T.C. and the other was a sale by M.M.T.C. to the foreign
buyer. It is significant to notice that these contracts were on principal
to principal basis. Apart from this fact, all the statutory documents viz.,
G.R.I. Form prescribed under the Foreign Exchange Regulation Act,
1947 and the shipping bill prescribed by the Customs Act were made
out in the name of M.M.T.C. showing it as the exporter. We have
E perused the Form-G .RI. Column-I pertains to exporter's name. Against
this column is shown- 'Minerals and Metals Trading Corporation of
India Limited'. The Form contains a declaration to be signed by the
exporter declaring that he is the seller/consignor of goods and a further
undertaking that they will deliver to the Bank mentioned in the said
F Form, the foreign exchange resulting from the export of the goods
mentioned therein. It was signed by the M.M.T.C. Letters of credit
were opened in the name of M.M.T.C. All this. was done as required
by the system of barter. Ferro-alloys availed of this system presumably
because it was to its advantage. In fact, it appears that it was not able
to sell the said goods otherwise. Be that as it may, whether by choice
G or for lack of alternative, it chose to route its goods through M.M.T.C.
Is it open to the Ferro-alloys now to say that all this must be ignored
in the name of"external appearances" and it must be treated as the real
expoI:t:er for the purposes of Section 280(Z)(C). It wants to be the
gainer in both the events. A case of "heads I win, tails you lose." As
H against the above circumstances, the factors appearing in favour of the
M.M.T.C. \'. R.C. MISRA [JEEVAN REDDY,J] 19
..,

Ferro-alloys are the following: The contract between the parties spoke A
of"commission" of two per cent payable to the M.M.T.C. Use of the
expression "commission", it is pointed out, is indicative of the fact that
M.M.T.C. was only an agent. for the M.M.T.C., it is explained that it
was one way of describing the difference between the export price and
the sale price. It is submitted that the said feature must be understood
in the context of the totality of the scheme, which was not a mere B
~
conunercial scheme but a scheme conceived in the interest of foreign
trade, economy and balance of payments. Ferro-alloys also relied upon
a certificate given by the foreign buyer stating that the goods in
question were sold to it by Ferro-alloys. But as rightly pointed out by
the Government of India, this certificate was obtained long after the c
- relevant transactions were over and evidently to buttress its case with
respect to the tax credit certificate. Not much significance can be
attached to it, also because it is in the teeth of the contracts signed by
the foreign buyer with the M.M.T.C. with respect to the very same
goods. It is also pointed out that some of the documents required to be
D
executed according to the system 1.1f barter were not actually executed
between the parties. May be so. The fact yet remains that the entire
export was done through M.M.T.C. in accordance with the system of
barter. There is no half-way house; either it is no? barter system or it
is. Tliis is an undisputed fact as are the several statutory documents
made out in the name of M.M.T.C., referred to here in before. E
....
On a consideration of all the relevant factors and circumstances,
we are of the opinion that the M.M.T.C. must be held to be the exporter
for the purpose of Section 280(Z)(C). The entire system of barter and
the several documents executed in that behalf including those required
F
by statutory provisions cannot be explained away as mere "external
appearances". The Ferro-alloys cannot come to M.M.T.C. when it is
profitable to it and disavow it when it is not profitable to it. It cannot
have it both ways. The title to goods passed to M.M.T.C. by virtue of
the several documents executed between the parties. Indeed, that was
the fulcrum of the entire scheme of Barter. We are also not convinced G
I with the alternative reasoning of the High Court - that even if it is held
that the title to the goods passed to M.M.T.C., even so - Ferro-alloys
......-- ~ must be held to be the real exporter, in view of the objective underlying
Section 280(Z)(C). IfM.M.T.C. has acquired the title to the goods
and is the exporter for all other purposes it equally the exporter H
20 SUPREME COURT REPORTS ( 1993) 3 S.C.R.

A for the purposes Section 280(Z)(C). There can be no dichotomy of the
nature propounded by the High Court.

We are, therefore of the opinion that the I-ligh Court was not right
in holding to the contrary. The appeal is allowed. The judgment and
order of the High Court of Delhi is set aside and the order of the
n Government of India dated September 19, 1973 is restored. The writ
petition filed by the second respondent in the Delhi High Court is
dismissed. No costs.

<J.N. Appeal allowed.