STATE OF KARNATAKA versus AZAD COACH BUILDERS PVT.LTD. & ANR.

Citation: [2010] 12 S.C.R. 895 · Decided: 14-09-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2010] 12 S.C.R. 895 
STATE OF KARNATAKA 
V. 
AZAD COACH BUILDERS PVT.LTD. & ANR. 
(Civil Appeal Nos. 5616-5617 of 2000 etc.) 
SEPTEMBER 14, 2010 
[S.H. KAPADIA,CJI., B. SUDERSHAN REDDY, K.S. 
PANICKER RADHAKRISHNAN, SURINDER SINGH 
NIJJAR AND SWATANTER KUMAR, JJ.) 
A 
B 
Central Sa/es Tax Act, 1956 - s. 5(3) rlw Article 286 of 
C 
the Constitution - Exemption of tax on sale of goods as 
penultimate sale in the course of export - Held: When the 
local sale or purchase between the parties is inextricably 
linked with the export of the goods, then the claim for 
exemption u/s. 5(3) is justified - In such a case, the 'Same 
D 
Goods' theory has no application - The connection between 
the penultimate sale and export of goods should be real, 
intimate and inter-linked and not casual, accidental or 
fortuitous -
The burden to establish such link is on the 
assessee -
In the facts of the case, the assessee has 
established that the transaction between the assessee and the 
exporter is inextricably connected with the export of the goods, 
and, as such, hence eligible for exemption uls. 5(3) -
Constitution of India, 1950 - Article 286. 
The assessee was requested to build bus bodies, by 
the exporter, in accordance with the specifications 
provided by the foreign buyer. The assessee was asked 
to fabricate bus bodies on the chassis supplied by the 
exporter, in accordance with the specifications. The 
assessee, after manufacturing the bus bodies, mounted 
the same on the chassis made available by the exporter, 
making it as a complete bus, ready for export. The 
assessee claimed exemption on sale of the bus bodies. 
895 
E 
F 
G 
H 
896 
SUPREME COURT REPORTS 
[2010] 12 S.C.R. 
A The Assessing Authority rejected the claim on the 
ground that the 'bus bodies' and the 'buses' were two 
different commodities and the export was not of the 'bus 
bodies' but that of the 'buses' and thus the transaction 
could not amount to penultimate sale eligible for 
B 
exemption u/s. 5(3) of Central Sales Tax Act. In appeal, 
the appellate authority upheld the levy of tax. The 
appellate tribunal also upheld the levy. The High Court 
held that the assessee was eligible for the benefit of 
exemption u/s. 5(3) of the Act. 
c 
In appeal, the Division Bench of Supreme Court felt 
that the judgments passed by Supreme Court in Sterling 
Foods vs. State of Karnataka and Vijay/axmi Cashew 
Company vs. Deputy Commercial Tax Officer cases needed 
fresh look in the light of the judgment in K.Gopinath Nair 
D 
vs. State of Kera/a and referred the matter to larger Bench. 
The larger Bench further placed the matter before the 
Constitution Bench. 
Answering the reference and dismissing the 
E appeals, the Court 
HELD: 1. Article 286(1 )(b) of the Constitution of India 
states that no law of a State shall impose, or authorize 
the imposition of sales tax on the sale or purchase of the 
goods when such sale or purchase takes place in the 
F 
course of export of goods. Article 286(2) authorizes 
Parliament to formulate principles for determining when 
the sale is in the course of import/export. The sale or 
purchase of goods is deemed to be in the course of 
export of goods out of the territory of India only if the 
G sale or purchase either occasions such export or is 
effected by a transfer of documents of title to the goods 
after the goods have crossed the customs frontiers of 
India. Therefore, under Article 286(1) of the Constitution, 
the Court has to examine whether any tax is being 
H 
STATE OF KARNATAKA v. AZAD COACH. BUILDERS 897 
PVT.LTD. 
imposed by the State Legislature on the sale or purchase 
A 
of goods "in the course of the import of the goods into 
or export of the goods out of the territory of India". In 
order to resist imposition of sales tax by the State, the 
assessee will have to establish the identity of the goods 
sold to be exported out of the territory of India. In order 
B 
to fulfill an export obligation, if an exporter purchases 
goods and as a result of some processing, the identity 
and character of the goods change, then it will not be a 
case of export of the same goods. [Para 18] [908-G-H; 
909-A-D] 
C 
2. The phrase 'sale in the course of export' comprises 
in itself three essentials: (i) that t}lere must be a sale: (ii) 
that the goods must actually be exported and (iii) that the 
sale must be a part and parcel of the export. The word 
'occasion' is used as a verb and means 'to cause' or 'to 
D 
be the immediate cause of'

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