Deciding Authority : Supreme Court
Date of Judgement : 09/01/2000
Bench : S.P.Bharucha, Doraswamy Raju, Ruma Pal
Facts : The appellant processes sea foods. It exported some of its products directly to foreign buyers but it was not an eligible export house under the Import and Export Policy 1982-83 (referred to as the Policy) and it could not avail of the special facilities granted to eligible export houses under the Policy. An agreement was entered into between an export house and the appellant on 24th August, 1982 by which the appellant agreed to export the processed sea food in the name of the export house against purchase orders placed on the export house by foreign buyers so that the export house could claim the benefits under the Policy in consideration for which the appellant would be paid 2.25% of the FOB value of the goods exported. In terms of the agreement, the appellants processed sea foods were to be sold to the export house after the goods crossed the customs barrier. All formalities of export were to be completed by the appellant but the shipment would be on account of the export house.
The Letter of Credit opened in favour of the export house by the foreign purchases would be endorsed in favour of the appellant. While the benefits from the agreement as far as the export house was concerned were limited to those available under the Policy, the appellant would not only be entitled to the entire sale proceeds realised by the export, but in terms of the agreement it could alone claim all the privileges available under other statutory provisions to an exporter, in addition to the commission of 2.25%. The particular transaction with which we are concerned began with a purchase order placed on the export house by a buyer in California. The buyer opened a Letter of Credit in favour of the export house.The goods were duly shipped and the documents were handed over by the appellant to the export house for negotiation. The Letter of Credit was endorsed in favour of the appellant by the export house and the entire amount of the foreign exchange credited in the appellants account. The appellant then claimed deductions permissible to an exporter under Section 80 HHC of the Income Tax Act,1961 for the assessment year 1983- 84. The appellants claim for deduction was rejected by the respondent. The appellant preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal relying on the definition of the word export in Section 2 (18) of the Customs Act which says that export means taking out of India to a place outside India. In the context of these facts, the following question came to be referred to the High Court , which answered the reference against the assessee and in favour of the Revenue.
Judgement : The export house had claimed and had been allowed deductions under Section 80HHC in respect of the export in question. Section 80 HHC requires (i) the assessee to export the goods and (ii) the sale proceeds to be receivable by the assessee in convertible foreign exchange. The foundation of the appellants arguments before us, as far as the first requirement is concerned, is the agreement between the appellant and the export house and in particular the clause which provides that the property in the goods would pass to the export house only after they had crossed the Customs barrier.
However, as rightly contended by the respondent, the question of title or property in the goods exported is not relevant to Section 80 HHC. The Section does not in terms require the exporter to be the owner of the goods. Even Section 2(18) of the Customs Act does not include the idea of ownership within the definition of the word export. This may be contrasted with Section 5(3) of the Central Sales Tax Act, 1956 where the emphasis is on the transfer of title by a last sale or purchase , preceding the sale or purchase occasioning the export. The object of Section 80 HHC is to grant an incentive to earners of foreign exchange. The matter will,therefore, have to be considered with reference to this object. The transaction commenced with the agreement between the Californian buyer and the export house. But for this contract, there would be no export and no receipt of foreign exchange at all. In fulfillment of its obligation under the contract the export house had entered into an independent contract with the appellant. The appellant was not a party to the first contract. If the first contract were breached, the assessee could not demand the foreign exchange from the buyer. Again, if the goods were not exported, the foreign buyer could not look to the appellant for reimbursement. Admittedly, the shipment was also made by the appellant on account of the export house. But for this contract, there would be no export and no receipt of foreign exchange at all. In, fulfillment of its obligation under the contract the export house had entered into an independent contract with the appellant. The appellant was not a party to the first contract. If the first contract were breached, the assessee could not demand the foreign exchange from the buyer. Again, if the goods were not exported, the foreign buyer could not look to the appellant for reimbursement.
Furthermore, the appellant was party to a declaration to the concerned authorities under the Policy that the export house was the exporter. It may be that this was for the purposes of enabling the export house to reap the benefit of the Policy but it was also for the added advantage of the commission earned by the appellant from the export house.The export house had also claimed and been allowed deductions in respect of the amount realised by the export under Section 80HHC. The appellant having allowed the authorities to act on that basis,did so at its peril.
Secondly, the phrase “sale proceeds receivable by the assessee” in Section 80 HHC sub-section (2), cannot be construed to mean sale proceeds ultimately received. Payment for the export, in this case , was by the Letter of Credit. The Letter of Credit being in favour of the export house, the foreign exchange was receivable by it. That the export house may have chosen to transfer the foreign exchange to a third party under some independent arrangement would not make the third party the exporter. Whatever be the internal arrangement between the export house and the appellant, as far as the Income Tax authorities were concerned, the export house would clearly be the exporter.
Finally, different statutes have conferred benefits and cast obligations on an exporter but none of the statutory provisions allows more than one person either to claim the benefit given or be subjected to the obligation cast.
Held : Appeal Dismissed .
Tejasv Anand ,IV th Year, Amity Law School ,Delhi.
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