MANU/TN/0732/2000

Equivalent Citation: [2006]145STC 442(Mad)

IN THE HIGH COURT OF MADRAS

W.A. Nos. 94 to 96 of 2000 and CMP Nos. 869, 870 and 1036 of 2000
Decided On: 26.04.2000
Appellants: Lavanya Enterprises
Vs.
Respondent: Secretary to Government of Tamil Nadu, Environment and Forest
Department and Ors.
Hon'ble Judges/Coram:
K.G. Balakrishnan, C.J. and K. Govindarajan, J.
Counsels:
For Appellant/Petitioner/Plaintiff: P. Karian, Sr. Adv. and Shanti Meenakshi, Adv.
For Respondents/Defendant: A. Chandrasekaran, Govt. Adv. for Respondent No. 1
and Jesudoss, Special Govt. Pleader for Respondent No. 2
JUDGMENT
K. Govindarajan, J.
1. The appellant-firm has filed the above writ appeal aggrieved by the orders of the
learned single Judge passed in W.P. Nos. 17798, 8343 and 8344 of 1999 dated
November 22, 1999.
2. The appellant participated in the auction conducted by the second respondent for
the sale of 20 M.Ts. and 33 M.Ts. of sandal-wood. The said auction was held on
February 25, 1999 and the same was confirmed by the second respondent by the
orders dated March 17, 1999. Along with the confirmation order, a statement showing
the amount to be paid by the appellant was furnished. Among other items, as per the
condition No. 27 of the sale notice, the appellant was asked to pay a sum of Rs.
6,13,530 by way of sales tax at 8 per cent on the sale of 20 M.Ts. and Rs. 9,12,000
towards the sales tax on the total sale amount of 33 M.Ts. of sandalwood. Though
the appellant informed the authorities in their letter dated April 5, 1999 that they are
not liable to pay sales tax, in the letter dated April 13, 1999 the appellant was
informed that there is no provision in the sale notice to avail exemption of the sales
tax and they should make the payment of the balance sale amount first and other
dues. On receipt of the said letter, the appellant filed W.P. No. 8343 of 1999 to quash
the same with respect to the demand for sales tax and to direct the respondent to
accept the form H filed by the appellant after the export is over without insisting for
payment of sales tax and any surcharge thereon in respect of sandalwood sold to the
appellant in the auction conducted by the second respondent in respect of 20 M.Ts. of
sandalwood as confirmed by the second respondent's order dated March 17, 1999.
3 . The second respondent in the letter dated September 24, 1999 informed that as
per the condition No. 12(ii) of this sale notice, penal interest at 18 per cent per
annum on over due amount and as per the condition No. 15 of the sale notice,
demurrage charges of Rs. 600 per M.T. per day for the sandalwood so kept in double

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lock beyond 60 days have to be paid by the purchaser. This demand was on the basis
of failure of the appellant in making payment in time and also to remove the quantity
in time. This order has been challenged in W.P. No. 17798 of 1999.
4 . The appellant also has filed another writ petition in W.P. No. 8344 of 1999
challenging the order dated March 17, 1999 with respect to the demand of sales tax,
and to direct the respondents to accept the form H filed by the appellant after the
export is over without insisting for payment of sales tax or any surcharge thereon in
respect of 33 M.Ts. of sandalwood sold by second respondent in the auction dated
February 25, 1999. The said writ petitions were contested by the respondents.
5 . The learned Judge in the common order dated November 22, 1999 rejected the
writ petitions on the ground that any claim of exemption or concession has to be
referred to the Sales Tax Department and if the Sales Tax Department grants
exemption then only the refund of sales tax paid will arise. The learned Judge also
held that the appellant cannot claim as a matter of right that they are not liable to
pay the sales tax amount as they have agreed to pay as per the terms and conditions
of the sale notice and no dispute with respect to the sales tax can be raised before
this Court, and the same can be raised only before the Special Sales Tax Tribunal.
Aggrieved against the said order, the appellant has filed the above writ appeals.
6. We heard the learned Senior Counsel appearing for the appellant and the learned
Special Government Pleader for the respondents.
7 . The learned Senior Counsel appearing for the appellant has submitted that the
appellant-firm have purchased the sandalwood in the auction pursuant to the order
for export and so they are not liable to pay any sales tax. The learned Senior Counsel
has relied on Section 5(3) of the Central Sales Tax Act, 1956 (hereinafter called "the
Act") in support of his submission. According to him, though as per sale condition,
the appellant has to pay sales tax to the Forest Department, the appellant is not liable
to pay any such sales tax under the provisions of Central Sales Tax Act as they
purchased the goods only to fulfil their export commitments. The learned Senior
Counsel has relied on decisions in support of his submissions, which would be dealt
with later.
8 . The learned Special Government Pleader (Forest) has submitted that the Forest
Department was not having any sale for export, and the auction is in general, and so
as per condition No. 27 of sale notice, the appellant should pay the sales tax. He has
also submitted that on the date of confirmation of sale, the appellant was not even
having valid licence to export goods so as to enable them to claim the benefits under
Section 5(3) of the Act.
9. The learned Government Advocate for Taxes has also submitted that on the date of
the sale, it was not established that the sale was for the purpose of export, and based
on the earlier order obtained from foreign buyers. In the absence of any such
materials on the date on which sale was completed, the appellant cannot come
forward with the plea that they are entitled to the benefits under Section 5(3) of the
Act. He has further submitted that the export of sandalwood has been banned. Only
under the notification, certain exemptions have been given, and so the case of the
appellant cannot be accepted.
10. In the auction held on February 25, 1999, the appellant participated and was the
successful bidder with respect to 20 M.Ts. and 33 M.Ts. of sandalwood. The same
had been confirmed only on March 17, 1999. Thereafter, the impugned letters dated

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April 13, 1999 and March 17, 1999 were issued to the appellant, asking them to pay
the sales tax dues. The case of the appellant is that they are having contract with
foreign buyer which has been executed on December 20, 1998 and extended
subsequently, and so they are not liable to pay the sales tax, in view of Section 5(3)
of the Act. On perusal of the typed-set furnished by the appellant, we are able to see
that the appellant has entered into a contract with M/s. Omarbeem Enterprise,
Singapore under contract No. OME/16/98 dated December 20, 1998 to sell 25 M.Ts.
of sandalwood hear wood chips and 50 M.Ts. of sandalwood mixed chips. It has been
agreed to send the same by sea shipment to Singapore/Taiwan/Hongkong. The period
to supply mentioned in the said contract was extended by another letter dated
December 25, 1999. On the basis of this contract, the appellant claims that they
purchased the sandalwood in the auction held only to fulfil the said obligation to the
foreign buyer and so they are not liable to pay the sales tax.
11. Since the appellant claims benefits under Section 5(3) of the Act, it is beneficial
to deal with the said section, which reads as follows :
5(3). Notwithstanding anything contained in Sub-section (1), 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 order for or in relation
to such export.
Section 5(3) of the Act has been enacted to get over the decision of the Supreme
Court in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136 because as a result of
the said decision, the last sale or purchase is liable to State sales tax leading to
corresponding increase in the price of the goods and making exports uncompetitive in
the international market. The said amendment was made in Section 5 by the Central
Sales Tax (Amendment) Act, 1976 inserting Sub-section (3) under Section 5 of the
Central Sales Tax Act which came into effect from April 1, 1976.
12. To invoke Section 5(3) of the Act, two conditions have to be satisfied namely (a)
such penultimate sale must take place after the agreement or order under which
goods are to be exported; and (b) it must be for the purpose of complying with such
agreement or order and then only such sale is deemed to be a sale in the course of
export.
13. The apex Court had an occasion to deal with Section 5(3) of the said Act in
Consolidated Coffee Ltd. v. Coffee Board, Bangalore MANU/SC/0398/1980 :
[1980]3SCR625 . While dealing with the nature of agreement, which can be relied on,
for the purpose of export, to claim benefit under Section 5(3) of the said Act, and the
apex Court has held as follows :
1 3 . It is true that the language employed in Section 5(3) is a little
ambiguous or equivocal and there is no indication in express terms whether
the 'agreement' mentioned therein necessarily refers to the agreement with a
foreign buyer or would include any binding or enforceable agreement to
export with a local party and that is why the counsel on either side have
heavily relied upon the Statement of Objects and Reasons appended to the
relevant Bill to show what was the legal position under Section 5(1) as
interpreted by this Court in the Coffee Board's case MANU/SC/0410/1969 :
[1970]3SCR147 and Mod. Serajuddin's case MANU/SC/0440/1975 :

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AIR1975SC1564 before the proposed amendment and what was the lacuna or
mischief that was sought to be remedied as also the object with which this
provision came to be enacted. However, before applying the mischief rule
initially enunciated in Heydon's case (1584) 3 Co. Rep 7 a for arriving at the
true construction we propose to examine the new provision rather closely
with a view to see whether by implication any indication one way or the
other is available from the language thereof. The material words which
prescribe the two conditions on satisfying which the penultimate sale is to be
regarded as a sale in the course of export are : 'If such last sale or purchase
(meaning the penultimate sale or purchase) took place after, and was for the
purpose of complying with, the agreement or order for or in relation to such
export'. It is true that Parliament has not said 'the agreement or order for or
in relation to such sale occasioning the export', but has used the phrase 'the
agreement or order for or in relation to such export'. But in our view two
aspects emerge very clearly on a close scrutiny of this phrase which by
implication show that the 'agreement' spoken of there refers to the
agreement with a foreign buyer and not an agreement with a local party
containing a covenant to export.
In the first place the concerned phrase speaks of two things in disjunctive :
'agreement' or 'order'. The word 'order' which appears in a statute dealing
with sales tax must be understood in a commercial sense, that is, in the
sense in which traders and commercial men will understand it. In commercial
sense an order means a firm request for supply of definite goods emanating
from a buyer, an indent placed by a purchaser and, therefore, an order for or
in relation to export would mean an indent from a foreign buyer. It is not
possible to accept the contention urged by counsel for the petitioners that the
word 'order' in this phrase can mean or refer to an order, direction, mandate,
command or authorisation to export that may be issued by a statutory body
like the Coffee Board for two reasons: first, occurring in a sales tax statute
the word must be given its commercial meaning and, secondly, while
enacting the provision Parliament could not be said to have the only statutory
bodies like the Coffee Board or the S.T.C. in mind. If, therefore, an order for
export in the concerned phrase means an indent from a foreign buyer, the
preceding word 'agreement' in the phrase would take colour from the word
'order' and would on the principle of noscitur a sociis mean an agreement
with a foreign buyer. In Maxwell on the Interpretation of Statutes (at page
289, 12th edition), the rule of noscitur a sociis is explained thus : 'where two
or more words, which are susceptible of analogous meaning, are coupled
together, they are understood to be used in their cognate sense. They take,
as it were, their colour from each other, the meaning of the more general
being restricted to a sense analogous to that of the less general'. Applying
this rule of construction it becomes clear that 'the agreement' occurring in
the phrase must mean the agreement with a foreign buyer and not the
agreement with a local party containing a covenant to export. Secondly, and
more importantly, the user of the definite article 'the' before the word
'agreement' is, in our view, very significant. Parliament has not said 'an
agreement' or 'any agreement' for or in relation to such export and in the
context the expression 'the agreement' would refer to that agreement which
is implicit in the sale occasioning the export. Between the two sales (the
penultimate and the final) spoken of in the earlier part of the sub-section
ordinarily it is the final sale that would be connected with the export, and,
therefore, the expression 'the agreement' for export must refer to that

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 agreement which is implicit in the sale that occasions the export. The user of
the definite article 'the', therefore, clearly suggests that the agreement
spoken of must be the agreement with a foreign buyer. As a matter of pure
construction it appears to us clear, therefore, that by necessary implication
the expression 'the agreement' occurring in the relevant phrase means or
refers to the agreement with a foreign buyer and not an agreement or any
agreement with a local party containing the covenant to export.
From the above said decision of the apex Court it is clear that if the appellant is able
to establish that he purchased the property on the basis of the agreement or order,
under which the goods are to be exported in compliance with such agreement or
order, he is entitled to the benefits given under Section 5(3) of the said Act, and he
need not pay the sales tax.
1 4 . The main objection that has been raised by the learned Special Government
Pleader is that at the time of conclusion of sale, the appellant has not produced any
document to show that the purchase was in the course of export. It is relevant to
mention here that there is no such condition contemplated under the sale notice.
Merely because the appellant had not produced certain documents at the time of
completion of sale, it does not change the character of sale, if really such a sale was
in the course of export.
15. Then the question now is whether the sale was in the course of export or not.
Now, the appellant has come forward with the plea that the purchase of sandalwood
by them in the auction is only pursuant to the agreement with the foreign buyer. So,
the objection raised by the learned Special Government Pleader for the respondent
that the appellant has not produced any document at the time of conclusion of the
sale and so they cannot claim any benefit under Section 5(3) of the said Act in view
of the condition No. 27 of the sale notice cannot be countenanced. In view of the
above conclusion, there is no need for us to deal with the clarifications issued by the
authorities of the Sales Tax Department, though the learned Senior Counsel heavily
relied on the same.
16. The next objection raised by the learned Special Government Pleader is that as
per the sale notice, the appellant has to pay the sales tax ; otherwise he is not
entitled to take delivery of goods, and other consequences would follow. This
submission has been made on the basis that the appellant has accepted the terms and
conditions and participated in the auction, and purchased the sandalwood. It is not in
dispute that if the appellant satisfies the condition specified under Section 5(3) of the
said Act, he is entitled for the benefit given under the said provision. The contract
cannot stand in the way of the appellant in getting the statutory benefit. No contract
tends to circumvent the benefit given under the law. This view of ours is supported
by the decision of the division Bench of the Allahabad High Court in U.P. State
Electricity Board v. Lakshrni Devi Sehgal MANU/UP/0135/1977 : AIR1977All499 ,
wherein it has been held as follows :
No contract would be enforced which would be contrary to the general policy
of the law. The consumer may have agreed to abide by the conditions
subsequently altered or modified by the agreement, nevertheless, what is
injurious to and against the public policy, must be forbidden. Contractual
freedom must be fostered but no contract, that tends to circumvent the law
creating the corporation, would be countenanced in law. Judged in that
manner, the newly added condition No. 23(a) which the Board seeks to

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 invoke to its aid, is unlawful in the sense that the law will not enforce it.
It has also been held that it is well-known that no contract would be enforced which
is contrary to the general policy of the law or is detrimental to the interest of the
public. In view of the above, merely on the basis of condition No. 27 of the sale
notice, the respondents cannot come forward with the plea even if the appellant is
able to establish that he is entitled to the benefits under Section 5(3) of the said Act,
the appellant has to comply with the said condition No. 27 of the sale notice strictly.
17. Even with respect to the submission of the learned Special Government Pleader
regarding the production of the documents to establish the case of the appellant at
the time of sale, as rightly pointed out by the learned Senior Counsel appearing for
the appellant, there is no such condition contemplated in the sale notice. Moreover,
similar contention has been rejected by the apex Court in the decision in
Consolidated Coffee Ltd. v. Coffee Board, Bangalore MANU/SC/0398/1980 :
[1980]3SCR625 . The learned Government Advocate appearing for the respondents
tried to distinguish the said "decision saying that the sale of coffee in that case was
only for export and so it was being called as "export auction". The participants have
to register their name before participation and establish that they are exporters. Only
under the said circumstances according to him, the apex Court has held that the
question of insisting upon production of an agreement or an order from the foreign
buyer will not arise and so such a condition was set aside. Such submission of the
learned Government Advocate cannot be accepted. The registration is only to show
that they are exporters. The apex Court taking into consideration of the auction
condition has held that it is not necessary to produce an agreement or order as
contemplated in the circular even at the time of participating in the auction, and they
have to produce the same only at the time of transfer of property in the goods sold to
the buyer. As per the sale notice, the sale is completed only on confirmation. At this
stage as per the decision of the apex Court, the authorities ought to have called for
the documents so as to satisfy themselves regarding the claim of the appellant, under
Section 5(3) of the said Act.
18. Here, it is relevant to mention that this problem arises every year and so the
respondents should have taken appropriate steps to solve it by incorporating certain
clauses in the sale notice. The Forest Department can also approach the Sales Tax
Department to have a concrete guideline to find out whether the purchasers of
sandalwood are entitled to any benefit under Section 5(3) of the said Act. In the sale
notice which is the subject-matter of these writ appeals, no such condition has been
contemplated. In the absence of such condition, the appellant cannot be blamed for
not producing the documents at the time of confirmation, when the property in the
sandalwood passed on to the appellant. Only on demand of sales tax the appellant
has started to claim the benefits under Section 5(3) of the said Act.
19. Though the respondents have taken a stand that the sandalwood is a banned
item to be exported and so the case of the appellants cannot be accepted, the same
cannot be accepted in view of the notification issued by the Government of India
dated June 25, 1999. According to the said notification, sandalwood in any form can
be exported, but it should be with an approval/the export licence from the Directorate
General of Foreign Trade. So it cannot be said that the goods purchased by the
appellant cannot be exported at all.
2 0 . Though an attempt was made to the effect that the goods purchased by the
appellant are different from the goods they seek to export, the same was not

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persuaded by the learned Counsel for the respondents. The different varieties of
sandalwood purchased by the appellant have been reduced to small pieces for the
purpose of export. Even though certain decisions have been cited by the learned
Senior Counsel appearing for the appellant to establish that the sandalwood pieces
cannot be construed as different commodities, since no serious argument was raised
by the respondents on this issue, we accept the case of the appellant on this aspect.
The learned Senior Counsel also has produced the sandalwood in the form in which
they are going to export the same, which would clearly establish that the character of
the goods purchased by the appellant in the auction have not at all been changed,
and so it cannot be said that they are different commodities.
21. In these cases, admittedly, the appellant have paid 50 per cent of the sales tax
and produced bank guarantee for the balance 50 per cent. The learned Senior
Counsel for the appellant has submitted that with respect to 33 M.Ts. of sandalwood,
the department have released the same and export licence was obtained on March 16,
2000 to export the same. With respect to 20 M.Ts. of sandalwood which is the
subject-matter in W.A. Nos. 94 and 95 of 2000, the department have refused to
release the same for nonpayment of demurrage and penalty charges. The appellant
has paid 50 per cent of the sales tax and bank guarantee for the balance 50 per cent.
22. So, the learned single Judge is not correct in holding that the condition in the
sale notice would prevail, and the appellant has to approach the forest department
later for refund after paying the sales tax as determined even if the appellant is able
to establish that they are entitled to the benefits under Section 5(3) of the said Act.
The appellant has nothing to do with the assessment proceedings. They cannot raise
any objection before the Sales Tax Department. If at all, the Forest Department alone
can raise any objection before the sales tax department. Even if the appellant is able
to establish that he is entitled to the benefits under Section 5(3) of the said Act, the
appellant will not get the said benefits, if the forest department fails to prosecute the
same by making effective objections regarding the same. So the reasonings given by
the learned single Judge cannot be sustained and the order is set aside.
2 3 . It is relevant to mention here that the Forest Department is not making any
serious step to solve the issue by providing proper guidelines though they are
experiencing such difficulty year after year especially when the purchasers of
sandalwood are claiming that they are purchasing the same in the course of export.
24. Taking into consideration of the same, and also the facts of these cases, we issue
the following directions to the respondents and the appellant :
1. The appellant should keep alive the bank guarantee for another 6 months
from today;
2 . The respondents are directed to release the goods if they are not yet
released, without claiming any demurrage or penalty as the appellant is not
responsible for the delay and they are agitating their rights in regards to the
payment of sales tax;
3. The appellant is directed to establish before the concerned authorities that
they are entitled to the benefits under Section 5(3) of the said Act with
respect to the sandalwood purchased in the auction held on February 25,
1999;
4. If the appellant is not able to establish within the period of five months as

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 to their entitlement of benefits as stated in Clause (3) above, respondents are
directed to enforce bank guarantee and realise the amount;
5. If the appellant is able to establish their case within the said period of five
months regarding the benefits under Section 5(3) of the said Act, they are
entitled to get refund of the amount paid towards sales tax and also the
respondents have to return the bank guarantee given by the appellant ; and
6. In any event, a period of five months time given in this judgment will not
be extended further.
2 5 . With the above observations and conditions these writ appeals are allowed
accordingly. No costs. Consequently, C.M.P. Nos. 869, 870 and 1036 of 2000 are
closed.

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