- HC upholds Tribunal order denying exemption u/s 5(2) of CST Act on lease transactions effected by Hewlett Packard (assessee) with local customers on ground that same did not constitute ‘sale in course of import’; Notes the operandi under Master Lease Agreements, whereby customers placed purchase orders on foreign vendors directly, goods were shipped to customers but invoices raised on assessee, and right on the goods lied with customers till issuance of acceptance certificate followed by novation notice and ‘Lease Schedule’;
- Finds no reason to interfere with Tribunal’s reference to propositions laid down by Apex Court to determine whether concerned sale / purchase can be deemed to take place in course of import, viz. – (i) sale / purchase must actually take place, (ii) such sale / purchase in India must itself occasion such import and not vice versa, (iii) goods must have entered import stream when they are subjected to sale / purchase,(iv) import must be direct result of concerned sale / purchase,(v) import commenced through agreement between foreign exporter and an intermediary who acts as agent and does not sell imported goods to local users,(vi) there must either be single sale / two sales transactions must be so integrally inter-connected that they almost resemble one transaction, (vii) there is direct privity of contract between Indian importer and foreign exporter, and (viii) transaction must be such that intermediary appears only as a mere name lender through whom local importer cum local user masquerades;
- Observes, “…findings recorded by the Tribunal shows that the Tribunal found that the requirement for getting exemption is dependent upon inextricable link to the import from the foreign vendor and the customer and further with the end customer and the petitioner…” and same has not been established in present case;
- Subsequent Master Rental & Financing Agreement / Lease Schedule shows that so far as Customs Act is concerned, the customer / lessee is the person who claims benefit of duty exemption / concession as if he is the owner of goods and since he has to utilize them under EOU Scheme; Hence, states that “…the relationship is severed in as much as, the customer is shown as the owner and only the payer of the consideration is shown as the petitioner…”, in other words, assessee is only extending financial services for payment of price of the goods;
- It is only after the goods cross Customs frontier of the country and accepted by customers that ownership is re-entrusted to assessee and rental lease agreement is entered into, observes HC and accordingly, confirms Tribunal view that concerned transactions are nothing but ‘sale’ u/s 2(29) of Karnataka VAT Act and turnover qualifies as ‘taxable turnover’ u/s 2(34); Distinguishes Madras HC ruling in Karnataka Bank Ltd, coordinate bench decision in Canara Bank as well as SC judgments in Indurev Ltd and 20th Century Finance Corporation : Karnataka HC