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PETITIONER:

MINERAL AND METAL TRADING CORPORATION

Vs.

RESPONDENT:

R. C. MISHRA AND ORS.

DATE OF JUDGMENT07/04/1993

BENCH:

JEEVAN REDDY, B.P. (J)

BENCH:

JEEVAN REDDY, B.P. (J)

VENKATACHALA N. (J)

MOHAN, S. (J)

CITATION:

1994 AIR 1523 1993 SCR (3) 12

1993 SCC Supl. (3) 29 JT 1993 (4) 222

1993 SCALE (2)643

ACT:

Income tax Act, 1961/ Tax credit Certificate (Exports)

Scheme 1965:

Section 280ZC/Paragraph 9--Tax credit

Scheme--Objective--providing additional incentive to

exporter--System barter--Real exporter--Who is.

HEADNOTE:

The Second Respondent (Ferro Alloys Corporation), manufac-

turer-exporter of ferro-maganese and chrome concentrates,

entered into a number of agreement-. with foreign buyers for

sale of the said commodity. The export was routed through

the appellant to bring it within the system of private

barter introduced by the Government of India with a view to

encourage exports. The main objective of barter system was

to provide a mechanism which would result in increased

export of particular commodities which were ordinarily

difficult to sell abroad where the selling countries were

not able to get a foot-hold. This objective was sought to

he achieved by linking them to exports of an equivalent or

lesser value of essential commodities which in any event had

to he imported. As for as purchase and sale contracts were

concerned, 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.

It was agreed that Ferro Alloys should intimate the foreign

buyer to enter into a direct contract with M.M.T.C. treating

it as the seller., Also, the G.R.I. form prescribed by the

Reserve Bank of India under the Rules framed under FERA was

to be signed by M.M.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 Alloys could receive the payment directly. for the

goods supplied to

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M.M.T.C. The shipping documents also showed M.M.T.C. as the

exporter.

The transactions were gone through. Dispute arose between

the parties when the question of issuance of Tax Credit

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Certificate u/S 280ZC of the Income tax arose as to who

could 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. 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

by way of a Writ Petition. The High Court allowed the Writ

Petition, and held that the real exporter was Ferro Alloys

which earned and received the foreign exchange and M.M.T.C.

got only its commission of 2% and nothing more. Aggrieved

by the judgment of the High Court, M.M.T.C. preferred the

present appeal.

Allowing the appeal. this Court,

HELD: 1. 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 not barter system or it is in accordance

with the system of barter. This is an undisputed fact as-,

are the several statutory documents made out in the name of

M.M.T.C. Thus M.M.T.C. is the exporter for the purpose of

Section 280ZC of the Income tax Act, 1961. The entire

system of barter and the several documents executed in that

behalf including those required by statutory provisions

cannot be explained away 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 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. (19-E-F).

2. This Court is not convinced 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-

alloys 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

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280ZC. There can be no dichotomy of the nature propounded

by the High Court. (19-H, 20-A).

JUDGMENT:

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

From the Judgement 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.

V.C. Mahajan, C. Ramesh and C.V. Subba Rao for the Respon-

dents.

The Judgment of the Court was delivered by

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-M/s Ferro Alloys Corporation

Ltd. The writ petition was directed against the judgment

and order of the Government 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-cxportcr of ferro-

manganese and chrome-concentrates. During the year 1964-65

(from 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

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commodities. The export was routed through the M. M.T.C.

the appellant herein, to bring it within the system of

private barter introduced by the Government of India with a

view to encourage 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 commodities

which were ordinarily difficult to sell abroad and to

destinations, in which the selling countries were not able

to _Pet a foot-hold. This objective was sought to be

achieved by linking them to imports of an equivalent or

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lesser value of essential commodities, which, in any event,

the country 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 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."

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 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 generated under this

arrangement was the basis for issue of import licences,

which were issued in the name of M.M.T.C. with the letter of

authority in favour of the bartering firm or the 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 he in a position to recoup the

losses incurred by it in arranging the supply-or in

supplying, as the case may be of export commodities to the

M.M.T.C. It was agreed 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 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 Feffo-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

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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 (1) of section 280 (Z) (C), as in force

at the relevant time, read as follows

"Tax Credit Certificate in relation to exports

(1) Subjects to the provisions of this

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section. a 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 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 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 Regulation Act, 1947

and the Rules made thereunder." Question, therefore, arose

who is the person, in the case of this 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 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 order was challenged by Ferro-

alloys by way of a writ petition in the High Court.

The High Court allowed the writ petition on the following

reasoning:

"While the terms of the scheme of barter and

the

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arrangement between the exporter and the

Corporation visualizes in theory that the

contracts to be entered into between 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 gets substituted for the

exporter for all external appearance, 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 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 exporter while in the others in

the name of the exporter on account of the

Corporation. No consideration, however,

passed between the Corporation and the

exporter on account of any sale of the

commodity to the Corporation. The letters of

credit being transferable are endorsed

immediately on receipt in favour of the

exporter by the corporation and the sale

proceeds are directly realized by the

exporters through their bankers and the

commission of the Corporation agreed to is

paid by the exporter to the Corporation. The

declaration under Section 12 of the Foreign

Exchange (Regulations) Act in Form GR- I

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contains the name of the Corporation as the

exporter. But the form lists the name of the

exporters' banker as the banker concerned."

In other words, the High Court's approach was that while for

external appearances, the corporation was given out as the

exporters, Ferro-alloys was the real exporter for all

purposes and it was Ferro-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 effect of transferring title in the

goods to and in favour of the Corporation, even so Ferro

alloys must be deemed to be

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the real exporter for the purposes of Section 280(Z)(C),

having regard to the objective underlying the said section

viz., providing an additional 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 assistance of the counsel for the

M.M.T.C.

May be that there are factors in this case supporting the

contentions 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 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 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 perused the

Form-G.R.I.Column-1 pertains to exporter'sname.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 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 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 exporter 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 against

the above circumstances, the factors appearing in favour of

the

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Ferro-alloys are the following: The contract between the

parties spoke of "commission" of two per cent payable to the

M.M.T.C. Use of the expression "commission", it is pointed

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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 commercial 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 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 It is also

pointed out that some of the documents required to be

executed according to (he system of 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. This 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.

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

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 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). If M.M.T. C. has acquired the title to the goods

and is the exporter for all other purposes it equally the

exporter

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for the purposes Section 280(Z)(C). There can he no

dichotomy of the nature propounded by the High Court.

We are, therefore of the opinion that the High 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 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.

G. N.

Appeal allowed.

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