Change in Commercial Identity of Product: Madras HC Upholds Denial of CST Exemption on Sale made to Merchant Exporter [Read Order]

In a recent ruling, a division bench of the Madras High Court upheld the action of the authorities denying CST exemption on a sale made to the merchant exporter finding that the commercial identity of the product was changed during the transaction.

The petitioner, Azam Laminators (P) Limited, had claimed exemption under Section 5(3) of the Central Sales Tax Act, 1956 on a sale made to the merchant exporter.

The petitioner contended before the Court that the impugned order passed by the Appellate Tribunal is erroneous inasmuch as it has not considered the fact that M.G. Plain Kraft Paper supplied by the petitioner to the merchant exporter, which was converted as Parcel Leaf did not undergo any change and therefore, what was sold by the petitioner to the merchant exporter was exported by the petitioner.

The department, on the other hand, contended that there is a total change in the commercial identity of the product sold by the petitioner and the product that has been exported by the merchant exporter and therefore, it is submitted by the learned Government Advocate (Taxes) that the order passed by the Appellate Tribunal deserves to be upheld and the present writ petition is liable to be dismissed.

Justice S. Vaidyanathan and Justice C. Saravanan held that “on perusing the records, particularly the commercial invoice raised by the petitioner on the merchant exporter and the purchase order of the foreign buyer from Kuala Lumpur, Malaysia on the merchant exporter and the commercial invoice raised by the merchant exporter on the foreign buyer indicate that, what has been sold by the petitioner is not what has been exported by the petitioner. The commercial invoice of the petitioner indicates the price of M.G. Plain Kraft Paper as at Rs.16/- per Kg and that the petitioner had sold 69.278.0 Kg M.G.Plain Kraft Paper to the merchant exporter. What the merchant exporter has exported is Poly coated with LDPE Kraft Paper in Parcel Leaf size. There is no value addition in the price declared in the commercial invoice of the merchant exporter.”

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