(Appeal from the judgment and order dated May 25, 1978, of the Delhi High Court in Civil Writ Petition No.1494 of 1973).

Income-tax---

----Tax credit certificate---Exports---Export by manufacturer---Barter system-- Export routed through Mineral and Metal Trading Corporation---Foreign buyer to enter into contract with Mineral and Metal Trading Corporation-- Foreign exchange form and shipping bill to show Mineral and Metal Trading Corporation as exporter---Letter of credit to be opened in name of Mineral and Metal Trading Corporation but assigned to manufacturer ---Meneral and Metal Trading Corporation entitled to tax credit certificate and not manufacturer---Indian Income Tax Act, 1961, S. 280-ZC ---[Ferro Alloys Corporation Ltd. v. R.C. Mishra, Director, Tax Credit (1978) 114 ITR 753 reversed].

From February 28, 1965 to June 5, 1965, Ferro-Alloys, a manufacturer-exporter of ferro-manganese and chrome concentrates, entered into a number of agreements with foreign buyers for sale of -the two commodities. But the export was routed through the Mineral and Metal Trading Corporation under a barter system. It was agreed and understood that Ferro-Alloys should intimate the foreign buyer to enter into a direct contract with the Mineral and Metal Trading Corporation treating it as the seller. It was also agreed that the 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 Mineral and Metal Trading Corporation showing it as the exporter and seller vis-a-vis the foreign buyer. Letters of credit were also to be opened in the name of the Mineral and Metal Trading Corporation which were to be assigned to Ferro- Alloys to enable the latter to receive payment directly for goods supplied. The shipping bill was also to be made out showing the Mineral and Metal Trading Corporation as the exporter. After the transactions were gone through, both Ferro-Alloys and the Mineral and Metal Trading Corporation claimed entitlement to the tax credit certificate under section 280-ZC of the Income Tax Act, 1961 in relation to the exports. The Assistant Director, Tax Credits, rejected the claims of both and on appeal, the appellate authority held that the Mineral and Metal Trading Corporation was the exporter for the purpose of section 280-ZC. and not Ferro-Alloys. On a writ petition filed by Ferro-Alloys challenging the order in appeal, the High Court held that Ferro-Alloys was the real exporter for all purposes and that even if it be held that the documents between the parties had the legal effect of transferring title in the goods to the Mineral and Metal Trading Corporation Ferro-Alloys had to be deemed to be the real exporter for purposes of section 280-ZC. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that though there was initially an agreement between Ferro-Alloys and the foreign, buyer for export of ferro-manganese and other goods, that was substituted and superseded by two contracts with respect to the very same goods. These contracts were on principal to principal basis. All the statutory documents, e.g., the G.R.I. Form and the shipping bill were made in the name of the Mineral and Metal Trading Corporation showing it as the exporter. Letters of credit were opened in the name of the Mineral and Metal Trading Corporation. All this was done as required by the system of barter. The entire export was done through the Mineral and Metal Trading Corporation in accordance with the barter system; there was no half-way house: either it was the barter system or it was not. Therefore, the Mineral and Metal Trading Corporation was the exporter for the purpose of section 280-ZC. The entire system of barter and the several documents executed in that behalf could not be explained away as mere "external appearances". The title to the goods passed to the M.M.T.C. by virtue of the several documents executed between the parties: that was the fulcrum of the entire scheme of barter. There was no scope for holding that Ferro-Alloys was the real exporter.

Ferro Alloys Corporation Ltd. v. R.C. Mishra, Director, Tax Credit (1978) 114 ITR 753 reversed.

N.M. Ghatate, Senior Advocate with D.N. Misra, Advocate for J.B. Dadachanji & Co. for Appellant.

Dr. V. C. Mahajan, Senior Advocate with C. Ramesh and C.V. Subba Rao, Advocates, for Respondent No.1.

Nemo for Respondent No.2.

JUDGMENT

B.P. JEEVAN REDDY, J; --The appeal is preferred against the judgment of the Delhi High Court (see (1978) 114 ITR 753) 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, 197'3, in an appeal preferred under paragraph 9 of the Tax Credit Certificate (Exports) Scheme, 1965.

The second respondent is the manufacturer-exporter of ferro manganese and chrome concentrate. 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 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 get a foothold. This objective was sought to be achieved by linking them to imports of an equivalent or lesser value of essential commodities, which, in any event, the country had to import. All barter proposals were scrutinised 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 barer 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 the S.T.C./M.M.T.C. unless otherwise decided upon by the Barter Committee."

As and when approval was given by the Government of India, a letter of intent used to be issued by the Mineral and Metal Trading Corporation 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 Mineral and Metal Trading Corporation insisted that there should be one contract of sale between the local supplier and the Mineral and Metal Trading Corporation 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 the 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 be in a position to recoup the losses incurred by it in arranging the supply of - or in supplying, as the case may be -- of export commodities .to the M.M.T.C. It was agreed and understood that 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 the G.R.I. Form prescribed by the Reserve Bank of India under the Rules framed under the Foreign Exchange Regulation Act (for accounting for 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 were also to be opened in the name of Ferro-Alloys, which was to be assigned to Ferro-Alloys. This was done with a view to enable Ferro- Alloys to receive the payment directly for the goods supplied to the M.M.T.C. The shipping bill, which is a document prescribed under the Customs Act, was also to be made out showing the M.M.T.C. as the exporter.

The transactions were gone through. Disputes arose between the parties when the question of issuance of a tax credit certificate under section 280-ZC of the Income tax Act arose. Subsection (1) of section 280-ZC, as in force at the relevant time, read as follows:

"(1) Tax credit certificate in relation to exports.---Subject to the provisions of this 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 subsection 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". The 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-ZC and not 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 (at page 764 of 114 TTR):

"While the terms of the scheme of barter and the arrangement between the exporter and the Corporation visualise 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 buyers 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 appearances, 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 letters of credit were opened by the foreign buyers in favour of the Corporation 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 realised 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 (Regulation) Act in Form G.R.1 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 exporter, Ferro-Alloys was the real exporter for all- purposes and it was Ferro-Alloys which earned and received the foreign exchange. The 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 the real exporter for the purposes of section 280-ZC 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 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 the 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 the M.M.T.C. for sale of the said goods to and in favour of the M.M.T.C. and the other was a sale by the 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 the M.M.T.C. showing it as the exporter. We have perused the Form G.R.I. Column I pertains to exporter's name. 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 the 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 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-ZC? 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 Ferro-Alloys are the following: The contract between the parties spoke of "commission" of two per cent. payable to the M.M.T.C. The use of the expression "commission", it is pointed out, is indicative of the fact that the 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 goods. It is also pointed out that some of the documents required to be executed according to the system of barter were not actually executed between the parties. May be so. The fact yet remains that the entire export was done through the M.M.T.C. in accordance with the system of barter. There is no half-way house; either it is the barter system or it is not. This is an undisputed fact as are the several statutory documents made out in the name of the M.M.T.C., referred to hereinbefore.

On a consideration of all the relevant facts 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-ZC. 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 the M.M.T.C. when it is profitable to it and disallow it when it is not profitable to it. It cannot have it both ways. The title to goods passed to the 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 the M.M.T.C. even so Ferro-Alloys must be held to be the real exporter in view of the objective underlying section 280-ZC. If the 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 purposes of section 280-ZC. There can be 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.

M.BA./2467/TAppeal allowed.