J.B. Koshy, J. 1. In Income-tax Reference No. 191 of 1991 at the instance of the Revenue, the following question has been referred to this court by the Income-tax Appellate Tribunal, Cochin Bench :
"Whether, on the facts and in the circumstances of the case, the asses-see is entitled to deduction under Section 80HHC of the Income-tax Act, 1961, in respect of exports (not done directly by the assessee) done through export house ?"
2. At the instance of the Revenue, the following questions of law have been referred to this court in Income-tax Reference No. 5 of 1992 :
"1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction under Section 80HHC of the Income-tax Act, 1961, in respect of exports (not done directly by the assessee) done through export house ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and on facts in holding,--
(i) the assessee was not an agent of the export house ?
(ii) in substance the export house has not purchased the goods ?
(iii) export process has been actually done by the assessee and not the export house ?
(iv) 'both are entitled to the benefit' ?"
3. As the assessment orders considered in both the cases are relating to 1983-84 with similar set of facts and the real question to be considered is regarding the application of Section 80HHC of the Income-tax Act, 1961, as requested by the parties, both the reference cases are answered by this common judgment.
4. The assessees are processors of frozen sea foods. Some of their processed goods are exported directly to the foreign buyers. Part of their turnover are exported by the export houses. With regard to the direct exports by them to the foreign buyers there is no dispute. The question is whether they are entitled to the benefit of Section 80HHC for the relevant year for the exports done through the export houses. It is not disputed that the foreign buyers had contracts only with the recognised export houses. In their turn, they have independent agreements with the processors (the assessees). As per the agreement with the assessees and the export houses, the assessees would export against the export orders received by the export houses in the name of the export houses. Letter of credit is opened in the name of the export house, but it is later endorsed in favour of the assessees so that it can be credited to the assessees' bank, as insisted by the assessees. The assessees have to complete all formalities with regard to export and to ship the goods under bills of lading and the documents are completed by the assessee "on account of the export houses". In the agreement between the assessees and the export houses, the export houses are termed as exporters and the assessees are termed as processors.
5. In the statement of the case in Income-tax Reference No. 5 of 1992, it is stated as follows :
"The Tribunal found that clause 2 of the preamble to the agreement states that the export houses had approached the assessee to export frozen marine products and the assessee had agreed to undertake such exports. Clause 3 of the preamble states that the assessee would export against export orders received by the export houses provided that the assessee approved all the prices at which these orders have been booked. The assessee also agrees to export the product against export orders in the name of the export house ...... After each shipment the export houses agreed to negotiate these documents pertaining to the said shipment through the bankers specified by the assessee instructed the bankers to credit the entire proceeds on such documents to the account of the assessee. The Tribunal noticed that in consideration of the services done by the export house (sic) the assessee, would pay commission at 2.25 per cent, on the f.o.b. value of the products exported. The REP import licence benefit would be available as per the policy only for the export houses. It is further provided by clause 8 that in respect of the exports made by the assessee the export houses will be entitled to claim all the benefits accruing to eligible merchant exporter under the terms of the Import Trade Control Policy. There is also a clause in respect of the draw back benefits available from Customs and Central excise authorities. The assessee will be eligible for these benefits and the export house will not claim them."
6. The documents were prepared by the assessees on account of the export houses and goods were put on board by the assessees. The documents were prepared on account of the export houses. It is also not disputed that the benefit of Section 80HHC during the relevant year was claimed by the export houses and they obtained the same. But, according to the Tribunal, that will not prevent the assessees from taking the benefit and the asses-sees being the real exporters are entitled to take the benefit of Section 80HHC.
7. During the relevant time Section 80HHC was as follows :
"80HHC. Deduction in respect of export turnover.--(1) Where the assessee, being an Indian company or a person (other than a company), who is resident in India, exports out of India during the previous year relevant to an assessment year any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, the following deductions, namely :--
(a) a deduction of an amount equal to one per cent, of the export turnover of such goods or merchandise during the previous year ; and
(b) a. deduction of an amount equal to five per cent, of the amount by which the export turnover of such goods or merchandise during the previous year exceeds the export turnover of such goods or merchandise during the immediately preceding previous year.
(2) (a) This section applies to all goods or merchandise (other than those specified in Clause (b)) if the sale proceeds of such goods or merchandise exported out of India are receivable by the assessee in convertible foreign exchange . . ."
8. This section is intended to grant benefits to the exporters for encouraging exports.
9. In this connection we may refer to the legislative history regarding the benefits granted for exports under Section 80HHC. Originally Section 89A of the Income-tax Act granted relief in respect of export turnover with effect from June 1, 1982. It was replaced by Section 80HHC which came into force on April 1, 1983, and it granted a deduction based on percentage of export turnover. The section was substituted by the Finance Act, 1985, with effect from April 1, 1986, which granted deduction with reference to export profits. During these periods the benefit of Section 80HHC was given only to the real exporters and there were demands from supporting manufacturers/processors for getting the benefit of the section and under the Board's Circular No. 466, dated August 14, 1986 ([19861 161 ITR (St.) 68), the benefit was given to the supporting manufacturers also provided they produce a disclaimer certificate from the export houses. In 1989, the section was amended substantially exempting the entire profits derived from export and for the first time it makes express provision for dividing the exemption between a recognised export house or trading house and the supporting manufacturer. However, when it was expressly made applicable to supporting manufacturers, it is also made clear that for claiming the benefits by the supporting manufacturers, they should produce a certificate from the export house or trading house, so that both will not get the benefit simultaneously. When express provision was made for enabling the supporting manufacturers to claim the benefit in 1989 Sub-section (4A) of the Act provides as follows :
"80HHC. (4A) The deduction under Sub-section (1A) shall not be admissible unless the supporting manufacturer furnishes in the prescribed form along with his return of income,--. . .
(b) a certificate from the Export House or Trading House containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the Export House or Trading House has not claimed the deduction under this section ;...."
10. Such disclaimer certificate was insisted upon only when the supporting manufacturers claim the benefit. When export houses are directly claiming, such certificates from the supporting manufacturers or processors were not necessary. During the relevant assessment year 1983-84, there was no specific provision for enabling the supporting manufactures to claim this benefit. The scheme of the Act is clear that the benefits can be availed only by one party and simultaneously cannot be claimed by export houses and processors or supporting manufacturers.
11. The Tribunal after going through the agreement was of the opinion that the real exporters are the assessees, the processors, and export is done through the export houses and the benefits under Section 80HHC can be claimed by the assessee even though such benefits were received by the export houses. The Tribunal relied on the decision of the Delhi High Court in Ferro Alloys Corporation Ltd. v. R.C. Mishra, Director, Tax Credit [1978] 114 ITR 753. The above judgment was subsequently reversed by the Supreme Court when an appeal was filed from the above decision in Mineral and Metal Trading Corporation v. R. C, Mishra [1993] 201 ITR 851. In that case, Ferro-Alloys, a manufacturer-exporter of ferro-manganese and chrome concentrates, entered into a number of agreements with foreign buyers for sale of the above two commodities. But the export was routed through the M. M. T. C. 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 M. M. T. C. as it is the seller. The forms and documents like G. R. I. form and shipping bills were prepared in the name of the M. M. Ti C. Letters of credit were also opened in the name of the M.M.T.C. The Supreme Court held that the entire export was done through the M. M. T. C. there was no half-way house, either it was the barter system or it Was not. Therefore, the M. M. T. C. was the manufacturer or the exporter for the purpose of Section 280ZC. It was held that it cannot be explained away as even though in "external appearances" M. M. T. C. is the exporter.
12. Learned senior standing counsel appearing for the Revenue submitted that in view of the above decision of the Supreme Court, now the questions are to be answered in favour of the Revenue as it is fully covered by the above decision.
13. Learned senior advocate appearing for the assessees tried to distinguish the above decision as in Minerals and Metal Trading Corporation's case [1993] 201 ITR 851 (SC), G. R. I. forms were prepared in the name of the M.M. T. C. and bills were also prepared in the name of the M. M. T. C. It is also argued that even though originally the contract with the foreign buyers was with Ferro-Alloys Ltd., subsequently separate contracts were entered into with the M. M. T. C. and the foreign buyers and the M.M.T.C. and the supporting manufacturers. But in the case in hand even though shipping bills were issued in favour of the assessees, the processors, and all documents were prepared in the name of the assessees, it was expressly mentioned that it was done "on account of the export houses". Therefore, it is contended by the Revenue that actually the bills were prepared by the assessees only on account of the export houses, but the assessees relied on the dicta of the Supreme Court in C.T. Ltd. v. Commercial Tax Officer [1997] 104 STC 94. There the Supreme Court considered the question whether the sale by the assessee is the penultimate sale in the course of export and covered by the terms of Section 5(3) of the Central Sales Tax Act. The Supreme Court in the above case after relying on the decision in Bhopal Sugar Industries Ltd. v. Sales Tax Officer [1977] 40 STC 42 (SC), held that while interpreting the terms of the agreement, the court has to look into the substance rather than the form of it and found that the real exporter in the above case is not the State Trading Corporation but the C.T. Ltd., itself, even though the documents were prepared on account of the State Trading Corporation. But the facts of the case were different. It was found by the Supreme Court in the above case that under the terms of the contract between the appellant and the STC, the STC was merely an agent and there was no sale of the tea by the appellant to the STC and the sale of the tea was directly by the appellant, therefore, the sale done by the appellant was penultimate sale. Therefore, the clear finding on the basis of the agreement was that there was no sale by the appellant to the STC and transfer of property was never done in favour of the STC. The tea export licence for the tea was that of the appellants. The invoice of the appellants showed the Iranian buyer against the column "sold to". It was also held by the Supreme Court that the typing of the words "A/c. the State Trading Corporation of India" below the name and address of the appellants against the column "shipper" will not constitute an endorsement and the purchase of tea by the appellants, at the auctions in fulfilment of the export obligation to the Iranian buyer was the penultimate sale in the course of export and covered by the terms of Section 5(3).
14. In K. Gopinathan Nair v. State of Kerala [1997] 105 STC 580, the Supreme Court considered a similar question. In that case there was transfer of property to the Cashew Corporation of India Ltd. There was also a provision in the contract between the CCI and the processor that title to the goods will pass only after the goods have crossed the customs frontiers. Since there was a direct, distinct and independent contract between the CCI and the foreign buyers and this was in connection with the transaction under which the CCI sold imported goods to the appellant and there was no privity of contract between the appellant and the foreign sellers, it was held that the processor, the local user was not the importer but the CCI was the importer. It was held that the mere statement that the goods were sold after it crossed the customs frontiers of India, etc. will not be enough as that was not proved by the appellant and the canalising agency was the importer. A similar question was considered by a Constitutional Bench of the Supreme Court in Mod. Serajuddin v. State of Orissa [1975] 36 STC 136. In the aforesaid case the Supreme Court was concerned with the interpretation of the term "in the course of export" as found in Section 5(1) of the Central Sales Tax Act, 1956. In that case the appellant was an assessee who was a registered dealer under the Central Sales Tax Act, 1956, carrying on the business of mining and exporting mineral ores to foreign countries. He had entered into four contracts for sale of chrome concentrates. Two of them were directly with foreign buyers. The other two were with the State Trading Corporation (STC) ever since export of mineral ore was canalised through it. The STC in turn entered into contracts with foreign buyers. The High Court held in respect of sales under the first two contracts directly with the foreign buyer there is exemption from sales tax being in the course of export. But it held that the sales under the contract with the STC were not exempt from sales tax under Article 286(1)(b) of the Constitution read with Section 5(1) of the Central Sales Tax Act, 1956. The majority of the Constitution Bench, speaking through Ray C.J., upheld the decision of the High Court against the assessee. In this connection we also refer to the decision of a Constitution Bench of the Supreme Court in Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer [1964] 15 STC 753 (SC).
15. In the cases before us the assessees had not entered into any agreement with the foreign buyers. There was no privity of contract between the foreign buyers and the assessees. They could not sell any goods in their own name to the foreign buyers. Since as per the agreement between the export houses and the assessees the goods were to be boarded on the ship by them, the documents were prepared "on account of the export houses" as the export houses alone had contract to export goods to the foreign buyers. Contracts were not endorsed in favour of the assessees. If the foreign buyers failed to pay the price, the assessees had no cause of action against the foreign buyers as the assessees are not parties to the agreement with the foreign buyer. Even as per the agreement with the export houses the assessees were only processors and the export houses are the exporters. As found by the Tribunal the foreign buyers made letters of credit in the name of the export houses and thereafter, of course, that letter of credit was endorsed in the name of the assessees by the export houses. The contracts between the export houses and foreign buyers were independent and exclusive. The assessees have no hand in it. The contracts between the assessees and the export houses are also separate contracts and those contracts cannot bind the foreign buyers as there was no privity of contract with the assessees, the processors and the foreign buyers. Merely because 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 signed by the assessees, they will not become the exporters. As per the contract between the assessees and the export houses, the f.o.b. price in foreign exchange has to be received by the assessees and under Section 18(8) of the Foreign Exchange Regulation Act such persons also should sign such declaration. The draw back was received by the assessees, only because the assessees have paid the customs duty and it is the person who paid the customs duty who is entitled to get the draw back. There was also specific provision in the agreement with the export houses that the benefits under the Customs and Central Excise Act will be derived by the assessees. The benefits under the export-import policy regarding REP licence will be obtained by the export houses.
16. Under Section 80HHC as it stood during the relevant period only the exporter was entitled to claim the benefits and the export houses are the real exporters, who have got privity of contract with the foreign buyers. As per the contract with the foreign buyers, foreign exchange was receivable by the export houses. Only because of the contract between the export house and the assessees, the foreign exchange was later credited in the assessees' bank as instructed by the export houses. Only on behalf of the export houses the assessees shipped the goods on account of the exporter and merely because of a statement in the contract that the title to the goods will pass only after the goods crossed the customs frontiers that will not make the assessees exporters. Here the export houses have admittedly got the benefit under Section 80HHC and there is no dispute that no certificate was issued by the export houses in favour of the assessees. As per the scheme of the statute, there will be only one exporter in respect of the export and that exporter had already got the benefit.
17. Considering the entire facts and circumstances of the case we are of the view that the ratio of the decision of the Supreme Court in M. M. T. C. 's case [1993] 201 ITR 851, referred to earlier applies in this case and the assessees are not entitled to the benefit of Section 80HHC of the Act, as the real exporters are the export houses. Therefore, we answer the questions referred to this court in the negative, that is, against the assessees and in favour of the Revenue.
18. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.