Taxability of Exim Scrips: Supreme Court’s Verdict on SBI’s Purchase Tax Liability
The Supreme Court of India, in the case of Commercial Tax Officer & Others vs. State Bank of India & Another, addressed the issue of whether the State Bank of India (SBI) was liable to pay purchase tax under the Bengal Finance (Sales Tax) Act, 1941 for acquiring Exim Scrips at a premium as per the directives of the Reserve Bank of India (RBI).
The controversy stemmed from the tax authorities’ claim that SBI’s acquisition of Exim Scrips from their holders amounted to a purchase transaction, thereby making it liable to purchase tax. However, SBI contended that it merely acted as an agent of the RBI and that the transactions were meant for cancellation of the scrips rather than a commercial purchase.
Background of the Case
The case revolved around the implementation of the Exim Scrips scheme, introduced by the Government of India under the Imports and Exports (Control) Act, 1947. These scrips were initially provided to exporters as an incentive, allowing them to import specific goods or transfer the scrips to others.
However, in March 1992, the RBI decided to mop up the unutilized Exim Scrips to prevent speculation and stabilize the foreign exchange market. It authorized designated branches of SBI to acquire these scrips at a premium of 20% of their face value and then cancel them. This led to the dispute regarding whether SBI was liable to pay purchase tax under the Bengal Finance (Sales Tax) Act, 1941.
Key Legal Issues
The Supreme Court examined the following questions:
- Whether SBI’s acquisition of Exim Scrips constituted a “purchase” under the Bengal Finance (Sales Tax) Act.
- Whether Exim Scrips qualified as “goods” for the purpose of taxation.
- Whether SBI, acting as an agent of RBI, could be considered a dealer under the tax law.
- Whether the High Court correctly quashed the tax authorities’ decision.
Petitioner’s Arguments
The tax authorities argued that:
- Exim Scrips were tradable commodities, recognized as “goods” under the sales tax law.
- SBI had paid consideration for acquiring the scrips, which made it liable for purchase tax.
- The purchase was distinct from cancellation; therefore, it could not be treated as a non-commercial transaction.
- The case of Vikas Sales Corporation vs. Commissioner of Commercial Taxes had established that Exim Scrips were taxable goods.
Respondent’s Arguments
SBI defended itself by stating:
- The bank was merely acting on behalf of the RBI and was not engaged in commercial purchase.
- Exim Scrips, once acquired, were immediately canceled, meaning they were not treated as goods for commercial resale.
- The transaction was not part of SBI’s business activities and was undertaken due to RBI’s policy intervention.
- The High Court had rightly distinguished this case from Vikas Sales Corporation, as SBI did not trade in scrips but only canceled them.
Supreme Court’s Observations
The Court analyzed the transaction and made the following key observations:
1. Nature of Exim Scrips
The Court noted that Exim Scrips were issued as an incentive to exporters and could be freely traded. However, in this case, SBI was not engaged in trading but was acquiring them solely for cancellation.
2. SBI’s Role as an Agent of RBI
The Court observed that SBI was acting as an agent of the RBI under specific instructions. It was not acquiring the scrips for resale or any other business purpose but merely to remove them from circulation.
3. Application of Vikas Sales Corporation Precedent
The judgment in Vikas Sales Corporation had held that Exim Scrips were “goods” and taxable when transferred in commercial transactions. However, the Supreme Court distinguished this case, ruling that SBI’s transactions were for cancellation, not resale or business.
4. Definition of Dealer and Purchase Tax Liability
The Court held that SBI did not qualify as a “dealer” under the Bengal Finance (Sales Tax) Act in this context, as the transactions lacked the commercial intent necessary for taxation.
Final Judgment
The Supreme Court ruled in favor of SBI and upheld the High Court’s decision to quash the purchase tax demand. The key takeaways from the judgment were:
- SBI’s acquisition of Exim Scrips for cancellation did not constitute a taxable purchase.
- Exim Scrips could be taxed when commercially traded, but not when acquired for cancellation.
- The High Court correctly held that the transactions were part of an RBI-directed policy intervention rather than business activity.
Judgment Outcome: Appeal dismissed.
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Download Judgment: Commercial Tax Offic vs State Bank of India Supreme Court of India Judgment Dated 08-11-2016.pdf
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