Mrf Limited vs. The State Of Kerala

Facts

MRF Limited (the appellant) manufactures tyres, tubes, and flaps for export. For export purposes, specific items are manufactured with a Unique Product Code. These goods are then stock-transferred on consignment to the appellant's godown in Puzhal, Tamil Nadu, which is exclusively for stocking goods for export. Some exports are also made directly from manufacturing units. The appellant claimed input tax credit on raw materials used for these stock transfers to Tamil Nadu. The assessing authorities opined that Section 13 of the KVAT Act was not applicable as stock transfers were not in the course of export. The Clarificatory Authority held that stock transfers could be considered in the course of export only if there was certainty of foreign destination and not diversion for domestic use. It was found that goods were pooled at the Tamil Nadu godown, and the ultimate export destination was decided thereafter, with goods joining the export stream only from the Tamil Nadu godown.

Held

The Court held that for a stock transfer to be considered in the course of export, the assessee must prove it was in pursuance of an export order. The mere identification of goods for export under a Unique Product Code and exemption from excise duty is not sufficient. The Court emphasized that the integrated activities forming an export sale commence with an agreement of sale with a foreign buyer or a purchase order. In this case, the stock transfer from Kerala to Tamil Nadu could not be termed in the course of export if it was not initiated based on a specific export order. The ultimate destination of the foreign buyer was not clear at the time of stock transfer. While the goods pooled at the Tamil Nadu godown could be exported, the movement from Kerala to Tamil Nadu would not be in the course of export unless it was pursuant to a purchase order received before or at the time of stock transfer. The Court did not interfere with the order of the Clarificatory Authority but clarified that the Assessing Authority must consider each specific stock transfer on consignment based on the presence of export orders. The appeal was rejected with these reservations.

Key Issues

1. Whether the stock transfer of manufactured goods from the appellant's Vadavathoor unit in Kerala to its godown in Puzhal, Tamil Nadu, for the purpose of export, constitutes a transaction in the course of export under Section 13 of the KVAT Act, 2003, thereby entitling the appellant to input tax credit on the raw materials used. Petitioner's arguments: The appellant argued that goods manufactured for export under a Unique Product Code, with returns filed before Excise Authorities mandating export or scrapping, could not be diverted for domestic use. They contended that such stock transfers were inherently destined for export. They relied on Supreme Court decisions in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer, Ben Gorm Nilgiri Plantations Co-Conoor (Nilgiris) v. Sales Tax Officer, and State of Haryana v. Nipha Exports Pvt.Ltd. Respondent's arguments: The State argued that merely intending to export goods was insufficient for input tax refund under Section 13. They contended that the appellant must prove the stock transfer was in the course of export, which necessitates a prior export order. Without a prior export order, the stock transfer from Kerala could not be considered part of the export stream, with the sale in the course of export only occurring from the Tamil Nadu godown.