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15 December 2016

No liability on bank to pay purchase tax for accepting EXIM Scrips

The Supreme Court of India has held that State Bank of India is not liable to pay purchase tax for accepting Exim Scrips (Export Import License) or Replenishment licenses on payment of premium. The Reserve Bank of India in order to mop up unutilized Exim Scrips in the hands of the holders who were willing to dispose of the same through specified branches of the SBI, authorized all designated branches of SBI to purchase Exim Scrips from holders, at a premium of 20% of the face value. It was stated that all Exim Scrips purchased by SBI were to be cancelled. The assessing authority here sought to levy Purchase Tax under Section 5(6a) of the Bengal Finance (Sales Tax) Act, 1941.

The Supreme Court however, noting that the Exim Scrips or REP licenses would constitute ‘goods’ when they are transferred or assigned by the holder to a third person for consideration, thereby attracting sales tax, held that when such scrips or licenses are returned to the grantor or the sovereign authority for cancellation or extinction, they cease to be a marketable instrument. The Court further held that SBI neither held nor purchased any goods, rather it merely acted as per the directions of RBI as its agent and as a participant in the process of cancellation, to ensure that Exim Scrips or REP licenses were no longer transferred. Observing that the intention was not to purchase, but to nullify the Exim Scrips or REP licenses, it was held that SBI is not liable to pay Purchase Tax under the Act.