1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7863 OF 2009
Nirmal Kumar Parsan … Appellant
Versus
Commissioner of Commercial Taxes & Ors. …Respondents
WITH
CIVIL APPEAL NO. 7864 OF 2009
Parsan Brothers and Anr. ... Appellants
Versus
Assistant Commissioner of Commercial Taxes & Ors. ... Respondents
J U D G M E N T
A. M. KHANWILKAR, J.
1. The principal question involved in these appeals is whether the
subject sales (of goods imported from foreign country and after
Signature Not Verified
Digitally signed by
DEEPAK SINGH
Date: 2020.01.21
17:40:50 IST
Reason:
unloading the same on the landmass of the State of West Bengal,
kept in the bonded warehouse without payment of customs duty) to
2
foreign bound ships as “ship stores” can be regarded as sale within
the territory of the State and amenable to sales tax under the West
Bengal Sales Tax Act, 1954 (for short, ‘the 1954 Act’) or the West
Bengal Sales Tax Act, 1994 (for short, ‘the 1994 Act’).
2. The admitted factual position in the present cases is that after
importing foreign made cigarettes, the appellants stored the same in
the customs bonded warehouse within the landmass of the State of
West Bengal and some of those articles were sold to the Master of a
foreigngoing ship as ship stores, without payment of customs duty.
Those goods were escorted to the stated ship under the supervision of
the officials of the Customs authority.
3. These appeals take exception to the judgment and order of the
High Court at Calcutta (for short, ‘the High Court’), dated 16.8.2007
in W.P.T.T. Nos. 5/2007 and 6/2007 respectively, whereby it had
upheld the decision of the West Bengal Taxation Tribunal (for short,
‘the Tribunal’) that the stated sales were within the territory of the
State of West Bengal and amenable to sales tax.
4. Civil Appeal No. 7863/2009 emanates from the assessment
order passed by the Commercial Tax Officer, West Bengal, dated
13.3.1985 pertaining to assessment period – 1.4.1980 to 31.3.1981.
3
The assessing officer rejected the claim for exemption from payment
of sales tax in respect of the stated sales of imported cigarettes from
the stock, as the cigarettes were sold to outgoing vessels from the
bonded warehouse within the landmass of the State of West Bengal
following the decision of the High Court in M/s. Ranjit Shipping Pvt.
1
. The authority found
Ltd. & Anr. vs. State of West Bengal & Ors.
that it was not a sale in the course of import as claimed by the
assessees (appellants). The appellants unsuccessfully carried the
matter in appeal and finally in revision before the Tribunal, which
came to be rejected on 30.3.2007. Before the revisional authority, the
only contention pursued was that there was no sale within the State
of West Bengal or even in India because the buyer had no right to
consume the goods before the ship crossed the territorial Waters of
India. It was urged by the appellants before the revisional authority
that the process of import was not complete at the time of sale to the
foreigngoing ship and the transaction was a sale in the course of
import. Resultantly, the sold goods were not taxable under the
concerned West Bengal Sales Tax laws because the goods never
entered the local area of the State of West Bengal, crossing the
customs frontiers of India as defined in Section 2(ab) of the Central
Sales Tax Act, 1956 (for short, ‘the CST Act’). The Tribunal, however,
1 1980 SCC Online Cal 141 : (1980) 2 CHN 192
4
held that the sale had taken place on the landmass of the State of
West Bengal and the sale was neither for import nor for export. The
Tribunal essentially relied upon the exposition in
Madras Marine
2
and Co. vs. State of Madras to reject the revision filed by the
appellants being devoid of merits. Feeling aggrieved, the appellants
carried the matter to the High Court by way of a writ petition being
W.P.T.T. No. 5/2007, which came to be rejected by the Division
Bench of the High Court whilst upholding the view taken by the
Tribunal as just and proper.
5. Civil Appeal No. 7864/2009 emanates from the order dated
22.10.2003 passed by the Assistant Commissioner of Commercial
Taxes under Section 65 of the 1994 Act pertaining to assessment
periods – 1.4.1999 to 31.3.2000, 1.4.2000 to 31.3.2001, 1.4.2001 to
31.3.2002 and 1.4.2002 to 31.3.2003. The claim of the appellants
that the sales in question were in the course of import on high seas
and no sales tax was payable thereon came to be rejected. The
authority answered the claim as follows:
“…..
All the judicial edicts relevant and referred to were perused
and the documents produced by the dealer were examined.
His Lordship Hon’ble West Bengal Taxation Tribunal
passed the judgment after considering all the grounds
taken by the dealer including the one for the position of the
2 (1986) 3 SCC 552
5
law after introduction of the section 2(ab) in Central Sales
Tax Act. His Lordship Honourable High Court of Kolkata
did not express even a mite of doubt in the correctness of
the impugned order of the Hon’ble Tribunal. The order was
remanded for quantification of sales in dispute. It was
observed that, of the total goods imported and stored only a
portion was taken out for sale to master of a particular
ship. From the same warehouse goods for sales to local
persons also were taken. So the sold goods could not have
been ascertained and appropriate before those were taken
out of the bonded warehouse. The risk in the goods was
transferred at that time and at that place only. It might
have so happened that the Customs authority took custody
of the goods for preventing loss of its own revenue
. No
such sale could have been one in the course of import
because the sale did not occasion the import. None of
those was export because the goods were not supposed
to enter into the territory of another country in the
form those were dispatched. The analogy of sales from
dutyfree shops was irrelevant. For, it always remains
on the other side customs frontier and so the risk is
transferred before crossing of the frontier .
Thus there was no gainsay that sales of goods to masters of
ships were sales in the state and were taxable. The dealer
was asked to pay tax on such sales and revise the return
for the years yet to be assessed. The assessing authority
was requested to revise if necessary, assessments not
impugned. The appellate and revisional authorities were
requested to treat the tax payable on such sale as admitted
one.
…..”
(emphasis supplied)
6. Feeling aggrieved, the appellants resorted to revision before the
Tribunal, which came to be rejected following the decision of the
Tribunal passed on the same date i.e. 30.3.2007 in case of the
companion appeal. The appellant carried the matter by way of a writ
petition being W.P.T.T. No. 6/2007 before the High Court, which
came to be dismissed by the High Court, upholding the decision of
6
the authority, which had held that the sales in question would be
amenable to sales tax under the 1994 Act.
7. The thrust of the argument of the appellants in these appeals is
that the process of import was not complete at the time of sale of the
goods in question to the foreigngoing ship and the transaction of sale
was “in the course of import”, for which reason it was not amenable to
sales tax and in fact, the State would have no authority to levy such
tax. To buttress this submission, reliance was placed on Article 286
of the Constitution of India providing for restrictions as to imposition
of tax on the sale or purchase of goods and on Section 5 of the CST
Act, in particular subSection (2) thereof, to contend that the sales in
question shall be deemed to have taken place in the course of import
of goods in the territory of India. Reliance was placed on the
Constitution Bench decision of this Court in J.V. Gokal & Co.
(Private) Ltd. vs. Assistant Collector of SalesTax (Inspection) &
3
Ors. , which had followed the exposition in State of Travancore
Cochin & Ors. vs. Shanmugha Vilas Cashew Nut Factory, Quilon
4
& Ors. . Relying on the definition of expression “crossing the
customs frontiers of India” in Section 2(ab) of the CST Act, of
“customs area” in Section 2(11) and of “customs station” in Section
3 (1960) 2 SCR 852 : AIR 1960 SC 595
4 (1954) SCR 53 : AIR 1953 SC 333
7
2(13) of the Customs Act, 1962 (for short, ‘the Customs Act’), it was
urged that crossing the customs frontiers means crossing the limits of
the customs station including crossing the area in which imported
goods or exported goods are ordinarily kept before the clearance by
the Customs authorities. Reliance was also placed on the decision in
Minerals & Metals Trading Corporation of India Ltd. vs. Sales
5
, which has had occasion to construe Section 5 of
Tax Officer & Ors.
the CST Act. It was then urged that the goods in question were kept
for warehousing and a declaration was given by the appellants that
the said goods would be exported to foreigngoing vessels as ship
stores in terms of Section 88 of the Customs Act. The appellants
have adverted to Sections 69, 85 and 88 of the Customs Act to
contend that the stated goods could be exported to a place outside
India without payment of import duty and until import duty was paid,
the import thereof cannot be said to be complete. Reliance was then
placed on the decision in Indian Tourist Development Corporation
Limited vs. Assistant Commissioner of Commercial Taxes &
6
Anr. , which according to the appellants, applied on all fours, as even
in that case, the goods were kept in the bonded warehouses and then
supplied to dutyfree shops, which transaction has been extricated
5 (1998) 7 SCC 19
6 (2012) 3 SCC 204
8
from the applicability of sales tax payable to the State on the ground
that the goods had not crossed the customs frontiers and the sale was
deemed to have taken place in the course of import of goods into the
territory of India. According to the appellants, the finding recorded by
the authorities below which commended to the High Court, was
completely in the teeth of the aforesaid decision. The appellants have
distinguished the decision in Madras Marine (supra) on the premise
that in that case the goods were intended for reexport only and in
that context, it was held that there was a necessity of a destination in
a foreign country. Moreover, the said decision has not considered the
efficacy of Section 2(ab) of the CST Act nor noticed the dictum in J.V.
(supra), which dealt with the case of import/‘in the course of
Gokal
import’. It was urged that the decision in J.V. Gokal (supra) had
been followed in a recent decision in
State of Kerala & Ors. vs. Fr.
7
William Fernandez & Ors. . It was further urged that the dictum in
Coffee Board, Bangalore vs. Joint Commercial Tax Officer,
8
Madras & Anr. is distinguishable and inapplicable to the fact
situation of the present case and more so, may have no bearing after
the amendment of 1976 to Section 5 by insertion of subSection (3)
therein, which opens with clause and provides that the
nonobstante
7 2017 SCC Online SC 1291 : (2017) 12 SCALE 463
8 (1969) 3 SCC 349
9
last sale or purchase of any goods preceding the sale or purchase
occasioning the export of those goods out of the territory of India,
shall also be deemed to be in the course of such export, if such last
sale or purchase took place after and was for the purpose of
complying with the agreement or order for or in relation to such
export. Emphasis was placed on the objects and reasons of the
Amendment Act. In substance, it was urged that the stated sales
were in the course of import and could not be subjected to levy of
sales tax by the State under the State legislation.
8. Per contra, the respondents would urge that the authorities had
considered all aspects of the matter and after due evaluation of the
evidence before it, justly concluded that the stated sales were neither
in the course of import nor export and had taken place on the land
mass of the State of West Bengal and thus, amenable to sales tax
under the 1954 Act and the 1994 Act, as the case may be. It was
urged that it is an admitted position that the goods were kept in
bonded warehouses on the landmass of the State of West Bengal and
were sold to the Master of a foreigngoing ship as ship stores thereat.
It was urged that the expression “crossing the customs frontiers of
India” has already been defined in the CST Act and limits its
application to area of a “customs station”, as defined in the Customs
10
Act to mean any customs port, customs airport or land customs
station. In other words, the expression “crossing the customs
frontiers of India” is exhaustive and would not include the bonded
warehouses, where the stated goods were kept to be sold to the
Master of a foreigngoing ship as ship stores. It was urged that being
a taxation statute, strict interpretation should be offered to this
definition as expounded in Commissioner of Customs (Import),
9
. It was further
Mumbai vs. Dileep Kumar and Company & Ors.
urged that the stated sales of goods by no stretch of imagination can
qualify the expression “in the course of import of goods into the
territory of India”, as is contended by the appellants. For that, the
goods must actually be imported into the territory of India and sale
must be a single sale, which itself causes the import or is in the
progress or process of import. It was urged that the authorities had
rightly opined that there was sale within the State of West Bengal;
whilst rejecting the claim of the appellant(s) that merely because
buyer had no right to consume the goods in question before the ship
had crossed the territorial Waters of India, that would make no
difference because the sale was complete by appropriation of the
goods in the bonded warehouse itself. Similarly, the fact that
customs duty was not paid on the stated goods would be of no
9 (2018) 9 SCC 1
11
consequence. It was urged that the appellants have, for the first time,
raised a new plea that they had filed declaration. No such plea was
taken before the concerned authority nor any document or evidence
was produced in support thereof for the relevant assessment
period(s). The appellants, therefore, cannot be permitted to pursue
this contention. Thus, the appeals be confined to the plea taken
before the authorities below that the stated sales were not effected
within the territory of the State of West Bengal or in India. The
respondents have placed reliance on the decisions in
Burmah Shell
Oil Storage and Distributing Co. of India Ltd. & Anr. vs.
10
, (supra) and
Commercial Tax Officer & Ors. Coffee Board
Madras Marine (supra) to contend that the issue is answered against
the appellants. The respondents have distinguished the decision
relied upon by the appellants in
Indian Tourist Development
Corporation (supra). It was urged that the doctrine of Unbroken
Package evolved by American Courts has no application in India, as
expounded in (supra). It was thus urged
Fr. William Fernandez
that the taxable event had occurred on the appropriation of goods at
the bonded warehouse itself, which was within the territory of the
State of West Bengal. To buttress this submission, reliance was
10 (1961) 1 SCR 902 : AIR 1961 SC 315
12
11
placed on Kiran Spinning Mills vs. Collector of Customs , wherein
it has been held that the taxable event would be the day of crossing of
customs barrier and not the date when the goods landed in India or
had entered the territorial Waters. The respondents would urge that
the appeals are devoid of merits and be accordingly dismissed.
9. We have heard Mr. Siddharth Bhatnagar, learned senior counsel
and Mr. Joydeep Mazumdar, learned counsel appearing for the
appellants and Ms. Madhumita Bhattacharjee, learned counsel
appearing for the respondents.
10. As noticed from the finding of fact recorded by the authorities, it
is not in dispute that after importing the stated goods, the appellants
stored the same in the bonded warehouse within the landmass of the
State of West Bengal and some of the articles were then sold to the
Master of a foreigngoing ship as ship stores, without payment of
customs duty thereon. The question is: whether the sales in question
would qualify the expression “sale in the course of import”? The
phrase “sale in the course of import” would constitute three essential
features – (i) that there must be a sale; (ii) that goods must actually be
imported and (iii) that the sale must be part and parcel of the import.
The factual matrix in the present case clearly depicts that the sales in
11 (2000) 10 SCC 228
13
question would not cause import of the stated goods. Instead, it
would result in taking away the goods (after being unloaded on the
landmass of the State of West Bengal) on the ongoing ship as ship
stores outside the territory of Indian Waters for being consumed on
the ship and not for export to another destination as such. The
appellants have advisedly not pursued the argument that the stated
sales would result in an export or would be in the course of export.
For, such argument has been rejected by this Court in
Madras
Marine (supra).
11. Concededly, the principle underlying the exposition in the above
referred reported decision would apply for considering
proprio vigore
the argument as to whether the stated sales can be regarded as sale
in the course of import as such. The twoJudge Bench in
Madras
Marine (supra) had considered the decision of Constitution Bench in
Burmah Shell (supra). The Court noted the dictum of the
Constitution Bench to the effect that in order to exclude the taxation
by the State, the appellants had to prove that there was some other
State, where the goods could be said to have been delivered as a
direct result of the sale for the purpose of consumption in that other
State and as they failed to do so, the goods loaded on board of an
14
aircraft for consumption though taken out of India, was not export
since it had no destination, where it can be said to have been
imported and so long as it did not satisfy that test, it could not be
said that the sale was in the course of export. Besides noticing this
dictum of the Constitution Bench, the Court also adverted to the
decision in State of Kerala & Ors. vs. Cochin Coal Company
12
, wherein it was held that the concept of export in Article 286(1)
Ltd.
(b) of the Constitution postulates the existence of two termini as those
between which the goods were intended to move or between which
they were intended to be transported and not a mere movement of
goods out of the country without any intention of their being landed
in some foreign port. Additionally, the Court also extensively
in specie
adverted to the decision of the Andhra Pradesh High Court in
13
and
Fairmacs Trading Co. vs. The State of Andhra Pradesh
approved the same dealing with the similar argument. The Court also
noted and approved the decision of the Madras High Court in
14
Fairmacs Trading Co. vs. The State of Tamil Nadu . The Court
in paragraphs 19 to 21 and 25 to 28 observed as under:
“19. The correct position, so far as the facts of the present
case are concerned, in our opinion, has been laid in the
decision of Burmah Shell Oil Storage and Distributing Co. of
12 (1961) 2 SCR 219 : AIR 1961 SC 408
13 (!975) 36 STC 260 (AP)
14 (1978) 41 STC 157 (Mad)
15
| India Ltd. v. C.T.O. This Court observed at page 781 as | |
|---|
| follows: | |
| “ | While all exports involved a taking out of the | | | | | |
|---|
| country, all goods taken out of the country cannot | | | | | | |
| be said to be exported. The test is that the goods | | | | | | |
| must have a foreign destination where they can be | | | | | | |
| said to be imported | | | | | . It matters not that there is no | |
| valuable consideration from the receiver at the | | | | | | |
| destination end. | | | If the goods are exported and there | | | |
| is sale or purchase in the course of that export and | | | | | | |
| the sale or purchase occasions the export to a | | | | | | |
| foreign destination, the exemption is earned | | | | | | . |
| Purchases made by philanthropists of goods in the | | | | | | |
| course of export to foreign countries to alleviate distress | | | | | | |
| there, may still be exempted, even though the sending of | | | | | | |
| the goods was not a commercial venture but a | | | | | | |
| charitable one. | | The crucial fact is the sending of the | | | | |
| goods to a foreign destination where they would be | | | | | | |
| received as imports | | | | .” | | |
| 20. | | The appellants in that case dealt in petroleum and | | |
| petroleum products and carried on business at Calcutta. | | | | |
| They had maintained supply depots at Dum Dum Airport | | | | |
| from which aviation spirit was sold and delivered to aircraft | | | | |
| proceeding abroad for their consumption. The question was | | | | |
| whether these supplies to the aircraft which proceeded to | | | | |
| foreign countries were liable to sales tax under the Bengal | | | | |
| Motor Spirit Sales Taxation Act, 1941. The contention of the | | | | |
| appellants in that case was that such sales were made in the | | | | |
| course of export of such aviation spirit out of the territory of | | | | |
| India, that they took place outside the State of West Bengal, | | | | |
| that inasmuch as aviation spirit was delivered for | | | | |
| consumption outside West Bengal, the sales could not fall | | | | |
| within the Explanation to clause (1)( | | | a | ) of Article 286 as it |
| then stood. It was held by this Court that in order to exclude | | | | |
| the taxation by the State of West Bengal, the appellants had | | | | |
| to prove that there was some other State where the goods | | | | |
| could be said to have been delivered as a direct result of the | | | | |
| sale for the purpose of consumption in that other State and | | | | |
| that as they failed to do so, the aviation spirit loaded on | | | | |
| board an aircraft for consumption though taken out of India, | | | | |
| was not exported since it had no destination, where it could | | | | |
| be said to be imported and so long as it did not satisfy that | | | | |
| test, it could not be said that the sale was in the course of | | | | |
| export. It was further held that aviation spirit was sold for the | | | | |
| use of aircraft and the sale was not even for the purpose of | | | | |
| export and all the elements of sale including delivery and | | | | |
| payment of price took place within the State of West Bengal | | | | |
| and the sales were complete within the territory of that State. | | | | |
16
| The customs barrier did not set a terminal limit to the | |
|---|
| territory of West Bengal for sales tax purpose. The sale | |
| beyond the customs barrier was still a sale in fact in the State | |
| of West Bengal. | |
| 21. The ratio of this decision would be applicable to the | |
| facts and circumstances of this case. It was rightly urged that | |
| the appropriation of goods took place in the State of Tamil | |
| Nadu when the goods were segregated in the bonded | |
| warehouse to be delivered to the foreign going vessels. It was | |
| not a case of export as there was no destination for the goods | |
| to a foreign country. The sale was for the purpose of | |
| consumption on board the ship. It was not as if only on | |
| delivery on board the vessel that the sale took place. The | |
| mere fact that shipping bill was prepared for sending it for | |
| custom formalities which were designed to effectively control | |
| smuggling activities could not determine the nature of the | |
| transaction for the purpose of sales tax nor does the | |
| circumstances that delivery was to the captain on board the | |
| ship within the territorial waters make it a sale outside the | |
| State of Tamil Nadu. | |
xxx xxx xxx
25. In the case before the Andhra Pradesh High Court in
Fairmacs Trading Company v. State of A.P., the petitioner
imported shipstores from foreign countries, kept these in
bonded warehouses of the customs department without the
levy of customs duty and later on sold and delivered to ships'
masters for consumption abroad the ship after crossing the
port boundaries. On the question whether the sales were
outside the State or in the course of export and therefore not
liable to tax under the Andhra Pradesh General Sales Tax
Act, 1957, it was observed by the Andhra Pradesh High Court
that the goods were specific and ascertained and were within
the State when the contract of sale took place and therefore
the requirements of Section 4(2)(a) of the Central Sales Tax
Act, 1956 were fully satisfied and the sales must be said to
have taken place inside the State; but as the goods sold were
meant for consumption during voyage and they had no
destination in any foreign country where they could be
received as imports, the sales were not sales in the course of
exports. It was further held that mere movement of goods out
of the country following a sale would not render the sale, one
in the course of export within Article 286(1)(b) of the
Constitution of India. Before a sale can be said to be a sale in
the course of export, the existence of two termini between
which the goods are intended to move or to be transported is
necessary.
26. The Madras High Court in the case of Fairmacs Trading
Co. v. State of T.N. was dealing with an assessee, who was a
17
dealer in ship's stores and was also doing business as ship
chandlers and who imported goods from abroad for the pur
pose of supplying them either to foreigngoing vessels or to
diplomatic personnel. These goods were received and kept in
the customs bonded warehouse and were cleared under the
supervision of the customs authorities whenever these were
sold by the assessee. In respect of supplies of specific goods
made to certain ships located in the Madras harbour, pur
suant to orders placed by the Master of the ship or other offi
cers working in the ship, the transportation of the goods to
the ship was effected in such a manner as to ensure that the
bonded goods, which had not paid any duty, did not enter the
local market. The delivery receipt sent along with the goods
by the assessee was signed by an officer of the ship in token
of having received the goods in good condition. The question
that arose for consideration was whether the sale took place
within the State of Tamil Nadu and liable to be taxed under
the Tamil Nadu General Sales Tax Act, 1959. It was held ( i )
that there was nothing to show in the communications from
the ship that the goods had necessarily to be supplied only in
the ship. It was open to the officers working in the ship to
come and take delivery of the goods in which event the sale
would be a local sale. Therefore, assuming that the territorial
waters did not form part of the State of Tamil Nadu, as there
was nothing in the contemplation of the contracting parties
that the goods were to be moved from one State to another, it
was held that it was not possible to take the view that the
sales were interState sales; and ( ii ) that the assessee was not
selling specific or ascertained goods, because the goods
formed part of a larger stock within the bonded warehouse
and had, therefore to be separated and appropriated to the
contract as and when orders were placed by the officers of the
ship by description. Therefore, the sales were local sales in
view of the specific provision of Section 4(2)( b ) of the Central
Sales Tax Act, 1956, read with Section 2( n ), Explanation 3 of
the Act (Tamil Nadu General Sales Tax Act, 1959), and were
accordingly taxable under the Act. The court did not find it
necessary to consider the question whether the territory cov
ered by the territorial waters formed part of the State of Tamil
Nadu or not.
27. Attention of the Madras High Court was drawn to the
decision of Andhra Pradesh High Court in Fairmacs Trading
Co. v. State of A.P. The Madras High Court did not examine
the question in detail in the view it took.
| 28. In so far as the High Courts of Andhra Pradesh and | |
| Madras in the said two decisions held that sales took place | |
| within the State, we are in agreement.” | |
(emphasis supplied)
18
The Court finally concluded in paragraphs 36 and 37 as follows:
“36. The short question, therefore, that arises in all these
matters is whether sale of the goods in question took place
within the territory of Tamil Nadu. In these cases sale took
place by appropriation of goods. Such appropriation took
place in bonded warehouse. Such bonded warehouses were
within the territory of State of Tamil Nadu. Therefore, under
subsection (2), subclauses (a) and (b) of section 4 of the
Central SalesTax Act, 1956, the sale of goods in question
shall be deemed to have taken place inside the State because
the contract of sale of ascertained goods was made within the
territory of Tamil Nadu and furthermore in case of unascer
tained goods appropriation had taken place in that State in
terms of clause (b) of subsection (2) of section 4 of the Cen
tral Sales Tax Act, 1956. There is no question of sale tak
ing place in course of export or import under section 5 in
this case. From that point of view the amendment intro
duced by Act 103 of 1976 by incorporating in clause (ab)
of section 2 of the Central Sales Tax Act, 1956 does not
. In this connection reference may be
affect the position
made from the observations of this Court in Burmah Shell Oil
Storage Ltd., where it has been held that customs barrier
does not set a terminal limit to the territory of the State for
salestax purposes. Sale, therefore, beyond the customs bar
rier is still a sale within the State. The amendment intro
duced in section 2 by the Act 103 of 1976 does not affect
the position because the custom station is within the
State of Tamil Nadu. That question might have been rele
vant if we were considering the case of sale by the trans
fer of documents of title to the goods as contemplated
In the premises
by section 5 of the Central SalesTax Act.
we are unable to accept the contentions urged on behalf of
the appellants in the civil appeals and also the contentions
urged in the writ petition.
37. In the view we have taken, it is not necessary to ex
press our opinion on the arguments whether introduction of
clause (ab) of section 2 of Central Sales Tax Act by Act 103 of
1976 is prospective or not. We have, however, noted the sub
missions. That question, in the light of our aforesaid views, is
not material for the present controversy.”
(emphasis supplied)
12. Applying the principle underlying the said decision, it is clear
that the sale to be in the course of import, must be a sale of goods
19
and as a consequence of such sale, the goods must actually be
imported within the territory of India and further, the sale must be
part and parcel of the import so as to occasion import thereof.
Indeed, for the purposes of Customs Act, only upon payment of
customs duty the goods are cleared by the Customs authorities
whence import thereof can be regarded as complete. However, that
would be no impediment for levy of sales tax by the State concerned
in whose territory the goods had already landed/unloaded and kept in
the bonded warehouse. For seeking exemption, it is necessary that
the goods must be in the process of being imported when the sale
occurs or the sale must occasion the import thereof within the
territory of India. The word “occasion” is used to mean “to cause” or
“to be the immediate cause of”. In the present case, the stated sales
in no way occasioned import of the goods into the territory of India.
For, the goods were taken away by the foreigngoing ship as ship
stores for being consumed after the goods had crossed the customs
frontiers/Indian Waters.
13. Indubitably, the sale which is to be regarded as exempt from
payment of sales tax, is a sale which causes the import to take place
or is the immediate cause of the import of goods. The appellants
having failed to establish that the stated goods would be actually
20
imported within the territory of India and had not crossed the
customs station, cannot contend that the sale was in the course of
import as such within the meaning of Section 5 read with Section
2(ab) of the CST Act. Moreover, there is no direct linkage between the
import of the goods and the sale in question to qualify as having been
made in the process or progress of import. We may usefully advert to
Section 5 of the CST Act, which reads thus:
5.
“ When is a sale or purchase of goods said to
take place in the course of import or export .(1) A
sale or purchase of goods shall be deemed to take
place in the course of the export of the goods out of
the territory of India only if the sale or purchase
either occasions such export or is effected by a
transfer of documents of title to the goods after the
goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed
to take place in the course of the import of the
goods into the territory of India only if the sale or
purchase either occasions such import or is
effected by a transfer of documents of title to the
goods before the goods have crossed the customs
frontiers of India.
(3) Notwithstanding anything contained in sub
section (1), the last sale or purchase of any goods
preceding the sale or purchase occasioning the
export of those goods out of the territory of India
shall also be deemed to be in the course of such
export, if such last sale or purchase took place after,
and was for the purpose of complying with, the
agreement or order for or in relation to such export.”
(emphasis supplied)
14. The crucial question is whether the stated sales can be deemed
to have taken place in the course of import of the goods into the
territory of India before the goods had crossed the customs frontiers
21
of India, which is the core requirement of Section 5(2) of the CST Act.
The expression “crossing the customs frontiers of India” has been
defined in Section 2(ab) of the CST Act, which reads thus:
“2. Definitions. In this Act, unless the context otherwise
requires,
xxx xxx xxx
(ab) “crossing the customs frontiers of India” means
crossing the limits of the area of a customs station in
which imported goods or export goods are ordinarily
kept before clearance by customs authorities.
Explanation. For the purposes of this clause,
“customs station” and “customs authorities” shall have
the same meanings as in the Customs Act, 1962 (52 of
1962).”
This definition refers to the expression “customs station”, which in
turn, refers to “customs port”, “customs airport” and “land customs
station”, as defined in the Customs Act. We may usefully refer to
Sections 2(10), 2(11), 2(12), 2(13) and 2(29) of the Customs Act, as
applicable for the present cases, which read thus:
“2. Definitions. In this Act, unless the context otherwise
requires.
(10) “customs airport” means any airport appointed
under clause (a) of section 7 to be a customs airport;
(11) “customs area” means the area of a customs station
and includes any area in which imported goods or export
goods are ordinarily kept before clearance by Customs
Authorities;
(12) “customs port” means any port appointed under
15
clause (a) of section 7 to be a customs port [, and includes a
15 Inserted by Act 11 of 1983, sec. 46 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/2009
22
place appointed under clause (aa) of that section to be an
inland container depot];
(13) “customs station” means any customs port, customs
airport or land customs station;
xxx xxx xxx
(29) “land customs station” means any place appointed
under clause (b) of section 7 to be a land customs station;”
In addition, we may also refer to Section 7 of the Customs Act, which
postulates appointment of customs ports, airports etc. The same
reads thus:
“7. Appointment of customs ports, airports, etc. The
Central Government may, by notification in the Official
Gazette, appoint
(a) the ports and airports which alone shall be
customs ports or customs airports for the
unloading of imported goods and the loading of
export goods or any class of such goods;
16
[(aa) the places which alone shall be inland
container depots for the unloading of imported
goods and the loading of export goods or any
class of such goods];
(b) the places which alone shall be land customs
stations for the clearance of goods imported or
to be exported by land or inland water or any
class of such goods;
(c) the routes by which alone goods or any class of
goods specified in the notification may pass by
land or inland water into or out of India, or to
or from any land customs station from or to
any land frontier;
(d) the ports which alone shall be coastal ports for
the carrying on of trade in coastal goods or any
class of such goods with all or any specified
ports in India.”
16 Inserted by Act 11 of 1983, sec. 47 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/2009
23
We have no hesitation in accepting the argument of the respondents
that being a taxation statute, strict interpretation of these provisions
is inevitable. Going by the definition of “customs port” or “land
customs station” as applicable in the present cases, it is customs port
or land customs station area appointed by the Central Government in
terms of notification under Section 7. It is not the case of the
appellants that the bonded warehouses, where the goods were kept
and the stated sales took place by appropriation of the goods thereat,
were within the area notified as customs port and/or land customs
station under Section 7 of the Customs Act. As the stated goods had
travelled beyond the customs port/land customs station at the
relevant time, in law, it would mean that the goods had crossed the
customs frontiers of India for the purposes of the CST Act.
Resultantly, the legal fiction created in Section 5(2) of the CST Act will
have no application.
15. Notably, the expressions “warehouse” and “warehoused goods”
have been defined in the Customs Act in Sections 2(43) and 2(44)
respectively. As per the applicable provisions at the relevant time,
“Warehouse” means a public warehouse appointed under Section 57
or a private warehouse licensed under Section 58. “Warehoused
goods” means goods deposited in a warehouse. As aforesaid, there is
24
nothing to indicate that the bonded warehouse, where the stated
goods were kept by the appellants and eventually sold, formed part of
the customs port/land customs station. If so, the legal fiction of sale
being deemed to have taken place in the course of import of the goods
into the territory of India would have no bearing and applicability to
the present cases.
16. To get over this position, emphasis was placed by the appellant
on the exposition in the
Indian Tourist Development Corporation
(supra), which had considered the situation where the goods were
kept in the bonded warehouse and were made available in the duty
free shops for sale. This Court opined that since the goods were
supplied to the dutyfree shops situated at the International Airport,
Bengaluru for sale, it cannot be said that the said goods had crossed
the customs frontiers of India. We fail to understand as to how this
decision will be of any avail to the appellants. For, the Court was not
dealing with a situation as in the present cases, in which the goods
had crossed the customs port/land customs station area and kept in
the bonded warehouse, where the sale by appropriation of the goods
was effected. Indeed, in paragraph 17 of the reported decision, the
Court in the facts of that case, has observed that when the goods are
kept in the bonded warehouse, it cannot be said that the said goods
25
had crossed customs frontiers of India. However, the Court finally
answered the claim of the appellants therein on the finding that the
liquor, cigarettes, perfumes and food articles were sold “at the duty
free shops” at the International Airport, Bengaluru, for which no tax
was payable by the appellants as the goods sold at the dutyfree
shops were sold directly to the passengers and even the delivery of
goods took place at the dutyfree shops before importing the goods or
before the goods had crossed the customs frontiers of India. The
issue considered in the said decision, therefore, was whether the sale
at the dutyfree shops situated at the Bengaluru International Airport
would attract levy of sales tax. As noticed earlier, the definition of
“customs station” clearly refers to customs airport as defined in
Section 2(10) of the Customs Act. As the dutyfree shop is situated in
airport area, it would mean that the sale of goods at the dutyfree
shops was deemed to have taken place in the course of import of the
goods into the territory of India. Thus understood, the reported
decision under consideration is of no avail to the appellants.
17. Even the exposition of the Constitution Bench in
J.V. Gokal
(supra) that a sale by an importer of goods after the property of the
goods passed to him, either after the receipt of the documents of title
against payment or otherwise, to a third party by a similar process is
26
also a sale in the course of import, would equally have no bearing on
the present cases. Inasmuch as, the sale of goods must take place
before the goods had crossed the customs frontiers of India, which
means it was within the customs port/land customs station area.
Nothing is shown by the appellants herein to substantiate that the
subject bonded warehouse came within the customs port/land
customs station area and moreso the stated sales occasioned import
of the goods within the territory of India. If so, the finding of fact and
conclusion recorded by the authorities below, which commended to
the High Court, is unexceptionable.
18. This Court in
K. Gopinathan Nair and Ors. vs. State of
17
Kerala has expounded the factors to be reckoned for determining
whether the concerned sale or purchase of goods can be deemed to
have taken place in the course of import. The relevant portion of the
aforesaid judgment reads thus:
“14. In the light of the aforesaid settled legal position
emerging from the Constitution Bench decisions of this Court
the following propositions clearly get projected for deciding
whether the concerned sale or purchase of goods can be
deemed to take place in the course of import as laid down by
Section 5(2) of the Central Sales Tax Act:
(1) The sale or the purchase, as the case may be, must
actually take place.
(2) Such sale or purchase in India must itself occasion
such import, and not vice versa i.e. import should not
occasion such sale.
17 (1997) 10 SCC 1
27
(3) The goods must have entered the import stream
when they are subjected to sale or purchase.
(4) The import of the concerned goods must be effected
as a direct result of the sale or purchase transaction
concerned.
(5) The course of import can be taken to have
continued till the imported goods reach the local users
only if the import has commenced through the
agreement between foreign exporter and an
intermediary who does not act on his own in the
transaction with the foreign exporter and who in his
turn does not sell as principal the imported goods to the
local users.
(6) There must be either a single sale which itself
causes the import or is in the progress or process of
import or though there may appear to be two sale
transactions they are so integrally interconnected that
they almost resemble one transaction so that the
movement of goods from a foreign country to India can
be ascribed to such a composite well integrated
transaction consisting of two transactions dovetailing
into each other.
(7) A sale or purchase can be treated to be in the
course of import if there is a direct privity of contract
between the Indian importer and the foreign exporter
and the intermediary through which such import is
effected merely acts as an agent or a contractor for and
on behalf of Indian importer.
(8) The transaction in substance must be such that
the canalizing agency or the intermediary agency
through which the imports are effected into India so as
to reach the ultimate local users appears only as a mere
name lender through whom it is the local importercum
local user who masquerades.”
19. It will also be useful to advert to paragraph 6 of
Kiran Spinning
Mills (supra), which reads thus:
“6. Attractive, as the argument is, we are afraid that we do
not find any merit in the same. It has now been held by this
Court in Hyderabad Industries Ltd. v. Union of India that for
the purpose of levy of additional duty Section 3 of the Tariff
Act is a charging section. Section 3 subsection (6) makes the
provisions of the Customs Act applicable. This would bring
into play the provisions of Section 15 of the Customs Act
which, inter alia, provides that the rate of duty which will be
28
payable would be (sic the rate in force) on the day when the
goods are removed from the bonded warehouse. That apart,
this Court has held in Sea Customs Act, SCR at p. 803 that
in the case of duty of customs the taxable event is the import
of goods within the customs barriers. In other words, the
taxable event occurs when the customs barrier is crossed. In
the case of goods which are in the warehouse the customs
barriers would be crossed when they are sought to be taken
out of the customs and brought to the mass of goods in the
country. Admittedly this was done after 4101978. As on
that day when the goods were so removed additional duty of
excise under the said Ordinance was payable on goods
manufactured after 4101978. We are unable to accept the
contention of Mr Ramachandran that what has to be seen is
whether additional duty of excise was payable at the time
when the goods landed in India or, as he strenuously
contended, they had crossed into the territorial waters.
Import being complete when the goods entered the territorial
waters is the contention which has already been rejected by
this Court in Union of India v. Apar (P) Ltd. decided on 227
1999. The import would be completed only when the
goods are to cross the customs barriers and that is the
time when the import duty has to be paid and that is what
has been termed by this Court in Sea Customs case (SCR at
p. 823) as being the taxable event. The taxable event,
therefore, being the day of crossing of customs barrier,
and not on the date when the goods had landed in India
or had entered the territorial waters , we find that on the
date of the taxable event the additional duty of excise was
leviable under the said Ordinance and, therefore, additional
duty under Section 3 of the Tariff Act was rightly demanded
from the appellants.”
(emphasis supplied)
20. A priori, for a sale or purchase to qualify as a sale or purchase in
course of import, the essential conditions are that such sale shall
occur before the goods had crossed the customs frontiers of India and
the import of the goods must be effected or the import is occasioned
due to such sale or purchase. In the present case, the sales in
question did not occasion import.
29
21. Arguendo , for sale or purchase of goods to be regarded as sale or
purchase in course of export, Section 5(1) of the CST Act provides for
the following conditions: (i) the sale or purchase shall occasion such
export or (ii) the sale or purchase shall be effected by a transfer of
documents of title to the goods after the goods have crossed the
customs frontiers of India.
22. A Constitution Bench of this Court in
Md. Serajuddin and Ors.
18
vs. State of Orissa has held that expression 'in the course' implies
not only a period of time during which the movement is in progress
but postulates a connected relation. The relevant portion of the
judgment is extracted as under:
“18. ….. A sale in the course of export predicates a
connection between the sale and export. No single test can be
laid as decisive for determining that question. Each case
must depend upon its facts. But it does not mean that
distinction between transactions which may be called sales
for export and sales in the course of export is not real. Where
the sale is effected by the seller and the seller is not
connected with the export which actually takes place, it
is a sale for export. Where the export is the result of sale,
the export being inextricably linked up with sale so that
the bond cannot be dissociated without a breach of the
obligations arising by statute, contract, or mutual
understanding between the parties arising from the
nature of the transaction the sale is in the course of
export. In the Nilgiri Plantations case (supra) this Court
found that the sales by the appellants were intended to be
complete without the export and as such it could not be said
(1975) 2 SCC 47
18
30
that the sales occasioned export. The sales were for export
and not in the course of export.”
(emphasis supplied)
23. It is relevant to advert to the definition of export here. Section
2(18) of the Customs Act defines export as follows:
“2. Definitions. In this Act, unless the context otherwise
requires,
xxx xxx xxx
(18) “export”, with its grammatical variations and cognate
expressions, means taking out of India to a place outside
.”
India
(emphasis supplied)
24. In the present case, it is not the case of the appellant that the
goods in question were being exported. Since the goods are to be
consumed on the board of the foreign going ship and the same would
be consumed before reaching a destination, it does not fall under the
definition of ‘export’. The sale cannot qualify as a sale occasioning
export unless the goods reach a destination which is a place outside
India. Further, since the goods have been sold from the bonded
warehouse and had crossed the customs port/land customs station
prior to their sale, it cannot qualify as a sale in course of export
within the meaning of Section 5(1) read with Section 2(ab) of the CST
Act.
25. In regard to the contention that declaration under Section 69 of
the Customs Act was made by the appellant, there is nothing on
31
record to show that such declaration was made in respect of the
goods pertaining to subject sale(s). Even otherwise, the benefit
extended under the Customs Act of waiver of customs duty cannot be
taken as waiver of sales tax under the relevant state and central laws.
Similarly, insertion of subSection (3) in Section 5 of the CST Act in
1976 does not affect these cases because the bonded warehouse
where the stated sales or appropriation of the goods occurred is
within the landmass of the State of West Bengal and not shown to be
within the customs station area.
26. A priori, it must be held that the stated sales or appropriation of
goods kept in bonded warehouse within the landmass/territory of
the State of West Bengal are neither in the course of import or export
and more so, were effected beyond the customs port/land customs
station area. Therefore, in law, it was a sale amenable to levy of sales
tax under the 1954 Act and the 1994 Act, as the case may be, read
with Section 4 of the CST Act. As a result, these appeals must fail, as
we find no infirmity in the view taken by the authorities below and
which had justly commended to the High Court.
32
27. In view of the above, these appeals are dismissed with no order
as to costs. Pending interlocutory applications, if any, shall stand
disposed of.
................................., J.
(A.M. Khanwilkar)
................................., J.
(Dinesh Maheshwari)
New Delhi;
January 21, 2020.
