NIRMAL KUMAR PARSAN versus COMMISSIONER OF COMMERCIAL TAXES & ORS. on 21 January 2020

SUPREME COURT REPORTS

[2020] 1 S.C.R.

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NIRMAL KUMAR PARSAN

v.

COMMISSIONER OF COMMERCIAL TAXES & ORS.

(Civil Appeal No. 7863 of 2009)

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JANUARY 21, 2020

[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]

West Bengal Sales Tax Act, 1954 – West Bengal Sales TaxAct, 1994 – Sale of goods imported from foreign country and afterunloading the same on the land-mass of the State kept in the bondedCwarehouse without payment of customs duty to foreign bound shipsas “ship stores” – Amenable to sales tax or not – The Tribunal heldthat the sale had taken place on the land-mass of the State and thesale was neither for import nor for export and rejected the claim ofthe appellants for exemption – The High Court upheld the view ofDthe Tribunal – Before the Supreme Court, the appellants contendedthat the process of import was not complete at the time of sale of thegoods in question to the foreign-going ship and the transaction ofsale was “in the course of import”, for which reason it was notamenable to sales tax – Held: A priori, for a sale or purchase toqualify as a sale or purchase in course of import, the essentialEconditions are that such sale shall occur before the goods hadcrossed the customs frontiers of India and the import of the goodsmust be effected or the import is occasioned due to such sale orpurchase – In the instant case, the sales in question did not occasionimport – The stated sales or appropriation of goods kept in bondedFwarehouse within the land-mass/ territory of the State of West Bengalare neither in the course of import or export and more so, wereeffected beyond the customs port/ land customs station area –Therefore, in law, it was a sale amenable to levy of sales tax underthe 1954 Act and the 1994 Act, as the case may be, r/w. s. 4 of theCST Act – There is no infirmity in the view taken by the authoritiesGbelow and which had justly commended to the High Court – CentralSales Tax Act, 1956 – s.5 r/w. s.2(ab)

Dismissing the appeals, the Court

HELD: 1. The sale to be in the course of import, must be aHsale of goods and as a consequence of such sale, the goods must actually be imported within the territory of India and further, thesale must be part and parcel of the import so as to occasion importthereof. Indeed, for the purposes of Customs Act, only uponpayment of customs duty the goods are cleared by the Customsauthorities whence import thereof can be regarded as complete.However, that would be no impediment for levy of sales tax bythe State concerned in whose territory the goods had alreadylanded/unloaded and kept in the bonded warehouse. For seekingexemption, it is necessary that the goods must be in the processof being imported when the sale occurs or the sale must occasionthe import thereof within the territory of India. The word“occasion” is used to mean “to cause” or “to be the immediatecause of”. In the present case, the stated sales in no wayoccasioned import of the goods into the territory of India. For,the goods were taken away by the foreign-going ship as ship storesfor being consumed after the goods had crossed the customsfrontiers/Indian Waters. [Para 12][1148-D-F]

2. Indubitably, the sale which is to be regarded as exemptfrom payment of sales tax, is a sale which causes the import totake place or is the immediate cause of the import of goods. Theappellants having failed to establish that the stated goods wouldbe actually imported within the territory of India and had notcrossed the customs station, cannot contend that the sale was inthe course of import as such within the meaning of Section 5 readwith Section 2(ab) of the Central Sales Tax Act, 1956. Moreover,there is no direct linkage between the import of the goods andthe sale in question to qualify as having been made in the processor progress of import.[Para 13][1148-G-H; 1149-A]

3. In the present case, it is not the case of the appellantthat the goods in question were being exported. Since the goodsare to be consumed on the board of the foreign going ship andthe same would be consumed before reaching a destination, itdoes not fall under the definition of ‘export’. The sale cannotqualify as a sale occasioning export unless the goods reach adestination which is a place outside India. Further, since the goodshave been sold from the bonded warehouse and had crossed thecustoms port/land customs station prior to their sale, it cannot AB

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Aqualify as a sale in course of export within the meaning of Section5(1) read with Section 2(ab) of the CST Act. [Para 24][1156-F-G]

4. In regard to the contention that declaration under Section69 of the Customs Act was made by the appellant, there is nothingon record to show that such declaration was made in respect ofBthe goods pertaining to subject sale(s). Even otherwise, the benefitextended under the Customs Act of waiver of customs duty cannotbe taken as waiver of sales tax under the relevant state and centrallaws. Similarly, insertion of sub-Section (3) in Section 5 of theCST Act in 1976 does not affect these cases because the bondedwarehouse where the stated sales or appropriation of the goodsCoccurred is within the land-mass of the State of West Bengal andnot shown to be within the customs station area. [Para 25][1156-H; 1157-A-B]

5. A priori, it must be held that the stated sales orappropriation of goods kept in bonded warehouse within the land-Dmass/territory of the State of West Bengal are neither in thecourse of import or export and more so, were effected beyondthe customs port/land customs station area. Therefore, in law, itwas a sale amenable to levy of sales tax under the 1954 Act andthe 1994 Act, as the case may be, read with Section 4 of the CST

EAct. As a result, these appeals must fail, as we find no infirmity inthe view taken by the authorities below and which had justlycommended to the High Court. [Para 26][1157-C]

K. Gopinathan Nair and Ors. v. State of Kerala (1997)10 SCC 1 : [1997] 3 SCR 226; Md. Serajuddin andFOrs. v. State of Orissa (1975) 2 SCC 47 : [1975] 0 Suppl.SCR 169 – relied on J.V. Gokal & Co. (Private) Ltd. v. Assistant Collector ofSales-Tax (Inspection) & Ors. [1960] 2 SCR 852;Indian Tourist Development Corporation Limited v.GAssistant Commissioner of Commercial Taxes & Anr.(2012) 3 SCC 204 : [2012] 1 SCR 808 – inapplicable.

M/s. Ranjit Shipping Pvt. Ltd. & Anr. v. State of WestBengal & Ors. (1980) SCC Online Cal 141 : (1980) 2

NIRMAL KUMAR PARSAN v. COMMISSIONER OFCOMMERCIAL TAXES & ORS.

CHN 192; Madras Marine and Co. v. State of Madras(1986) 3 SCC 552 : [1986] 3 SCR 236; State ofTravancore-Cochin & Ors. v. Shanmugha Vilas CashewNut Factory, Quilon & Ors. [1954] SCR 53; Minerals& Metals Trading Corporation of India Ltd. v. SalesTax Officer & Ors. (1998) 7 SCC 19 : [1998] 2 Suppl.SCR 112; State of Kerala & Ors. v. Fr. WilliamFernandez & Ors. (2017) SCC Online SC 1291 : (2017)12 SCALE 463; Coffee Board, Bangalore v. JointCommercial Tax Officer, Madras & Anr. (1969) 3 SCC349 : [1970] 3 SCR 147; Commissioner of Customs(Import), Mumbai v. Dileep Kumar and Company & Ors.(2018) 9 SCC 1 : [2018] 7 SCR 1191; Burmah ShellOil Storage and Distributing Co. of India Ltd. & Anr. v.Commercial Tax Officer & Ors. [1961] 1 SCR 902; KiranSpinning Mills v. Collector of Customs (2000) 10 SCC228; State of Kerala & Ors. v. Cochin Coal CompanyLtd. [1961] 2 SCR 219; Fairmacs Trading Co. v. TheState of Andhra Pradesh (1975) 36 STC 260 (AP);Fairmacs Trading Co. v. The State of Tamil Nadu (1978)41 STC 157 (Mad) – referred to.

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Case Law Reference

ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 7863of 2009.

From the Judgment and Order dated 16.08.2007 of the High Courtat Calcutta in W.P.T.T. No. 5 of 2007.

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Civil Appeal No. 7864 of 2009.

Siddharth Bhatnagar, Sr. Adv., Joydeep Mazumdar, Dhruv Surana,Ms. Shalini Kaul, Advs. for the Appellant.

Ms. Madhumita Bhattacharjee, Ms. Urmila Kar Purkayastha,CAdvs. for the Respondents.

The Judgment of the Court was delivered by

A. M. KHANWILKAR, J.

1. The principal question involved in these appeals is whether theDsubject sales (of goods imported from foreign country and after unloadingthe same on the land-mass of the State of West Bengal, kept in thebonded warehouse without payment of customs duty) to foreign boundships as “ship stores” can be regarded as sale within the territory of theState 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, 1994E(for short, ‘the 1994 Act’).

2. The admitted factual position in the present cases is that afterimporting foreign made cigarettes, the appellants stored the same in thecustoms bonded warehouse within the land-mass of the State of WestBengal and some of those articles were sold to the Master of a foreign-Fgoing ship as ship stores, without payment of customs duty. Those goodswere escorted to the stated ship under the supervision of the officials ofthe Customs authority.

3. These appeals take exception to the judgment and order of theHigh Court at Calcutta (for short, ‘the High Court’), dated 16.8.2007 inGW.P.T.T. Nos. 5/2007 and 6/2007 respectively, whereby it had upheldthe decision of the West Bengal Taxation Tribunal (for short, ‘theTribunal’) that the stated sales were within the territory of the State ofWest Bengal and amenable to sales tax.

4. Civil Appeal No. 7863/2009 emanates from the assessmentHorder passed by the Commercial Tax Officer, West Bengal, dated 13.3.1985 pertaining to assessment period – 1.4.1980 to 31.3.1981. Theassessing officer rejected the claim for exemption from payment of salestax in respect of the stated sales of imported cigarettes from the stock,as the cigarettes were sold to outgoing vessels from the bondedwarehouse within the land-mass of the State of West Bengal followingthe decision of the High Court in M/s. Ranjit Shipping Pvt. Ltd. &Anr. vs. State of West Bengal & Ors.[1]. The authority found that it wasnot a sale in the course of import as claimed by the assessees (appellants).The appellants unsuccessfully carried the matter in appeal and finally inrevision before the Tribunal, which came to be rejected on 30.3.2007.Before the revisional authority, the only contention pursued was thatthere was no sale within the State of West Bengal or even in Indiabecause the buyer had no right to consume the goods before the shipcrossed the territorial Waters of India. It was urged by the appellantsbefore the revisional authority that the process of import was not completeat the time of sale to the foreign-going ship and the transaction was asale in the course of import. Resultantly, the sold goods were not taxableunder the concerned West Bengal Sales Tax laws because the goodsnever entered the local area of the State of West Bengal, crossing thecustoms frontiers of India as defined in Section 2(ab) of the CentralSales Tax Act, 1956 (for short, ‘the CST Act’). The Tribunal, however,held that the sale had taken place on the land-mass of the State of WestBengal and the sale was neither for import nor for export. The Tribunalessentially relied upon the exposition in Madras Marine and Co. vs.State of Madras[2] to reject the revision filed by the appellants beingdevoid of merits. Feeling aggrieved, the appellants carried the matter tothe 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 Courtwhilst upholding the view taken by the Tribunal as just and proper.

5. Civil Appeal No. 7864/2009 emanates from the order dated22.10.2003 passed by the Assistant Commissioner of Commercial Taxesunder 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 and1.4.2002 to 31.3.2003. The claim of the appellants that the sales in questionwere in the course of import on high seas and no sales tax was payablethereon came to be rejected. The authority answered the claim asfollows:- 1 1980 SCC Online Cal 141 : (1980) 2 CHN 1922 (1986) 3 SCC 552

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All the judicial edicts relevant and referred to were perused andthe documents produced by the dealer were examined. HisLordship Hon’ble West Bengal Taxation Tribunal passed thejudgment after considering all the grounds taken by the dealerBincluding the one for the position of the law after introduction ofthe section 2(ab) in Central Sales Tax Act. His LordshipHonourable High Court of Kolkata did not express even a mite ofdoubt in the correctness of the impugned order of the Hon’bleTribunal. The order was remanded for quantification of sales indispute. It was observed that, of the total goods imported andCstored only a portion was taken out for sale to master of a particularship. From the same warehouse goods for sales to local personsalso were taken. So the sold goods could not have been ascertainedand appropriate before those were taken out of the bondedwarehouse. The risk in the goods was transferred at that timeDand at that place only. It might have so happened that the Customsauthority took custody of the goods for preventing loss of its ownrevenue. No such sale could have been one in the course ofimport because the sale did not occasion the import. Noneof those was export because the goods were not supposedto enter into the territory of another country in the form D

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those were dispatched. The analogy of sales from duty-freeshops was irrelevant. For, it always remains on the otherside customs frontier and so the risk is transferred beforecrossing of the frontier.

Thus there was no gainsay that sales of goods to masters of shipswere sales in the state and were taxable. The dealer was askedto pay tax on such sales and revise the return for the years yet tobe assessed. The assessing authority was requested to revise ifnecessary, assessments not impugned. The appellate and revisionalauthorities were requested to treat the tax payable on such saleas admitted one.

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6. Feeling aggrieved, the appellants resorted to revision beforethe Tribunal, which came to be rejected following the decision of the H

Tribunal passed on the same date i.e. 30.3.2007 in case of the companionappeal. The appellant carried the matter by way of a writ petition beingW.P.T.T. No. 6/2007 before the High Court, which came to be dismissedby the High Court, upholding the decision of the authority, which hadheld that the sales in question would be amenable to sales tax under the1994 Act.

7. The thrust of the argument of the appellants in these appeals isthat the process of import was not complete at the time of sale of thegoods in question to the foreign-going ship and the transaction of salewas “in the course of import”, for which reason it was not amenable tosales 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 theConstitution of India providing for restrictions as to imposition of tax onthe sale or purchase of goods and on Section 5 of the CST Act, in particularsub-Section (2) thereof, to contend that the sales in question shall bedeemed to have taken place in the course of import of goods in theterritory of India. Reliance was placed on the Constitution Bench decisionof this Court in J.V. Gokal & Co. (Private) Ltd. vs. Assistant Collectorof Sales-Tax (Inspection) & Ors.[3], which had followed the expositionin State of Travancore-Cochin & Ors. vs. Shanmugha Vilas CashewNut Factory, Quilon & Ors.[4]. Relying on the definition of expression“crossing the customs frontiers of India” in Section 2(ab) of the CSTAct, of “customs area” in Section 2(11) and of “customs station” inSection 2(13) of the Customs Act, 1962 (for short, ‘the Customs Act’),it was urged that crossing the customs frontiers means crossing thelimits of the customs station including crossing the area in which importedgoods or exported goods are ordinarily kept before the clearance by theCustoms authorities. Reliance was also placed on the decision in Minerals& Metals Trading Corporation of India Ltd. vs. Sales Tax Officer& Ors.[5], which has had occasion to construe Section 5 of the CST Act.It was then urged that the goods in question were kept for warehousingand a declaration was given by the appellants that the said goods wouldbe exported to foreign-going vessels as ship stores in terms of Section88 of the Customs Act. The appellants have adverted to Sections 69, 85and 88 of the Customs Act to contend that the stated goods could beexported to a place outside India without payment of import duty and 3 (1960) 2 SCR 852 : AIR 1960 SC 595

4 (1954) SCR 53 : AIR 1953 SC 333

5 (1998) 7 SCC 19

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Auntil import duty was paid, the import thereof cannot be said to becomplete. Reliance was then placed on the decision in Indian TouristDevelopment Corporation Limited vs. Assistant Commissioner ofCommercial Taxes & Anr.[6], which according to the appellants, appliedon all fours, as even in that case, the goods were kept in the bondedwarehouses and then supplied to duty-free shops, which transaction hasBbeen extricated from the applicability of sales tax payable to the Stateon the ground that the goods had not crossed the customs frontiers andthe sale was deemed to have taken place in the course of import ofgoods into the territory of India. According to the appellants, the findingrecorded by the authorities below which commended to the High Court,Cwas completely in the teeth of the aforesaid decision. The appellantshave distinguished the decision in Madras Marine (supra) on the premisethat in that case the goods were intended for re-export only and in thatcontext, it was held that there was a necessity of a destination in aforeign country. Moreover, the said decision has not considered theefficacy of Section 2(ab) of the CST Act nor noticed the dictum in J.V.DGokal (supra), which dealt with the case of import/‘in the course ofimport’. It was urged that the decision in J.V. Gokal (supra) had beenfollowed in a recent decision in State of Kerala & Ors. vs. Fr. WilliamFernandez & Ors.[7]. It was further urged that the dictum in CoffeeBoard, Bangalore vs. Joint Commercial Tax Officer, Madras &EAnr.[8] is distinguishable and inapplicable to the fact situation of the presentcase and more so, may have no bearing after the amendment of 1976 toSection 5 by insertion of sub-Section (3) therein, which opens with non-obstante clause and provides that the last sale or purchase of any goodspreceding the sale or purchase occasioning the export of those goodsout of the territory of India, shall also be deemed to be in the course ofFsuch export, if such last sale or purchase took place after and was forthe purpose of complying with the agreement or order for or in relationto such export. Emphasis was placed on the objects and reasons of theAmendment Act. In substance, it was urged that the stated sales werein the course of import and could not be subjected to levy of sales tax byGthe State under the State legislation.

8. Per contra, the respondents would urge that the authorities hadconsidered all aspects of the matter and after due evaluation of the 6 (2012) 3 SCC 204

7 2017 SCC Online SC 1291 : (2017) 12 SCALE 463H8 (1969) 3 SCC 349

evidence before it, justly concluded that the stated sales were neither inthe course of import nor export and had taken place on the land-mass ofthe State of West Bengal and thus, amenable to sales tax under the 1954Act and the 1994 Act, as the case may be. It was urged that it is anadmitted position that the goods were kept in bonded warehouses on theland-mass of the State of West Bengal and were sold to the Master of aforeign-going ship as ship stores thereat. It was urged that the expression“crossing the customs frontiers of India” has already been defined in theCST Act and limits its application to area of a “customs station”, asdefined in the Customs Act to mean any customs port, customs airportor land customs station. In other words, the expression “crossing thecustoms frontiers of India” is exhaustive and would not include the bondedwarehouses, where the stated goods were kept to be sold to the Masterof a foreign-going ship as ship stores. It was urged that being a taxationstatute, strict interpretation should be offered to this definition asexpounded in Commissioner of Customs (Import), Mumbai vs. DileepKumar and Company & Ors.[9]. It was further urged that the statedsales of goods by no stretch of imagination can qualify the expression“in the course of import of goods into the territory of India”, as iscontended by the appellants. For that, the goods must actually be importedinto the territory of India and sale must be a single sale, which itselfcauses the import or is in the progress or process of import. It was urgedthat the authorities had rightly opined that there was sale within theState of West Bengal; whilst rejecting the claim of the appellant(s) thatmerely because buyer had no right to consume the goods in questionbefore the ship had crossed the territorial Waters of India, that wouldmake no difference because the sale was complete by appropriation ofthe goods in the bonded warehouse itself. Similarly, the fact that customsduty was not paid on the stated goods would be of no consequence. Itwas urged that the appellants have, for the first time, raised a new pleathat they had filed declaration. No such plea was taken before theconcerned authority nor any document or evidence was produced insupport thereof for the relevant assessment period(s). The appellants,therefore, cannot be permitted to pursue this contention. Thus, the appealsbe confined to the plea taken before the authorities below that the statedsales were not effected within the territory of the State of West Bengalor in India. The respondents have placed reliance on the decisions inBurmah Shell Oil Storage and Distributing Co. of India Ltd. & Anr.

9 (2018) 9 SCC 1

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Avs. Commercial Tax Officer & Ors.[10], Coffee Board (supra) andMadras Marine (supra) to contend that the issue is answered againstthe appellants. The respondents have distinguished the decision reliedupon by the appellants in Indian Tourist Development Corporation(supra). It was urged that the doctrine of Unbroken Package evolved byAmerican Courts has no application in India, as expounded in Fr. WilliamBFernandez (supra). It was thus urged that the taxable event had occurredon the appropriation of goods at the bonded warehouse itself, which waswithin the territory of the State of West Bengal. To buttress thissubmission, reliance was placed on Kiran Spinning Mills vs. Collectorof Customs[11], wherein it has been held that the taxable event would beCthe day of crossing of customs barrier and not the date when the goodslanded in India or had entered the territorial Waters. The respondentswould urge that the appeals are devoid of merits and be accordinglydismissed.

9. We have heard Mr. Siddharth Bhatnagar, learned senior counselDand Mr. Joydeep Mazumdar, learned counsel appearing for the appellantsand Ms. Madhumita Bhattacharjee, learned counsel appearing for therespondents.

10. As noticed from the finding of fact recorded by the authorities,it is not in dispute that after importing the stated goods, the appellantsEstored the same in the bonded warehouse within the land-mass of theState of West Bengal and some of the articles were then sold to theMaster of a foreign-going ship as ship stores, without payment of customsduty thereon. The question is: whether the sales in question would qualifythe expression “sale in the course of import”? The phrase “sale in thecourse of import” would constitute three essential features – (i) thatFthere 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 inthe present case clearly depicts that the sales in question would notcause import of the stated goods. Instead, it would result in taking awaythe goods (after being unloaded on the land-mass of the State of WestGBengal) on the ongoing ship as ship stores outside the territory of IndianWaters for being consumed on the ship and not for export to anotherdestination as such. The appellants have advisedly not pursued theargument that the stated sales would result in an export or would be in 10 (1961) 1 SCR 902 : AIR 1961 SC 315H11 (2000) 10 SCC 228

the course of export. For, such argument has been rejected by this Courtin Madras Marine (supra).

11. Concededly, the principle underlying the exposition in the abovereferred reported decision would apply proprio vigore for consideringthe argument as to whether the stated sales can be regarded as sale inthe course of import as such. The two-Judge Bench in Madras Marine(supra) had considered the decision of Constitution Bench in BurmahShell (supra). The Court noted the dictum of the Constitution Bench tothe effect that in order to exclude the taxation by the State, the appellantshad to prove that there was some other State, where the goods could besaid to have been delivered as a direct result of the sale for the purposeof consumption in that other State and as they failed to do so, the goodsloaded on board of an aircraft for consumption though taken out of India,was not export since it had no destination, where it can be said to havebeen imported and so long as it did not satisfy that test, it could not besaid that the sale was in the course of export. Besides noticing thisdictum of the Constitution Bench, the Court also adverted to the decisionin State of Kerala & Ors. vs. Cochin Coal Company Ltd.[12], wherein itwas held that the concept of export in Article 286(1)(b) of the Constitutionpostulates the existence of two termini as those between which the goodswere intended to move or between which they were intended to betransported and not a mere movement of goods out of the country withoutany intention of their being landed in specie in some foreign port.Additionally, the Court also extensively adverted to the decision of theAndhra Pradesh High Court in Fairmacs Trading Co. vs. The State ofAndhra Pradesh[13] and approved the same dealing with the similarargument. The Court also noted and approved the decision of the MadrasHigh Court in Fairmacs Trading Co. vs. The State of Tamil Nadu[14].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 caseare concerned, in our opinion, has been laid in the decision ofBurmah Shell Oil Storage and Distributing Co. of 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 12 (1961) 2 SCR 219 : AIR 1961 SC 408

13 (1975) 36 STC 260 (AP)

14 (1978) 41 STC 157 (Mad)

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exported. The test is that the goods must have a foreigndestination where they can be said to be imported. Itmatters not that there is no valuable consideration from thereceiver at the destination end. If the goods are exportedand there is sale or purchase in the course of that exportand the sale or purchase occasions the export to a foreigndestination, the exemption is earned. Purchases made byphilanthropists of goods in the course of export to foreigncountries to alleviate distress there, may still be exempted, eventhough the sending of the goods was not a commercial venturebut a charitable one. The crucial fact is the sending of thegoods to a foreign destination where they would be received as imports.”

20. The appellants in that case dealt in petroleum and petroleumproducts and carried on business at Calcutta. They had maintainedsupply depots at Dum Dum Airport from which aviation spiritwas sold and delivered to aircraft proceeding abroad for theirconsumption. The question was whether these supplies to theaircraft which proceeded to foreign countries were liable to salestax under the Bengal Motor Spirit Sales Taxation Act, 1941. Thecontention of the appellants in that case was that such sales weremade in the course of export of such aviation spirit out of theterritory of India, that they took place outside the State of WestBengal, that inasmuch as aviation spirit was delivered forconsumption outside West Bengal, the sales could not fall withinthe Explanation to clause (1)(a) of Article 286 as it then stood. Itwas held by this Court that in order to exclude the taxation by theState of West Bengal, the appellants had to prove that there wassome other State where the goods could be said to have beendelivered as a direct result of the sale for the purpose ofconsumption in that other State and that as they failed to do so,the aviation spirit loaded on board an aircraft for consumptionthough taken out of India, was not exported since it had nodestination, where it could be said to be imported and so long as itdid not satisfy that test, it could not be said that the sale was in thecourse of export. It was further held that aviation spirit was soldfor the use of aircraft and the sale was not even for the purposeof export and all the elements of sale including delivery and paymentof price took place within the State of West Bengal and the saleswere complete within the territory of that State. The customs barrier did not set a terminal limit to the territory of West Bengalfor sales tax purpose. The sale beyond the customs barrier wasstill a sale in fact in the State of West Bengal.

21. The ratio of this decision would be applicable to the facts andcircumstances of this case. It was rightly urged that theappropriation of goods took place in the State of Tamil Nadu whenthe goods were segregated in the bonded warehouse to bedelivered to the foreign going vessels. It was not a case of exportas there was no destination for the goods to a foreign country.The sale was for the purpose of consumption on board the ship. Itwas not as if only on delivery on board the vessel that the saletook place. The mere fact that shipping bill was prepared forsending it for custom formalities which were designed to effectivelycontrol smuggling activities could not determine the nature of thetransaction for the purpose of sales tax nor does the circumstancesthat delivery was to the captain on board the ship within theterritorial waters make it a sale outside the State of Tamil Nadu.

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25. In the case before the Andhra Pradesh High Court in FairmacsTrading Company v. State of A.P., the petitioner imported ship-stores from foreign countries, kept these in bonded warehousesof the customs department without the levy of customs duty andlater on sold and delivered to ships’ masters for consumption abroadthe ship after crossing the port boundaries. On the question whetherthe sales were outside the State or in the course of export andtherefore not liable to tax under the Andhra Pradesh General SalesTax Act, 1957, it was observed by the Andhra Pradesh High Courtthat the goods were specific and ascertained and were within theState when the contract of sale took place and therefore therequirements of Section 4(2)(a) of the Central Sales Tax Act,1956 were fully satisfied and the sales must be said to have takenplace inside the State; but as the goods sold were meant forconsumption during voyage and they had no destination in anyforeign country where they could be received as imports, the saleswere not sales in the course of exports. It was further held thatmere movement of goods out of the country following a sale wouldnot render the sale, one in the course of export within Article286(1)(b) of the Constitution of India. Before a sale can be said AB

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to be a sale in the course of export, the existence of two terminibetween which the goods are intended to move or to be transportedis necessary.

26. The Madras High Court in the case of Fairmacs TradingCo. v. State of T.N. was dealing with an assessee, who was aBdealer in ship’s stores and was also doing business as ship chandlersand who imported goods from abroad for the purpose of supplyingthem either to foreign-going vessels or to diplomatic personnel.These goods were received and kept in the customs bondedwarehouse and were cleared under the supervision of the customsauthorities whenever these were sold by the assessee. In respectCof supplies of specific goods made to certain ships located in theMadras harbour, pursuant to orders placed by the Master of theship or other officers working in the ship, the transportation of thegoods to the ship was effected in such a manner as to ensure thatthe bonded goods, which had not paid any duty, did not enter theDlocal market. The delivery receipt sent along with the goods by D

the assessee was signed by an officer of the ship in token ofhaving received the goods in good condition. The question thatarose for consideration was whether the sale took place withinthe State of Tamil Nadu and liable to be taxed under the TamilNadu General Sales Tax Act, 1959. It was held (i) that there was E

nothing to show in the communications from the ship that thegoods had necessarily to be supplied only in the ship. It was opento the officers working in the ship to come and take delivery ofthe goods in which event the sale would be a local sale. Therefore,assuming that the territorial waters did not form part of the StateFof Tamil Nadu, as there was nothing in the contemplation of thecontracting parties that the goods were to be moved from oneState to another, it was held that it was not possible to take theview that the sales were inter-State sales; and (ii) that the assesseewas not selling specific or ascertained goods, because the goodsformed part of a larger stock within the bonded warehouse andGhad, therefore to be separated and appropriated to the contract asand when orders were placed by the officers of the ship bydescription. Therefore, the sales were local sales in view of thespecific provision of Section 4(2)(b) of the Central Sales Tax Act,1956, read with Section 2(n), Explanation 3 of the Act (TamilHNadu General Sales Tax Act, 1959), and were accordingly taxable under the Act. The court did not find it necessary to consider thequestion whether the territory covered by the territorial watersformed part of the State of Tamil Nadu or not.

27. Attention of the Madras High Court was drawn to the decisionof Andhra Pradesh High Court in Fairmacs Trading Co. v. Stateof A.P. The Madras High Court did not examine the question indetail in the view it took.

28. In so far as the High Courts of Andhra Pradesh and Madrasin the said two decisions held that sales took place within theState, we are in agreement.”

The Court finally concluded in paragraphs 36 and 37 as follows:- “36. The short question, therefore, that arises in all these mattersis whether sale of the goods in question took place within theterritory of Tamil Nadu. In these cases sale took place byappropriation of goods. Such appropriation took place in bondedwarehouse. Such bonded warehouses were within the territoryof State of Tamil Nadu. Therefore, under sub-section (2), sub-clauses (a) and (b) of section 4 of the Central Sales-Tax Act,1956, the sale of goods in question shall be deemed to have takenplace inside the State because the contract of sale of ascertainedgoods was made within the territory of Tamil Nadu and furthermorein case of unascertained goods appropriation had taken place inthat State in terms of clause (b) of sub-section (2) of section 4 ofthe Central Sales Tax Act, 1956. There is no question of saletaking place in course of export or import under section5 in this case. From that point of view the amendmentintroduced by Act 103 of 1976 by incorporating in clause(ab) of section 2 of the Central Sales Tax Act, 1956 doesnot affect the position. In this connection reference may bemade from the observations of this Court in Burmah Shell OilStorage Ltd., where it has been held that customs barrier doesnot set a terminal limit to the territory of the State for sales-taxpurposes. Sale, therefore, beyond the customs barrier is still asale within the State. The amendment introduced in section2 by the Act 103 of 1976 does not affect the position becausethe custom station is within the State of Tamil Nadu. That A

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Aquestion might have been relevant if we were consideringthe case of sale by the transfer of documents of title to thegoods as contemplated by section 5 of the Central Sales-Tax Act. In the premises we are unable to accept the contentionsurged on behalf of the appellants in the civil appeals and also thecontentions urged in the writ petition.B

37. In the view we have taken, it is not necessary to express ouropinion on the arguments whether introduction of clause (ab) ofsection 2 of Central Sales Tax Act by Act 103 of 1976 isprospective or not. We have, however, noted the submissions.That question, in the light of our aforesaid views, is not materialCfor the present controversy.”

12. Applying the principle underlying the said decision, it is clearthat the sale to be in the course of import, must be a sale of goods and asDa consequence of such sale, the goods must actually be imported withinthe territory of India and further, the sale must be part and parcel of theimport so as to occasion import thereof. Indeed, for the purposes ofCustoms Act, only upon payment of customs duty the goods are clearedby the Customs authorities whence import thereof can be regarded ascomplete. However, that would be no impediment for levy of sales taxEby the State concerned in whose territory the goods had already landed/unloaded and kept in the bonded warehouse. For seeking exemption, it isnecessary that the goods must be in the process of being imported whenthe sale occurs or the sale must occasion the import thereof within theterritory of India. The word “occasion” is used to mean “to cause” orF“to be the immediate cause of”. In the present case, the stated sales inno way occasioned import of the goods into the territory of India. For,the goods were taken away by the foreign-going ship as ship stores forbeing consumed after the goods had crossed the customs frontiers/IndianWaters.

G13. Indubitably, the sale which is to be regarded as exempt frompayment of sales tax, is a sale which causes the import to take place oris the immediate cause of the import of goods. The appellants havingfailed to establish that the stated goods would be actually imported withinthe territory of India and had not crossed the customs station, cannotcontend that the sale was in the course of import as such within theHmeaning 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 inquestion to qualify as having been made in the process or progress ofimport. We may usefully advert to Section 5 of the CST Act, whichreads thus: - “5. When is a sale or purchase of goods said to take placein the course of import or export.-(1) A sale or purchase ofgoods shall be deemed to take place in the course of the export ofthe goods out of the territory of India only if the sale or purchaseeither occasions such export or is effected by a transfer ofdocuments of title to the goods after the goods have crossed thecustoms frontiers of India.

(2) A sale or purchase of goods shall be deemed to takeplace in the course of the import of the goods into theterritory of India only if the sale or purchase either occasionssuch import or is effected by a transfer of documents oftitle to the goods before the goods have crossed thecustoms frontiers of India.

(3) Notwithstanding anything contained in sub-section (1), the lastsale or purchase of any goods preceding the sale or purchaseoccasioning the export of those goods out of the territory of Indiashall also be deemed to be in the course of such export, if suchlast sale or purchase took place after, and was for the purpose ofcomplying with, the agreement or order for or in relation to suchexport.”

14. The crucial question is whether the stated sales can be deemedto have taken place in the course of import of the goods into the territoryof India before the goods had crossed the customs frontiers of India,which is the core requirement of Section 5(2) of the CST Act. Theexpression “crossing the customs frontiers of India” has been defined inSection 2(ab) of the CST Act, which reads thus:- “2. Definitions.- In this Act, unless the context otherwise requires,- xxxxxxxxx

(ab) “crossing the customs frontiers of India” means crossingthe limits of the area of a customs station in which importedgoods or export goods are ordinarily kept before clearanceby customs authorities.

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AExplanation.- For the purposes of this clause, “customsstation” and “customs authorities” shall have the samemeanings as in the Customs Act, 1962 (52 of 1962).”

This definition refers to the expression “customs station”, whichin turn, refers to “customs port”, “customs airport” and “land customsBstation”, as defined in the Customs Act. We may usefully refer to Sections2(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 clauseC(a) of section 7 to be a customs airport;

(11) “customs area” means the area of a customs station andincludes any area in which imported goods or export goods areordinarily kept before clearance by Customs Authorities; D(12) “customs port” means any port appointed under clause (a)of section 7 to be a customs port [15][, and includes a place appointedunder clause (aa) of that section to be an inland container depot];

(13) “customs station” means any customs port, customs airportor land customs station; Exxxxxxxxx

(29) “land customs station” means any place appointed underclause (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 sameFreads thus:- “7. Appointment of customs ports, airports, etc.- The CentralGovernment may, by notification in the Official Gazette, appoint- (a) the ports and airports which alone shall be customs portsGor customs airports for the unloading of imported goodsand the loading of export goods or any class of such goods; 15 Inserted by Act 11 of 1983, sec. 46 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/H2009

16[(aa) the places which alone shall be inland container depotsfor the unloading of imported goods and the loading ofexport goods or any class of such goods]; (b) the places which alone shall be land customs stations forthe clearance of goods imported or to be exported by landor inland water or any class of such goods;

(c) the routes by which alone goods or any class of goodsspecified in the notification may pass by land or inlandwater into or out of India, or to or from any land customsstation from or to any land frontier; (d) the ports which alone shall be coastal ports for the carryingon of trade in coastal goods or any class of such goodswith all or any specified ports in India.”

We have no hesitation in accepting the argument of therespondents that being a taxation statute, strict interpretation of theseprovisions is inevitable. Going by the definition of “customs port” or“land customs station” as applicable in the present cases, it is customsport or land customs station area appointed by the Central Governmentin terms of notification under Section 7. It is not the case of the appellantsthat the bonded warehouses, where the goods were kept and the statedsales took place by appropriation of the goods thereat, were within thearea notified as customs port and/or land customs station under Section7 of the Customs Act. As the stated goods had travelled beyond thecustoms port/land customs station at the relevant time, in law, it wouldmean that the goods had crossed the customs frontiers of India for thepurposes of the CST Act. Resultantly, the legal fiction created in Section5(2) of the CST Act will have no application.

15. Notably, the expressions “warehouse” and “warehousedgoods” have been defined in the Customs Act in Sections 2(43) and2(44) respectively. As per the applicable provisions at the relevant time,“Warehouse” means a public warehouse appointed under Section 57 ora private warehouse licensed under Section 58. “Warehoused goods”means goods deposited in a warehouse. As aforesaid, there is nothing toindicate that the bonded warehouse, where the stated goods were keptby the appellants and eventually sold, formed part of the customs port/

16 Inserted by Act 11 of 1983, sec. 47 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/2009

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Aland customs station. If so, the legal fiction of sale being deemed to havetaken place in the course of import of the goods into the territory of Indiawould have no bearing and applicability to the present cases.

16. To get over this position, emphasis was placed by the appellanton the exposition in the Indian Tourist Development CorporationB(supra), which had considered the situation where the goods were keptin the bonded warehouse and were made available in the duty-free shopsfor sale. This Court opined that since the goods were supplied to theduty-free shops situated at the International Airport, Bengaluru for sale,it cannot be said that the said goods had crossed the customs frontiers ofIndia. We fail to understand as to how this decision will be of any avail toCthe appellants. For, the Court was not dealing with a situation as in thepresent cases, in which the goods had crossed the customs port/landcustoms station area and kept in the bonded warehouse, where the saleby appropriation of the goods was effected. Indeed, in paragraph 17 ofthe reported decision, the Court in the facts of that case, has observedDthat when the goods are kept in the bonded warehouse, it cannot be saidthat the said goods had crossed customs frontiers of India. However,the Court finally answered the claim of the appellants therein on thefinding that the liquor, cigarettes, perfumes and food articles were sold“at the duty-free shops” at the International Airport, Bengaluru, for whichno tax was payable by the appellants as the goods sold at the duty-freeEshops were sold directly to the passengers and even the delivery ofgoods took place at the duty-free shops before importing the goods orbefore the goods had crossed the customs frontiers of India. The issueconsidered in the said decision, therefore, was whether the sale at theduty-free shops situated at the Bengaluru International Airport wouldFattract levy of sales tax. As noticed earlier, the definition of “customsstation” clearly refers to customs airport as defined in Section 2(10) ofthe Customs Act. As the duty-free shop is situated in airport area, itwould mean that the sale of goods at the duty-free shops was deemed tohave taken place in the course of import of the goods into the territory ofIndia. Thus understood, the reported decision under consideration is ofGno 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 thegoods passed to him, either after the receipt of the documents of titleagainst payment or otherwise, to a third party by a similar process is alsoHa sale in the course of import, would equally have no bearing on the present cases. In as much as, the sale of goods must take place beforethe goods had crossed the customs frontiers of India, which means itwas within the customs port/land customs station area. Nothing is shownby the appellants herein to substantiate that the subject bonded warehousecame within the customs port/land customs station area and moreso thestated 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 ofKerala[17] has expounded the factors to be reckoned for determiningwhether the concerned sale or purchase of goods can be deemed tohave taken place in the course of import. The relevant portion of theaforesaid judgment reads thus:

“14. In the light of the aforesaid settled legal position emergingfrom the Constitution Bench decisions of this Court the followingpropositions clearly get projected for deciding whether theconcerned sale or purchase of goods can be deemed to take placein the course of import as laid down by Section 5(2) of the CentralSales Tax Act:

(1) The sale or the purchase, as the case may be, must actuallytake place.

(2) Such sale or purchase in India must itself occasion suchimport, and not vice versa i.e. import should not occasion suchsale.

(3) The goods must have entered the import stream when theyare subjected to sale or purchase.

(4) The import of the concerned goods must be effected as adirect result of the sale or purchase transaction concerned.

(5) The course of import can be taken to have continued tillthe imported goods reach the local users only if the import hascommenced through the agreement between foreign exporterand an intermediary who does not act on his own in thetransaction with the foreign exporter and who in his turn doesnot sell as principal the imported goods to the local users.

(6) There must be either a single sale which itself causes theimport or is in the progress or process of import or though A

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there may appear to be two sale transactions they are sointegrally inter-connected that they almost resemble onetransaction so that the movement of goods from a foreigncountry to India can be ascribed to such a composite wellintegrated transaction consisting of two transactions dovetailinginto each other.

(7) A sale or purchase can be treated to be in the course ofimport if there is a direct privity of contract between the Indianimporter and the foreign exporter and the intermediary throughwhich such import is effected merely acts as an agent or acontractor for and on behalf of Indian importer.

(8) The transaction in substance must be such that thecanalizing agency or the intermediary agency through whichthe imports are effected into India so as to reach the ultimatelocal users appears only as a mere name lender through whomit is the local importer-cum-local user who masquerades.”

19. It will also be useful to advert to paragraph 6 of Kiran SpinningMills (supra), which reads thus:

“6. Attractive, as the argument is, we are afraid that we do notfind any merit in the same. It has now been held by this Court inHyderabad Industries Ltd. v. Union of India that for the purposeof levy of additional duty Section 3 of the Tariff Act is a chargingsection. Section 3 sub-section (6) makes the provisions of theCustoms Act applicable. This would bring into play the provisionsof Section 15 of the Customs Act which, inter alia, provides thatthe rate of duty which will be payable would be (sic the rate inforce) on the day when the goods are removed from the bondedwarehouse. That apart, this Court has held in Sea Customs Act,SCR at p. 803 that in the case of duty of customs the taxableevent is the import of goods within the customs barriers. In otherwords, the taxable event occurs when the customs barrier iscrossed. In the case of goods which are in the warehouse thecustoms barriers would be crossed when they are sought to betaken out of the customs and brought to the mass of goods in thecountry. Admittedly this was done after 4-10-1978. As on thatday when the goods were so removed additional duty of exciseunder the said Ordinance was payable on goods manufacturedafter 4-10-1978. We are unable to accept the contention of MrRamachandran that what has to be seen is whether additional

duty of excise was payable at the time when the goods landed inIndia or, as he strenuously contended, they had crossed into theterritorial waters. Import being complete when the goods enteredthe territorial waters is the contention which has already beenrejected by this Court in Union of India v. Apar (P) Ltd. decidedon 22-7-1999. The import would be completed only whenthe goods are to cross the customs barriers and that is thetime when the import duty has to be paid and that is what hasbeen termed by this Court in Sea Customs case (SCR at p. 823)as being the taxable event. The taxable event, therefore, beingthe day of crossing of customs barrier, and not on the datewhen the goods had landed in India or had entered theterritorial waters, we find that on the date of the taxable eventthe additional duty of excise was leviable under the said Ordinanceand, therefore, additional duty under Section 3 of the Tariff Actwas rightly demanded from the appellants.”

20. A priori, for a sale or purchase to qualify as a sale or purchasein course of import, the essential conditions are that such sale shall occurbefore the goods had crossed the customs frontiers of India and theimport of the goods must be effected or the import is occasioned due tosuch sale or purchase. In the present case, the sales in question did notoccasion import.

21. Arguendo, for sale or purchase of goods to be regarded assale or purchase in course of export, Section 5(1) of the CST Act providesfor the following conditions: (i) the sale or purchase shall occasion suchexport or (ii) the sale or purchase shall be effected by a transfer ofdocuments of title to the goods after the goods have crossed the customsfrontiers of India.

22. A Constitution Bench of this Court in Md. Serajuddin andOrs. vs. State of Orissa[18] has held that expression ‘in the course’ impliesnot only a period of time during which the movement is in progress butpostulates a connected relation. The relevant portion of the judgment isextracted as under:

“18.….. A sale in the course of export predicates aconnection between the sale and export. No single test can be 18 (1975) 2 SCC 47

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Alaid as decisive for determining that question. Each case mustdepend upon its facts. But it does not mean that distinction betweentransactions which may be called sales for export and sales in thecourse of export is not real. Where the sale is effected by theseller and the seller is not connected with the export whichactually takes place, it is a sale for export. Where the exportBis the result of sale, the export being inextricably linkedup with sale so that the bond cannot be dissociated withouta breach of the obligations arising by statute, contract, ormutual understanding between the parties arising from thenature of the transaction the sale is in the course of export.CIn the Nilgiri Plantations case (supra) this Court found that thesales by the appellants were intended to be complete without theexport and as such it could not be said that the sales occasionedexport. The sales were for export and not in the course of export.”

D23. It is relevant to advert to the definition of export here. Section2(18) of the Customs Act defines export as follows:

“2. Definitions.- In this Act, unless the context otherwise requires,- xxxxxxxxx E(18) - “export”, with its grammatical variations and cognateexpressions, 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 thegoods in question were being exported. Since the goods are to beFconsumed on the board of the foreign going ship and the same would beconsumed before reaching a destination, it does not fall under thedefinition of ‘export’. The sale cannot qualify as a sale occasioning exportunless the goods reach a destination which is a place outside India.Further, since the goods have been sold from the bonded warehouse andGhad crossed the customs port/land customs station prior to their sale, itcannot qualify as a sale in course of export within the meaning of Section5(1) read with Section 2(ab) of the CST Act.

25. In regard to the contention that declaration under Section 69of the Customs Act was made by the appellant, there is nothing on recordHto show that such declaration was made in respect of the goods pertaining to subject sale(s). Even otherwise, the benefit extended under theCustoms Act of waiver of customs duty cannot be taken as waiver ofsales tax under the relevant state and central laws. Similarly, insertionof sub-Section (3) in Section 5 of the CST Act in 1976 does not affectthese cases because the bonded warehouse where the stated sales orappropriation of the goods occurred is within the land-mass of the Stateof West Bengal and not shown to be within the customs station area.

26. A priori, it must be held that the stated sales or appropriationof goods kept in bonded warehouse within the land-mass/territory of theState of West Bengal are neither in the course of import or export andmore so, were effected beyond the customs port/land customs stationarea. Therefore, in law, it was a sale amenable to levy of sales tax underthe 1954 Act and the 1994 Act, as the case may be, read with Section 4of the CST Act. As a result, these appeals must fail, as we find noinfirmity in the view taken by the authorities below and which had justlycommended to the High Court.

27. In view of the above, these appeals are dismissed with noorder as to costs. Pending interlocutory applications, if any, shall standdisposed of.

Ankit Gyan

Appeals dismissed.

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