SC: Supply from bonded warehouse to foreign-bound ships amenable to levy of sales tax.

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The SC in the matter of Nirmal Kumar Parsan v. Commissioner of Commercial Taxes & Others Civil [Appeal No. 7863 of 2009, Civil Appeal No. 7864 of 2009 dated January 21, 2020] dismissed the appeal holding that sales of goods imported from foreign country and after unloading the same on the landmass of the State of West Bengal, kept in the bonded warehouse without payment of customs duty to foreign bound ships as “ship stores” 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.

Facts:

Nirmal Kumar Parsan (“the Appellant”) after importing foreign made cigarettes, the Appellant 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 foreign going 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.

The HC, Calcutta upheld the decision of the West Bengal Taxation Tribunal that the stated sales were within the territory of the State of West Bengal and amenable to sales tax.

Issue involved:

Whether the sales to 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 (“the WB Sales Tax Act, 1954”) or the West Bengal Sales Tax Act, 1994 (“the WB Sales Tax Act, 1994”)

Held:

The SC in Civil Appeal No. 7863 of 2009, Civil Appeal No. 7864 of 2009 dated January 21, 2020 held as under:

  • The sale to be in the course of import, must be a sale of goods 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, 1962 (“Customs Act”) only upon payment of customs duty the goods are cleared by the Customs authorities from where 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.
  • Undoubtably, 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 Appellant having failed to establish that the stated goods would be actually 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 Central Sales Tax Act, 1956 (“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.
  • Further, 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 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.
  • 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.

Relevant provisions:

Section 5 of the CST Act

“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 cross 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.]

(4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority.

(5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase shall be deemed to take place in the course of the export of goods out of the territory of India.

Explanation.—For the purposes of this sub-section, “designated Indian carrier” means any carrier which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Section 2(ab) of the CST Act

2. Definitions

In this Act, unless the context otherwise requires, –

(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.

Section 7 of the Customs Act

7. Appointment of customs ports, airports, etc. –

(1) The Board 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;

(aa) the places which alone shall be inland container depots or air freight stations 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.

(e) the post offices which alone shall be foreign post offices for the clearance of imported goods or export goods or any class of such goods;

(f) the places which alone shall be international courier terminals for the clearance of imported goods or export goods or any class of such goods.

(2) Every notification issued under this section and in force immediately before the commencement of the Finance Act, 2003 shall, on such commencement, be deemed to have been issued under the provisions of this section as amended by section 105 of the Finance Act, 2003 and shall continue to have the same force and effect after such commencement until it is amended, rescinded or superseded under the provisions of this section.

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