I. SUPREME COURT
32. [2020 113 taxmann.com 422 (SC)] Nirmal Kumar Parsan vs. Commissioner of
Commercial Taxes Date of order: 21st January, 2020
When the assessee imported the goods,
stored the same in a custom bonded warehouse and sold them to foreign-going
vessels for consumption on board, the State in which such warehouse is situated
shall have a right to levy sales tax on the same and the transaction does not
amount to sale in the course of import
FACTS
The principal question involved in
these appeals is whether the subject sales (of goods imported from a 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’ can be regarded as sale within the
territory of the State and therefore liable for sales tax under the West Bengal
Sales Tax Act, 1954 (‘the 1954 Act’).
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 foreign-going ship as ship stores, without payment of customs
duty. The assessee contended that the process of import was not complete at the
time of sale to the foreign-going ship and the transaction was a sale in the
course of import. It further contended 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. According to
the authority, it was not a sale in the course of import. The High Court upheld
the decision of the Tribunal that the sales were within the territory of the
State of West Bengal and amenable to sales tax.
HELD
The Supreme Court referred to various
judgments and held that it is clear that 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 that the sale must be part and parcel of the
import so as to occasion import thereof. Indeed, for the purposes of the
Customs Act, only upon payment of customs duty are the goods cleared by the
customs authorities when 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 / been unloaded and kept in the
bonded warehouse.
The Court further explained that 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’. Thus, the sale which is to be
regarded as exempt from payment of sales tax is a sale that causes the import
to take place, or is the immediate cause of the import of goods. The Court
observed that in the present case the stated sales in no way occasioned import
of the goods into the territory of India. 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 the import.
In order to decide 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 of India, which is the core requirement of section 5(2) of the
CST Act, the Court examined the expression ‘crossing the customs frontiers of
India’ as has been defined in section 2(ab) of the CST Act. The Court held that
going by the definition of ‘customs port’ or ‘land customs station’ as
applicable in the present case, it is the customs port or the land customs
station area appointed by the Central Government in terms of notification u/s
7.
The Court observed that the bonded
warehouses, where the goods were kept and the stated sales took place by
appropriation of the goods thereat, were not within the area notified as
customs port and / or land customs station u/s 7 of the Customs Act. The Court
also noted that there is 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. Therefore, it held that 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.
II. HIGH COURT
33. [2020 114 taxmann.com 122 (Delhi)] Pitambra Books (P) Ltd. vs. UOI Date of order: 21st January, 2020
High Court stayed
the operation of paragraph 8 of Circular No. 125/44/19-GST dated 18th
November, 2019 which mandated periodicity in the filing of the refund claim
with a restriction that refund claim to be filed cannot spread across different
financial years
FACTS
The petitioner engaged in the business
of manufacturing and trading of books also exports its products, which is
categorised as zero-rated supplies as per section 16(1)(a) of the Integrated
Goods and Services Tax Act, 2017. The petitioner challenged Circular No.
37/11/2018-GST dated 15th March, 2018 and Circular No. 125/44/19-GST
dated 18th November, 2019 to the extent they provide that the period
for which refund claim is filed cannot spread across different financial years.
The petitioner submitted that the said clause restricts the claim of refund in
case it relates to different financial years causing serious financial hardship
as more than Rs. 30 crores of accrued and unutilised input tax credit that is
eligible for refund is now lying stuck. The petitioner submitted that as per
section 54(3) of the CGST Act, a person making zero-rated supplies can claim
refund of unutilised input tax credit at the end of any tax period by making a
refund application before the expiry of two years from the relevant date.
Hence, the aforesaid restriction is ultra vires the Act and the
provisions contained under it.
It was also argued that Rule 89(4) of
the CGST Rules containing the formula for calculating input tax for refund is
in contravention of section 16 of the IGST Act read with section 54 of the CGST
Act as the said Rule restricts the computation of the refund taking the basis
of ITC ‘availed during the relevant period’. The ‘relevant period’ has been
defined in Rule 89(4)(F) as the period for which the claim has been filed. It
was argued that the said circular to the extent it restricts the refund claims
only on monthly basis is contrary to the rights conferred by the Act.
The Revenue submitted that the refund
is subject to conditions and therefore the Government is well within its
jurisdiction to impose conditions by way of the impugned circular. Further, it
was submitted that u/s 2(106) of the GST Act, the ‘tax period’ has been defined
to mean a period for which a return is required to be filed. The return under
the Act has to be filed on a month-to-month basis and, therefore, the
petitioner does not have any right to claim refund for one financial year in
another year.
HELD
The Court called upon the Government to
file a detailed affidavit in reply; however, it gave a prima facie view
that the restriction pertaining to the spread of refund claim across different
financial years is arbitrary and that there is no rationale for such a
constraint. It further held that the entire concept of refund of ITC relating
to zero-rated supply would be obliterated in case the respondents are permitted
to put any limitation and condition that takes away the petitioner’s right to
claim a refund of all the taxes paid on the domestic purchases used for the
purpose of zero-rated supplies. The incentive given to the exporters would lose
its meaning and this would cause grave hardship to the exporters who are
earning valuable foreign exchange for the country. The respondents cannot,
artificially, act contrary to the fundamental spirit and object of the law and
contrive ways to deny the benefit which the substantive provisions of the law
confer on the taxpayers.
Thus, the Court held that the
petitioner has a strong prima facie case and it cannot be denied its
right to claim a refund which is visible from the mechanism provided under the
Act. Further, referring to the case of Pioneer India Electronics (P) Ltd.
vs. Union of India & Anr. ILR (2014) II DELHI 791, the Court observed
that circulars might mitigate rigors of law by granting administrative relief
beyond relevant provisions of the statute; however, the Central Government is
not empowered to withdraw benefits or impose stricter conditions than
postulated by the law. The High Court accordingly stayed paragraph 8 of Circular No. 125/44/2019-GST dated 18th November,
2019 and also directed the respondents to either open the online portal so as
to enable the petitioner to file the tax refund electronically, or to accept the
same manually.
