As per Article 286 of the Constitution of India, transactions taking place in the course of import and export are made immune from levy of sales tax. In pursuance of the said Article the transactions of sale/ purchase in course of import/export are defined in section 5 of the CST Act, 1956. The transaction of sale in course of import is defined in section 5(2) of the CST Act, 1956. The said sub-section is reproduced below.
“S. 5. When is a sale or purchase of goods said to take place in the course of import or export.
(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.”
It can be seen, from the above, that there are two limbs. As per the first limb, the sale/purchase occasioning the movement of goods from foreign country is considered to be in the course of import. Therefore, the transaction of direct import is covered by this category. In addition to the above, there is scope to cover further transaction also as in the course of import under this limb.
The second limb covers transactions which are effected by transfer of documents of title to goods before the goods cross the Customs frontiers of India.
In a recent judgment, the Supreme Court had an occasion to specify the scope of the above section. Reference can be made to the judgment in the case of M/s. Hotel Ashoka v. Assistant Commissioner of Commercial Taxes & anr., (Civil Appeal No. 2560 of 2010 decided on 3-2-2012).
Facts of the case
The assessee (appellant) was M/s. Hotel Ashoka, a hotel managed by India Tourism Development Corporation Limited (ITDCL). The assessee had duty-free shops at international airports in India. At duty-free shops, the assessee sold several articles including liquor to foreigners and also to Indians going abroad or coming to India by air. The issue arose, under Karnataka Sales Tax Act, in respect of dutyfree shop at international airport at Bengaluru. For sales effected at the said place, the assessee took a stand that no tax was payable under the sales tax laws, as the goods were sold before importing the goods or before the goods had crossed the Customs frontiers of India. The sales tax authorities levied sales tax and raised demand. A writ petition was filed before the Karnataka High Court. However, the High Court rejected the writ petition holding it to be not maintainable on the ground of availability of alternative remedies. The matter came before the Supreme Court.
In respect of maintainability the Supreme Court observed that since the SLP was already admitted and the matter pertained to the year 2004-05, it would not be in the interest of justice to relegate the assessee to statutory authorities especially when the legal position is very clear and the law is also in favour of the appellant.
Judgment on merits
On merits, the Supreme Court examined the legal position. In para-18, the Supreme Court observed as under:
“18. It is an admitted fact that the goods which had been brought from foreign countries by the appellant had been kept in bonded warehouses and they were transferred to duty-free shops situated at international airport of Bengaluru as and when the stock of goods lying at the duty-free shops was exhausted. It is also an admitted fact that the appellant had executed bonds and the goods, which had been brought from foreign countries, had been kept in bonded warehouses by the appellant. When the goods are kept in the bonded warehouses, it cannot be said that the said goods had crossed the Customs frontiers. The goods are not cleared from the Customs till they are brought in India by crossing the Customs frontiers. When the goods are lying in the bonded warehouses, they are deemed to have been kept outside the Customs frontiers of the country and as stated by the learned senior counsel appearing for the appellant, the appellant was selling the goods from the duty-free shops owned by it at Bengaluru international airport before the said goods had crossed the Customs frontiers.”
Further in para 23 and 24 the Supreme Court has observed as under:
“23. Looking to the aforestated legal position, it cannot be disputed that the goods sold at the duty-free shops, owned by the appellant, would be said to have been sold before the goods crossed the Customs frontiers of India, as it is not in dispute that the duty-free shops of the appellant situated at the international airport of Bengaluru are beyond the Customs frontiers of India i.e., they are not within the Customs frontiers of India.”
“24. If this is the factual and legal position, in our opinion, looking to the provisions of Article 286 of the Constitution, the State of Karnataka has no right to tax any such transaction which takes place at the duty-free shops owned by the appellant which are not within the Customs frontiers of India.”
The Sales Tax Department contented that the sale, to be in course of import, should take place beyond the territories of India and not within the geographical territory of India. Further, it was also contented that there was no evidence about sale by transfer of documents of title to goods for effecting the sales before the goods have crossed Customs frontiers of India. Both the objections were rejected by the Supreme Court observing as under:
“30. They again submitted that ‘in the course of import’ means ‘the transaction ought to have taken place beyond the territories of India and not within the geographical territory of India’. We do not agree with the said submission. When any transaction takes place outside the Customs frontiers of India, the transaction would be said to have taken place outside India. Though the transaction might take place within India but technically, looking to the provisions of section 2(11) of the Customs Act and Article of the Constitution, the said transaction would be said to have taken place outside India. In other words, it cannot be said that the goods are imported into the territory of India till the goods or the documents of title to the goods are brought into India. Admittedly, in the instant case, the goods had not been brought into the Customs frontiers of India before the transaction of sales had taken place and, therefore, in our opinion, the transactions had taken place beyond or outside the Customs frontiers of India.”
“31. In our opinion, submissions with regard to sale not taking effect by transfer of documents of title to the goods are absolutely irrelevant. Transfer of documents of title to the goods is one of the methods whereby delivery of the goods is effected. Delivery may be physical also. In the instant case, at the duty-free shops, which are admittedly outside the Customs frontiers of our country, the goods had been sold to the customers by giving physical delivery. It is not disputed that the goods were sold by giving physical possession at the duty-free shops to the customers. Simply, because the sales had not been effected by transfer of documents of title to the goods and the sales were effected by giving physical possession of the goods to the customers, it would not mean that the sales were taxable under the Act. Thus, we do not agree with the aforestated submissions made by the learned counsel appearing for the Revenue.”
Thus, the Supreme Court has finally decided the scope of section 5(2) of the CST Act, 1956.
Conclusion
This judgment can be said to be a comprehensive judgment deciding the scope of section 5(2) of the CST Act, 1956. It has resolved the issue once for all. The judgment will also be useful in respect of sale effected from bonded warehouses.
