Introduction
Under Sales Tax Laws, transactions of sale are liable to tax. The Constitution of India has provided adequate safeguards against unauthorised taxation of any transaction. Section 4 of the Central Sales Tax Act, 1956, provides for situs of sale. In other words, the State in which sale is taking place is to be determined by way of section 4 of the CST Act, 1956, which reads as under: “4. When is a sale or purchase of goods said to take place outside a State
(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State —
(a) in the case of specific or ascertained goods, at the time of the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation :
Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.”
Therefore, a sale takes place in the State where the goods are ascertained to the contract of sale.
Normally there are three kinds of sale: One, local sale i.e., within the same State, second, inter-State sale i.e., when the sale occasions movement of goods from one State to another State and the third type of sale is export sale where the goods moves to a destination out of India.
Sale to Bombay High — a fourth kind of sale
An interesting issue that is being debated is whether sale made to ONGC for its oil platforms (known as Bombay High region) are liable to tax as inter-State sale? The judicial history of above issue can be briefly tracked as under:
In case of Pure Helium (India) P. Ltd. (A. No. 48 of 90, dated 30-4-1994), M.S.T. Tribunal held that sale to ONGC for Bombay High region is inter-State sale.
In Pure Helium India P. Ltd. S.A. Nos. 1472 to 1477 of 1994, dated 7-12-1996. M.S.T. Tribunal held that sale to ONGC for Bombay High Region is export sale.
Looking to the conflicting judgments referred above, the Division Bench referred the matter in case of Industrial Oxygen Company Ltd (S.A.No. 45 of 1990) and Pure Helium Ltd (S.A. No. 592 of 2007) to the Larger Bench of the M.S.T. Tribunal. The Larger Bench by its judgment dated 9-7-2010 held that the sale to ONGC for Bombay High is inter-State sale and not export.
Recent judgment of the Gujarat High Court in the case of Larsen and Toubro Ltd. v. Union of India, (2011 VIL 46 Guj. dated 2-9-2011). This is the latest judgment on the issue from a High Court.
The transactions effected by Larsen & Toubro Ltd. to ONGC for the above Bombay High Region were held as inter-State sale and taxed accordingly under the CST Act. Hence writ petition was filed before the Gujarat High Court.
The facts in this case are noted in para 6 of the judgment as under:
“6. It is the case of the petitioners and with respect to which no dispute has been raised by the respondents that all the above four contracts were indivisible turnkey projects consisting both of supply of goods and rendition of service including labour. To execute such turnkey contracts, the petitioners had arranged for supply of certain parts, equipments and machineries from its Hazira plant at Surat to ONGC at Bombay High, which is situated around 180 kms off the baseline of coast of India and forms part of ‘Exclusive Economic Zone’. It is also an undisputed position that such goods were used in execution of turnkey project of erection, installation and commissioning of the platforms located in Exclusive Economic Zone and only on commissioning that the petitioners’ obligation under the contract would stand discharged. It is thus the case of the petitioners that the title of goods supplied by the petitioner to ONGC, during the course of and in furtherance of execution of the turnkey project, passed at Bombay High and not at Hazira. Even the respondents, in particular, the State authorities, under the CST Act, have accepted this factual stand of the petitioners and the entire order under challenge is founded on such admitted facts. We have, therefore, proceeded to examine the grievances of the petitioners on the basis of this conceded factual position, namely, that the title of the goods sold by the petitioners to ONGC passed at ONGC site at Bombay High and not at Hazira.”
The Gujarat High Court examined the issue in light of Articles 1 and 297 of the Constitution of India and the provisions of the Territorial Waters, Continental Shelf, Exclusive Zone and other Maritime Zones Act, 1976 (Maritime Zone Act).
After elaborately examining the issue the Gujarat High Court has held as under:
“34. From the above provisions it can clearly be seen that though the Union of India has certain rights over the Exclusive Economic Zone, the Indian Union does not have sovereignty over such a region. Clause (a) to s.s (7) of section 7, for example, provides that the Union has, over the Exclusive Economic Zone, sovereign rights for the purpose of exploration, exploitation, conservation and management of the natural resources. Sovereign rights are thus for the limited purposes provided therein.
S.s (4) of section 7 does not speak of unlimited sovereign rights, much less sovereignty of the Union of India over the exclusive economic zone. It is only by virtue of the Notification in Official Gazette that the Central Government may declare any area of exclusive economic zone to be a designated area and make such provision as it may deem necessary with respect to such area for different purposes including for the purpose of customs and other fiscal matters in relation to such designated area. Further s.s (7) of section 7 empowers the Central Government to issue Notification to extend certain laws to any part of the exclusive economic zone and to make such provisions as are necessary for enforcement of such enactments. It is further provided that thereupon the enactments so extended shall have effect as if the exclusive economic zone or the part thereof to which it has been extended is a part of the territory of India. The language used in clause (b) of s.s (7) of section 7 to the Maritime Zones Act is significant as it does not provide that the designated area upon Notification by the Union of India, shall be part of the territory of India. It provides that law so notified shall be extended as if the exclusive economic zone or the part thereof is a part of the territory of India. The language is clear and gives rise to a deeming fiction for the limited purpose of extension and application of laws notified and for that limited purpose the Exclusive Economic Zone shall be deemed to be a part of the territory of India. It is not the same thing as to suggest that the Exclusive Economic Zone becomes part of the territory of India. It is not even the case of the respondents that the Exclusive Economic Zone is part of the territory of India as provided in Article 1 of the Constitution of India. There is no claim of sovereignty over such an area, it is sovereign rights which are extended to such area by virtue of formation of the Exclusive Economic Zone for the limited purposes envisaged under the statute. By virtue of clause (b) of s.s (7) of section 7 of the Maritime Zones Act it becomes further clear that as and when the Union of India issues Notification extending any enactment over the Exclusive Economic Zone or part thereof such enactment extended is applicable as if the Exclusive Economic Zone or part thereof to which it has been extended is a part of the territory of India.
“35. In view of the above discussion, it clearly emerges that when the sale of goods took place at Bombay High, for which the goods moved from Hazira to Bombay High, such movement does not get covered within the expression ‘movement of goods from one State to another’ contained in clause (a) of section 3 of the CST Act. It is clear that the goods had not been moved from one State to another since, in our opinion, Bombay High does not form part of any State of the Union of India.”
Accordingly the Gujarat High Court held that the taxing of given transaction under the CST Act is unauthorised and set aside the assessment. The Gujarat High Court has made it clear that it is not examining the issue whether it is export sale or not and also there can be possibility of local sale, as those are not the issues involved here. However, the Court held that since it was not an inter-State sale, tax under the CST Act was not chargeable, held the Gujarat High Court. Thus now there is a possibility of one more kind of sale which is neither local, inter-State nor export, but at the same time not liable to Indian Sales Tax Laws.
The judgment will go a long way in solving the issues in various States, including Maharashtra.
