The Supreme Court of India recently ruled on the case of Fairmacs Trading Co vs The State of Tamil Nadu. The dispute revolved around the applicability of sales tax on ship stores sold in the course of import. The judgement sheds light on key considerations regarding sales tax exemptions in import-export transactions. Learn more about this significant legal precedent.
Facts
- Assessing authority was requested to revise assessments not impugned.
- Sales of goods to masters of ships were taxable in the state.
- Analogy of sales from duty-free shops was deemed irrelevant.
- Appeals and revisions by the appellants were unsuccessful.
- Tribunal rejected the final revision on 30.3.2007.
- Goods sold were not considered as exports.
- Dealer was asked to pay tax on such sales and revise future returns.
- Transfer of risk occurs before crossing the customs frontier.
- Customs authority took custody of the goods to prevent revenue loss.
- Goods sold before being ascertained and appropriate.
- Risk in goods transferred at the time and place of custody.
- Tribunal held sale occurred in West Bengal and was not for import/export.
- Appellants’ revision rejected based on previous Tribunal decision.
- High Court upheld Tribunal’s decision in writ petition.
- Civil Appeal related to assessment periods under 1994 Act, claim of sales on high seas rejected.
- High Court affirmed Tribunal’s decision regarding sales tax on disputed sales.
- Goods imported and stored, only a portion sold to ship master.
- Authority remanded order for quantification of disputed sales.
- Appellant’s writ petition dismissed by High Court, affirming authority’s decision on sales tax applicability.
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Issue
- The principal question involved in these appeals is whether the subject sales of imported goods kept in a bonded warehouse can be considered sale within the territory of West Bengal.
- Specifically, the issue revolves around the sales to foreign-bound ships as ‘ship stores’.
- The key consideration is whether these sales are amenable to sales tax under the West Bengal Sales Tax Act.
- The dispute involves the applicability of the 1954 Act or the 1994 Act in taxing these transactions.
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Arguments
- The appellants argued that the sales in question should be deemed to have taken place in the course of import of goods in the territory of India.
- They relied on Article 286 of the Constitution of India and Section 5 of the CST Act to support their contention.
- Referred to the decision in Indian Tourist Development Corporation Limited vs Assistant Commissioner of Commercial Taxes & Anr. where a similar situation was dealt with favorably for the appelllants.
- Distinguished the decision in Madras Marine and emphasized the necessity of actual import into India for the sales to be considered in the course of import.
- Urged that the decision in J.V. Gokal had been followed in subsequent cases and supported their stance on the import process not being complete at the time of sale.
- Highlighted the amendments to Section 5 of the CST Act in 1976 and the relevance of the objects and reasons behind the amendments.
- Argued that the expression ‘crossing the customs frontiers of India’ has a specific definition in the CST Act and does not include goods kept in bonded warehouses.
- Stressed on the position that the sales were intended for export and were sold as ship stores to be carried by foreign-going ships.
- Made references to relevant sections of the Customs Act to strengthen their argument on the incomplete nature of import until duty payment.
- Emphasized that the sales were neither in the course of import nor export as per the authorities’ evaluation and therefore subject to sales tax.
- Cited the case of Commissioner of Customs (Import), Mumbai vs Dileep Kumar and Company & Ors. to support strict interpretation of tax statutes.
- Rebutted the claim that the sales were on the land-mass of West Bengal and hence not exempt from sales tax.
- Referred to the decision in Minerals & Metals Trading Corporation of India Ltd. vs Sales Tax Officer & Ors. regarding the interpretation of Section 5 of the CST Act in similar contexts.
- The doctrine of Unbroken Package as evolved by American Courts does not apply in India.
- Taxable event occurred on the appropriation of goods at the bonded warehouse in West Bengal.
- Reliance placed on the Kiran Spinning Mills case where the crossing of customs barrier was held to be the taxable event.
- The appeals are argued to be devoid of merits and should be dismissed.
- Appellants cannot pursue the contention related to unbroken package doctrine.
- Respondents referred to decisions in Burmah Shell Oil, Coffee Board, and Madras Marine to support their position.
- Sale was deemed to have occurred within West Bengal even if goods were not consumed before crossing Indian territorial waters.
- Payment of customs duty on the goods was deemed inconsequential.
- New plea regarding the filing of declaration was raised by appellants for the first time and not supported by evidence.
- Appeals should be confined to the plea that the sales were not effected within West Bengal or India.
- Respondents distinguished the decision in Indian Tourist Development Corporation cited by appellants.
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Analysis
- The judgement analyzes the application of Section 5 of the Central Sales Tax Act in the context of sales in the course of import.
- The court discusses the requirement that the sale must cause import or be the immediate cause of import of goods into India to qualify for exemption from sales tax.
- It is emphasized that the sale must be a direct trigger for the import of goods into India.
- The judgement highlights the significance of goods crossing the customs frontiers of India for the purpose of determining the applicability of the Central Sales Tax Act.
- The court differentiates between sales in the course of export and sales in the course of import, emphasizing the need for a direct linkage between the sale and the import of goods into India.
- The analysis delves into the legal fiction created by Section 5 of the Central Sales Tax Act and its application in cases involving bonded warehouses and sales to foreign-going ships as ship stores.
- The court considers the definitions of ‘warehouse’ and ‘warehoused goods’ as per the Customs Act in determining the tax implications of sales occurring in such contexts.
- The judgement rejects arguments that sales made before goods cross the customs barriers should be considered as sales in the course of import.
- The importance of the customs barrier as the delineating limit for sales tax purposes is underscored.
- The court examines the factual positions of various cases to determine the applicability of sales tax based on the timing and nature of sales transactions in relation to the import processes.
- The analysis includes references to previous decisions and legal principles to establish criteria for determining sales in the course of import as per the Central Sales Tax Act.
- The judgement addresses the notion of the goods reaching a destination outside India as a key factor in determining sales tax liability.
- It is concluded that sales in the course of import must meet specific criteria, including direct linkage with the import process and actual importation of goods into India, to be exempt from sales tax.
- Purchases made for philanthropic purposes to alleviate distress in foreign countries may still be exempted from taxation even if the goods were not sent as a commercial venture.
- For a sale to be considered in the course of export, the goods must have a foreign destination where they can be imported.
- In the case of Fairmacs Trading Co vs The State of Tamil Nadu, the Madras High Court held that sales made by ship chandlers to foreign-going vessels were not sales in the course of export because the goods had no foreign destination.
- The sale must be connected with the export, and the goods must be intended for consumption in a foreign destination.
- The movement of goods out of the country alone does not render the sale as one in the course of export.
- In the case of M/s. Ranjit Shipping Pvt. Ltd. & Anr vs State of West Bengal & Ors, it was held that sales of imported cigarettes to outgoing vessels within the territory of West Bengal were not in the course of import.
- The sale must take place before the goods cross the customs frontiers of India to be considered in the course of import.
- The Madras High Court also considered similar cases where sales to shipmasters for consumption abroad did not qualify as sales in the course of export because the goods were not intended for importation into a foreign country.
- The Court noted the dictum of the Constitution Bench regarding taxation by the State.
- The appellants needed to prove delivery in another State for exclusion of taxation.
- The goods loaded on board an aircraft for consumption did not meet the export criteria.
- Without a destination for import, the sale could not be considered in the course of export.
- Section 5 of the CST Act defines when a sale or purchase of goods is said to take place in the course of import or export.
- The key requirement is that the sale or purchase must either occasion the import/export or be effected after the goods have crossed the customs frontiers of India.
- The definition of ‘crossing the customs frontiers of India’ is provided in Section 2(ab) of the CST Act.
- Strict interpretation of the provisions of the CST Act is essential due to it being a taxation statute.
- The CST Act also defines terms like customs port, customs airport, customs area, customs station, and land customs station.
- Section 7 of the Customs Act deals with the appointment of customs ports, airports, and other related areas.
- The sale in question is subject to levy of sales tax under the 1954 Act and the 1994 Act, along with Section 4 of the CST Act.
- The decision of the authorities and the High Court in this matter is deemed justified and without any flaw.
- The inclusion of sub-Section (3) in Section 5 of the CST Act in 1976 does not impact these cases, as the bonded warehouse is within the territory of West Bengal and not within the customs station area.
- Goods sold or appropriated from the bonded warehouse in West Bengal are not part of import or export transactions and are outside the customs port/land customs station area.
- The declaration made under Section 69 of the Customs Act by the appellant does not cover the goods involved in the sales.
- The waiver of customs duty under the Customs Act does not equate to a waiver of sales tax under state and central laws.
Decision
- Pending interlocutory applications, if any, shall stand disposed of.
- The appeals are dismissed with no order as to costs.
Case Title: NIRMAL KUMAR PARSAN Vs. COMMR. COMMERCIAL TAX . AND ORS. (2020 INSC 60)
Case Number: C.A. No.-007863-007863 / 2009
