Paragraph numbers below are the court’s original numbering, recovered from the source text.
12. Applying the principle underlying the said decision, 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, the sale must be part and parcel of the import so as to occasion import thereof. Indeed, for the purposes of Customs Act, only upon payment of customs duty the goods are cleared by the Customs authorities whence 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. 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”. In the present case, the stated sales in no way occasioned import of the goods into the territory of India. For, the goods were taken away by the foreign-going ship as ship stores for being consumed after the goods had crossed the customs frontiers/Indian Waters.
13. Indubitably, 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 appellants 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 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. We may usefully advert to Section 5 of the CST Act, which reads thus: – “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 crossed 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.” (emphasis supplied)
14. The crucial question is 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 expression “crossing the customs frontiers of India” has been defined in Section 2(ab) of the CST Act, which reads thus:- “2. Definitions.- In this Act, unless the context otherwise requires,- xxx xxx xxx (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. NIRMAL KUMAR PARSAN v. COMMISSIONER OF COMMERCIAL TAXES & ORS. [A. M. KHANWILKAR, J.] Explanation.- For the purposes of this clause, “customs station” and “customs authorities” shall have the same meanings as in the Customs Act, 1962 (52 of 1962).” This definition refers to the expression “customs station”, which in turn, refers to “customs port”, “customs airport” and “land customs station”, as defined in the Customs Act. We may usefully refer to Sections 2(10), 2(11), 2(12), 2(13) and 2(29) of the Customs Act, as applicable for the present cases, which read thus:- “2. Definitions.- In this Act, unless the context otherwise requires.- (10) “customs airport” means any airport appointed under clause (a) of section 7 to be a customs airport; (11) “customs area” means the area of a customs station and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities; (12) “customs port” means any port appointed under clause (a) of section 7 to be a customs port 15[, and includes a place appointed under clause (aa) of that section to be an inland container depot]; (13) “customs station” means any customs port, customs airport or land customs station; xxx xxx xxx (29) “land customs station” means any place appointed under clause (b) of section 7 to be a land customs station;” In addition, we may also refer to Section 7 of the Customs Act, which postulates appointment of customs ports, airports etc. The same reads thus:- “7. Appointment of customs ports, airports, etc.- The Central Government 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; 15 Inserted by Act 11 of 1983, sec. 46 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/ 16[(aa) the places which alone shall be inland container depots 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.” We have no hesitation in accepting the argument of the respondents that 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. It is not the case of the appellants that the bonded warehouses, where the goods were kept and the stated sales took place by appropriation of the goods thereat, were within the area notified as customs port and/or land customs station 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.
15. Notably, the expressions “warehouse” and “warehoused goods” have been defined in the Customs Act in Sections 2(43) and 2(44) respectively. As per the applicable provisions at the relevant time, “Warehouse” means a public warehouse appointed under Section 57 or a private warehouse licensed under Section 58. “Warehoused goods” means goods deposited in a warehouse. As aforesaid, 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/ 16 Inserted by Act 11 of 1983, sec. 47 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/ NIRMAL KUMAR PARSAN v. COMMISSIONER OF COMMERCIAL TAXES & ORS. [A. M. KHANWILKAR, J.] land customs station. If so, the legal fiction of sale being deemed to have taken place in the course of import of the goods into the territory of India would have no bearing and applicability to the present cases.
16. To get over this position, emphasis was placed by the appellant on the exposition in the Indian Tourist Development Corporation (supra), which had considered the situation where the goods were kept in the bonded warehouse and were made available in the duty-free shops for sale. This Court opined that since the goods were supplied to the duty-free shops situated at the International Airport, Bengaluru for sale, it cannot be said that the said goods had crossed the customs frontiers of India. We fail to understand as to how this decision will be of any avail to the appellants. For, the Court was not dealing with a situation as in the present cases, in which the goods had crossed the customs port/land customs station area and kept in the bonded warehouse, where the sale by appropriation of the goods was effected. Indeed, in paragraph 17 of the reported decision, the Court in the facts of that case, has observed that when the goods are kept in the bonded warehouse, it cannot be said that the said goods had crossed customs frontiers of India. However, the Court finally answered the claim of the appellants therein on the finding that the liquor, cigarettes, perfumes and food articles were sold “at the duty-free shops” at the International Airport, Bengaluru, for which no tax was payable by the appellants as the goods sold at the duty-free shops were sold directly to the passengers and even the delivery of goods took place at the duty-free shops before importing the goods or before the goods had crossed the customs frontiers of India. The issue considered in the said decision, therefore, was whether the sale at the duty-free shops situated at the Bengaluru International Airport would attract levy of sales tax. As noticed earlier, the definition of “customs station” clearly refers to customs airport as defined in Section 2(10) of the Customs Act. As the duty-free shop is situated in airport area, it would mean that the sale of goods at the duty-free shops was deemed to have taken place in the course of import of the goods into the territory of India. Thus understood, the reported decision under consideration is of no avail to the appellants.
17. Even the exposition of the Constitution Bench in J.V. Gokal (supra) that a sale by an importer of goods after the property of the goods passed to him, either after the receipt of the documents of title against payment or otherwise, to a third party by a similar process is also a sale in the course of import, would equally have no bearing on the present cases. In as much as, the sale of goods must take place before the goods had crossed the customs frontiers of India, which means it was within the customs port/land customs station area. Nothing is shown by the appellants herein to substantiate that the subject bonded warehouse came within the customs port/land customs station area and moreso the stated sales occasioned import of the goods within the territory of India. If so, the finding of fact and conclusion recorded by the authorities below, which commended to the High Court, is unexceptionable.
18. This Court in K. Gopinathan Nair and Ors. vs. State of Kerala17 has expounded the factors to be reckoned for determining whether the concerned sale or purchase of goods can be deemed to have taken place in the course of import. The relevant portion of the aforesaid judgment reads thus: “14. In the light of the aforesaid settled legal position emerging from the Constitution Bench decisions of this Court the following propositions clearly get projected for deciding whether the concerned sale or purchase of goods can be deemed to take place in the course of import as laid down by Section 5(2) of the Central Sales Tax Act: (1) The sale or the purchase, as the case may be, must actually take place. (2) Such sale or purchase in India must itself occasion such import, and not vice versa i.e. import should not occasion such sale. (3) The goods must have entered the import stream when they are subjected to sale or purchase. (4) The import of the concerned goods must be effected as a direct result of the sale or purchase transaction concerned. (5) The course of import can be taken to have continued till the imported goods reach the local users only if the import has commenced through the agreement between foreign exporter and an intermediary who does not act on his own in the transaction with the foreign exporter and who in his turn does not sell as principal the imported goods to the local users. (6) There must be either a single sale which itself causes the import or is in the progress or process of import or though 17 (1997) 10 SCC 1 NIRMAL KUMAR PARSAN v. COMMISSIONER OF COMMERCIAL TAXES & ORS. [A. M. KHANWILKAR, J.] there may appear to be two sale transactions they are so integrally inter-connected that they almost resemble one transaction so that the movement of goods from a foreign country to India can be ascribed to such a composite well integrated transaction consisting of two transactions dovetailing into each other. (7) A sale or purchase can be treated to be in the course of import if there is a direct privity of contract between the Indian importer and the foreign exporter and the intermediary through which such import is effected merely acts as an agent or a contractor for and on behalf of Indian importer. (8) The transaction in substance must be such that the canalizing agency or the intermediary agency through which the imports are effected into India so as to reach the ultimate local users appears only as a mere name lender through whom it is the local importer-cum-local user who masquerades.”
19. It will also be useful to advert to paragraph 6 of Kiran Spinning Mills (supra), which reads thus: “6. Attractive, as the argument is, we are afraid that we do not find any merit in the same. It has now been held by this Court in Hyderabad Industries Ltd. v. Union of India that for the purpose of levy of additional duty Section 3 of the Tariff Act is a charging section. Section 3 sub-section (6) makes the provisions of the Customs Act applicable. This would bring into play the provisions of Section 15 of the Customs Act which, inter alia, provides that the rate of duty which will be payable would be (sic the rate in force) on the day when the goods are removed from the bonded warehouse. That apart, this Court has held in Sea Customs Act, SCR at p. 803 that in the case of duty of customs the taxable event is the import of goods within the customs barriers. In other words, the taxable event occurs when the customs barrier is crossed. In the case of goods which are in the warehouse the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country. Admittedly this was done after 4-10-1978. As on that day when the goods were so removed additional duty of excise under the said Ordinance was payable on goods manufactured after 4-10-1978. We are unable to accept the contention of Mr Ramachandran that what has to be seen is whether additional duty of excise was payable at the time when the goods landed in India or, as he strenuously contended, they had crossed into the territorial waters. Import being complete when the goods entered the territorial waters is the contention which has already been rejected by this Court in Union of India v. Apar (P) Ltd. decided on 22-7-1999. The import would be completed only when the goods are to cross the customs barriers and that is the time when the import duty has to be paid and that is what has been termed by this Court in Sea Customs case (SCR at p. 823) as being the taxable event. The taxable event, therefore, being the day of crossing of customs barrier, and not on the date when the goods had landed in India or had entered the territorial waters, we find that on the date of the taxable event the additional duty of excise was leviable under the said Ordinance and, therefore, additional duty under Section 3 of the Tariff Act was rightly demanded from the appellants.” (emphasis supplied)
20. A priori, for a sale or purchase to qualify as a sale or purchase in course of import, the essential conditions are that such sale shall occur before the goods had crossed the customs frontiers of India and the import of the goods must be effected or the import is occasioned due to such sale or purchase. In the present case, the sales in question did not occasion import.
21. Arguendo, for sale or purchase of goods to be regarded as sale or purchase in course of export, Section 5(1) of the CST Act provides for the following conditions: (i) the sale or purchase shall occasion such export or (ii) the sale or purchase shall be effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
22. A Constitution Bench of this Court in Md. Serajuddin and Ors. vs. State of Orissa18 has held that expression ‘in the course’ implies not only a period of time during which the movement is in progress but postulates a connected relation. The relevant portion of the judgment is extracted as under: “18. ….. A sale in the course of export predicates a connection between the sale and export. No single test can be 18 (1975) 2 SCC 47 NIRMAL KUMAR PARSAN v. COMMISSIONER OF COMMERCIAL TAXES & ORS. [A. M. KHANWILKAR, J.] laid as decisive for determining that question. Each case must depend upon its facts. But it does not mean that distinction between transactions which may be called sales for export and sales in the course of export is not real. Where the sale is effected by the seller and the seller is not connected with the export which actually takes place, it is a sale for export. Where the export is the result of sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of the obligations arising by statute, contract, or mutual understanding between the parties arising from the nature of the transaction the sale is in the course of export. In the Nilgiri Plantations case (supra) this Court found that the sales by the appellants were intended to be complete without the export and as such it could not be said that the sales occasioned export. The sales were for export and not in the course of export.” (emphasis supplied)
23. It is relevant to advert to the definition of export here. Section 2(18) of the Customs Act defines export as follows: “2. Definitions.- In this Act, unless the context otherwise requires,- xxx xxx xxx (18) – “export”, with its grammatical variations and cognate expressions, means taking out of India to a place outside India.” (emphasis supplied)
24. 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.
25. In regard to the contention that declaration under Section 69 of the Customs Act was made by the appellant, there is nothing on record to show that such declaration was made in respect of the goods pertaining to subject sale(s). Even otherwise, the benefit extended under the Customs Act of waiver of customs duty cannot be taken as waiver of sales tax under the relevant state and central laws. Similarly, insertion of sub-Section (3) in Section 5 of the CST Act in 1976 does not affect these cases because the bonded warehouse where the stated sales or appropriation of the goods occurred is within the land-mass of the State of West Bengal and not shown to be within the customs station area.
26. A priori, it must be held that the stated sales or appropriation of goods kept in bonded warehouse within the land-mass/territory of the State of West Bengal 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 under the 1954 Act and the 1994 Act, as the case may be, read with Section 4 of the CST Act. As a result, these appeals must fail, as we find no infirmity in the view taken by the authorities below and which had justly commended to the High Court.
27. In view of the above, these appeals are dismissed with no order as to costs. Pending interlocutory applications, if any, shall stand disposed of. Ankit Gyan Appeals dismissed. NIRMAL KUMAR PARSAN v. COMMISSIONER OF COMMERCIAL TAXES & ORS. [A. M. KHANWILKAR, J.]