Commissioner of Sales Tax Vs Radhasons International (Bombay High Court)
Bombay High Court has held that sale made by transfer of documents while goods are in bonded warehouse would not qualify as exempt under Section 5(2) of the Central Sales Tax Act, relating to high sea sales. Observing that concept of crossing the customs frontiers of India is distinct from customs barriers of India, the High Court termed such sale as local sale.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. The Second Bench of the Maharashtra Sales Tax Tribunal at Mumbai (for short “MSTT”) on 24th June, 2008, on two reference applications bearing Nos. 45 of 2008 and 46 of 2008 arising out of Second Appeal Nos. 1358 and 1359 of 2003, decided on 19th October, 2007, has referred the following question for opinion and answer of this court:-
“ Whether on the facts and circumstances of the case and on a true and correct interpretation of the definition of the term ‘crossing of customs frontiers of India’ in section 2(ab) of the Central Sales Tax Act, 1956 and the provision in section 5(2) of the said Act the Tribunal was legally justified in holding that the impugned bonded sales effected to parties situate in Maharashtra are exempt from tax as sales in the course of import under the second limb of section 5(2) of the Central Sales Tax Act, 1956 for the reasons of the said sales having been effected by transfer of the documents of title to the goods before crossing the customs frontiers of India?”
2. The facts and circumstances in which this question has been referred are as under:-
3. The appellant is a partnership firm, carrying on business as reseller and importer in HR/CR sheets, chashew, carnals import licence etc. The appellant’s place of business was visited by the Sales Tax Officer, E-121, Enforcement Branch in 1997. The main purpose of the enforcement visit was to examine the validity of turnover of sales claimed as “high sea sales” exempt from tax under the second limb of section 5(2) of the Central Sales Tax Act, 1956 (CST Act). The enforcement authority, on verification of the relevant documents, found that the appellant’s claim of high sea sales for the year 1995-96 and 1996-97 in the context of the sales of the goods while being in customs bonded warehouse was erroneous and it insisted that the appellant should pay taxes on the impugned sales. Accordingly, the appellant made certain advance payments. Thereupon, the enforcement authority communicated the findings of its scrutiny to the concerned ward officer with a request to consider them appropriately in the assessment for the relevant periods.
4. The Ward Officer [STO (C-440)], Bandra Division, Mumbai then assessed the appellant for the period 1st April, 1995 to 31st March, 1996 and for the period 1st April, 1996 to 31st March, 1997 under the Bombay Sales Tax Act, wherein, the impugned bond sales were assessed to Sales Tax by disallowing the claim of high sea sales. The assessment orders, thus, resulted in certain demands. The appellant filed appeals against the said assessment orders aggrieved by dis-allowance of claim of high sea sales and subjecting it to tax @ 4% under the Bombay Act. The goods being iron and steel coils covered by Schedule Entry B-6, it was contended before the first appellate authority that the bond sales were effected on high sea basis by transfer of documents of title to the goods before the goods have crossed the customs frontiers of India and hence were exempt from tax under the second limb of section 5(2) of the CST Act. Alternatively, it was contended that the sales were in the course of import occasioning the import of goods into India covered by the first limb of section 5(2) of the CST Act. However, the first appellate authority confirmed the disallowance of the claim of the appellant of high sea sales by passing order dated 25th April, 2003. Therefore, the appellant filed the second appeals before the tribunal challenging the decision of the first appellate authority.
5. It was submitted on behalf of the Revenue that the cases of M/s. Indo Text Export Pvt. Ltd. (S. A. Nos. 284 and 285 decided on 17th June, 1995) and M/s. Sheventilal and Brothers (Appeal No. 104 of 1980 decided on 15th April, 1983) are applicable to the present matter. The above cited judgments decide the issue that once the imported goods are cleared from the area of custom station for being kept in the customs bond, the custom frontiers of India are crossed and the course of import comes to an end. Therefore, such bond sales do not qualify as “high sea sales”. On the other hand, the appellant, in support of its claim of high sea sales placed reliance on the Madras High Court judgment in the case of M/s. State Trading Corporation (12 STC 294) which was based on the Apex Court judgment in the case of M/s. Kiran Spinning (113 ELT 753). On interpretation of the definition of the term “crossing the customs frontiers of India” in section 2(ab) of the CST Act, the Madras High Court has unequivocally held that the bond sales do qualify as high sea sales.
6. On appeal to the Tribunal, it was held vide judgment dated 19th October, 2007 that this interpretation of section 2(ab) of the CST Act, as made by the Madras High Court is contrary to that made by this tribunal in the case of M/s. Sheventilal and Brothers (supra) and M/s. Indo Text Export Pvt. Ltd. (supra). However, it has to be noted that Madras High Court judgment in the case of M/s. State Trading Corporation of India (supra) is based on the Hon’ble Supreme Court’s judgment. Further, when this tribunal interpreted the provisions of the CST Act, at that time, no judgment of the Hon’ble Supreme Court or High Court to interpret the said provision of the CST Act was available. The situation has undergone a material change. Now, the Madras High Court judgment (based on the Hon’ble Supreme Court judgment) is available to us, in which, it, on profound consideration, has interpreted the provisions in the CST Act, particularly section 2(ab) thereof and has held that the term “crossing the customs frontiers of India” in the said section 2(ab) would mean the clearance of goods for home consumption on payment of duty and with this interpretation, a sale made by transfer of documents while the goods are in bonded warehouse would qualify as exempt under the second limb of section 5(2) of the CST Act.
7. In the light of the forgoing discussion, departing from the earlier view, the tribunal, while deciding the second appeals by its judgment dated 19th October, 2007, held that the sales made by transfer of documents while the goods are in bonded warehouse will qualify as a sale in the course of import exempt from tax under the second limb of section 5(2) of the CST Act. The alternative ground made by the appellant’s representative regarding the impugned sales effected to the parties situated in other states being otherwise inter-State sales and hence not liable to tax under the Bombay Act was also allowed by the tribunal. Such sales effected to inter-State parties, even if held to be not allowable as sales in the course import, would be liable to tax under the CST Act, in view of the Bombay High Court judgment in the case of M/s. Nievea Times (108 STC 6 order dated 14th August, 1997). It was held that in any case, assessment of such sales to tax under the Bombay Act would be bad in law.
8. So holding, the tribunal allowed the impugned bond sales as sales in the course of import exempt from tax under the second limb of section 5(2) of the CST Act and accordingly deleted the taxed levied thereon.
9. As per the order, the impugned sales are allowed as exempted from tax under the second limb of section 5(2) (high sea sales) of the CST Act. The taxes levied thereon are deleted. As the Revenue is not satisfied with the said judgment, it has preferred these two applications under section 61(1) of the Bombay Act requesting the tribunal to refer certain questions of law to this court for opinion and answer.
10. The tribunal, at the instance of the Revenue and while deciding their reference applications, opined that all the sales effected parties are not situated in the State. Some of the sales are out of Maharashtra and the same are allowed as exempt from tax solely for the reason that they qualify as high sea sales under section 5(2) of the CST Act. After referring to the judgments rendered by the Madras High Court and the Andhra Pradesh High Court, the tribunal opined that both these judgments express contrary views on the interpretation of the definition of the term “crossing the customs frontiers of India” defined in section 2(ab) of the CST Act. It may be that the Madras High Court’s judgment was not available when the Andhra Pradesh High Court decided a similar case, but what the Madras High Court did was to follow a judgment of the Hon’ble Supreme Court rendered in the case of M/s. Kiran Spinning (supra). In the view of the tribunal, this judgment of the Hon’ble Supreme Court was not directly on the interpretation of the above term/words and appearing in the CST Act, but was on “crossing the customs barriers” for the purpose of taxable event under the Customs Act, 1962. Thus, whether these two expressions, namely, “crossing the customs frontiers of India” and “crossing the customs barriers” would, in the context of two different taxing statutes, convey the same meaning, prompted the tribunal to refer the questions of law reproduced above for answer and opinion of this court. It, therefore, partly allowed the two reference applications.
11. We have heard Mr. V. A. Sonpal, the learned Special Counsel appearing with Ms. Jyoti Chavan-AGP for the State and Mr. N. V. Tapare appearing for the respondent. With their assistance, we have carefully perused the paper books in both references.
12. Mr. Sonpal would submit that the issue is whether the sales by the respondent to various parties in Maharashtra can be treated as sale in the course of import under section 5(2) of the CST Act and hence exempt from the local tax. According to Mr.Sonpal, these sales are not exempt from the Bombay Sales Tax Act, 1959 (for short, BST Act). After inviting our attention to the facts, he would submit that it is evident that goods imported from foreign country by sea reached a port at Mumbai. They were unloaded at the port at Mumbai. The respondent filed a bill of entry for warehousing and an assessment was done for custom duty. The goods were removed from the customs area and warehoused in bonded warehouse. The bill of lading is a document of title to goods in favour of the buyer. It is endoursed in the name of buyer, who clears the goods from bonded warehouse after filing bill of entry for home consumption and payment of duties. The argument of the dealer is that if transfer of documents of title to goods is effected before filing the bill of entry for home consumption, as claimed by it, then, the sale must be treated as sale in the course of import. However, according to Mr. Sonpal, the requirement of such sale being termed as sale in the course of import is not fulfilled. The crossing of customs frontiers occurs when goods were unloaded on the harbour when the frontiers of the customs was crossed first time and secondly and alternatively, crossing of customs frontiers occurs when bill of entry for warehousing was filed and duties assessed. Since the payment is deferred and goods were stored till then in bonded warehouse cannot be said to be a continuing course of import. Thus, according to Mr.Sonpal, the issue is what is meant by “crossing of customs frontiers in India”?
13. Relying on the definition of “crossing the customs frontiers of India”, it is urged that the documents of title to the goods have been transferred after removing the goods from port area for warehousing, by filing bill of entry for warehousing and assessment of duty under the Customs Act, 1962. Therefore, it cannot be said that a sale by transfer of documents of title to goods before crossing customs frontiers of India has taken place.
14. Sonpal submits that crossing of customs frontiers of India occurs when bill of entry is filed and duty assessed. He relies upon some provisions of the Customs Act and particularly sections 30, 46 and prior to them, section 17 and thereafter, section 47 and 68 of the said Act to submit that when the goods are imported by water, then, as soon as the vessel reaches an Indian port, the process of importation is complete. If the goods are carried by sea and the vessel reaches an Indian port, it is the movement or entry of the vessel which must be held to be the movement of importation of the goods. Hence, there cannot be said to be a sale in the course of import thereafter. Mr.Sonpal submits that in the present case, some events are relevant. From the documents furnished before the tribunal, it is evident that the agreement of high sea sale was entered into before the ship arrived at the port and therefore, when the goods were cleared for warehousing, the bill of entry should have been filed and shown the name of the purchasers as actual importers. Admittedly, the bill of entry for warehousing was filed and in the name of the respondents. Transfer of title to the goods on high sea would make the person, who purchased the goods on high sea, the importer of the goods and he would be liable to be assessed to customs duty. As the bill of entry records the name of the respondent as importer and it was the respondent who was assessed to customs duty, then, it is evident that the sale of goods by the respondent to local buyers is not high sea sale. After filing of the bill of entry and the assessment of customs duty, the import stream dries up and ceases to flow. Once the Customs Department levies the duty, whether paid or deferred, then, it is nothing but a local sale. If the transfer had taken place before filing the bill of entry and making of the assessment, then, the sale is deemed to be effected in the course of import and not otherwise. Hence, Mr.Sonpal says that the question of law referred for opinion of this court be answered in favour of the Revenue/Department and against the dealer.
15. In support of his contentions, Mr. Sonpal has relied upon the following decisions:-
(i) State of Madras vs. Davar and Company, (1969) 3 SCC 406.
(ii) M/s. Minerls and Metals Trading Corp. of India Ltd., Visakhapatnam vs. The State of Andhra Pradesh, (1998) 110 STC 394.
(iii) M/s. Indo Tex Exports (Pvt.) Ltd. vs. The State of Maharashtra, 1996 (13) MTJ 147.
(iv) M/s. Indo Burma Trading corporation vs. State of Maharashtra, 2004 (30) MTJ 443.
(v) State Trading Corporation of India Ltd. vs. State of Tamil Nadu and Anr., 2003 (129) STC 294.
(vi) Kiran Spinning Mills vs. Collector of Customs, (2000) 10 SCC 228.
(vii) U. Usha vs. State of Kerala, (2007) 5 VST 484.
(viii) Apar Private Ltd. and Ors. vs. Union of India and Ors., 1985 (22) ELT 644.
(ix) Indian Tourist Development Corporation Limited vs. Assistant Commissioner of Commercial Taxes and Anr., (2012) 3 SCC 204.
(ix) Deepak Bhandari vs. Himachal Pradesh State Industrial Development corporation Limited, Civil Appeal No. 1019 of 2014, decided on 29th January, 2014 (S. C.).
(x) Minerals and Metal Trading Corporation of India Ltd. vs. Sales Tax Officer and Ors., (1998) 7 SCC 19.
(xi) Narang Hotels and Resorts Pvt. Ltd. vs. State of Maharashtra and Ors., (2004) 135 STC 289.
16. For properly appreciating the rival contentions, one would have to make a brief reference to the relevant statutory provisions. Insofar as the BST Act is concerned, from its preamble, it would be evident that it is an Act to consolidate and amend the law relating to the levy of tax on the sale or purchase of certain goods and this Act extends to the whole of the State of Maharashtra. In section 2, certain definitions are set out and this section opens with the words “In this Act, unless the context otherwise requires”. The word “dealer” means:-
“(11) “dealer” means any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State, and includes [16] the Central Government, or any State Government which carries on such business, and also any society, club or other association of persons which buys goods from or sells goods to its members;
Exception I – An agriculturist who sells exclusively agricultural produce grown on land cultivated by him personally, shall not be deemed to be a dealer within the meaning of this clause;
Exception II – An educational institution carrying on the activity of manufacturing, buying, selling or supplying goods, in the performance of its functions for achieving its objects, shall not be deemed to be a dealer within the meaning of this clause;
Exception III – A transporter holding permit for transport vehicles (including cranes) granted under the Motor Vehicles Act, 1988, which are used or adopted to be used for hire shall not be deemed to be a dealer within the meaning of this clause in respect of sale or purchase of such transport vehicles or parts, components or accessories thereof.
Explanation. – For the purpose of this clause, –
(i) each of the following persons and bodies who dispose of any goods including goods as unclaimed or confiscated or as unserviceable or as scrap, surplus, old, obsolete or discarded material or waste products whether by auction or otherwise, directly or through an agent for cash, or for deferred payment, or for any other valuable consideration, shall, not withstanding anything contained in clause (5A) or any other provision of this Act, be deemed be a dealer, to the extent of such disposals namely, –
(a) Port Trust
(b) Municipal Corporation and Municipal Councils, and other local authorities;
(c) Railway administration as defined under the Indian Railways Act 1890;
(d) shipping, and Construction Companies;
(e) Air transport companies and Airlines;
(f) *****
(h) Customs Department of the Government of India administering the Customs Act, 1962;
(i) Insurance and financial corporations or companies and Banks included in the Second Schedule to the Reserve Bank of India Act, 1934;
(j) Advertising agencies;
(k) any other corporation, company, body or authority owned or set-up by, or subject to administrative control of the Central Government or any State Government.
(l) incorporated or un-incorporated society, club or other association of persons;
(ii) an auctioneer, who sells or auctions goods belonging to any principal whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of the principal, shall, notwithstanding anything contained in clause (5A) or any other provisions of this Act, be deemed to be a dealer;
(iii) a factor, broker, commission agent, del credere agent or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods belonging to any principal or principals whether disclosed or not, shall notwithstanding anything contained in clause (5A) or any other provisions of this Act, be deemed to be a dealer.”
17. A bare perusal of this definition [section 2(11)] would indicate as to how any person, who, whether for commission, remuneration or otherwise carries on business of buying or selling goods in the State and includes the Central Government, or any State Government which carries on such business, and others are taken to be dealers. Then, the next definition and which could be relevant for our purpose is of the term/word “goods”. That definition is to be found in section 2(13), which reads as under:-
““goods” means every kind of movable property (not being newspapers, or actionable claim or money, or stocks, shares or securities), and includes growing crops, grass, and trees and plants (including the produce thereof) and all other things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale.”
18. The word “importer” is defined in section 2(14) to mean a dealer who brings any goods into the State or to whom any goods are despatched from any place outside the State. The term “place of business” is defined in an inclusive manner in section 2(20). It includes warehouse, godown or other place where a dealer stores his goods and any place where he keeps his books of account. The word “prescribed” is defined in section 2(21) to mean prescribed by rules. The word “sale” is defined in section 2(28) and which reads thus:-
“2(28) “sale” means a sale of goods made within the State for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words “sell”, “buy” and “purchase”, with all its grammatical variations and cognate expressions, shall be construed accordingly.
Explanation. – For the purpose of this clause, –
(a) a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956 (LXXIV of 1956);
(b) (i) every disposal of goods referred to in the Explanation to clause (11);
(iii) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drinks (whether or not intoxicating, where such supply or service is made or is given on or after the 2nd day of February 1983, for cash, deferred payment or other valuable consideration;
(iv) the transfer, otherwise than in pursuance of a contract of property in any goods for cash, deferred payment or other valuable consideration;
(v) the supply of goods by any unincorporated association or body of persons, to a member thereof for cash, deferred payment or other valuable consideration;
shall be deemed to be a sale.”
19. The comprehensive definition of the term “sale” denotes that it means sale of goods made within the State and for the purpose of section 2(28), the explanation which was added by the Maharashtra Act 24 of 1990 indicates that the sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the CST Act and every disposal of goods referred to in the explanation to clause (11) of section 2 shall be deemed to be a sale.
20. The word “State” is defined in section 2(31) to mean the State of Maharashtra. The word “tax” is defined to mean a sales tax, purchase tax, turnover tax, surcharge or resale tax as the case may be, payable under the BST Act (see section 2(32).
21. Chapter II contains several provisions. Those are under the heading “Incidence and Levy of Tax”. Section 3 appears thereunder and reads as under:-
“S. 3. Incidence of tax. – (1) Every dealer whose turnover either or all sales or of all purchases, during –
(i) the year ending on the 31st day of March 1981,
(ii) the year commencing on the 1st day of April 1981
has exceeded or exceeds the relevant limit specified in subsection (4), shall until such liability ceases under sub-section (3), be liable to pay tax under this Act on his turnover of sales, and on his turnover of purchases, made, on or after the notified day:
Provided that, a dealer to whom sub-clause (i) does not apply but sub-clause (ii) applies and whose turnover either of all sales or of all purchases, first exceeds the relevant limits specified in sub-section (4) after the notified day shall not be liable to pay tax in respect of sales and purchases which take place upto the time when his turnover of sales, or turnover of his purchases as computed from the 1st day of April 1981, first exceeds the relevant limit applicable to him under sub-section (4).
(2) very dealer whose turnover, either of all sales or of all purchases made, during any year commencing on the 1st day of April, being a year subsequent to the years mentioned in sub-section (1) first exceeds the relevant limit specified in sub-section (4) shall, until such liability ceases under subsection (3), be liable to pay tax under this Act with effect from the said date:
Provided that, a dealer shall not be liable to pay tax in respect of such sales and purchases as take place during the period commencing on the 1st day of April of the said year upto the time when his turnover of sales or turnover of purchases as computed from the 1st day of April of the said year, does not exceed the relevant limit applicable to him under sub-section (4).
(3) Every dealer who has become liable to pay tax under this Act, shall continue to be so liable until his registration is duly cancelled; and upon such cancellation his liability to pay tax, other than tax already levied or leviable, shall until his turnover of sales or of purchases again first exceeds the relevant limit specified in sub-section (4), ceases:
Provided that, where the dealer becomes liable to pay tax again in the same year in which he ceased to be liable as aforesaid, then in respect of such sales and purchases as take place during the period commencing on the date of cessation of liability to tax and upto the time when his turnover of sales or of purchases does not exceed the relevant limit applicable to him under sub-section (4), no tax shall be payable.
(4) For the purposes of this sub-section, the limits of turnover shall be as follows:
