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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7863 OF 2009

Nirmal Kumar Parsan      … Appellant

Versus

Commissioner of Commercial Taxes & Ors.     …Respondents

WITH

CIVIL APPEAL NO. 7864 OF 2009

Parsan Brothers and Anr.      ... Appellants Versus

Assistant Commissioner of Commercial Taxes & Ors.   ... Respondents

J U D G M E N T

A. M. KHANWILKAR, J.

1. The principal question involved in these appeals is whether the

subject sales (of goods imported from foreign country and after

unloading the same on the land­mass of the State of West Bengal,

kept in the bonded warehouse without payment of customs duty) to

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foreign bound ships as “ship stores” can be regarded as sale within

the territory of the State and amenable to sales tax under the West

Bengal Sales Tax Act,  1954  (for  short, ‘the 1954 Act’)  or  the West

Bengal Sales Tax Act, 1994 (for short, ‘the 1994 Act’).   

2. The admitted factual position in the present cases is that after

importing foreign made cigarettes, the appellants stored the same in

the customs bonded warehouse within the land­mass of the State of

West Bengal and some of those articles were sold to the Master of a

foreign­going ship as ship stores, without payment of customs duty.

Those goods were escorted to the stated ship under the supervision of

the officials of the Customs authority.

3. These appeals take exception to the judgment and order of the

High Court at Calcutta (for short, ‘the High Court’), dated 16.8.2007

in  W.P.T.T.  Nos.  5/2007 and 6/2007 respectively,  whereby  it  had

upheld the decision of the West Bengal Taxation Tribunal (for short,

‘the Tribunal’) that the stated sales were within the territory of the

State of West Bengal and amenable to sales tax.

4. Civil Appeal No. 7863/2009 emanates from the assessment

order passed by the Commercial Tax Officer, West  Bengal, dated

13.3.1985 pertaining to assessment period – 1.4.1980 to 31.3.1981.

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The assessing officer rejected the claim for exemption from payment

of sales tax in respect of the stated sales of imported cigarettes from

the stock, as the cigarettes were sold to outgoing vessels  from the

bonded warehouse within the land­mass of the State of West Bengal

following the decision of the High Court in M/s. Ranjit Shipping Pvt.

Ltd. & Anr. vs. State of West Bengal & Ors.1.  The authority found

that it  was  not  a  sale in the  course  of import  as  claimed by the

assessees (appellants).   The appellants unsuccessfully carried the

matter  in appeal and finally  in revision before the Tribunal,  which

came to be rejected on 30.3.2007.  Before the revisional authority, the

only contention pursued was that there was no sale within the State

of West Bengal or even in India because the buyer had no right to

consume the goods before the ship crossed the territorial Waters of

India.  It was urged by the appellants before the revisional authority

that the process of import was not complete at the time of sale to the

foreign­going ship and the transaction was a sale  in the course of

import.   Resultantly, the sold goods were not taxable under the

concerned West Bengal Sales Tax laws because the goods never

entered the local area of the State of West Bengal, crossing the

customs frontiers of India as defined in Section 2(ab) of the Central

Sales Tax Act, 1956 (for short, ‘the CST Act’).  The Tribunal, however,

1 1980 SCC Online Cal 141 : (1980) 2 CHN 192

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held that the sale had taken place on the land­mass of the State of

West Bengal and the sale was neither for import nor for export.  The

Tribunal  essentially relied  upon  the  exposition in  Madras Marine

and Co. vs.  State  of  Madras2  to reject the revision filed  by the

appellants being devoid of merits.   Feeling aggrieved, the appellants

carried the matter to the High Court by way of a writ petition being

W.P.T.T. No. 5/2007, which came to be rejected by the Division

Bench  of the  High  Court  whilst  upholding the view taken  by the

Tribunal as just and proper.

5. Civil Appeal No. 7864/2009 emanates from the order dated

22.10.2003  passed  by the  Assistant  Commissioner of  Commercial

Taxes  under Section 65 of the  1994 Act  pertaining  to  assessment

periods – 1.4.1999 to 31.3.2000, 1.4.2000 to 31.3.2001, 1.4.2001 to

31.3.2002 and 1.4.2002 to 31.3.2003.   The claim of the appellants

that the sales in question were in the course of import on high seas

and  no sales tax  was  payable thereon came to  be rejected.   The

authority answered the claim as follows:­

“…..   

All the judicial edicts relevant and referred to were perused and the documents produced by the dealer were examined. His Lordship Hon’ble West Bengal Taxation Tribunal passed the judgment after considering all the grounds taken by the dealer including the one for the position of the

2 (1986) 3 SCC 552

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law after introduction of the section 2(ab) in Central Sales Tax Act.   His Lordship Honourable High Court of Kolkata did not express even a mite of doubt in the correctness of the impugned order of the Hon’ble Tribunal.  The order was remanded  for quantification  of sales in  dispute.   It  was observed that, of the total goods imported and stored only a portion was taken out  for  sale  to master of  a particular ship.   From the same warehouse goods for sales to local persons also were taken.  So the sold goods could not have been ascertained and appropriate before those were taken out of the bonded warehouse.   The risk in the goods was transferred at that time and at that place only.   It might have so happened that the Customs authority took custody of the goods for preventing  loss of its own revenue.  No such sale could have been one in the course of import because the sale did not occasion the import.  None of those was export because the goods were not supposed to enter  into the territory of another country in the form those were dispatched.  The analogy of sales from duty­free shops was irrelevant.   For, it always remains on the other side customs frontier and so the risk is transferred before crossing of the frontier.

Thus there was no gainsay that sales of goods to masters of ships were sales in the state and were taxable.  The dealer was asked to pay tax on such sales and revise the return for the years yet to be assessed.   The assessing authority was requested to revise if necessary, assessments not impugned.   The appellate and revisional authorities were requested to treat the tax payable on such sale as admitted one. …..”

(emphasis supplied)

6. Feeling aggrieved, the appellants resorted to revision before the

Tribunal,  which came to  be rejected following the  decision  of the

Tribunal passed on the same date i.e. 30.3.2007 in case of the

companion appeal.  The appellant carried the matter by way of a writ

petition  being  W.P.T.T.  No. 6/2007 before the  High  Court, which

came to be dismissed by the High Court, upholding the decision of

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the authority,  which had held that the sales  in question would be

amenable to sales tax under the 1994 Act.

7. The thrust of the argument of the appellants in these appeals is

that the process of import was not complete at the time of sale of the

goods in question to the foreign­going ship and the transaction of sale

was “in the course of import”, for which reason it was not amenable to

sales tax and in fact, the State would have no authority to levy such

tax.  To buttress this submission, reliance was placed on Article 286

of the Constitution of India providing for restrictions as to imposition

of tax on the sale or purchase of goods and on Section 5 of the CST

Act, in particular sub­Section (2) thereof, to contend that the sales in

question shall be deemed to have taken place in the course of import

of goods in the territory of India.   Reliance was placed on the

Constitution Bench decision of this Court in  J.V. Gokal & Co.

(Private) Ltd. vs. Assistant Collector of Sales­Tax (Inspection) &

Ors.3,  which had  followed the exposition  in  State of  Travancore­

Cochin & Ors. vs. Shanmugha Vilas Cashew Nut Factory, Quilon

& Ors.4.   Relying on the definition of expression “crossing the

customs frontiers of India” in Section 2(ab) of the CST Act, of

“customs area” in Section 2(11) and of “customs station” in Section

3 (1960) 2 SCR 852 : AIR 1960 SC 595 4 (1954) SCR 53 : AIR 1953 SC 333

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2(13) of the Customs Act, 1962 (for short, ‘the Customs Act’), it was

urged that crossing the customs frontiers means crossing the limits of

the customs station including crossing the area in which imported

goods or exported goods are ordinarily kept before the clearance by

the Customs authorities.  Reliance was also placed on the decision in

Minerals & Metals Trading Corporation of India Ltd. vs. Sales

Tax Officer & Ors.5, which has had occasion to construe Section 5 of

the CST Act.  It was then urged that the goods in question were kept

for warehousing and a declaration was given by the appellants that

the  said  goods would be  exported  to foreign­going  vessels  as  ship

stores  in terms of Section 88 of  the Customs Act.  The appellants

have adverted to  Sections 69, 85 and  88 of the  Customs  Act to

contend that the stated goods could be exported to a place outside

India without payment of import duty and until import duty was paid,

the import thereof cannot be said to be complete.  Reliance was then

placed on the decision in Indian Tourist Development Corporation

Limited vs. Assistant Commissioner of Commercial Taxes &

Anr.6, which according to the appellants, applied on all fours, as even

in that case, the goods were kept in the bonded warehouses and then

supplied to duty­free shops, which transaction has been extricated

5 (1998) 7 SCC 19 6 (2012) 3 SCC 204

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from the applicability of sales tax payable to the State on the ground

that the goods had not crossed the customs frontiers and the sale was

deemed to have taken place in the course of import of goods into the

territory of India.  According to the appellants, the finding recorded by

the authorities below which commended to the High Court, was

completely in the teeth of the aforesaid decision.  The appellants have

distinguished the decision in Madras Marine (supra) on the premise

that in that case the goods were intended for re­export only and in

that context, it was held that there was a necessity of a destination in

a foreign country.  Moreover, the said decision has not considered the

efficacy of Section 2(ab) of the CST Act nor noticed the dictum in J.V.

Gokal  (supra), which dealt with the case of import/‘in the course of

import’.   It was urged that the decision in  J.V. Gokal  (supra) had

been followed in a recent decision in State of Kerala & Ors. vs. Fr.

William Fernandez & Ors.7.  It was further urged that the dictum in

Coffee Board, Bangalore vs. Joint Commercial Tax Officer,

Madras & Anr.8  is distinguishable and inapplicable to the fact

situation of the present case and more so, may have no bearing after

the amendment of 1976 to Section 5 by insertion of sub­Section (3)

therein, which opens with non­obstante clause and provides that the

7 2017 SCC Online SC 1291 : (2017) 12 SCALE 463 8 (1969) 3 SCC 349

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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  was  placed  on the objects  and reasons  of the

Amendment Act.   In substance,  it  was urged that the stated sales

were in the course of import and could not be subjected to levy of

sales tax by the State under the State legislation.

8. Per contra, the respondents would urge that the authorities had

considered all aspects of the matter and after due evaluation of the

evidence before it, justly concluded that the stated sales were neither

in the course of import nor export and had taken place on the land­

mass of the State of West Bengal and thus, amenable to sales tax

under the 1954 Act and the 1994 Act, as the case may be.   It was

urged  that it is  an admitted position  that the  goods were kept in

bonded warehouses on the land­mass of the State of West Bengal and

were sold to the Master of a foreign­going ship as ship stores thereat.

It was urged that the expression “crossing the customs frontiers of

India” has already been defined in the CST Act and limits its

application to area of a “customs station”, as defined in the Customs

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Act to  mean  any customs  port, customs  airport or land customs

station.   In other words, the expression “crossing the customs

frontiers of India”  is exhaustive and would not include the bonded

warehouses,  where the stated goods  were kept to be sold to the

Master of a foreign­going ship as ship stores.  It was urged that being

a taxation statute, strict interpretation should be offered to this

definition as expounded in  Commissioner of Customs (Import),

Mumbai vs. Dileep Kumar and Company & Ors.9.   It was further

urged that the stated sales of goods by no stretch of imagination can

qualify the expression “in the course of import of goods into the

territory of India”, as is contended by the appellants.   For that, the

goods must actually be imported into the territory of India and sale

must be a  single  sale,  which  itself  causes  the  import  or is in  the

progress or process of import.  It was urged that the authorities had

rightly opined that there was sale within the State of West Bengal;

whilst rejecting the claim of the appellant(s) that merely because

buyer had no right to consume the goods in question before the ship

had crossed the territorial Waters of India, that would make no

difference because the sale  was complete by appropriation of the

goods in the bonded warehouse itself.   Similarly, the fact that

customs  duty was not paid on the stated goods would be of no

9 (2018) 9 SCC 1

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consequence.  It was urged that the appellants have, for the first time,

raised a new plea that they had filed declaration.  No such plea was

taken before the concerned authority nor any document or evidence

was produced in support thereof for the relevant assessment

period(s).   The appellants, therefore, cannot be permitted to pursue

this  contention.  Thus, the  appeals  be  confined  to the  plea  taken

before the authorities below that the stated sales were not effected

within the territory  of the  State  of  West  Bengal  or in India.  The

respondents have placed reliance on the decisions in Burmah Shell

Oil Storage and Distributing Co. of India Ltd. & Anr. vs.

Commercial Tax Officer & Ors.10,  Coffee Board  (supra) and

Madras Marine (supra) to contend that the issue is answered against

the appellants.   The respondents have distinguished the decision

relied upon by the appellants in  Indian Tourist Development

Corporation  (supra).   It  was urged that  the doctrine of  Unbroken

Package evolved by American Courts has no application in India, as

expounded  in  Fr. William Fernandez  (supra).   It  was thus urged

that the taxable event had occurred on the appropriation of goods at

the bonded warehouse  itself,  which was within the territory of the

State of  West  Bengal.   To  buttress this submission, reliance  was

10 (1961) 1 SCR 902 : AIR 1961 SC 315

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placed on Kiran Spinning Mills vs. Collector of Customs11, wherein

it has been held that the taxable event would be the day of crossing of

customs barrier and not the date when the goods landed in India or

had entered the territorial Waters.  The respondents would urge that

the appeals are devoid of merits and be accordingly dismissed.

9. We have heard Mr. Siddharth Bhatnagar, learned senior counsel

and Mr. Joydeep Mazumdar, learned counsel appearing for the

appellants and Ms. Madhumita Bhattacharjee, learned counsel

appearing for the respondents.   

10. As noticed from the finding of fact recorded by the authorities, it

is not in dispute that after importing the stated goods, the appellants

stored the same in the bonded warehouse within the land­mass of the

State of West Bengal and some of the articles were then sold to the

Master  of  a foreign­going  ship  as  ship  stores,  without  payment  of

customs duty thereon.  The question is: whether the sales in question

would qualify the  expression  “sale in the  course  of import”?  The

phrase “sale in the course of import” would constitute three essential

features – (i) that there must be a sale; (ii) that goods must actually be

imported and (iii) that the sale must be part and parcel of the import.

The factual matrix in the present case clearly depicts that the sales in

11 (2000) 10 SCC 228

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question would  not  cause import  of the  stated goods.   Instead, it

would result in taking away the goods (after being unloaded on the

land­mass of the State of West Bengal) on the ongoing ship as ship

stores outside the territory of Indian Waters for being consumed on

the  ship  and not for export to  another  destination as  such.  The

appellants have advisedly not pursued the argument that the stated

sales would result in an export or would be in the course of export.

For, such argument has been rejected by this Court in  Madras

Marine (supra).   

11. Concededly, the principle underlying the exposition in the above

referred reported decision would apply  proprio vigore  for considering

the argument as to whether the stated sales can be regarded as sale

in the course of import as such.   The two­Judge Bench in  Madras

Marine (supra) had considered the decision of Constitution Bench in

Burmah Shell  (supra).   The Court noted the dictum of the

Constitution Bench to the effect that in order to exclude the taxation

by the State, the appellants had to prove that there was some other

State,  where  the  goods could be  said  to  have  been delivered as  a

direct result of the sale for the purpose of consumption in that other

State and as they failed to do so, the goods loaded on board of an

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aircraft for consumption though taken out of India, was not export

since it had no destination, where it can be said to have been

imported and so long as it did not satisfy that test, it could not be

said that the sale was in the course of export.  Besides noticing this

dictum of the  Constitution Bench, the  Court  also  adverted to the

decision in  State of  Kerala  & Ors. vs.  Cochin  Coal  Company

Ltd.12, wherein it was held that the concept of export in Article 286(1)

(b) of the Constitution postulates the existence of two termini as those

between which the goods were intended to move or between which

they were intended to be transported and not a mere movement of

goods out of the country without any intention of their being landed

in specie in some foreign port.  Additionally, the Court also extensively

adverted to the decision of the Andhra Pradesh High Court in

Fairmacs Trading Co.  vs.  The State  of  Andhra Pradesh13  and

approved the same dealing with the similar argument.  The Court also

noted and approved the decision of the Madras High Court in

Fairmacs Trading Co. vs. The State of Tamil Nadu14.   The Court

in paragraphs 19 to 21 and 25 to 28 observed as under:­

“19.   The correct position, so far as the facts of the present case are concerned, in our opinion, has been laid in the decision of Burmah Shell Oil Storage and Distributing Co. of

12 (1961) 2 SCR 219 : AIR 1961 SC 408 13 (!975) 36 STC 260 (AP) 14 (1978) 41 STC 157 (Mad)

15

India Ltd. v. C.T.O. This Court observed at page 781 as follows:

“While all exports involved a taking out of the country, all goods taken out of the country cannot be said to be exported. The test is that the goods must have a foreign destination where they can be said to be imported. It  matters not that there  is  no valuable consideration from the receiver at the destination end.  If the goods are exported and there is sale or purchase in the course of that export and the sale or purchase occasions the export to a foreign destination, the exemption is earned. Purchases made by philanthropists of goods in the course of export to foreign countries to alleviate distress there, may still be exempted, even though the sending of the goods was not a commercial venture but a charitable one. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports.”

20.   The appellants in that case dealt in petroleum and petroleum products and carried on business at Calcutta. They  had  maintained supply  depots  at  Dum Dum Airport from which aviation spirit was sold and delivered to aircraft proceeding abroad for their consumption. The question was whether these supplies to the  aircraft  which  proceeded to foreign countries were liable to sales tax under the Bengal Motor Spirit Sales Taxation Act, 1941. The contention of the appellants in that case was that such sales were made in the course of export of such aviation spirit out of the territory of India, that they took place outside the State of West Bengal, that inasmuch as aviation spirit was delivered for consumption outside West  Bengal, the sales  could  not fall within  the Explanation to clause  (1)(a)  of  Article  286 as  it then stood. It was held by this Court that in order to exclude the taxation by the State of West Bengal, the appellants had to prove that  there was some other State where the goods could be said to have been delivered as a direct result of the sale for the purpose of consumption in that other State and that  as they failed to  do so, the  aviation  spirit loaded  on board an aircraft for consumption though taken out of India, was not exported since it had no destination, where it could be said to be imported and so long as it did not satisfy that test, it could not be said that the sale was in the course of export. It was further held that aviation spirit was sold for the use of aircraft and the sale was not even for the purpose of export  and all the  elements  of sale including  delivery  and payment of price took place within the State of West Bengal and the sales were complete within the territory of that State.

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The customs barrier did not set a terminal limit to the territory of West Bengal for sales tax purpose. The sale beyond the customs barrier was still a sale in fact in the State of West Bengal.

21.   The ratio of  this decision would be applicable to the facts and circumstances of this case. It was rightly urged that the appropriation of goods took place in the State of Tamil Nadu when the goods were segregated in the bonded warehouse to be delivered to the foreign going vessels. It was not a case of export as there was no destination for the goods to a foreign country. The sale was for the purpose of consumption  on  board the ship. It  was  not as if only on delivery  on board  the  vessel that the  sale took place.  The mere fact that shipping bill was prepared for sending it for custom formalities which were designed to effectively control smuggling activities  could  not  determine  the  nature  of the transaction for the purpose of sales tax nor does the circumstances that delivery was to the captain on board the ship within the territorial waters make it a sale outside the State of Tamil Nadu.

xxx xxx xxx

25.   In the case before the Andhra Pradesh High Court in Fairmacs  Trading  Company v.  State  of  A.P., the  petitioner imported ship­stores from  foreign countries,  kept these in bonded warehouses of the customs department without the levy of customs duty and later on sold and delivered to ships' masters for consumption abroad the ship after crossing the port boundaries. On the question  whether the sales  were outside the State or in the course of export and therefore not liable to  tax under the Andhra Pradesh General  Sales Tax Act, 1957, it was observed by the Andhra Pradesh High Court that the goods were specific and ascertained and were within the State when the contract of sale took place and therefore the requirements of Section 4(2)(a) of the Central Sales Tax Act, 1956 were fully satisfied and the sales must be said to have taken place inside the State; but as the goods sold were meant for consumption during voyage and they had no destination in any foreign country where they could be received as imports, the sales were not sales in the course of exports. It was further held that mere movement of goods out of the country following a sale would not render the sale, one in the course of export within Article 286(1)(b) of the Constitution of India. Before a sale can be said to be a sale in the course of  export, the existence of two termini  between which the goods are intended to move or to be transported is necessary.

26.   The Madras High Court in the case of Fairmacs Trading Co. v. State of T.N. was dealing with an assessee, who was a

17

dealer in ship's stores and was also doing business as ship chandlers and who imported goods from abroad for the pur­ pose of supplying them either to foreign­going vessels or to diplomatic personnel. These goods were received and kept in the customs bonded warehouse and were cleared under the supervision of the customs authorities whenever these were sold by the assessee. In respect of supplies of specific goods made to certain ships located in the Madras harbour, pur­ suant to orders placed by the Master of the ship or other offi­ cers working in the ship, the transportation of the goods to the ship was effected in such a manner as to ensure that the bonded goods, which had not paid any duty, did not enter the local market. The delivery receipt sent along with the goods by the assessee was signed by an officer of the ship in token of having received the goods in good condition. The question that arose for consideration was whether the sale took place within the State of Tamil Nadu and liable to be taxed under the Tamil Nadu General Sales Tax Act, 1959. It was held (i) that there was nothing to show in the communications from the ship that the goods had necessarily to be supplied only in the ship. It was open to the officers working in the ship to come and take delivery of the goods in which event the sale would be a local sale. Therefore, assuming that the territorial waters did not form part of the State of Tamil Nadu, as there was nothing in the contemplation of the contracting parties that the goods were to be moved from one State to another, it was held that it was not possible to take the view that the sales were inter­State sales; and (ii) that the assessee was not selling specific or ascertained goods, because the goods formed part of a larger stock within the bonded warehouse and had, therefore to be separated and appropriated to the contract as and when orders were placed by the officers of the ship by description. Therefore, the sales were local sales in view of the specific provision of Section 4(2)(b) of the Central Sales Tax Act, 1956, read with Section 2(n), Explanation 3 of the Act (Tamil Nadu General Sales Tax Act, 1959), and were accordingly taxable under the Act. The court did not find it necessary to consider the question whether the territory cov­ ered by the territorial waters formed part of the State of Tamil Nadu or not.   

27.    Attention of the Madras High Court was drawn to the decision of Andhra Pradesh High Court in Fairmacs Trading Co. v. State of A.P.  The Madras High Court did not examine the question in detail in the view it took.  

28. In so far as the  High  Courts of  Andhra  Pradesh  and Madras in the said two decisions held that sales took place within the State, we are in agreement.”

(emphasis supplied)

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The Court finally concluded in paragraphs 36 and 37 as follows:­

“36. The short question, therefore, that arises in all these matters is whether sale of the goods in question took place within the territory of Tamil Nadu. In these cases sale took place by appropriation of goods. Such appropriation took place in bonded warehouse. Such bonded warehouses were within the territory of State of Tamil Nadu. Therefore, under sub­section (2), sub­clauses (a) and (b) of section  4 of the Central  Sales­Tax Act,  1956,  the sale of  goods  in question shall be deemed to have taken place inside the State because the contract of sale of ascertained goods was made within the territory of Tamil Nadu and furthermore in case of unascer­ tained goods appropriation had taken place in that State in terms of clause (b) of sub­section (2) of section 4 of the Cen­ tral Sales Tax Act, 1956. There is no question of sale tak­ ing place in course of export or import under section 5 in this case. From that point of view the amendment intro­ duced by Act 103 of 1976 by incorporating in clause (ab) of section 2 of the Central Sales Tax Act, 1956 does not affect the  position. In this connection reference may be made from the observations of this Court in Burmah Shell Oil Storage  Ltd.,  where it  has  been held that  customs barrier does not set a terminal limit to the territory of the State for sales­tax purposes. Sale, therefore, beyond the customs bar­ rier is still a sale within the State.  The amendment intro­ duced in section 2 by the Act 103 of 1976 does not affect the  position  because the  custom station is  within the State of Tamil Nadu. That question might have been rele­ vant if we were considering the case of sale by the trans­ fer of documents of title to the goods as contemplated by section 5 of the Central Sales­Tax Act.  In the premises we are unable to accept the contentions urged on behalf of the appellants in the civil appeals and also the contentions urged in the writ petition. 37. In the view we have taken, it is not necessary to ex­ press our opinion on the arguments whether introduction of clause (ab) of section 2 of Central Sales Tax Act by Act 103 of 1976 is prospective or not. We have, however, noted the sub­ missions. That question, in the light of our aforesaid views, is not material for the present controversy.”

(emphasis supplied)

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

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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  foreign­going 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

20

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

21

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.

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

15 Inserted by Act 11 of 1983, sec. 46 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/2009

22

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;

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.”

16 Inserted by Act 11 of 1983, sec. 47 (w.e.f. 13-5-1983) – applicable to C.A. No. 7864/2009

23

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

24

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/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 duty­free 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

25

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  duty­free

shops were sold directly to the passengers and even the delivery of

goods took place at the duty­free 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 duty­free 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 duty­free shop is situated in

airport area, it would mean that the sale of goods at the duty­free

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

26

also a sale in the course of import, would equally have no bearing on

the present cases.   Inasmuch 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.

17 (1997) 10 SCC 1

27

(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 there may appear to be two sale transactions they are so integrally inter­connected 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 importer­cum­ 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 sub­section (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

28

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  4­10­1978.  As  on that day when the goods were so removed additional duty of excise under the said Ordinance was payable on goods manufactured after 4­10­1978. 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 22­7­ 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.

29

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 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

18 (1975) 2 SCC 47

30

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

31

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 sub­Section (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 land­mass 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  land­mass/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.

32

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.  

................................., J.      (A.M. Khanwilkar)       

................................., J.       (Dinesh Maheshwari)    

New Delhi; January 21, 2020.