REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  2560  OF 2010

M/S HOTEL ASHOKA      …APPELLANT (INDIAN TOUR.DEV.COR.LTD.)

        VERSUS

ASSISTANT COMMISSIONER OF COMMERCIAL  TAXES & ANR. ....RESPONDENTS

WITH

CIVIL APPEAL NOs. 10404-10412 OF 2010

J U D G M E N T

ANIL R. DAVE, J.

CIVIL APPEAL NO. 2560  OF 2010

1. In this appeal, an order dated 9th June, 2009 passed by the High Court  

of Karnataka, in Writ Appeal No. 881 of 2009 (T-CST) is challenged by the  

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appellant, who is an assessee and registered as a dealer under the provisions  

of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ‘the  

Act’).  Facts giving rise to the present litigation in a nutshell are as under:

2. The  appellant,  M/s  Hotel  Ashoka,  is  managed  by  India  Tourism  

Development  Corporation  Limited  (hereinafter  referred  to  as  ‘the  

Corporation’).  The Corporation is having its duty free shops at all major  

International Airports in India.    At the said duty free shops, the appellant  

sells several articles including liquor to foreigners and also to Indians, who  

are going abroad or coming to India by air.  We are concerned with a duty  

free shops situated at an International Airport at Bengaluru. The appellant is  

registered as a dealer under the Act as well as under the Central Sales Tax  

Act, 1956 (hereinafter referred to as ‘the Central Act’).  In the return filed  

under the Act as well as under the Central Act for the relevant period, the  

appellant had stated that though liquor, cigarettes, perfumes and food articles  

were sold at the duty free shops at the Bengaluru International Airport, no  

tax was payable by the appellant as the goods which had been sold at the  

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

goods at the duty free shops was made before importing the goods or before  

the goods had  crossed the customs frontiers of India.

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3. According to the appellant,  no tax can be levied under  the Act or  

under the Central Act when the goods are sold in the course of import or  

before  the  goods  have  crossed  the  customs  frontier  of  India  as  per  the  

provisions of Section 5 of the Central Act and so far as the Act is concerned,  

no tax can be levied, if the sale  takes place before the goods crosses the  

customs frontiers of India as no State can tax the sale or purchase of goods  

which are  outside  the  concerned State  i.e.  the  State  of  Karnataka  in  the  

instant case, as per the provisions of Article 286 of the Constitution of India.  

In spite of the above stand of the appellant, the Assistant Commissioner of  

Commercial Taxes (Transition -12) Bengaluru, by an assessment order dated  

28th May, 2008 directed the appellant to pay a sum of Rs.4,20,70,900/- by  

way of sales tax.  

4. Being  aggrieved  by  the  assessment  order  passed  by  the  Assistant  

Commissioner of Commercial Taxes Bengaluru, the appellant filed W.P.(C)  

No. 10989 of 2008 in the High Court of Karnataka which was rejected on  

11th February,  2009,  on  the  ground that  the  appellant  had not  exhausted  

equally efficacious  alternative remedy available to it under the provisions of  

the Act.  The learned Single Judge did not consider merits of the case for the  

aforestated reason.

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5. Being aggrieved by the view expressed by the learned Single Judge,  

the appellant  preferred Writ  Appeal  No.  881 of  2009(T-CST) before the  

Division Bench of the High Court which was also dismissed on 9th June,  

2009 as the Division Bench found substance in the observations made by the  

learned Single Judge, hence the appellant has filed this appeal before this  

Court.

6. Learned counsel appearing for the appellant drew our attention to the  

provisions of Article 286 of the Constitution and Section 5 of the Central  

Act.  He submitted that the Constitution does not permit any State to impose  

tax on sale or purchase of goods where such sale or purchase takes place  

outside the State or in the course of the import of the goods into or export of  

the goods out of the territory of India.

7. He further submitted that in the instant case, all sales had taken place  

at  the duty free shops of  the appellant  before the goods had crossed the  

customs frontiers of India.  He stated that the goods, which are the subject  

matter of the present litigation were brought in India and had been kept at  

bonded warehouses and thereafter they were transported to duty free shops  

which were outside the customs frontiers of India.

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8. He further submitted that till the goods cross the customs frontiers of  

India, technically the goods are considered to have remained outside India  

and once the sale or purchase of the goods which takes place in the course of  

import or export or outside the concerned State, according to the provisions  

of Article 286 of the Constitution, no State can impose any tax on such a  

sale or purchase.  As the duty free shops of the appellant are outside the  

customs frontiers of India, as per legal fiction, the sale of goods cannot be  

said to be in any State but technically such a sale would be considered to be  

in the course of import of the goods and, therefore, the sale effected at the  

duty free shops of the appellant cannot be taxed under the Act.

9. He further submitted that all the duty free shops of the appellant are in  

customs area as defined under Section 2(11) of the Customs Act, 1962 (in  

short the ‘Customs Act’).  According to the said definition, ‘customs area’ is  

the area of a customs station and it  includes any area in which imported  

goods  or  export  goods  are  ordinarily  kept  before  clearance  by  Customs  

Authorities.  According to him, the goods can be said to have been imported  

only after sale of the goods at duty free shop to a passenger, if the passenger  

brings the goods in India, after crossing the customs frontiers of India and  

not before that, because import means bringing of goods into India from a  

place outside India and as the duty free shops are in customs area, and as the  

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goods are sold before clearance of Customs Authorities, it cannot be said  

that the goods sold by the duty free shops were sold after they were imported  

or in Karnataka State.

10. For the aforestated reasons, according to him, the assessment order  

passed  by  the  Assistant  Commissioner  of  Commercial  Taxes,  Bengaluru  

dated 28th May, 2008 is bad in law.  According to the learned counsel, the  

said officer had committed a grave error by treating the sale at duty free  

shops as sale after import of the goods in the State of Karnataka.

11. He  further  submitted  that  the  learned  Single  Judge  as  well  as  the  

Division Bench of the High Court ought not to have passed orders against  

the  appellant  as  the  appellant  had  not  exhausted  equally  efficacious  

alternative statutory remedy.  He submitted that the issue involved in the  

litigation had already been decided by this Court and other High Courts and  

the legal  position was so clear  that  the appellant  ought not  to have been  

asked to exhaust alternative statutory remedy.  He submitted that when facts  

were not in dispute and the law had been settled by this Court in several  

other cases,  it  was not proper on the part  of the learned Single Judge to  

dispose of the petition only on the ground that the alternative remedy had  

not  been  exhausted.   He  also  submitted  that  the  Division  Bench  also  

committed an error by confirming the order passed by the learned Single  

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Judge of the High Court.  So as to substantiate his submission, the learned  

counsel relied upon several judgments including the judgments delivered in  

the cases of State of Travancore-Cochin and others v. Bombay Company  

Ltd.  Alleppey [AIR  1952  SC  366], State  of  Travancore-Cochin  and  

others v.  Shanmugha Vilas Cashewnut Factory Quilon [AIR 1953 SC  

333],  J.V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales Tax  

(Inspection) and Others [AIR 1960 SC 595] and in Kiran Spinning Mills  

v. Collector of Customs [AIR 2000 SC 3448].

12.  On the other hand, learned senior counsel Shri Bhat and Shri Sharma,  

assisted by learned counsel Shri Qadri appearing for the respondent-State,  

mainly submitted that the orders passed by the learned Single Judge as well  

as  by  the  Division Bench  of  the High Court  are  just  and proper.   They  

submitted that the High Court rightly did not entertain the petition as the  

appellant had not challenged the validity of the order before the appellate  

authority appointed under the Act.  They submitted that the Act has set up  

appellate authorities and according to the provisions of the Act,  an order  

passed by the  assessing officer should be first challenged before the first  

appellate  authority  and  only  after  all  the  remedies  under  the  Act  are  

exhausted, the appellant should have approached the High Court.  As the  

statutory remedies had not been exhausted by the appellant, according to the  

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learned  counsel,  the  High  Court  had  rightly  dismissed  the  appeal  by  

confirming the order passed by the learned Single Judge.

13. On merits they submitted that purchase of the goods at the duty free  

shops of the appellant  would be taxable under the provisions of the Act.  

They  submitted  that  after  purchase  of  the  goods  at  the  duty  free  shops,  

passengers enter the country by crossing the customs frontiers.  The goods  

were  actually  delivered  to  the  customers  and sales  were  not  effected  by  

transfer of documents of title to the goods and, therefore, it can not be said  

that  no tax could have been levied on the sales effected at  the duty free  

shops.  According to them, crossing of customs frontiers had no significance  

because once the goods are brought into our country and especially in the  

State of Karnataka, all  sales effected in the State of Karnataka would be  

subject to tax as per the provisions of the Act.  The duty free shops situated  

at Bengaluru International Airport are situated in the State of Karnataka and,  

therefore,  sales  effected  at  the  said  shops  would  be  taxable  under  the  

provisions of the Act.

14. They further submitted that according to Section 5 of the Central Act,  

the sales which caused import  or  which occasioned import  would not  be  

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subject  to  tax  under  the  Act.   According  to  them,  all  these  transactions  

referred to  in  the  assessment  order  had not  taken place  in  the course  of  

import  or  they had not caused or occasioned import,  and,  therefore,  they  

would be subject to tax under the Act.  They further submitted that the goods  

had  not  been  sold  by  transferring  the  documents  of  title  to  the  goods.  

According to them, before the goods had crossed the customs frontiers, they  

ought to have been transferred by transfer of documents of title to the goods,  

but as it was not done so, it cannot be said that the sales had taken place in  

the course of import of the goods before crossing the customs frontiers of  

our country.   So as to substantiate the aforestated submissions, they relied  

upon the judgments in K. Gopinathan Nair and Others v. State of Kerala  

[(1997) 10 SCC 1],  Binani Bros. (P) Ltd. v. Union of India and Others  

[(1974) 1 SCC 459], Mohd. Serajuddin & Ors. v. State of Orissa [(1975)  

2 SCC 47].  

15.  In the circumstances,  they submitted  that  the appeal  be dismissed  

with costs and the stay granted by this Court be vacated.

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16. We heard the learned counsel at length and considered the impugned  

order  of  assessment  as  well  as  the  orders  passed  by  the  High  Court  of  

Karnataka and the judgments referred to by the learned counsel.

17. In our opinion, the facts stated by the counsel are not much in dispute.

18. It  is  an admitted fact  that the goods which had been brought from  

foreign countries by the appellant had been kept in bonded warehouses and  

they were transferred to duty free shops situated at International Airport of  

Bengaluru  as and when the stock of goods lying at the duty free shops was  

exhausted.  It is also an admitted fact that the appellant had executed bonds  

and the goods, which had been brought from foreign countries, had been  

kept in bonded warehouses by the appellant.  When the goods are kept in the  

bonded warehouses, it cannot be said that the said goods had crossed the  

customs frontiers.  The goods are not cleared from the customs till they are  

brought in India by crossing the customs frontiers.   When the goods are  

lying in the bonded warehouses, they are deemed to have been kept outside  

the  customs  frontiers  of  the  country  and as  stated  by  the  learned senior  

counsel appearing for the appellant, the appellant was selling the goods from  

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the duty free shops owned by it at Bengaluru International Airport before the  

said goods had crossed the customs frontiers.

19. Thus, before the goods were imported in the country, they had been  

sold at the duty free shops of the appellant.

20. In view of the aforestated factual position and in the light of the legal  

position  stated  hereinabove,  it  is  very  clear  that  no  tax  on  the  sale  or  

purchase of goods can be imposed by any State when the transaction of sale  

or purchase takes place in the course of import of goods into or export of the  

goods  out  of  the  territory  of  India.   Thus,  if  any  transaction  of  sale  or  

purchase takes place when the goods are being imported in India or they are  

being exported from India, no State can impose any tax thereon.

21. Section 5 of the Central Act deals with the transaction which is said to  

have taken place in the course of import  or  export.   Relevant  portion of  

Section 5 of the Central Act reads as under:

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“5(1) xxx xxx xxx

   (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  goods  have  

crossed the customs frontiers of India.”

22. Upon perusal of the aforestated provision of Section 5 of  the Central  

Act, it is clear that a sale or purchase of goods shall be deemed to take place  

in the course of import of the goods into the territory of India only if sale or  

purchase takes place before the goods have crossed the customs frontiers of  

India.

23. Looking to the aforestated legal position,   it cannot be disputed that  

the goods sold at the duty free shops, owned by the appellant, would be said  

to have been sold before the goods crossed the customs frontiers of India, as  

it is not in dispute that the duty free shops of the appellant situated at the  

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International Airport of Bengaluru  are beyond the customs frontiers of India  

i.e. they are not within the customs frontiers of India.

24. If this is the factual and legal position, in our opinion, looking to the  

provisions of Article 286 of the Constitution, the State of Karnataka has no  

right to tax any such transaction which takes place at the duty free shops  

owned by the appellant which are not within the customs frontiers of India.

25. Looking  to  the  aforestated  simple  and  factual  legal  position,  in  our  

opinion, it  would not be much useful  to discuss the judgments which  

have been referred to by the learned counsel appearing for the appellant.  

In our opinion, the legal position is so clear that it was not necessary for  

the learned counsel to refer to any judgment and merely by showing the  

aforestated  factual  aspects  and  legal  provisions  to  the  concerned  

authority,  the appellant  could have convinced the concerned authority  

that the sale effected at the duty free shops of the appellant could not  

have been taxed by the State of Karnataka.

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26. Learned  counsel  appearing  for  the  respondent-Authorities  had  

vehemently  submitted  that  the  appellant  had  not  exhausted  equally  

efficacious alternative statutory remedy and, therefore, the Single Judge of  

the High Court had rightly not entertained the petition filed by the appellant.

27.  According to them, the Division Bench had also rightly dismissed the  

appeal for the same reason.  According to them, this Court also should not  

entertain this appeal.

28. It  is  true  that  the  appellant  had  rushed  to  the  High  Court  without  

exhausting  equally  efficacious  alternative  statutory  remedy.   In  our  

opinion, the learned Single Judge of the High Court was also right when  

he directed the appellant to move the statutory appellate authority.  In  

normal circumstances, even we would have expressed the same opinion  

but looking to the fact that the special leave petition has already been  

admitted and the matter  pertains to the assessment year 2004-2005, it  

would not be in the interest of the justice to relegate the appellant to the  

statutory authorities especially when the legal position is very clear and  

the law is also in favour of the appellant.

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29. The learned counsel appearing for the respondent had submitted that the  

sale would not be subject to tax under the Act only if it occasions in the  

course of import but the transactions of sale, which are  subject matter of  

this litigation had not taken place in the course of import and, therefore,  

they would not be exempted under the provisions of Section 5 of the  

Central  Act.   In  our  opinion,  the  aforestated  submission  cannot  be  

sustained.  

30. They  again  submitted  that  ‘in  the  course  of  import’  means  ‘the  

transaction ought to have taken place beyond the territories of India and not  

within the geographical territory of India’.  We do not agree with the said  

submission.  When any transaction takes place outside the customs frontiers  

of India, the transaction would be said to have taken place outside India.  

Though  the  transaction  might  take  place  within  India  but  technically,  

looking to the provisions of Section 2(11) of the Customs Act and Article  

286 of the Constitution, the said transaction would be said to have taken  

place outside India.  In other words, it cannot be said that the goods are  

imported into the territory of India till the goods or the documents of title to  

the goods are brought into India. Admittedly, in the instant case, the goods  

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had  not  been  brought  into  the  customs  frontiers  of  India  before  the  

transaction  of  sales  had  taken  place  and,  therefore,  in  our  opinion,  the  

transactions had taken place beyond or outside the custom frontiers of India.

31. In our opinion, submissions with regard to sale not taking effect by  

transfer of documents of title to the goods are absolutely irrelevant.  Transfer  

of documents of title to the goods is one of the methods whereby delivery of  

the goods is effected.  Delivery may be physical also.  In the instant case, at   

the duty free shops, which are admittedly outside the customs frontiers of  

our country, the goods had been sold to the customers by giving physical  

delivery.   It  is  not  disputed that  the goods were sold by giving physical  

possession at the duty free shops to the customers.  Simply because the sales  

had not been effected by transfer of documents of title to the goods and the  

sales  were  effected  by  giving  physical  possession  of  the  goods  to  the  

customers,  it  would not  mean that  the sales were taxable  under  the Act.  

Thus, we do not agree with the aforestated submissions made by the learned  

counsel appearing for the Revenue.

32.  Looking to the aforestated clear and settled legal position, we allow  

the appeal and quash the order of assessment so far as the transactions which  

are the subject matter of this litigation are concerned.  There shall  be no  

order as to cost.

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CIVIL APPEAL NOs.  10404-10412  OF 2010

33. As  issues  involved  in  the  aforestated  appeals  and  in  Civil  Appeal  

No.2560  of  2010  are  same,  for  the  reasons  recorded  in  the  judgment  

rendered in Civil Appeal No. 2560 of 2010, these appeals also stand allowed  

and the assessment orders, so far as they pertain to the subject matter  of  

these appeals are concerned,  are quashed.   There shall  be no order as to  

costs.

                        ………..……………......................J.                                                            (D.K. JAIN)

                  ………...........................................J.                                                          (ANIL R. DAVE)

New Delhi February 3, 2012.  

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