Madras High Court
Fairmacs Trading Co. vs Commercial Tax Officer, Harbour I ... on 13 June, 1994
JUDGMENT Janarthanam, J.
1. Fairmacs Trading Co. (petitioner) imported ship-stores like liquor, cigarettes, tapioca products, provisions, cosmetics, etc., from foreign countries, kept them in bonded warehouse, pursuant to the permission granted by the Reserve Bank of India, without the levy of customs duty and later on sold and delivered to master of ship for consumption aboard the ship after crossing boundaries of port. The trasportation of the goods to the ship was, it is said, effected in such manner as to ensure that the bonded goods did not enter local market. Tax had been levied, treating them as local sales under the local sales tax laws by the authorities in the respective States of Andhra Pradesh and Tamil Nadu. Such levy of sales tax had been questioned before the competent authorities, which led to revisions before the respective High Courts.
2. The point urged before the Andhra Pradesh High Court (Fairmacs Trading Company v. State of Andhra Pradesh [1975] 36 STC 260) was.
"whether the sales were outside the State or in the course of export and therefore not exigible to tax under the Andhra Pradesh General Sales Tax Act, 1957 ?"
The same was answered by holding (i) that the goods were specific or ascertained and were within the State when the contract of sale took place. Therefore, the requirements of section 4(2)(a) of the Central Sales Tax Act, 1956 (Act 74 of 1956) were fully satisfied and the sales must be said to have taken place inside the State; and (ii) that, as the goods 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 export.
3. The point raised before this Court (Fairmacs Trading Company v. State of Tamil Nadu [1978] 41 STC 157) 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 (Tamil Nadu Act 1 of 1959 - for short 'the TNGST Act') ?"
The ground so raised was answered by holding, (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 of another, it was not possible to take the view that the sales were inter-State sales; and (ii) that the assessee was not selling specific or ascertained goods, because the goods formed part of a larger stock within the bounded warehouse and had, therefore to be separated and appropriated to the contract as and when orders were placed by the officers in 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 TNGST Act and were accordingly, taxable thereunder. While so doing, this Court did not find it necessary to consider the question whether the territory covered by the territorial waters formed part of the State of Tamil Nadu or not.
4. Such views had been given the seal of approval by the apex Court, by citing those decisions, in the case of Madras Marine and Co. v. State of Madras .
5. What is now contended is that the sale of imported ship-stores had been effected in the course of export to ocean going vessels before the import is complete; that even otherwise such ship-stores cannot at all be construed to have been dealt with under the Indian Tariff Act, 1934 (Central Act 32 of 1934 - for short "the Tariff Act") or under any law for the time being in force relating to the duties of customs on goods imported into India and therefore, they are not exigible to tax under sub-item (a) of item 70 of the First Schedule to the TNGST Act and that in any event, such sale of ship-stores, if at all, is exigible to tax at a reduced rate under item 1 of the Sixth Schedule.
6. Basing on such contentions, a representation had been made in Ref./CSTOD/979/1993-94 dated November 11, 1993, by the petitioner to the Commercial Tax Officer, Harbour I, Assessment Circle, Madras-1 (first respondent), which, in turn, on being negatived, culminated in the present action being resorted to, impleading also the State of Tamil Nadu as the second respondent, praying for issue of a writ of mandamus directing the respondents to forbear from levying or recovering sales tax under the provisions of the TNGST Act.
7. The petitioner also filed W.M.P. No. 33218 of 1993 praying for similar relief, by way of interim injunction, pending disposal of the writ petition.
8. When the with petition, along with W.M.P., came up for admission, this Court directed Mr. T. Ayyasamy, learned Government Advocates (Taxes), to take notice for and on behalf of the respondents and he accordingly did so.
9. Arguments of Mr. C. Natarajan, learned counsel representing the petitioner and Mr. T. Ayyasamy, learned Government Advocate (Taxes), were heard.
10. Resolution of the tangle posed in this case depends upon the interpretation to be made of sub-item (a) of item 70 of the First Schedule and item 1 of the Sixty Schedule and they read as follows :
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S. Description of the goods Point of levy Rate of tax No. (per cent) (1) (2) (3) (4)
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THE FIRST SCHEDULE Goods in respect of which single point tax is leviable under sub-section (2) of section 3 :
70 (a) All kinds of foreign liquors, At the point of 50 that is to say, wines, spirits first sale in the and beer imported into India State from foreign countries and dealt with under the Indian Tariff Act, 1934 (Central Act 32 of 1934) or under any other law for the time being in force relating to the duties of customs on goods imported into India.
THE SIXTH SCHEDULE [See section 3(2-B)] 1 All kinds of alcoholic liquors At the first 30 for human consumption [other point of sale than foreign liquors falling and the second under sub-item (a) of item 70 point of sale of the First Schedule, today in the State and arrack]
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11. For sub-item (a) of item 70 of the First Schedule to come into freeplay, on the taxing description of the goods specified therein at point of first sale in the State at 50 per cent, the requisites as below have to be necessarily satisfied :
(1) Foreign liquor contemplated therein must be imported into India from a foreign country, that is to say, such import must get fructified.
(2) Such imported liquor must be dealt with under the Tariff Act or under any other law for the time being in force relating to the duties of customs thereon.
12. Pithily stated, the requisite under the first clause and anyone of the requisites under the second clause must be present for that item to get attracted to tax. This is made clear by the usage of the conjunctive conjunction "and" connecting both the clauses. Further, there is the disjunctive conjunction "or" in the second clause, making anyone of them to be present, along with the requisites under the first clause.
13. The import according to sub-section (23) of section 2 of the Customs Act, 1962 (Act No. 52 of 1962 - for short "the Customs Act"), with its grammatical variations and cognate expressions means bringing into India from a place outside India.
(a) Sub-section (25) thereof defines "imported goods", according to which it means, any goods brought into India from a place outside India, but does not include goods, which have been cleared for home consumption.
(b) According to sub-section (27) thereof, "India" includes the territorial waters of India.
(c) Sub-section (43) defines "warehouse" to mean a public warehouse appointed under section 57 or a private warehouse licensed under section 58.
(d) Sections 57 and 58 respectively deal with appointing of public warehouse and licensing of private warehouse. Section 57 empowers and Assistant Collector of Customs to appoint public warehouses wherein dutiable goods may be deposited, while section 58 empowers him to license private warehouses wherein dutiable goods imported by or on behalf of the licensee, or any other imported goods in respect of which facilities to deposit in a public warehouse is not available, may be deposited.
14. From a cursory perusal of the provisions, as aforesaid, it is thus clear that the import becomes complete as and when the goods sought to be imported reached the territorial waters of India and subsequently bonded in a warehouse, public or private for the storage of the goods so imported.
15. In the case on hand, ship-stores imported by the petitioner, after crossing the territorial waters had been bonded in the private warehouse situate at No. 87, Moore Street, Madras-1. Thus, the first primordial requisite of sub-item (a) of item 70 of the First Schedule is present.
16. As stand earlier, the presence of such a requisite alone is not sufficient for attraction of the tax liability under the said item and what is further required is such ship-stores must have to be dealt with under the Tariff Act or under any other law for the time being in force relating to the duties of customs thereon. At this juncture, it may be mentioned that the Tariff Act had been repeated by the Customs Tariff Act, 1975 (Act No. 51 of 1975), which did not bring about any material change in the application of the aforesaid item of the First Schedule to the descriptions of the goods specified therein and this has been accomplished by the insertion of a repeal and savings clause under section 12, besides section 2 thereof prescribing the duties of customs specified in the Schedules to be levied.
17. The expression, "dealt with" occurring in the second clause, according to Mr. C. Natarajan, learned counsel for the petitioner, would take to its stride the meaning in the context in which it is used as relatable only to fiscal aspect and not to regulatory measure and if that position is conceded, there is no question of the ship-stores being attracted to tax under the said entry, inasmuch as such ship-stores are duty-free imports, intended for supply to ocean going vessels or diplomatic mission, a concession indeed granted by the Customs Act itself for such purpose. Such a submission appears to be attractive, as Mr. T. Ayyasamy, learned Government Advocate (Taxes) would point out, at first sight. The utter untenability of such a submission, he would add, would get exposed, if the veil covering underneath is pierced and is read in proper perspective, giving the normal or contextual meaning to such an expression.
18. The expression "deal with" is to mean,
(i) According to the Concise Oxford Dictionary of Current English [Eighth (1990) Edition] at page 296, "(a) take measures concerning (a problem, a person, etc.) esp. in order to put something right;
(b) do business with; associate with............."
(ii) According to Chambers English Dictionary (1992 Edition) at page 363, "to treat of; to take action in regard to..............."
19. From the meanings, as extracted above, it is thus clear that the expression "dealt with" is of wider import, taking in its fold both aspects of fiscal and regulatory measures.
20. Regulatory measures had been contemplated as respects imported goods by certain salutary provisions adumbrated under the Customs Act, such as sections 45, 69, 85, 86, 87, 89 and 90.
(a) Section 45 deals with restrictions on custody and removal of imported goods. Sub-section (1) thereof prescribes that save as otherwise provided in any law for the time being in force, all imported goods unloaded in a customs area shall remain in the custody of such person as may be approved by the Collector of Customs until they are cleared for home consumption or are warehoused or are transhipped in accordance with the provisions of Chapter VIII.
(b) Sub-section (2) prescribes for the maintenance of records in respect of the custody of the goods imported and such goods shall not be permitted to be removed from the customs area or otherwise dealt with, except under and in accordance with the permission in writing of the proper officer.
(c) Section 69 is relatable to clearance of warehoused goods for exportation. Sub-section (1) thereof prescribes that any warehoused goods may be exported to a place outside India without payment of import duty, if
(a) a shipping bill or a bill of export has been presented in respect of such goods in the prescribed form;
(b) the export duty, penalties, rent, interest and other charges payable in respect of such goods have been paid; and
(c) an order for clearance of such goods for exportation has been made by the proper officer.
(d) Sub-section (2) thereof starts with a non obstante clause, namely, "Notwithstanding anything contained in sub-section (1)" and according to the said sub-section if the Central Government is of opinion that warehoused goods of any specified description are likely to be smuggled back into India, it may, by notification in the Official Gazette, direct that such goods shall not be exported to any place outside India without payment of duty or may be allowed to be so exported subject to such restrictions and conditions as may be specified in the notification.
(e) Sections 85, 86, 87, 89 and 90 pertain to stores. Section 85 provides for the stores to be allowed to be warehoused without assessment to duty.
(f) Section 86 dealing with transit and transhipment stores provides that any stores imported in a vessel or aircraft may, without payment of duty, remain on board such vessel or aircraft while it is in India. It also provides that any stores imported in a vessel or aircraft, may, with the permission of the proper officer, be transferred to any vessel or aircraft as stores for consumption therein as provided in section 87 or section 90.
(g) Section 87 likewise provides for consumption of imported goods on board a foreign going vessel or aircraft, without payment of duty.
(h) Section 89 provides for stores on any foreign going vessel or aircraft to be free of export duty.
(i) Section 90 deals with concessions in respect of imported stores for the Navy, in the sense of such stores being allowed to be consumed on board a ship of the Indian Navy.
21. In the light of the above provisions, it is thus clear that the expression, "dealt with" would take in its fold, both fiscal as well as regulatory measures.
22. In the case on hand, it cannot be said that the ship-stores of the petitioner imported from foreign countries, bonded in a private licensed warehouse, and subsequently put on board the ocean going vessel for consumption had not been dealt with in strict compliance and due observance of the formalities, as had been prescribed by the Customs Act. In such state of affairs, to say that the ship-stores of the petitioner had not been dealt with under any law for the time being in force relating to the duties of customs cannot at all be countenanced.
23. As such, sub-item (a) of item 70 of the First Schedule gets attracted to the ship-stores of the petitioner, in the sense of making them exigible to duty at the point of first sale in the State at 50 per cent. Such being the case, the other facet of the submission that the ship-stores, namely, imported foreign liquor of the petitioner bonded in the licensed warehouse and supplied to ocean going vessels falls under item 1 of the Sixth Schedule, for tax liability at 30 per cent, as had been contended by learned counsel for the petitioner, has to necessarily fail.
24. For the reasons as above, the writ petition deserves to be dismissed, even at the admission stage and the same is accordingly dismissed. Consequently, W.M.P., is also dismissed. There shall, however, be no order as to costs, in the circumstances of the case.
25. Writ petition dismissed.