Bombay High Court
The Commissioner Of Sales Tax vs M/S. Pure Helium (India) Ltd on 9 January, 2012
Author: D.Y.Chandrachud
Bench: D.Y.Chandrachud, A. A. Sayed
PNP 1 STR15.sxw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SALES TAX REFERENCE NO.15 OF 2003
IN
S.T. APPLICATION NO.1/2001 IN R.A. NO.31/1997
S.T. APPLICATION NO.2/2001 IN R.A. NO.28/1997
S.T. APPLICATION NO.4/2001 IN R.A. NO.29/1997
S.T. APPLICATION NO.5/2001 IN R.A. NO.29/1997
S.T. APPLICATION NO.6/2001 IN R.A. NO.29/1997
S.T. APPLICATION NO.7/2001 IN R.A. NO.27/1997
The Commissioner of Sales Tax,
Maharashtra State, Mumbai ..Applicant.
versus
M/s. Pure Helium (India) Ltd. ..Respondent.
.....
Mr. Vinay A. Sonpal, A Panel counsel for the Applicant.
Mr. B.C. Joshi with Ms. Nikita Badheka and Mr. M.M. Vaidya for the
Respondent.
......
CORAM :DR.D.Y.CHANDRACHUD &
A. A. SAYED, JJ.
6/9 January 2012.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
1. The Maharashtra Sales Tax Tribunal, following a decision rendered by it on 7 December 1996 in a batch of second appeals has referred two questions of law for the determination of this Court under sub-section (4) of Section 61 of the Bombay Sales Tax Act 1959. The two questions of law which have been referred by the Tribunal for the decision of this Court are as follows :
"(i) Whether the Tribunal was justified in law in holding that Mumbai High is a foreign destination?
(ii)Whether on the facts and circumstances of the case, the Tribunal was justified in law in holding that the sales of Helium gas by the Respondents to its vendee situated in ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 2 STR15.sxw the Mumbai High Region are sales in the course of export out of India as contemplated by S. 5(1) of the Central Sales Tax Act 1956?"
2. The assessee, Pure Helium (India) Private Limited is a licensed manufacturer of Helium gas with a factory at Palghar in the district of Thane. The assessee imports liquid Helium gas and thereupon manufactures gas of the required standard in its factory. The assessee is registered under the Bombay Sales Tax Act 1959 and the Central Sales Tax Act 1956 with effect from 22 April 1988. The assessee was assessed as an unregistered dealer for the period commencing from 1 April 1984 and ending on 21 April 1988 and as a registered dealer for the period commencing from 22 April 1988 and ending on 31 March 1989 under the Central Sales Tax Act 1956. Assessment orders were passed by the Assistant Commissioner of Sales Tax on 29 March 1993 for the period when the assessee was assessed as an unregistered dealer and on 18 March 1992 for the period thereafter. The assessee had effected sales of Helium gas to the Oil and Natural Gas Commission (ONGC) which is engaged in the production of gas and crude oil at Mumbai High which is situated about 150 km from the coast line of Maharashtra. The area falls within the exclusive economic zone on the continental shelf. Helium gas is an essential ingredient in the preparation of diving gas mixture which is required for deep sea divers. ONGC which required a supply of Helium gas for use by its divers working on its vessels in the offshore oil and gas fields floated a global tender through its agent, the Shipping Corporation of India Limited. The assessee was retained as a supplier of Helium gas to ONGC. Under the terms of the contract the assessee supplied cylinder quads of Helium gas at ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 3 STR15.sxw the Nhava Sheva supply base of ONGC from where the cylinders were taken on board on offshore supply vessels for transport to the diving vessels at Mumbai High. The gas contained in the cylinders was then measured for ascertaining the quantity of gas supplied. The measurement of gas was accepted as the basis for invoicing and for the payment of the price of the gas supplied.
3. The assessee claimed that the sales which were effected were sales in the course of export under Section 5(1) of the Central Sales Tax Act 1956 (CST Act) for the reason that Mumbai High falls beyond the territorial waters of India. The case of the assessee therefore was that the sales had occasioned the export of goods to a place outside the territory of India. The assessing authority held, however, that Mumbai High is a part of the territory of India and that the sales had occasioned interstate movement of goods. The sales were assessed by the assessing authority to sales tax at 10% under the CST Act. The appellate authority dismissed the appeals filed by the assessee on 20 August 1994 following which the assessee filed six second appeals. The appeals were disposed of by the Tribunal by its judgment dated 7 December 1996. The Revenue had placed reliance on an earlier decision of the Tribunal in the case of the assessee, rendered on 30 April 1994 in which it was held that Mumbai High formed part of the territory of India and that the sales which occasioned a movement of goods from Maharashtra to Mumbai High were interstate sales liable to tax under the CST Act. This view was, however, not accepted by the Tribunal on the basis of two decisions of this Court and of the Madras High Court holding that Mumbai High fell outside the territory of India. The Tribunal held that the ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 4 STR15.sxw Mumbai High is a place situated in the exclusive economic zone of India on the continental shelf to which limited sovereign rights stand extended and the movement of goods from Indian shores to Mumbai High will occasion an export of the goods to a place outside the territory of India. Consequently, the Tribunal allowed the sales as export sales under Section 5(1) and deleted the tax liability imposed by the Revenue authorities. Reference applications were filed by the Revenue. The Reference applications were initially rejected by the Tribunal. The Revenue having moved this Court the applications were disposed of by directing the Tribunal to draw up a statement of case and to refer certain questions of law, as formulated earlier for the decision of the Court. The Tribunal has accordingly referred the two questions noted earlier for the decision of this Court.
4. On behalf of the Revenue it has been submitted that -
i) Helium gas which is manufactured at Palghar, Thane is delivered to the Shipping Corporation of India, acting as agent for ONGC at Nhava Sheva Port for onward movement to the rig at Mumbai High which is situated within the area of the continental shelf at a distance of 160 nautical miles from the shore;
ii) The transaction of sale which occasions the movement of goods to a point within the continental shelf does not constitute export, but is an interstate sale. The area of the continental shelf is an acquired territory after the amendment of Article 297 of the Constitution which provides that land in the continental shelf vests in the Union of India;
iii) Article 366(30) defines a Union Territory to include also any ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 5 STR15.sxw other territory comprised in the territory of India but not specified in the First Schedule. The continental shelf is part of the territory of India and being a Union Territory is also, a state as defined in Section 3(58) of the General Clauses Act 1897;
iv) Consequently a sale which occasions a movement of the goods from the State of Maharashtra to the continental shelf constitutes an interstate sale which is exigible to tax under Section 6(1) of the CST Act 1956;
v) The transaction does not constitute export out of the territory of India within the meaning of Section 5(1) of the CST Act 1956.
Since there is no foreign destination in another country which receives the goods as import, there can be no export;
vi) In the present case, the goods were present in the State of Maharashtra and when the agreement was arrived at in respect of ascertained goods, the sale has taken place within the State within the meaning of Section 20 of the Sale of Goods Act 1930. But, when the sale occasions a movement from the State to a Union Territory, the sale will be liable to be taxed under the CST Act 1956. Hence, no notification under Section 6(6) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act 1976 ("Maritime Zones Act") was required;
vii)Under Articles 269 and 286 central legislation can provide for the principles for determining when a sale is in the course of export or, as the case may be, interstate trade. As a result of the extension of the Customs Act 1962, a sale to the continental shelf is not to be treated as export and goods from the ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 6 STR15.sxw continental shelf shall not be liable to duty. When the principles for the determination of the sale in the course of export or interstate trade are left to Parliament to formulate under Articles 269 and 286, any central legislation can provide such principles. Once the Customs Act has been made applicable to the continental shelf, with the sale thereto not amounting to export, for the purposes of sales tax also it cannot be treated as an export.
viii)If the sale made by the Respondent is not held to be a sale in the course of interstate trade, and if the sale is not to be treated as an export, the sale will have to be held to be a local sale in view of delivery having been taken by ONGC through SCI at Nhava Sheva Port in Maharashtra by applying the principles of Section 20 of the Sale of Goods Act 1930. There is no difference in the rate of tax between local sales and interstate sales in the present case and the Respondent cannot be prejudiced by whether it is taxed as a local sale or interstate sale.
5. On the other hand it has been urged on behalf of the assessee that -
i) The Revenue has purported to tax the sale under the CST Act 1956 and consistently, since the order of assessment passed by the Assessing Officer. The case of the Revenue is that the sale has taken place in the course of interstate trade and commerce. It has never been the case of the Revenue that there has been a local sale and this issue has not been discussed, debated or dealt with because it was not raised by the Revenue at any ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 7 STR15.sxw stage. That issue does not arise out of the order of the Tribunal under Section 61 and cannot form the subject matter of the reference;
ii) The continental shelf is an area where the Union of India exercises a limited sovereignty for certain purposes. The sovereignty that vests in the Union is not in terms of title or ownership to the lands, but for certain specified purposes such as the extraction of minerals and the exploitation of natural resources;
iii) A sale which occasions the movement of goods from the State of Maharashtra to the territory of the continental shelf is not an interstate sale from one State to another and consequently it cannot be subjected to the charge of sales tax under the CST Act 1956;
iv) The fiction which is created by Sections 6(6) and 7(7) of the Maritime Zones Act 1976 is only for the purposes of the Acts which are extended to the continental shelf. The extension of the Customs Act, 1962 to the area of the continental shelf does not render the territory of the continental shelf a part of the territory of India for all purposes. Notwithstanding the extension of the Customs Act, 1962, for the purposes of sales tax legislation, the movement of goods from the State of Maharashtra to the continental shelf must be treated as a sale occasioned by the movement of goods out of the territory of India.
6. The rival submissions now fall for consideration.
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7. Article 297 of the Constitution as it presently stands was substituted by the Constitution 40th Amendment Act 1976. Clause (1) of Article 297 stipulates that all lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union. Under clause (2) all other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union. Under clause (3) the limits of the territorial waters, the continental shelf, the exclusive economic zone, and other maritime zones of India are to be such as may be specified, from time to time, by or under any law made by Parliament.
8. In pursuance of the provisions of Article 297 Parliament enacted the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act 1976. ("Maritime Zones Act, 1976). Section 3 provides that the sovereignty of India extends and has always extended to the territorial waters of India and to the seabed and subsoil underlying and the area space over such waters. The limit of the territorial waters extends to 12 nautical miles under Section 3(2). Under Section 6(1), the continental shelf of India comprises of the seabed and subsoil of the submarine areas that extend beyond the limits of its territorial waters throughout the natural prolongation of its land territory to the outer edge of the continental margin or to a distance of 200 nautical miles from the baseline referred to in Section 3(2) where the outer edge of the continental margin does not extend upto that distance. Section 6(2) stipulates that India has and always has full and exclusive sovereign rights in respect of its continental shelf.
::: Downloaded on - 09/06/2013 18:03:48 :::PNP 9 STR15.sxw Under sub section (3) it is submitted that without prejudice to Section 6(2) the Union has in the continental shelf inter alia sovereign rights in the following matters :
"(a) sovereign rights for the purposes of exploration, exploitation, conservation and management of all resources;
(b) exclusive rights and jurisdiction for the construction, maintenance or operation of artificial islands, off-shore terminals, installations and other structures and devices necessary for the exploration and exploitation of the resources of the continental shelf or for the convenience of shipping or for any other purpose;
(c) exclusive jurisdiction to authorise, regulate and control scientific research; and
(d) exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution."
9. In sub section (5) of Section 6 the Central Government is empowered by a notification in the official gazette to declare any area of the continental shelf as a designated area. Thereupon the Central Government may make provisions as it may deem necessary inter alia with respect to customs and other fiscal matters in relation to such designated area. Under sub section (6) of Section 6 the Central Government is empowered to extend any enactments for the time being in force in India or any part to the continental shelf or any part, including the designated area under sub section (5) and to make provisions for facilitating the enforcement of such enactments. Any enactment so extended shall have effected as if the continental shelf or the part including, as the case may be, any designated area to which it has been extended is a part of the territory of India. The Act also makes provisions for a contiguous zone in Section 5 and for ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 10 STR15.sxw an exclusive economic zone in Section 7. Section 7(7) empowers the Central Government to extend enactments in force in India to the exclusive economic zone which shall then have effect as if the exclusive economic zone to which it has been extended is a part of the territory of India.
9A. The nature and extent of the sovereign rights which India exercises in relation to the continental shelf and the exclusive economic zone does not constitute an absolute or complete territorial sovereignty. The sovereignty which is vested in the Union is for certain specified purposes. A distinction has to be made between the sovereignty which the Union exercises over the territorial waters from the sovereignty that is recognized over the continental shelf and the exclusive economic zone. The decision of the Supreme Court in Aban Loyd Chiles Offshore Limited v. Union of India1 enunciates certain principles :-
i) In respect of the continental shelf and exclusive economic zone, India has certain limited sovereign rights which cannot be equated to extending the sovereignty of India over the continental shelf and exclusive economic zone as in the case of the territorial waters;
ii) Sub section (6) of Section 6 and sub section (7) of Section 7 of the Maritime Zones Act, 1976 create a fiction by which the continental shelf and exclusive economic zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification;
iii) The Maritime Zones Act 1976 is in consonance with the United 1 2008(227) E.L.T. 24 (S.C.) ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 11 STR15.sxw Nations Convention on the Law of Sea 1982 which has been acceded to by India. Under the convention, a coastal state has no sovereignty in the territorial sense over the contiguous zone, but it exercises sovereign rights for the purposes of exploring the continental shelf and exploiting its natural resources. In that sense the coastal state exercises a restricted sovereignty linked to the resources and without the incident of territoriality.
10. The Union of India has in exercise of the powers conferred by Section 6(5) and Section 7(6) of the Maritime Zones Act 1976 issued a notification on 18 July 1986 declaring the areas in the continental shelf or, as the case may be, in the exclusive economic zone where certain installations, structures and platforms are situated and the areas extending up to 500 mtrs. from the said installations, structures and platforms as designated areas. On 14 January 1987 the Central Government issued another notification extending the Customs Act 1962 and the Customs Tariff Act 1975 to the designated areas in the continental shelf and the exclusive economic zone, as declared in the earlier notification dated 18 July 1986 with effect from 15 January 1987. A further notification has been issued on 19 September 1996 notifying designated areas in the continental shelf and the exclusive economic zone. A notification has been issued on 11 February 2002 extending the Customs Act and the Customs Tariff Act to the continental shelf and exclusive economic zone, for the following purposes :
"(a) the prospecting for extraction of production of mineral oils in the continental shelf of India or the exclusive economic zone of India and
(b) the supply of any goods as defined in clause (22) of ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 12 STR15.sxw Section 2 of the Customs Act, 1962 in connection with any of the activities referred to in clause (a)."
11. In Aban Loyd (supra) the Supreme Court held that the combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to the ares declared as designated areas under the Maritime Zones Act 1976. Moreover, according to the Supreme Court the effect of the notifications is that the designated areas of the continental shelf and the exclusive economic zone become a part of the territory of India for limited purposes. The natural consequences of those declarations and the extension of the Customs Act and the Customs Tariff Act to the designated areas is to introduce the customs regime to such areas resulting in the levy and collection of customs duties on goods imported into those areas as if those areas are a part of the territory of India. The Supreme Court held that the object was to ensure that revenue generated from exploration and exploitation should accrue to the coastal state. The area of the exclusive economic zone and continental shelf where the oil rigs are situated are deemed to be a part of the territory of India under the notifications issued by the Union Government. The supply of imported spares or goods or equipment to the rigs by a ship will attract import duty and the ship employed for the transportation of goods would not be a foreign going vessel under Section 2(21) of the Customs Act. The Supreme Court has held that the entire scheme of the Customs Act and other Acts such as the Maritime Zones Act 1976 which are pari materia have to be read together. Consequently if mineral oil is extracted or produced in the exclusive economic zone or continental shelf and ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 13 STR15.sxw is brought into the main land, it will not be treated as an import and therefore, no customs duty would be leviable. Likewise goods supplied to a place in the exclusive economic zone or continental shelf will not be treated as export under the Customs Acts and no export benefit can be availed of on such supply.
12. The judgment of the Supreme Court was preceded by several judgments of the High Courts which considered inter alia the nature of sovereignty exercised by the Union over the continental shelf and the exclusive economic zone. The position that the nature of sovereignty over territorial waters is distinct from the continental shelf / exclusive economic zone was noticed by a Division Bench of the Madras High Court in Commissioner of Income Tax v. Ronald William Trikard2. A similar view was taken by a Division Bench of this Court presided over by Hon'ble Mr. Justice S.H. Kapdia (as the Learned Chief Justice of India then was) in Pride Foramer v.
Union of India3. Both the decisions in Trikard and in Pride have been cited with approval in the judgment of the Supreme Court in Aban Loyd.
13. The submission of the Revenue that the area of the continental shelf and of the exclusive economic zone is an acquired territory within the meaning of Article 297 is not consistent either with the provisions of Article 297 or with legislation enacted by Parliament in the Maritime Zones Act 1976. The sovereignty which India exercises in relation to the continental shelf and the exclusive economic zone 2 215 ITR 638 (1995).
3 AIR 2001 Bom 332.
::: Downloaded on - 09/06/2013 18:03:48 :::PNP 14 STR15.sxw is qualified with reference to the purpose for which sovereign rights are recognized both by the Constitution and by legislation.
Sovereignty is defined in terms of the purpose for which it is conferred namely, for exploring the continental shelf / exclusive economic zone and for exploiting its natural resources and does not incorporate a territorial ownership of the coastal state over the area.
14. The submission of the Revenue, however, is that Article 366 (30) defines the expression 'Union Territory' to mean any union territory specified in the First Schedule and to include any other territory comprised within the territory of India, but not specified in that schedule. The submission is fallacious because it proceeds on the basis that the continental shelf and the exclusive economic zone are comprised within the territory of India. Section 6(6) and Section 7(7) empower the Central Government to extend any enactment for the time being in force in India to the continental shelf or exclusive economic zone respectively. Upon being extended the enactment is to have effect as if the continental shelf or, as the case may be, the exclusive economic zone to which it has been extended is a part of the territory of India. The words "as if" in Section 6(6) and Section 7(7) bring into existence a legal fiction. Under the legal fiction the enactment which is extended has to have effect as if the continental shelf or exclusive economic zone to which the enactment has been extended is part of the territory of India. Consequently and for instance once the Customs Act 1962 stands extended to a designated area of the continental shelf, then the Act has to have effect as if the area of the continental shelf forms part of the territory of India. The deeming fiction is for that purpose.
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15. The next aspect of the case which needs analysis relates to the power of the States to legislate with respect to sales tax. Article 286(1) of the Constitution provides that no law of a State shall impose or authorize the imposition of a tax on the sale or purchase of goods where the sale or purchase takes place- (a) outside the State; or (b) in the course of the import of goods into or export of goods out of, the territory of India. Clause (2) of Article 286 empowers Parliament to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). Under Article 269(1) taxes on the sale or purchase of goods and on the consignment of goods in the course of interstate trade or commerce are levied and collected by the Union of India, but are to be assigned to the States. Clause (3) of Article 269 empowers Parliament to formulate principles for determining when a sale or purchase or consignment of goods takes places in the course of interstate trade or commerce. The Central Sales Tax Act 1956 provides in Chapter II a formulation of principles for determining when a sale or purchase of goods takes place in the course of interstate trade or commerce or outside a State or in the course of import or export. By Section 3 a sale or purchase of goods is deemed to take place in the course of interstate trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents by title to the goods during their movement from one State to another. Under explanation 1, where goods are delivered to a carrier or a bailee for transmission, the movement of the goods for the purposes of clause (b) is deemed to commence from the time of such delivery and terminates at the time when delivery is taken from a carrier or ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 16 STR15.sxw bailee. Under sub section (2) of Section 4 a sale or purchase of goods is deemed to take place inside a State, if the goods are within the State - (a) in the case of specific or ascertained goods, at the time when the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer. Section 5(1) provides that 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. Section 5(2) provides that a sale or purchase of goods is deemed to take place in the course of 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. Section 2(ab) has defined the expression "crossing the customs frontiers of India" to mean crossing in the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities. For the purposes of the clause the explanation stipulates that 'customs station' and 'customs authorities' shall have the same meanings as in the Customs Act 1962.
16. The liability under Section 6 of the CST Act arises on all sales of goods effected by a dealer in the course of interstate trade or commerce. A sale takes place in the course of interstate trade or commerce within the meaning of Section 3 if the sale has either occasioned the movement of goods from one State to another or is ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 17 STR15.sxw effected by a transfer of documents of title to the goods, during their movement from one State to another. A movement of goods from one State to another is required in order that the sale which occasions the movement is regarded as a sale in the course of interstate trade or commerce. The obvious fallacy in the attempt of the Revenue to tax the sale in the present case as an interstate sale is the assumption that the sale was occasioned by a movement of goods from one State to another. The Revenue relies upon the definition of the expression "State" in Section 3(58) of the General Clauses Act 1897 which includes a Union territory. The hypothesis is that since under Article 366(30) a Union territory includes a territory other than that specified in the First Schedule which is comprised within the territory of India, the continental shelf is a part of the territory of India and therefore a Union territory. Evidently, the line of reasoning is erroneous. The continental shelf and the exclusive economic zone do not constitute a part of the territory of India. As a matter of fact, it was in recognition of this position that Section 6(6) and Section 7(7) of the Maritime Zones Act 1976 empowered the Union Government to extend the provisions of any enactments in force in India to a designated area or to the continental shelf or the exclusive economic zone and it was upon an enactment being extended that it would have effect as if the territory to which it is extended is a part of the territory of India. A movement of goods from the State of Maharashtra to Mumbai High does not constitute a movement from one State to another State. Mumbai High does not form part of any State in the Union of India. Hence, we hold that the basis on which the revenue sought to assess the sale as an interstate sale involving a movement of goods from the State of ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 18 STR15.sxw Maharashtra to Mumbai High was contrary to the mandate of the provisions of Section 6 of the CST Act.
17. The legal position that the provisions of the CST Act 1956 would not stand attracted to a situation such as the present is also adopted in a judgment of a Division Bench of the Gujarat High Court in Larsen and Toubro Limited v. Union of India4.
18. The Tribunal upheld the objection of the assessee on the ground that the movement of the goods from the State of Maharashtra to Mumbai High was occasioned by a sale in the course of export and on that basis allowed the batch of appeals filed by the assessee. The question which has been referred to this Court for decision involves a determination as to whether the Tribunal was justified in law in holding that Mumbai High is a foreign destination and in concluding that the sale of Helium gas by the assessee to its vendee situated in Mumbai High was a sale in the course of export out of India as contemplated by Section 5(1) of the CST Act 1956.
Article 286(1)b provides that no law of a State shall impose or authorise the imposition of tax on the sale or purchase of goods where the sale or purchase takes place in the course of import of goods into or export of goods out of the territory of India. Section 5(1) of the CST Act 1956 provides that a sale or purchase of goods is deemed to take place in the course of export of 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. Export 4 2011-VIL-46-Guj.
::: Downloaded on - 09/06/2013 18:03:48 :::PNP 19 STR15.sxw of goods out of the territory of India envisages the movement of goods across the customs frontier. The notion of the customs frontier is not alien to sub section (1) of Section 5. Once the customs frontier stands extended to a territory, there can obviously be no export of goods to a territory which falls within the customs frontier. An export of goods involves the movement of goods from within the customs frontier to a point beyond. Contrariwise the import of goods involves a movement of goods from a point which lies outside the customs frontier to a point within. Indeed, sub section (1) of Section 5 also recognises the intrinsic relevance of the goods crossing the customs frontier in the case of an export, or as the case may be, on import of goods. On 14 January 1987, (and with effect from 15 January 1987) the Union Government has extended the provisions of the Customs Act 1962 to the designated areas of the continental shelf and exclusive economic zone, the effect of which is to introduce the customs regime to such areas resulting in the levy and collection of customs duty on goods imported into those areas as if they are a part of the territory of India. In view of this, the Supreme Court in its judgment in Aban Loyd observed that goods which are supplied to a place in the exclusive economic zone or continental shelf will not be treated as an export under the Customs Act, nor would an import duty be levied on oil which is produced in the exclusive economic zone or continental shelf which is brought into the main land. The submission of the assessee is that these observations of the Supreme Court were made in the context of the applicability of the Customs Act 1962 alone and the legal fiction that is created by Sections 6(6) and 7(7) of the Maritime Zones Act 1976 must be confined only for the purposes of the Customs Act. A fiction which ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 20 STR15.sxw is enacted by the legislature is for the purposes of the statutory design which the legislature provides. Equally, a fiction which is created by legislation must be taken to its logical conclusion. Once, the Union Government, acting as a delegate of a legislature, has extended the provisions of the Customs Act 1962 and of the Customs Tariff Act 1975 to designated areas of the continental shelf or the exclusive economic zone, with effect from 15 January 1987 it would be impossible to hold that a movement of goods from within the territory of India to that territory of the continental shelf or exclusive economic zone constitutes an export of the goods out of the territory of India. To hold that it would constitute an export would be to ignore extension of the customs frontier emanating as it does from the extension of the Customs Act 1962 to the areas so designated. The scheme of the Customs Act 1962 has to be read together with other acts such as the Maritime Zones Act 1976 which are pari materia. This was emphasised in the judgment of the Supreme Court in Aban Loyds. Export for the purposes of Section 5(1) of the CST Act 1956 cannot have a meaning which is divorced from the applicability of the Customs Act 1962 to a territory in pursuance of a notification issued in exercise of the powers conferred upon the Union Government in the Maritime Zones Act 1976.
19. The issue that remains to be considered is about the position prior to 15 January 1987, when the notification issued by the Union Government extending the provisions of the Customs Act, 1962 and of the Customs Tariff Act, 1975 to designated areas of the continental shelf and exclusive economic zone came into force. Counsel appearing on behalf of the Revenue submits that even prior to 15 ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 21 STR15.sxw January 1987, there was no export involved in a sale which occasioned the movement of goods from the State of Maharashtra to Mumbai High. The submission is based on the decision of a Constitution Bench of the Supreme Court in Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs. Commercial Tax Officer.5 In that case, Burmah Shell supplied aviation fuel at Dum Dum Airport to aircraft which were to proceed abroad. The Sales Tax authorities assessed sales tax and issued notices of demand. The submission of the assessee was that the sale had taken place outside the State of West Bengal since aviation spirit was delivered for consumption outside the State. Alternatively, it was urged that there was export out of the territory of India since aviation fuel was taken abroad. Hence, it was urged that both sub-clauses (a) and (b) of the first Clause of Article 286 applied.
20. As regards the first submission, the Supreme Court held that the power to tax which is exercisable by virtue of a transfer of title to the property could only be taken away if there was some other State in which the goods as a direct result of the sale were delivered for consumption, but, if there is no such other State, the question does not arise. On the issue as to whether an export was involved, the Supreme Court observed that in that case the buyer did not export the goods to a foreign country, but purchased them for its own use on the journey of the aircraft to foreign countries. Hence there was no export. The Supreme Court observed as follows :
"Here, the buyer does not export the goods to a foreign 5 11 STC 764 ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 22 STR15.sxw country, but purchases them for his own use on the journey of the aircraft to foreign countries. This difference is vital, and makes the position of the appellant-companies, if anything, weaker. It is for this reason that the appellant- companies depend on a wide meaning of the word "export", which they illustrate from other Acts where the word is tantamount to "taking out of the country". We are of opinion that this meaning cannot be given to the word "export" in the clause. The word "export" may conceivably be used in more senses than one. In one sense, "export" may mean sending or taking out of the country, but in another sense, it may mean sending goods from one country to another. Often, the latter involves a commercial transaction but not necessarily. The country to which the goods are thus sent is said to import them, and the words "export" and "import" in this sense are complementary. An illustration will express this difference vividly. Goods cannot be said to be exported if they ware ordered by the health authorities to be destroyed by dumping them in the sea, and for that purpose are taken out of the territories of India and beyond the territorial waters and dumped in the open sea. Conversely, goods put on board steamer bound for a foreign country but jettisoned can still be said to have been "exported", even though they do not reach their destination. In the one case, there is no export, and in the other, there is, though in either case the goods go to the bottom of the sea. The first would not be within the exemption even if a sale was involved, while any sale in the course of the second taking out would be. In both, the goods were taken out of the country. The difference lies in the fact that whereas the goods, in the first example, had no foreign destination, the goods, in the second example, had. It means, therefore, that while all exports involve 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. ... 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. ... The crucial fact is the sending of the goods to a foreign destination where ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 23 STR15.sxw they would be received as imports. The two notions of export and import, thus, go in pairs."
In that case, the Supreme Court held that though the aviation fuel loaded on board of aircraft for consumption is taken out of the country, it is not exported since it has no destination where it can be said to be imported and so long as it does not satisfy this test, it cannot be said that the sale was in the course of export.
21. The judgment of the Supreme Court construed specifically the words "in the course of the import of the goods into, or export of the goods out of, the territory of India" in sub-clause (b) of clause (1) of Article 286. The Constitution Bench held that export for the purposes of Article 286(1)(b) does not bear the wide meaning signifying "taking out of the country". The Court noted that while in one sense, export may mean sending or taking out of the country, in another sense, it may mean sending goods from one country to another. It was in the latter sense that, according to the Supreme Court, Article 286(1)(b) used the expression "export of the goods out of the territory of India". In view of the clear exposition of the law laid down in the judgment of the Constitution Bench construing Article 286(1)(b), the submission which has been urged on behalf of the Revenue would have to be accepted. Even prior to 15 January 1987, a sale occasioned by movement of goods from the State of Maharashtra to Mumbai High was not a sale in the course of the export of goods out of the territory of India. Export for the purposes of Article 286(1)(b) as ruled by the Supreme Court, means sending goods from one country to another. The movement of goods to ::: Downloaded on - 09/06/2013 18:03:48 ::: PNP 24 STR15.sxw Mumbai High does not meet that description.
22. Counsel appearing on behalf of the assessee sought to place reliance on the decisions of the Supreme Court in Collector of Customs, Calcutta v. Sun Industries6 and in Union of India v. Rajindra Dyeing and Printing Mills Ltd.7. Sun Industries involved a case where goods were loaded into a vessel which sunk after it had moved out of the territorial waters. The Supreme Court observed that for the purposes of the Drawback Rules 1971 export meant taking out of India to a place outside India and when the ship obtained clearance and moved out of the territorial waters, the export was complete. In the decision in Rajindra Dyeing, the vessel had sunk within the territorial waters of India and the Supreme Court held that since there was no export, the duty drawback was not available. Both these decisions turned upon the relevant provisions of the Drawback Rules. The decisions are distinguishable. For these reasons, we hold that the Tribunal was not justified in coming to the conclusion that the sale of Helium gas by the assessee to its vendee in the Mumbai High regime was a sale in the course of export out of India.
23 For the reasons which we have already indicated earlier, we are of the view that both before and after 15 January 1987, the sale which was occasioned by the movement of the goods from the State of Maharashtra to Mumbai High was not a sale in the course of export.
6 1988(35) E.L.T. 241
7 2005(180) E.L.T. 433 (S.C.)
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24. Counsel appearing for the Revenue submitted that in that event this Court holds that (i) the sale was not occasioned by a movement of goods from one State to another; but that (ii) the sale was not in the course of an export of goods out of the territory of India, the State would be entitled to treat the sale as a local sale and to levy tax on that basis. We are firmly of the view that this issue would not arise out of the order of the Tribunal. The State has not sought to levy sales tax in the present case on the basis that there was a local sale. The assessment was sought to be effected on the basis that there was a sale in the course of interstate trade and commerce. Having held that the State was not justified in bringing the sale to tax as a sale in the course of interstate trade and commerce, we are not called upon to decide any other hypothetical issue. Besides, the determination of any such issue would require documentary evidence to be brought before the assessing authority which does not form a part of this record. The assessments relate to the period between 1 April 1984 to 31 March 1989. Consistent with the parameters of the jurisdiction of this Court on a reference made under Section 61 of the Bombay Sales Tax Act 1959, we are of the view that the alternate submission of the Revenue does not arise in the reference.
25. We accordingly dispose of the reference in terms of the aforesaid determination.
There shall in the circumstances be no order as to costs.
(Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.) ::: Downloaded on - 09/06/2013 18:03:48 :::