Supreme Court: No exemption under the Central Sales Tax Act for Inter-Sate sales

Supreme Court: No exemption under the Central Sales Tax Act for Inter-Sate sales

The Supreme Court bench of Justices A.M. Khanwilkar and Dinesh Maheshwari in the case of M/s Vellanki Frame Works vs. The Commercial Tax Officer, Visakhapatnam, held that the transactions in question were not the sales in the course of import but had been inter-State sales, liable to Central Sales Tax; and denied the exemption claimed under Section 5(2) of the Central Sales Tax Act, 19563 (CST Act).

The principal issue in this appeal was, whether the sales in question took place in the course of the import of the goods into the territory of India and qualify for exemption under Section 5(2) of the CST Act?

The appellant M/s. Vellanki Frame Works, stated to be a sole proprietary, engaged in the business of sale and purchase of logs, timber and wooden batons; and in the course of its business, the appellant also imported timber from other countries.

For the tax period 2005-2006, in respect of inter-State sales falling within clause (a) of Section 3 of the CST Act, the appellant claimed payment of tax at the concessional rate of four per cent covering a turnover of Rs. 55,23,233 and in support thereof, furnished 9-Nos. of C-Forms; and also sought exemption from payment of tax on a turnover of Rs. 1,14,86,342 on the ground that these sales were affected by transfer of title documents before the goods had crossed the customs frontiers of India.

The appellant strenuously contended that the sale in question, being in the nature of 'sale in the course of import', was not taxable under the CST Act. The sale in question, having not occasioned movement of goods between two States within India, was not an 'inter-State sale' under Section 3(a) of the CST Act and rather, this sale occasioned movement of goods from outside India into India.

The appellant referred to Section 5(2) of the CST Act, laying down as to when a sale is treated to have taken place in the course of import or export thereof, providing that sale of goods have deemed to have been taken place in the course of import of the goods into the territory of India only if the sale occasions such import or is affected by a transfer of document of title to the goods before they have crossed the customs frontiers of India.

The Court emphasized the expression 'crossing the customs frontiers of India' refers to 'customs port' and 'customs station', as defined in Clauses (11), (12), (13) and (29) of Section 2 of the Customs Act.

The Court noted that the phrase 'sale in the course of import' carries three essential features that, first there must be a sale. Second, goods must actually be imported into the territory of India. Third, sale must be part and parcel of the import. A sale would become part and parcel of import if it either occasions such import or if it occurs by way of a transfer of document of title to the goods before the goods cross the customs frontiers of India.

In addition, the Court agreed with the High Court's decision and held, definition of importer cannot be used to usurp the identity of an importer from the person who filed the bill of entry and the person in whose name the bill of entry is filed does not cease to be an importer and, if that person claims to be not the owner or importer, the onus would be heavy on him to establish that someone else is the owner or importer of goods.

The Court also examined the object of the said Clause 5(3)(ii) of the import license and observed that the idea had been to hold the licensee responsible for anything and everything that would happen from the time of import till the goods were cleared through customs.

The Apex Court with respect to the quadripartite agreement which triggered the movement of goods from foreign country to India and not merely from Andhra Pradesh to other States, the sales in question had not been inter-State sales but these sales had occasioned the movement of goods from outside India into India, and that the Indian region of the integrated transaction cannot be segregated so as to be taxed as inter-State sale under the CST Act. Hence, the two alternative parts of sub-section (2) of Section 5 cannot ordinarily go together.

The Apex Court found that the appellant had been the importer of goods and the transactions were listed in the category of inter-State sales in terms of Section 3(a) of the CST Act. The appellant was not entitled to the exemption of Section 5(2) of the CST Act and has rightly been held liable for tax over inter-State sales, by the High Court.