M/S Hotel ... vs Asst.Commr.Of Commercial Taxes & Anr

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.

3 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.

4 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.

5 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.

10 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:

12 "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.

14 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.

15 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.

17 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.