top of page

Central Sales Tax Act – The sale cannot qualify as a sale occasioning export unless the goods


The bench comprising of Honble’ Justice Dinesh Maheshwari and Hon’ble Justice A.M. Khanwilkar pronunced the judgment on the appeal.

The appellants imported foreign cigarettes and stored it in customs bonded warehouse situated in West Bengal and some were sold to the Master of a foreign-going ship without payment of customs duty. A suit was filed before the Commercial Tax Officer claiming exemption from payment of sales tax. It was rejected by the assessing officer as the cigarettes were sold to outgoing vessels. Then the appeal was made before the Tribunal which was also rejected as the sale had taken place neither for import nor for export. Aggrieved by this decision, appeal was made before the HC through writ petition. This was also rejected upholding the view of the Tribunal. Thus the appeal reached this court.

The chief issue in this case as observed by the SC is “whether the sales in question would qualify the expression ‘sale in the course of import’?”

The appellants argued that the import process was not complete and the transaction of sale was in the course of import. Also Article 286 of the constitution and S.5 of CST Act were relied upon by this counsel. Also the counsel referred J.V. Gokal & Co.(Private) Ltd. vs. Assistant Collector of Sales­Tax (Inspection) & Ors and State of Travancore-Cochin & Ors. vs. Shanmugha Vilas Cashew Nut Factory, Quilon & Ors supporting its arguments. Also reliance was placed on S.2(ab) of CST Act for the definition of the expression “crossing the customs frontiers of India”. The cases Minerals & Metals Trading Corporation of India Ltd. vs. Sales Tax Officer & Ors ,  Coffee Board, Bangalore vs. Joint Commercial Tax Officer,Madras & Anr,State of Kerala & Ors. vs. Fr.William Fernandez & Ors and Indian Tourist Development Corporation Limited vs. Assistant Commissioner of Commercial Taxes & Anr were also referred in support of their argument.

The respondents argued that the authorities had considered all aspects of evidence and rightly concluded that the sales were neither export nor import. According to the CST Act the expression “crossing the customs frontiers of India” is exhaustive and would not include bonded warehouse. The cases Mumbai vs. Dileep Kumar and Company & Ors, Burmah Shell Oil Storage and Distributing Co. of India Ltd. & Anr. vs. Commercial Tax Officer & Ors , Kiran Spinning Mills vs. Collector of Customs, were relied upon by this counsel supporting their argument.

After hearing the arguments of the both the counsels the court observed that “The phrase ‘sale in the course of import’ would constitute three essential features – (i) that there must be a sale; (ii) that goods must actually be imported and (iii) that the sale must be part and parcel of the import.”.The court relied upon Fairmacs Trading Co. vs. The State of Tamil Nadu. The court applied the principle of this decision which states that for the sale to be in the course of import it must be a sale of goods and it must result in import within the territory of India. For the purpose of seeking exemption, the goods must be in process of import when the sale occurs. But in the present case the sale never occasioned import of goods in the territory of India. Also the appellants have failed to establish that the goods would be actually imported within the territory of India. The term “warehouse” and “warehoused goods” are defined in the Customs Act in S.2(43) and 2(44) of the Customs Act.

“The Court held that it is not the case of the appellant that the goods in question were being exported. Since the goods are to be consumed on the board of the foreign going ship and the same would be consumed before reaching a destination, it does not fall under the definition of ‘export’. The sale cannot qualify as a sale occasioning export unless the goods reach a destination which is a place outside India. Further, since the goods have been sold from the bonded warehouse and had crossed the customs port/land customs station prior to their sale, it cannot qualify as a sale in course of export within the meaning of Section 5(1) read with Section 2(ab) of the CST Act.”

Thus this court held that the goods stored in the warehouse are neither in the course of import or export. Also, according to law it was a sale open to sales tax under 1954 Act and 1994 Act read with section 4 of CST Act. Thus these appeals stand cancelled with no order as to cost.




bottom of page