2003 (10) TMI 620 - HC - VAT and Sales Tax

Court rules sales to foreign airlines as local subject to tax, grants interim relief for appeal

Narang Hotels and Resorts Pvt. Ltd. Versus State of Maharashtra and others

Narang Hotels and Resorts Pvt. Ltd. Versus State of Maharashtra and others - [2004] 135 STC 289 (Bom) Issues Involved:1. Whether the sale of eatables or goods to foreign airlines for consumption on board constitutes 'sale in the course of export' u/s 5(1) of the CST Act.2. Whether the appropriation of goods occurs at the Flight Kitchen or at the tarmac.3. Whether the sales are liable to local sales tax under the BST Act.Summary:Issue 1: Sale in the Course of ExportThe court examined whether sales to foreign airlines for consumption on board during the period such aircraft is a foreign-going aircraft constitute 'sale in the course of export' u/s 5(1) of the CST Act. The court held that for a sale to be considered in the course of export, it must be integrally connected with the export and must occasion the export. The court found that the sales in question did not meet this criterion as the goods were meant for consumption on board and did not have a definite foreign destination. The court relied on precedents such as Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer and Madras Marine and Co. v. State of Madras, which established that goods must have a foreign destination to be considered as exported.Issue 2: Appropriation of GoodsThe court analyzed whether the appropriation of goods occurred at the Flight Kitchen or at the tarmac. The court found that the appropriation of goods took place at the Flight Kitchen when the goods were segregated and prepared for delivery. The court relied on section 23 of the Sale of Goods Act, which states that appropriation occurs when goods are unconditionally appropriated to the contract. The court held that the goods were appropriated at the Flight Kitchen and not at the tarmac, as the goods were already in a deliverable state and ready for delivery.Issue 3: Liability to Local Sales TaxThe court examined whether the sales were liable to local sales tax under the BST Act. The court held that the sales were local sales exigible to the BST Act. The court found that the sales were completed before the goods crossed the customs frontiers of India, as the delivery order was handed over to the foreign airlines prior to the goods crossing the customs frontiers. The court relied on section 4 of the CST Act, which provides that a sale is deemed to take place inside a State if the goods are within the State at the time of appropriation to the contract. The court concluded that the sales were local sales and not in the course of export.Conclusion:The court dismissed the petition, holding that the sales in question were local sales liable to tax under the BST Act and not sales in the course of export u/s 5(1) of the CST Act. The court extended the interim relief for twelve weeks to allow the petitioners to approach the apex court.