Sales in the course of import from duty-free airport shops are outside State sales tax under constitutional protection.

Sales of imported goods from duty-free shops located in the customs area of an international airport were treated as transactions in the course of import because the goods were sold before crossing the customs frontiers of India. Such sales fall within Article 286(1) of the Constitution and section 5(2) of the Central Sales Tax Act, 1956, so State sales tax cannot be levied on them. The assessment imposing tax and penalty was therefore held unsustainable under the Karnataka sales tax law.

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Issues: Whether sales of imported goods from duty-free shops situated in the customs area of an international airport, before the goods cross the customs frontiers, are sales in the course of import and therefore outside the taxing power of the State.

Analysis: The sales were made from duty-free shops operating in bond within the airport customs area, and the goods were sold before crossing the customs frontiers of India. On the legal position governing import sales, a transaction is in the course of import only when it takes place before the goods cross the customs frontiers. Such transactions are protected by Article 286(1) of the Constitution of India and fall within section 5(2) of the Central Sales Tax Act, 1956, with the result that State sales tax cannot be levied on them.

Conclusion: The sales were not taxable under the Karnataka sales tax law and the assessment levying tax and penalty was unsustainable.

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