Karnataka High Court: Duty-free shop sales from abroad not taxable, refund ordered

The Karnataka High Court upheld the Tribunal's decision that sales turnover of items purchased from outside the country, conducted at duty-free shops beyond customs frontiers, are not taxable under section 5(2) of the CST Act, 1956. The sales were considered as in the course of import, granting immunity from tax under the State Sales Tax Act and article 286(1) of the Constitution of India. The Court directed the State to refund the tax collected to the respondent with interest if delayed, dismissing the petition against the tax levy.

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Issues:
1. Taxability of sales turnover of items purchased from outside the country under section 5(2) of the CST Act, 1956.
2. Applicability of immunity from levy of tax under the State Sales Tax Act and article 286(1) of the Constitution of India.
3. Interpretation of legal provisions regarding sales in the course of import and export.
4. Authority of the State of Karnataka to tax transactions at duty-free shops beyond customs frontiers.

Analysis:
1. The judgment pertains to a petition against an order by the Karnataka Appellate Tribunal regarding the tax levied on the sales turnover of items purchased from outside the country. The Tribunal held that such sales, falling under section 5(2) of the CST Act, 1956, are not taxable as they are in the course of import. The appeal concerned an assessment order for the year 2004-05.

2. The respondent operated duty-free shops at the Bangalore International Airport for goods imported from foreign countries. These sales were considered as sales in the course of import under section 5(2) of the CST Act, 1956, and were entitled to immunity from tax under the State Sales Tax Act and article 286(1) of the Constitution of India. Therefore, the respondent was not required to register under the KST Act or the KVAT Act and file monthly statements/returns with tax payments.

3. The judgment referenced the legal position established by the apex court in the case of Hotel Ashoka, which clarified that no tax can be imposed on sales or purchases during the course of import or export of goods into or out of India. The court emphasized that sales taking place before goods cross the customs frontiers are not subject to state taxation. The duty-free shops in this case were situated beyond the customs frontiers, reinforcing the non-taxable nature of the transactions.

4. Based on the apex court's authoritative pronouncement and the legal framework, the Karnataka High Court upheld the Tribunal's decision that sales in the course of import or export are not liable for tax under the Karnataka Sales Tax Act. Consequently, the petition was dismissed, and the State was directed to refund the tax collected to the respondent within 45 days, with interest at 18% per annum if the refund was delayed.

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