2012 (2) TMI 5 - HC - VAT and Sales Tax

Mumbai High Not Foreign Destination for Export, Sales Not Exports under CST Act

The Court held that the Tribunal was not justified in concluding that Mumbai High is a foreign destination or that sales to this area constituted exports ... Bombay Sales Tax Act 1959 - whether sales made to vendee situated in the Mumbai High Region are sales in the course of export out of India – alternative contention of Revenue to tax it as local sale – assessee is a licensed manufacturer of Helium gas - sales of Helium gas to ONGC situated at Mumbai High – Held that:-Once the customs frontier stands extended to a territory, there can obviously be no export of goods to a territory which falls within the customs frontier. Thus, for period both before and after 15 January 1987, sale was not a sale in the course of export. See Aban Loyd Chiles Offshore Ltd & Anr. Vs Union of India & ors (2008 - TMI - 3611 - Supreme Court)Further, movement of goods from the State of Maharashtra to Mumbai High does not constitute a movement from one State to another State. Mumbai High does not form part of any State in the Union of India. Therefore it cannot be regarded as inter-state sale.In respect of treating it as local sale , we are firmly of the view that this issue did not arise out of the order of the Tribunal. The State has not sought to levy sales tax in the present case on the basis that there was a local sale. Having held that the State was not justified in bringing the sale to tax as a sale in the course of interstate trade and commerce, we are not called upon to decide any other hypothetical issue. Issues Involved:1. Whether the Tribunal was justified in law in holding that Mumbai High is a foreign destination.2. Whether the Tribunal was justified in law in holding that the sales of Helium gas by the Respondents to its vendee situated in the Mumbai High Region are sales in the course of export out of India as contemplated by Section 5(1) of the Central Sales Tax Act 1956.Issue-wise Detailed Analysis:Issue 1: Whether the Tribunal was justified in law in holding that Mumbai High is a foreign destination.The Tribunal had determined that Mumbai High, situated within the exclusive economic zone on the continental shelf, is a place outside the territory of India, thus qualifying as a foreign destination. The Tribunal's decision was based on the limited sovereign rights extended to the continental shelf and the exclusive economic zone under Indian law. The Tribunal relied on two decisions from the Bombay and Madras High Courts which held that Mumbai High fell outside the territory of India.The Revenue argued that the continental shelf is part of the territory of India, citing Article 297 of the Constitution and the definition of 'Union Territory' under Article 366(30). The Revenue contended that the continental shelf is an acquired territory that vests in the Union of India, making any sale to this area an interstate sale, not an export.The Court analyzed the nature of sovereignty over the continental shelf and exclusive economic zone, noting that it is limited and specific to certain purposes such as exploration and exploitation of resources. The Court emphasized that this limited sovereignty does not equate to full territorial sovereignty. The Court referred to the Supreme Court's decision in Aban Loyd Chiles Offshore Limited v. Union of India, which clarified that the continental shelf and exclusive economic zone are not part of the territory of India for all purposes, and the extension of laws like the Customs Act to these areas creates a legal fiction for specific statutory purposes.The Court concluded that the Tribunal was not justified in holding Mumbai High as a foreign destination because the limited sovereignty exercised over the continental shelf does not transform it into a foreign destination for the purposes of sales tax legislation.Issue 2: Whether the Tribunal was justified in law in holding that the sales of Helium gas by the Respondents to its vendee situated in the Mumbai High Region are sales in the course of export out of India as contemplated by Section 5(1) of the Central Sales Tax Act 1956.The assessee claimed that sales of Helium gas to ONGC at Mumbai High were in the course of export, as Mumbai High is beyond the territorial waters of India. The Tribunal accepted this view, holding that the movement of goods from Indian shores to Mumbai High constituted an export under Section 5(1) of the CST Act.The Revenue argued that the sale did not constitute export because Mumbai High, being part of the continental shelf, is within the territory of India. The Revenue emphasized that for a sale to be considered an export, the goods must cross the customs frontier of India, which was extended to the continental shelf and exclusive economic zone by notifications under the Maritime Zones Act.The Court examined the constitutional and statutory framework, including Article 286(1)(b) and Section 5(1) of the CST Act, which define export as the movement of goods out of the territory of India. The Court noted that the extension of the Customs Act to the continental shelf means that these areas are treated as part of the territory of India for customs purposes, and goods supplied to these areas do not qualify as exports.The Court referred to the Supreme Court's decision in Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs. Commercial Tax Officer, which held that for a sale to be in the course of export, the goods must have a foreign destination where they are received as imports. Since Mumbai High does not meet this criterion, the Court held that the sales to this area do not constitute exports.Conclusion:The Court held that the Tribunal was not justified in concluding that Mumbai High is a foreign destination or that sales to this area constituted exports under Section 5(1) of the CST Act. The Court emphasized that the legal fiction created by the extension of the Customs Act to the continental shelf must be taken to its logical conclusion, meaning that goods supplied to Mumbai High are not considered exports. The Court also rejected the Revenue's alternate argument that the sales should be treated as local sales, as this issue was not raised at any stage of the proceedings. The reference was disposed of accordingly, with no order as to costs.