2019 (6) TMI 494 - HC - VAT and Sales Tax

Court rules first sale location determines tax rate for imported goods under TNGST Act

M/s. Spencers Travel Services Ltd. Versus The Commercial Tax Officer

The Court held that the sale of the aircraft in Tamil Nadu on 08.03.2004 is the first sale for purposes of the TNGST Act. Goods imported into India and ... Refund of tax already paid - TNGST Act - whether the sale of the aircraft in Tamil Nadu on 08.03.2004 should be considered as the first sale for purposes of the TNGST Act? - whether the said sale in Tamil Nadu is to be considered as the sale of an imported item notwithstanding the fact that the said aircraft was imported into India in July 1992 and, thereafter, changed hands on a couple of occasions by way of domestic sales before being brought into the State of Tamil Nadu on payment of CST? First sale or not - HELD THAT:- The goods in question may lose their character as imported goods for the purposes of the Customs Act, 1962, immediately upon being cleared for home consumption, but do not do so for purposes of the TNGST Act. In effect, if an aircraft was imported into India through Tamil Nadu, and the first sale in Tamil Nadu happens thereafter, sales tax may be imposed at the rate applicable to imported items notwithstanding the clearance for home consumption upon payment of customs duty. Whether Entry 9 of Schedule XI deals with goods of foreign origin irrespective of the manner in which the said goods entered Tamil Nadu? - HELD THAT:- The words of the relevant provision of the tax statute should be construed literally so as to discern the correct meaning and scope thereof. In the instant case, as is evident from the language of Entry 9 of the XI Schedule, the expression used is imported items falling in Parts-D and E of the I Schedule. Therefore, the meaning of the word imported items should be examined. The word imported is not defined in the TNGST Act. However, it is evident from provisions such as Section 9 that the TNGST Act envisages import of goods from other parts of India into Tamil Nadu and also import of goods from outside India into India. In the case of aircraft, it is the admitted position that it would be taxable at 12% if it is treated as a non-imported item, whereas it would be taxable at 20%, if it is treated as an imported item. The meaning of words in a statute, in general, and, in particular, in a tax statute, should be gathered from the language used therein and the expression “goods of foreign origin” or “aircraft of foreign origin” cannot be substituted for or read into the words “imported items”. If the intention of the State Legislature was to tax goods of foreign origin at higher rates notwithstanding the fact that the goods entered Tamil Nadu by way of inter-state sale upon payment of CST, the expression that should have been used is goods of foreign origin. The Impugned Re-assessment Order dated 28.11.2006 is liable to be quashed in so far as it imposes the rate of 20% on the sale of the aircraft by the Petitioner on 08.03.2004 - in view of the finding that it is a first sale for the purposes of the TNGST Act, the tax that was levied and collected earlier at the rate of 12% is valid and not liable to be refunded. Petition allowed. Issues Involved:1. Whether the sale of the aircraft in Tamil Nadu on 08.03.2004 should be considered as the first sale for purposes of the TNGST Act.2. Whether the sale in Tamil Nadu is to be considered as the sale of an imported item notwithstanding the fact that the aircraft was imported into India in July 1992 and subsequently changed hands domestically before being brought into Tamil Nadu.Detailed Analysis:1. First Sale Consideration under TNGST Act:The Respondent contended that the sale of the aircraft on 08.03.2004 by the Petitioner in Tamil Nadu should be regarded as the first sale for the purposes of the Tamil Nadu General Sales Tax Act (TNGST Act). The Respondent supported this by referring to various Articles of the Constitution, including Articles 245 and 246, which delineate legislative powers between Parliament and state legislatures. Additionally, Article 286 prohibits states from imposing tax on sales or purchases that occur outside the state or during import/export. Section 4 of the Central Sales Tax Act, 1956, and Section 2(n) of the TNGST Act were cited to argue that a sale within a state is deemed to have taken place outside all other states. The Court accepted this contention, establishing that the sale in Tamil Nadu is indeed the first sale for purposes of the TNGST Act.2. Classification as Imported Item:The critical question was whether the aircraft, sold in Tamil Nadu, could be classified as an imported item under Entry 9 of the XI Schedule to the TNGST Act, which would subject it to a higher tax rate of 20%. The Petitioner argued that the aircraft had lost its identity as an imported good after being cleared for home consumption and having undergone multiple domestic sales. The Respondent, however, argued that the geographical origin of the goods should determine their classification as imported items, irrespective of the sales transactions that occurred outside Tamil Nadu.The Court examined the definition of 'imported' and concluded that the term should be understood in its ordinary sense, referring to goods brought into a country from abroad. The Court noted that the TNGST Act does not define 'imported,' and therefore, the dictionary definition was applied. The Court emphasized that the goods' geographical origin alone does not qualify them as imported items without considering their entry into the state. The Court held that the aircraft, having been imported into India through Maharashtra and subsequently sold domestically before entering Tamil Nadu, could not be classified as an imported item for the purposes of the XI Schedule to the TNGST Act.Conclusion:The Court concluded that:(i) The sale of the aircraft in Tamil Nadu on 08.03.2004 is the first sale for purposes of the TNGST Act.(ii) Goods imported into India and sold in Tamil Nadu can be taxed at the rate specified in Entry 9 of the XI Schedule to the TNGST Act, provided they qualify as 'imported from outside India' at the point of sale in Tamil Nadu.(iii) The aircraft in question, having been imported into India through Maharashtra in 1992 and after subsequent domestic sales, was brought into Tamil Nadu by way of inter-state sale upon payment of CST.(iv) Consequently, at the point of entry and sale in Tamil Nadu, the aircraft was not an item imported from outside India, and therefore, Section 3(2-C) read with Entry 9 of the XI Schedule to the TNGST Act was not applicable. Instead, the sale of the aircraft was liable to be taxed at 12% as per Section 3(2) read with Entry 2 of Part D of the I Schedule to the TNGST Act.Final Order:The Writ Petition is allowed, and the Impugned Re-assessment Order dated 28.11.2006 is quashed to the extent it imposes a 20% tax rate on the sale of the aircraft by the Petitioner on 08.03.2004. However, the tax levied and collected earlier at the rate of 12% is valid and not liable to be refunded. There shall be no order as to costs.