TaxTMI 
TaxTMI 
2014 (7) TMI 277
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....vice on behalf of the petitioners was that the respondents have no legal authority to demand and levy any sales tax under the CST Act with respect to the sale transactions between the petitioners and respondent No. 5, Oil and Natural Gas Corporation ("ONGC", for short), which sales had taken place at Bombay High. By an order dated April 27, 2011, while issuing notice in the present petition, we had granted ad interim relief preventing the respondents from carrying out coercive recovery of the tax under the impugned order on the condition that the petitioners shall deposit, if so desired, under protest, an amount of Rs. 25 crores with the authorities by June 1, 2011. It is stated that such amount has been duly deposited within the time permitted. Looking to the nature of disputes arising and also considering sizable amount of tax recovery raised by the respondents, both sides requested us to take up the petition for final disposal at the admission stage itself. Accordingly, we have heard learned counsel appearing for both sides at considerable length. Before adverting to rival contentions, it would be necessary to take note of facts emerging from the record. Petitioner No. ....
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....act would stand discharged. It is thus the case of the petitioners that the title of goods supplied by the petitioner to ONGC, during the course of and in furtherance of execution of the turnkey project, passed at Bombay High and not at Hazira. Even the respondents, in particular, the State authorities, under the CST Act, have accepted this factual stand of the petitioners and the entire order under challenge is founded on such admitted facts. We have, therefore, proceeded to examine the grievances of the petitioners on the basis of this conceded factual position, namely, that the title of the goods sold by the petitioners to ONGC passed at ONGC site at Bombay High and not at Hazira. The respondent-authorities holding a prima facie opinion that such sales would be covered under the provisions of the CST Act and therefore, exigible to tax at appropriate rate, issued a notice to the petitioners why sales tax should not be collected. The petitioners replied to the said showcause notice vide communication dated July 15, 2009. The principal stand of the petitioners in the said communication was that the works under the contracts had been carried out at off-shore platforms located out....
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....petitioners. He accordingly, raised a total demand of Rs. 1,92,05,53,975 towards tax, interest and penalties. It is, this order that the petitioners have challenged in the present petition. In the petition, the petitioners have raised the following four principal grounds of challenge: (1) That levy of tax was not authorized because in the present case, there was no inter-State sale of the goods. (2) Even if the tax was leviable, the same could be charged only at four per cent and not at 10 per cent as wrongly charged by the assessing officer and if the petitioners were able to produce C form, such rate would further go down. (3) That imposing penalty was in violation of principles of natural justice. Notice for imposing penalty did not specify specific breaches for which such penalty was proposed. In absence of any such specification, the petitioners did not have reasonable opportunity to defend themselves against the proposal for imposition of penalty. (4) In past, such tax demands were raised by the State authorities. However, upon representations from the petitioners such demands were dropped. At the outset, we indicated to the counsel for the petitioners that ....
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....oms Act and no export benefit can be availed of on such supply and further that any mineral oil produced therein will be chargeable to Central excise duty as goods produced in India. Counsel pointed out that such conclusions were based on notifications issued extending the application of Customs Act and the Customs Tariff Act to the aforesaid areas. Reliance was also placed on the decision of the Bombay High Court in the case of Pride Foramer v. Union of India reported in [2002] 148 ELT 19 (Bom). We may notice that the decision of the Bombay High Court in the said case was upheld by the apex court in the case of Aban Loyd Chiles Offshore Limited [2008] 11 SCC 439. Reliance was also placed on the decision of the learned single judge of the Bombay High Court in the case of McDermott International Inc (No. 1) v. Union of India reported in [1988] 173 ITR 155 (Bom), wherein it was held that since the petitioner's income accrued in the accounting year 1982-83, in respect of work done beyond 12 nautical miles, demand for payment of tax on such income was bad in law. Counsel also placed reliance on the decision of the Madras High Court in the case of Commissioner of Income-tax....
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....ugh the CST Act did not extend to the State of Jammu and Kashmir, the court held that on the sale in question, the tax would be charged. Reliance was also placed on the judgment of the Madras High Court in the case of S. Mariappa Nadar v. State of Madras reported in [1962] 13 STC 371 (Mad), wherein, the sale which occasioned the movement of goods to State of Jammu and Kashmir was held liable to sales tax. Reliance was also placed on the decision of Murli Manohar & Co. v. State of Haryana reported in [1991] 80 STC 79 (SC); [1991] 1 SCC 377, wherein it was observed that any sale effected by the assessee in the circumstances must fall in one of the three categories, namely, either local sale, inter-State sale or sale in course of export outside the territory of India. Counsel also placed reliance on the decision of the Larger Bench of the Sales Tax Tribunal in the case of Industrial Oxygen Company Ltd. v. State of Maharashtra decided on July 9, 2010, wherein the Tribunal came to the conclusion that even in absence of any notification issued for the purpose of the CST Act, on any movement of goods to exclusive economic zone from an Indian State, tax can be levied. Having th....
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.... a sale or purchase of goods is said to take place in the course of import or export and reads thus: "5. When is a sale or purchase of goods said to take place in the course of import or export.-(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India. (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or ord....
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....specified in the First Schedule. (3) The territory of India shall comprise- (a) the territories of the States; (b) the Union territories specified in the First Schedule; and (c) such other territories as may be acquired." Article 297 of the Constitution provides that things of value within the territorial waters or continental shelf and resources of the exclusive economic zone shall vest in the Union. Article 297 reads as under: "297. (1) All lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf, or the exclusive economic zone, of India shall vest in the Union and be held for the purposes of the Union. (2) All other resources of the exclusive economic zone of India shall also vest in the Union and be held for the purposes of the Union. (3) The limits of the territorial waters, the continental shelf, the exclusive economic zone, and other maritime zones, of India shall be such as may be specified, from time to time, by or under any law made by Parliament." First Schedule to the Constitution pertains to the States and provides for territories of the different States of the country. Item No. 4 ....
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....unless resolutions approving the issue of such notification are passed by both houses of Parliament. (4) The Central Government may exercise such powers and take measures in or in relation to the contiguous zone as it may consider necessary with respect to,- (a) the security of India; and (b) immigrations, sanitation, customs and other fiscal matters. (5) The Central Government may, by notification in the Official Gazette,- (a) extend with such restrictions and modifications as it thinks fit, any enactment, relating to any matter referred to in clause (a) or clause (b) of sub-section (4), for the time being in force in India or any part thereof, to the contiguous zone; and (b) make such provisions as it may consider necessary in such notification for facilitating the enforcement of such enactment, and any enactment so extended shall have effect as if the contiguous zone is a part of the territory of India." Section 6 of the Maritime Zones Act pertains to continental shelf of India. Relevant portion of section 6 reads as under: "6. (1) The continental shelf of India (hereinafter referred to as the continental shelf) comprises the seabed and subsoil of the sub....
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....enance or operation of artificial islands, off-shore terminals, installations and other structures and devices necessary for the exploration and exploitation of the resources of the zone or for the convenience of shipping or for any other purpose. (c) exclusive jurisdiction to authorize, regulate and control scientific research; (d) exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution; and (e) Such other rights as are recognized by International Law. (5) No person (including a foreign Government) shall, except under and in accordance with, the terms of any agreement with the Central Government or of a licence or a letter of authority granted by the Central Government, explore or exploit any resources of the exclusive economic zone or carry out any search or excavation or conduct any research within the exclusive economic zone or drill therein or construct, maintain or operate any artificial island, offshore terminal, installation or other structure or device therein for any purpose whatsoever: Provided that nothing in this sub-section shall apply in relation to fishing by a citizen of India. (6) The Cent....
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....pecified in the First Schedule and such other territories as may be acquired. Admittedly, Bombay High which is situated at about 180 kms. from the shores of India is not part of the territory of India as stated in article 1 of the Constitution. As per section 7 of the Maritime Zones Act, it is part of Exclusive Economic Zone. It is of course true that under article 297 of the Constitution, it is provided that all lands, minerals and other things of value underlying the ocean within the territorial waters, or the continental shelf or the exclusive economic zone of India shall vest in the Union and be held for the purposes of the Union. Thus for the purpose of vesting of lands, minerals and other natural resources, etc., clause (1) of article 297 clearly provides that the same shall vest in the Union. However, this is not the same thing as to suggest that such areas of exclusive economic zone form part of the Indian territory. For the purpose of this petition, our enquiry is whether Bombay High, which is situated in the exclusive economic zone is part of the territory of India. This is relevant because under section 3 of the CST Act, the sale and purchase of goods is deemed to ....
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....a has, and always had, full and exclusive sovereignty rights in respect of its continental shelf. It may be noted that the words used are sovereign rights and not sovereignty in respect of such continental shelf. Sub-section (5) of section 6 empowers the Central Government to issue notification to declare any area of the continental shelf and its superjacent waters to be a designated area and to make such provisions as it may deem necessary with respect to besides other purposes, customs and other fiscal matters in relation to such designated area. Section 7 of the Maritime Zones Act pertains to exclusive economic zone and is defined as an area beyond and adjacent to the territorial waters and the limit of such zone would be 200 nautical miles from the baseline referred to in sub-section (2) of section 3 and sub-section (4) of section 7 of the Maritime Zones Act providing, inter alia, that the Union has exclusive sovereign rights in such exclusive economic zone for the purpose of exploration, exploitation, conservation and management of the natural resources, both living and non-living as well as for producing energy from tides, winds and currents. Union also has, within such ex....
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....nd make such provision as it may deem necessary with respect to such area for different purposes including for the purpose of customs and other fiscal matters in relation to such designated area. Further sub-section (7) of section 7 empowers the Central Government to issue notification to extend certain laws to any part of the exclusive economic zone and to make such provisions as are necessary for enforcement of such enactments. It is further provided that thereupon the enactments so extended shall have effect as if the exclusive economic zone or the part thereof to which it has been extended is a part of the territory of India. The language used in clause (b) of sub-section (7) of section 7 to the Maritime Zones Act is significant as it does not provide that the designated area upon notification by the Union of India, shall be part of the territory of India. It provides that law so notified shall be extended as if the exclusive economic zone or the part thereof is a part of the territory of India. The language is clear and gives rise to a deeming fiction for the limited purpose of extension and application of laws notified and for that limited purpose exclusive economic zone shal....
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....ment by the Finance Act, 2007 with effect from August 25, 1976, section 2(25A) of the Indian Income-tax Act read as under: "2(25A). 'India' shall be deemed to include the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu and Pondicherry,- (a) as respects any period for the purposes of section 6; and (b) as respects any period included in the previous year, for the purposes of making any assessment for the assessment year commencing on the 1st day of April, 1963, or for any subsequent year;" In the background of the unamended section 2(25A) of the Income-tax Act, 1961, the Bombay High Court in the case of McDermott International Inc (No. 1) v. Union of India reported in [1988] 173 ITR 155 (Bom) held that the income which had arisen on account of work done beyond 12 nautical miles was not exigible to Income-tax. The Madras High Court in the case of Commissioner of Income-tax v. Ronald William Trikard reported in [1995] 215 ITR 638 (Mad) also applying the unamended section 2(25A) held that in absence of any notification extending the Income-tax Act to continental shelf and exclusive economic zone (which was issued with effect from April 1, 1983) no ta....
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....e Bombay High Court in the case of McDermott International Inc (No. 1) v. Union of India reported in [1988] 173 ITR 155 (Bom). The various judgments of the Supreme Court cited by Mr. Posti on behalf of the Revenue have no application to the facts of the present case as in those judgments the facts related to the amendment of the Income-tax Act either by the Finance Act or by the tax law amending Act which is not the case herein. In the present case, there is only a notification issued by the Central Government, that notification is issued not under the Income-tax Act but under the said Act, 1976. For the aforestated reasons, we answer both the above questions in the affirmative, i.e., in favour of the assessee and against the Department. Accordingly, all the above appeals are disposed of. No order as to costs." We may notice that subsequently, however, the Union of India appears to have issued notification extending the Income-tax Act to the continental shelf and exclusive economic zone with effect from April 1, 1983. It also emerges that the Income-tax Act, 1961 itself has been amended by making much wider provisions in section 2(25A). In absence of such provisions as it ....
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....ore Limited v. Union of India reported in [2008] 11 SCC 439 is relevant for our purpose. In the said case, the facts were that the appellants had engaged in drilling operations for exploration of offshore oil, gas and other related activities under the contracts awarded to them by ONGC. Such drilling operations were carried out at oil rigs/vessels, which were situated outside the territorial waters of India. In that background, question arose before the apex court whether the oil rigs engaged in the operations in exclusive economic zone/continental shelf falling outside the territorial waters of India, were foreign going facilities as defined under section 2(24) of the Customs Act, 1962 and were entitled to consume imported stores without payment of customs duty. The appellant had imported the "stores" by air which landed at Sahara Airport. When they sought clearance to shift stores without payment of duty, the Revenue authorities opposed the same. The Revenue relied on the decision of the Bombay High Court in the case of Pride Foramer v. Union of India reported in [2002] 148 ELT 19 (Bom). It was in this background the apex court considered the above-noted legal question. The apex ....
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....not find any ambiguity in this situation. The interpretation given by the High Court in Pride Foramer [2002] 148 ELT 19 (Bom) case would not result in any absurd situation as contended by the counsel for the appellants. The appellants want the court to read section 2(21) of the Customs Act in isolation, which would not be the correct approach. The Customs Act has to be read along with the provisions of the Maritime Zones Act, 1976." The apex court concluded as under: "The combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to the aforesaid areas declared as 'designated areas' under the Maritime Zones Act, 1976. The further effect of these notifications is that the designated areas of the continental shelf and the exclusive economic zone become a part of the territory of India for limited purposes. The natural consequence of such declarations and the extension of the Customs Act and the Customs Tariff Act to these designated areas is to introduce the customs regime to such areas resulting in the levy and collection of customs duties on goods imported into these areas as if these areas are a part of the terri....
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....ld have no direct bearing on the present issue. In the case of Nand Lal Hira Lal v. Punjab State [1965] 16 STC 967 (P&H), the Punjab and Haryana High Court was examining a situation where the sale of goods had occasioned the movement from the State of Punjab into the State of Jammu and Kashmir. Since the CST Act is not extended to Jammu and Kashmir, contention of the assessee was that no sales tax can be collected on such sale of goods. It was in this background, the Division Bench held that the provisions of the CST Act would be applicable since the same are extended to the State of Punjab. In the said case, however, it can be seen that the movement of goods was from Punjab to Jammu to Kashmir, which was also part of the territory of India and thus squarely answered description "sale of goods having occasioned the movement of goods from one State to another". Similar facts were involved in the decision of the Madras High Court in the case of S. Mariappa Nadar v. State of Madras reported in [1962] 13 STC 371. In the case of Murli Manohar & Co. v. State of Haryana [1991] 80 STC 79 (SC); [1991] 1 SCC 377, the apex court did observe that there can be movement of goods by virtue ....
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....ssment passed by the competent authority under the CST Act. We are also conscious that against such an order, statutory appeals are available. It is also true that the courts normally do not permit the litigant to by-pass such alternative remedy, particularly in the matters of fiscal statutes. However, there are certain well established and well accepted exceptions to such a rule. For example when it is found that action of the authorities is wholly without jurisdiction, the court may in a given case exercise writ jurisdiction despite availability of alternative remedy. We are fortified by the decision of the Division Bench of this court in the case of Gujarat Gas Co. Ltd. v. Joint Commissioner of Income-tax (Assessment) reported in [2000] 245 ITR 84 (Guj), wherein considering the facts of the case and finding that relegating the assessee to the Appellate Commissioner would be a futile exercise, the Division Bench of this court after examining large number of decisions on the point held that alternative remedy would not be a bar to entertaining the writ petition directly against the order of assessment. The court observed as under (page 115 in 245 ITR): "However, in our opinion,....