TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 4
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the year 2001 and engaged in the manufacture and export of PVC Free Foam Sheets. The manufacturing unit of the petitioner is located within the Cochin Special Economic Zone (for short 'CSEZ'). The dates and events preceding to the filing of the writ petition are stated in detail in the judgment under appeal. The dates and events are not in serious dispute between the parties. The controversy centres around the tax liability on the movement of capital goods from the petitioner's unit in CSEZ to the 6th respondent's unit at Udaipur, Rajasthan. Hence, we would refer to such dates and events which have bearing on the question falling for our consideration in the Writ Appeal. 3.1 On 07.02.2003 the petitioner imported capital goods for installation at the petitioner's unit located in CSEZ. The goods imported were duty-free under the Bond agreement dated 06.03.2002 (Ext.P3). CSEZ is one of the Special Economic Zones (SEZs) notified under the Export-Import Policy (EXIM Policy) 2002-07 and enjoys the benefits allowed to units located in SEZs under the EXIM Policy. The petitioner's unit located in CSEZ falls within the meaning of Chapter 10A of the Customs Act 1962. On 22.07.2003, und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pondents 2 and 3 stating that the petitioner's unit located in SEZ is not entitled to exemption in case of inter-State sale. The capital goods intercepted on 16.06.2004 is an inter-State sale and the petitioner is not entitled to any form of exemption from payment of Central Sales Tax. The 6th respondent's unit is not located in an SEZ. The premise that capital goods are transferred from one unit to another is sale of machinery is untenable. The petitioner, as per the Bill of Entry, is described as the owner of the subject capital goods and the 6th respondent a consignee. The invoices accompanying the movement of goods by road show that the petitioner sold the capital goods to the 6th respondent. It is the case of respondents 2 and 3 that there is a change of ownership, the movement of goods being from one State to another is a transaction exigible under the Central Sales Tax Act, 1956 (for short, 'the CST Act'). The subject transfer of capital goods is not in the course of import. 5. The counter affidavit categorically states that the formalities completed by the petitioner with the authorities of the Customs and SEZ have no relevance to the tax liability under CST Act. A few ave....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... become exigible to tax under the CST Act or the KGST Act as the case may be, firstly, the goods crossed the customs frontiers of India as inter or intra-State sale. In the case on hand, the goods did not cross the customs frontiers. Therefore, the CST demanded from the petitioner is illegal. The judgment refers to Section 51 of the Special Economic Zones Act 2005, which conferred overriding effect over other enactments. Section 53 deals with deeming provision on SEZs as Ports etc. Sections 51 and 53 of the Special Economic Zones Act 2005 read thus: "51. provisions Act to have overriding effect.--The of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act." *** *** *** "53. Special Economic Zones to be Ports, airports, inland container depots, land stations, etc., in certain cases.--(1) A Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purposes of undertaking the authorised operations. (2) A Special Economic Zone shall, with effect from su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the incident. Therefore, the findings recorded in the judgment under appeal by referring to Special Economic Zone Act 2005, are equally unsustainable. As matter of record, no argument is made by the writ petitioner to sustain the findings recorded in the judgment under appeal on this score. The above consideration no doubt should give quietus to the controversy on the exigibility of tax on the capital goods transported by the petitioner from CSEZ to Udaipur, Rajasthan. Hence the writ appeal. 10. Mr. Mohammed Rafiq contends that the case of the petitioner is not consistent on the occasioning of the movement of capital goods from Cochin to Udaipur. The judgment of this Court, in W.P (C) No.23402 of 2004 needs to be appreciated on the directions given by this Court on the applicability of tax to the subject transaction and tacitly the applicability of Central Sales Tax to the transaction is accepted. The operative portion of the judgment reads thus: "2. The goods under transport are admittedly machinery and the purchaser is also an industry stated to be engaged in manufacture. Since the third respondent is a unit in the Cochin Special Economic Zone, it has not taken any registrati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ordinarily kept before clearance by customs authorities. The explanation- deals with "customs station" and "customs authorities" shall have the same meaning as in the Customs Act, 1962 (52 of 1962). Section 5(2) of the CST Act deals with "a sale or purchase of goods shall be deemed to take place in the course of 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." 13. He argues that the competent Authorities under the Customs Act, 1962 granted permission under Sections 67 and 68 of the Act for movement of capital goods. EXIM policy 2002-07 facilitates inter-unit transfer of capital goods imported/procured. The capital goods may be transferred or given on loan to other EOU/SEZ/EHTP/STP. However, the arrangement of transfer shall be with the prior permission of the Development Commissioner and Customs Authorities. In the case on hand, the Development Commissioner and Customs Authorities have granted permission for the movement of goods from bonded warehouse in CSEZ to Udaipur, Rajasthan. The subject capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransferred from Cochin to Udaipur is not convincing and acceptable. 16. The next argument of the writ petitioner is that the EXIM policy 2002-07 permits inter-unit transfer. However, with the permission of the Development Commissioner, SEZ, and the Customs authorities. 17. Mr. Mohammed Rafiq argues that the tax is not demanded for the subject transfer from the writ petitioner, not because the goods are transported contrary to the EXIM policy, or without obtaining permission from the Authorities under the Customs Act. The learned Special Government Pleader was very candid in his argument that these permissions and will have bearing to the extent of compliance to the Customs Act and EXIM policy. These permissions cannot be put against the State from levying and demanding Central Sales Tax if otherwise exigible. 18. we have perused the applicable Clauses in the EXIM policy and the provisions under the Customs Act, we are of the view that the exigibility of tax under the CST Act is determined by Sections 3 and 5 of the Act. In Spares Corporation v. State of Andhra Pradesh and Others (1995) 97 STC 645 (AP) on the relevancy of permission granted under Section 69 of the Customs Act on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e as export sale. We are, therefore, of the view that merely because the goods were allowed to be cleared under section 69 for purposes of export, the same cannot be treated as "export" for purposes of section 5(1) of Tax Act. In this view of the matter, we find no error of law in the order of the Tribunal under revision." (Emphasis added) Therefore, Ext.P7-permission, and Ext.P9-Bill of Entry, in our considered view and by adopting the analogy or Spares Corporation case and in the peculiar circumstances of the case, these documents would not determine the character and incidence of tax under the CST Act, 1956. The exigibility or otherwise is under Section 3 and 5 of the CST Act, 1956. 19. The next argument for exemption from payment of Central Sales Tax is that the movement of goods is in the course of import. It is relevant to point out that the movement of capital goods from Cochin to Udaipur could not be under both the arrangements viz. firstly, lease in favour of the 6th respondent, secondly, transfer of goods in the course of import. The writ petitioner though has inconsistent pleas, still we would like to examine whether, from the documents now placed before the authoriti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce was also placed on the decision in Minerals & Metals Trading Corpn. of India Ltd. v. STO, which has had occasion to construe Section 5 of the CST Act. It was then urged that the goods in question were kept for warehousing and a declaration was given by the appellants that the said goods would be exported to foreign-going vessels as ship stores in terms of Section 88 of the Customs Act. The appellants have adverted to Sections 69, 85 and 88 of the Customs Act to contend that the stated goods could be exported to a place outside India without payment of import duty and until import duty was paid, the import thereof cannot be said to be complete. Reliance was then placed on the decision in Indian Tourist Development Corpn. Ltd. v. CCT, which according to the appellants, applied on all fours, as even in that case, the goods were kept in the bonded warehouses and then supplied to duty-free shops, which transaction has been extricated from the applicability of sales tax payable to the State on the ground that the goods had not crossed the customs frontiers and the sale was deemed to have taken place in the course of import of goods into the territory of India. According to the appell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atisfy that test, it could not be said that the sale was in the course of export. Besides noticing this dictum of the Constitution Bench, the Court in Madras Marine³ also adverted to the decision in State of Kerala v. Cochin Coal Co. Ltd. Wherein it was held that the concept of export in Article 286(1)(b) of the Constitution postulates the existence of two termini as those between which the goods were intended to move or between which they were intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port. Additionally, the Court also extensively adverted to the decision of the Andhra Pradesh High Court in Fairmacs Trading Co. v. State of A.P. and approved the same dealing with the similar argument. *** *** *** 26. A priori, for a sale or purchase to qualify as a sale or purchase in course of import, the essential conditions are that such sale shall occur before the goods had crossed the customs frontiers of India and the import of the goods must be effected or the import is occasioned due to such sale or purchase. In the present case, the sales in question did not occasion import. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes of their functioning under the Act. It is against this schematic backdrop that one has to consider whether a sale from a unit in the DTA to a unit in the SEZ can be treated as an export for all purposes, including for the purposes of the CST Act. As already noted, the words "export" and "import" have a different connotation under the SEZ Act, when compared with the definition of the same words under the Customs Act. While "export" is defined as including a supply from a unit in the DTA to a unit in the SEZ, the word also includes the activity of taking goods or providing services out of India from a unit in the SEZ. Similarly, the word "import" does not include the bringing of goods into a unit in the SEZ, from the DTA. It is also relevant to note that Section 7 of the SEZ Act that deals with exemption from taxes, duties and cesses does not specifically grant an exemption from Customs duties or CST or State VAT levies. The exemption from State VAT levies is separately contemplated under Section 50 of the SEZ Act and is left to the discretion of the State Legislatures. It is apparent, therefore, that while enacting the SEZ Act, the Parliament did not intend to treat a supp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to such conditions or restrictions, as may be prescribed, be exempted from tax." 15. The aforesaid provisions seem to suggest that the legislative intention under the SEZ Act was to treat sales to units in the SEZ as taxable sales, subject to specific exemptions that were provided for, either under the CST Act or under the respective State legislations. In the absence of any exemption, therefore, such sales effected from the DTA to a unit in the SEZ would not qualify to be export sales for the purposes of S. 5(1) of the CST Act or for the purposes of Art. 286 of the Constitution of India. I, therefore, find against the petitioner on this issue." 11. This judgment of the learned single Judge was challenged before a Division Bench of this Court in W.A. No. 2665/2015 and the appeal was dismissed by judgment dated 14.06.2017. 12. In the light of the aforesaid statutory provisions and authoritative pronouncement by this Court, conclusion is irresistible that sale by registered dealers like the appellants to units within the SEZ do not qualify to be deemed exports and instead their entitlement, for statutory benefits are governed by the provisions of Section 8 of the CST Act and S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e first two ingredients and the third one, actual movement out of the State, is not in dispute". 22. Now we apply the laid down tests to the case on hand in determining whether the case falls under Section 3 of the CST Act or Section 5 enabling exemption from payment of CST for the movement of goods occasioned through invoices dated 15.06.2004. Circumstances leading to the controversy are adverted to at more than one place. Bearing those circumstances in mind, we proceed to examine now the claim of the petitioner for exemption from payment of sales tax. The record discloses that the capital goods were kept in a bonded warehouse and moved out of the bonded warehouse of SEZ, State of Kerala, to Udaipur in Rajasthan. The 6th respondent transferee is not located or established in SEZ but 100% EOU. The movement of goods from one SEZ to another SEZ may have different connotations and in the case, on hand, since the movement is to a 100% EOU, all the inferences available in the transfer of goods from one SEZ to another SEZ are not attracted. Pursuant to the permission granted in Ext.P7, bill of entry is raised, invoices are booked and goods transported, pursuant to the permission granted....