TaxTMI 
TaxTMI 
2026 (1) TMI 110
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....Lakshmi Kumaran Sridharan, learned counsel for the petitioner and Sri Y.N. Vivekananda, learned counsel appearing for the respondents. 3. The petitioner herein is involved in the generation and supply of electricity, to its purchasers. The petitioner owns and operates thermal power plants in the State of Andhra Pradesh. 4. The petitioner, in the course of its business purchases various goods, including coal, inputs and capital goods as well as obtains services. The petitioner also pays applicable GST on the purchases of these goods and services and is given input tax credit for these payments. 5. The petitioner, in the course of its business, had been supplying electricity to M/s. Bangladesh Power Development Board (hereinafter referred to as 'Bangladesh Board'). The said supply of electricity is done by the petitioner, directly to the Bangladesh Board, by way, of an agreement. Apart from this, the petitioner had supplied electricity to M/s. Power Trading Corporation India Limited (hereinafter referred to as 'PTC'), which supplied this electricity to the Bangladesh Board. In this case, PTC had entered into an agreement with the Bangladesh Board for supply of electricity, o....
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.... "4.4 Adjusted Total Turnover shall be calculated as per the clause (E) of sub-rule (4) of rule 89. However, as electricity has been wholly exempted from the levy of GST, therefore, as per the definition of adjusted total turnover provided at clause (E) of the sub-rule (4) of rule 89, the turnover of electricity supplied domestically would be excluded while calculating the adjusted total turnover. The proper officer shall invariably verify that no ITC has been availed on the inputs and inputs services utilized in making domestic supply of electricity". 10. The applications of the petitioner, for refund of input tax credit for different periods, commencing from March, 2019, were partially rejected by the authorities, on two grounds. The grounds were- (i) The values of turnover pertaining to supplies made to PTC are to be excluded from the adjusted total turnover, as the electricity supplied to PTC was domestically supplied electricity and (ii) the amounts received as reimbursement towards transmission charges of electricity are to be excluded in the zero rated turnover. These grounds of rejection have been elaborated by the petitioner, in the affidavit ....
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....ame to be dismissed. The appellate authority had taken the same view, as the primary authority, and dismissed the appeals. Aggrieved by these orders, of rejection and dismissal of appeals, the petitioner has approached this Court, by way of these writ petitions, on the ground that the GST Appellate Tribunal is not functioning and the petitioner is unable to avail of the alternative remedy of appeal before the Tribunal. 12. As can be seen from the grounds raised by the petitioner and the view taken by the tax authorities, the primary and central issue, before this Court is whether the supply of electricity to the Bangladesh Board, on account of the contracts between the petitioner, P.T.C and the Bangladesh Board, should be treated as a zero rated supply, entitling the petitioner to a refund of appropriate input tax, credited to the ledger of the petitioner. 13. Sri Raghavan Ramabhadran, the learned Counsel for the petitioner, has taken us through a review of the provisions of section 5 of the CST Act and the leading judgments, interpreting this provision, to assist us in understanding the provisions of the IGST Act. 14. The learned counsel, for the petitioner, has taken thi....
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....he learned counsel has also drawn the attention of this Court to a letter, dated 30.11.2024, from PTC to the petitioner. In this letter, PTC informed the petitioner that it had not claimed any GST refund, on the electricity procured till date, from the petitioner, under the Power Purchase Agreement, dated 03.02.2022, which had been supplied to Bangladesh. 18. Sri Raghavan Ramabhadran would also raise an alternative argument that the definition and clauses contained in the CST Act would not be applicable as the IGST Act itself defines export of goods under Section 2(5) and export of services under Section 2(6). The learned counsel would contend that the definitions, set out in Section 2(5) and 2(6), are at variance with the definitions set out under the CST Act. The learned counsel would contend that Section 2(5) defines export of goods to mean taking goods out of India to a place outside India. He would submit that any sale transaction which causes such goods to move out, irrespective of the point of sale, would have to be treated as export of goods, stipulated under Section 16 of the IGST Act. The learned counsel would draw the attention of this Court to Section 2(6) which defi....
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....the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State. (2) Except insofar as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce: Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951. (3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the com....
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.... sales by export and purchases by import, that is to say, those sales and purchases which occasion the export or import, as the case may be, and extends to no other transactions however directly or immediately connected, in intention or purpose, with such sales or purchases, and wheresoever the property in the goods may pass to the buyer. (2) In addition to the sales and purchases of the kind described above, the exemption covers the last purchase by the exporter and the first sale by the importer, if any, so directly and proximately connected with the export sale or import purchase as to form part of the same transaction. (3) The exemption covers only those sales and purchases under which the property in the goods concerned is transferred from the seller to the buyer during the transit, that is, after the goods begin to move and before they reach their foreign destination. (4) The view which found favour with the learned Judges of the High Court, namely, "the clause is not restricted to the point of time at which goods are imported into or exported from India; the series of transactions which necessarily precede export or import of goods will come within....
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.... held that the words "debts due to the bankrupt in the course of his trade" in Section 15(5) of the English Bankruptcy Act, 1869, do not extend to all debts due to the bankrupt during the period of his trading but include only debts connected with the trade (see Pryce, In re, ex p Rensburg [Pryce, In re, ex p Rensburg, (1877) LR 4 Ch D 685 and Williams on Bankruptcy, 16th Edn. p. 307.]). A sale in the course of export out of the country should similarly be understood in the context of clause (1)(b) as meaning a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. The time factor alone is not determinative. The previous decision proceeded on this view and emphasised the integral relation between the two where the contract of sale itself occasioned the export as the ground for holding that such a sale was one taking place in the course of export. It is, however, contended that on this principle of connected or integrated activities a purchase for the purpose of export must be regarded as covered by the exemption under clause (1)(b). We are unable to agree. 10....
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....s sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption. (3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State power of taxation extends to such transactions. 22. At this stage, Article 286 was amended, by way of the 6th Amendment Act. Under this Amendment Act, the explanation to Article 286(1) was deleted and Article 286 (2) was substituted with the following: "(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1)" 23. Thereafter, the Central Sales Tax Act, 1956 was enacted and brought into force. Section 5, of this Act, formulated the principles relating to sales in the course of exports and imports, in the following manner: 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 th....
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....e sale transaction, under which the exporter had purchased the goods, for the purposes of sending them out of India pursuant to its agreement with a foreign party, would also fall within the ambit of the term 'sale' in the course of export. The Hon'ble Supreme Court took the view that such penultimate sale transactions cannot be treated to be part of a sale in the course of export inasmuch as such a sale transaction was an independent sale transaction, though it was undertaken for the purposes of fulfilling the export obligation between the exporter and the foreign party. The Hon'ble Supreme Court had taken the clear view that it would only be the sale transaction which actually results in movement of goods, for export that would be treated as a sale in the course of export. The Hon'ble Supreme Court held that the earlier sale transaction, cannot be treated to be an inextricable part of the export process. The relevant contentions and findings of the Hon'ble Supreme Court are as follows: 10. The appellant relied on the decisions in State of Travancore-Cochin v. Bombay Co. Ltd. [(1952) 2 SCC 142 : 1952 SCR 1112 : AIR 1952 SC 366 : (1952) 3 STC 434] [ Hereinafter referred to....
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.... and sales in the course of export is never to be lost sight of. The features which point with unerring accuracy to the contract between the appellant and the Corporation on the one hand and the contract between the Corporation and the foreign buyer on the other as two separate and independent contracts of sale within the ruling in the Coffee Board case and the Binani Brothers case, are these. The Corporation entered on the scene and entered into a direct contract with the foreign buyer to export the goods. The Corporation alone agreed to sell the goods to the foreign buyer. The Corporation was the exporter of the goods. There was no privity of contract between the appellant and the foreign buyer. The privity of contract is between the Corporation and the foreign buyer. The immediate cause of the movement of goods and export was the contract between the foreign buyer who was the importer and the Corporation who was the exporter and shipper of the goods. All relevant documents were in the name of the Corporation whose contract of sale was the occasion of the export. The expression "occasions" in Section 5 of the Act means the immediate and direct cause. But for the contract between ....
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....ales in the course of export. 35. The expression "in the course" implies not only a period of time during which the movement is in progress but postulates a connected relation. Sale in the course of export out of the territory of India means sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. In Burmah Shell Oil Storage & Distributing Co. v. Commercial Tax Officer [AIR 1961 SC 315 : (1961) 1 SCR 902 : (1960) 11 STC 764] it was said that the word "export" did not mean a mere taking out of the country but that the goods may be sent to a destination at which they could be said to be imported. The directions given by the Corporation to the appellant to place the goods on board the ship are pursuant to the contract of sale between the appellant and the Corporation. These directions are not in the course of export, because the export sale is an independent one between the Corporation and the foreign buyer. The taking of the goods from the appellant's place to the ship is completely separate from the transit pursuant to the export sale. 26. In Indure Ltd. ....
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....on duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority. 28. These amendments, while granting exemption to penultimate sales, are also an indication that Parliament has implicitly, accepted the view of the Hon'ble Supreme Court, that penultimate sales do not fall within the principles formulated in Section 5 (1) of the CST Act and consequently, the exception contained in Article 286(1)(b). 29. The principles that have been set down by the Hon'ble Supreme Court, can be summarized in the following manner: "15. Our conclusions may be summed up as follows: (1) Sales by export and purchases by import fall within the exemption under Article 286(1)(b). This was held in the previous decision. (2) Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption. (3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State power of taxa....
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....pt supply. [(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed: 32. The term 'Export of Goods' is defined, in Section 2(5) of the IGST Act, as follows: (5) "export of goods" with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India; 33. Section 2(6) also requires to be noticed as certain submissions had been made on this provision also. "export of services" means the supply of any service when,- (i) the supplier of service is located in India; (ii) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange 1[or in Indian rupees wherever permi....
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....OnLine SC 89 at page 844were based on an interpretation of Section 5 of the CST Act. It is only in State of Travancore-Cochin v. Shanmugha Vilas Cashewnut Factory, (1953) 1 SCC 826 : (1953) 4 STC 205 : 1953 SCC OnLine SC 89 at page 844 that the Hon'ble Supreme Court interpreted Article 286, without taking into account Section 5 of the CST Act. 36. In the present case, PTC had entered into a contract with the Bangladesh Board to supply electricity. That agreement specifically mentioned that the electricity would be sourced from the petitioner. A separate agreement was executed between PTC and the petitioner. Under the agreement between PTC and the petitioner, the electricity would be loaded into the Grid at the interconnection point, in Andhra Pradesh, to be wheeled to the Delivery point, which is the Bohronpur sub-station, in West Bengal. It is at this point that the electricity would stand transferred from the petitioner to PTC and from PTC to the Bangladesh Board. The term "delivery point" has been defined in both the agreements as follows: "Delivery Point" - means the location at the 400 kv side at Bohronpur Sub-station, Murshidabad, India at which the electrical ene....
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....t not being the direct and immediate cause for the shipment of the goods.... When a merchant shipper in the United Kingdom buys for the purpose of export goods from a manufacturer in the same country the contract of sale is a home transaction; but when he resells these goods to a buyer abroad that contract of sale has to be classified as an export transaction [Schmitthoff, Export Trade (2nd Edn.) 3.]." This passage shows that, in view of the distinct character and quality of the two transactions, it is not correct to speak of a purchase for export, as an activity so integrated with the exportation that the former could be regarded as done "in the course of" the latter. The same reasoning applies to the first sale after import which is a distinct local transaction effected after the importation of the goods into the country has been completed, and having no integral relation with it. Any attempt therefore to invoke the authority of the previous decision in support of the suggested extension of the protection of clause (1)(b) to the last purchase for the purpose of export and the first sale after import on the ground of integrated activities must fail. 39. Even if the jud....