2004 (9) TMI 610 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of goods effected in duty-free shops (DFS) at international airports is exempt from payment of sales tax under the Kerala General Sales Tax Act, 1963, by virtue of Article 286(1)(b) of the Constitution of India and sections 2(ab) and 5(1) and (2) of the Central Sales Tax Act, 1956 (CST Act).
2. Whether the exemption granted to respondents 2 and 3 alone, and/or restricting the exemption to respondents 2 and 3, is arbitrary, irrational, and violative of Articles 14 and 19(1)(g) of the Constitution of India.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax for DFS Sales:

The petitioner, a company operating DFS at Thiruvananthapuram International Airport, argued that sales at the arrival DFS fall under section 5(2) of the CST Act, 1956, as sales in the course of import, and sales at the departure DFS are in the course of exports. Thus, they claimed exemption from state sales tax under Article 286(1)(b) of the Constitution and sections 2(ab) and 5(1) and (2) of the CST Act.

The first respondent contended that it is the petitioner's burden to show that the transactions fall under section 5(2) of the CST Act. They argued that the court could not verify the documents to conclude the nature of the transactions and suggested that the petitioner should approach the statutory authorities for this determination. The respondent also emphasized that the entire customs station is not included in the definition of "crossing the customs frontiers of India" under section 2(ab) of the CST Act.

The court noted that the legal position established by the Supreme Court indicates that the course of import ends when goods cross the customs barrier in the importing country. Sales during this period are considered in the course of import and are exempt from state sales tax. However, the court acknowledged that the factual determination of whether the goods in the DFS had crossed the customs barrier and become part of the mass of goods within the country is a matter for the statutory authorities to decide.

2. Exemption to Respondents 2 and 3:

The petitioner argued that the exemption granted to respondents 2 and 3, but not to them, was arbitrary and discriminatory, violating Articles 14 and 19(1)(g) of the Constitution. They claimed that since their DFS also received payment in foreign exchange, they should be entitled to the same exemption.

The first respondent countered that the exemption was granted to respondents 2 and 3 in public interest, as these entities were either Central Government undertakings or institutions with significant state interest. The second and third respondents argued that their operations were distinct due to their public sector status and their role in promoting tourism and earning foreign exchange, justifying the differential treatment.

The court held that the classification between the petitioner and respondents 2 and 3 was based on intelligible differentia and had a rational nexus with the objective of promoting public sector undertakings and tourism. Therefore, the exemption granted to respondents 2 and 3 was not arbitrary or discriminatory.

However, the court acknowledged that the unequal treatment might adversely impact the petitioner's business, as their DFS was the only other DFS at the Thiruvananthapuram International Airport. The court directed the government to reconsider the petitioner's request for exemption afresh, taking into account the observations made in the judgment.

Conclusion:

The writ petition was disposed of with directions to the government to reconsider the petitioner's request for exemption from sales tax in light of the observations made in the judgment and to pass fresh orders within three months. The court emphasized that the petitioner had an effective remedy through the statutory authorities and appellate process for their claims regarding tax exemption under Article 286(1)(b) and the CST Act.