1986 (7) TMI 125 - SC - VAT and Sales Tax

Whether the sales in question were within the state of Tamil Nadu and as such subject to tax under the Tamil Nadu General Sales Tax Act, 1959? Held that - The goods were within the State of Tamil Nadu in case of ascertained goods at the time when the contract of sale was made and in case of unascertained goods at the time of their appropriation to the contract by the seller, sale must be deemed to be within the State of Tamil Nadu. Therefore, Shri M.M. Abdul Kader, learned counsel for the respondents was right that under Section 2(n) of the Act read with explanation 3, these sales were within the State. Under sub-section (2), sub-clauses (a) and (b) of Section 4 of the Central Sales Tax Act, 1956, the sale of goods in question shall be deemed to have taken place inside the State because the contract of sale of ascertained goods was made within the territory of Tamil Nadu and furthermore in case of unascertained goods appropriation had taken place in that State in terms of clause (b) of sub-section (2) of Section 4 of the Central Sales Tax Act, 1956. There is no question of sale taking place in course of export or import under Section 5 in this case. From that point of view the amendment introduced by Act 103 of 1976 by incorporating in clause (ab) of Section 2 of the Central Sales tax Act, 1956 does not affect the position. Appeal dismissed.

Issues Involved:
1. Whether the sales in question were within the State of Tamil Nadu and subject to tax under the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the sales were in the course of export or took place within the territorial waters of India.
3. Legislative competence of the State of Tamil Nadu in levying sales tax on goods sold within its territorial waters.
4. Applicability of the amendment to the Central Sales Tax Act, 1956, introduced by Act 103 of 1976.

Detailed Analysis:

1. Sales Within the State of Tamil Nadu:
The primary issue was whether the sales transactions occurred within the State of Tamil Nadu and were thus subject to the Tamil Nadu General Sales Tax Act, 1959. The appellants/petitioners argued that the sales were intended for re-export and occurred outside the state, as the goods were delivered on board foreign-going vessels and consumed on the high seas. The taxing authorities contended that the goods were appropriated within Tamil Nadu when they were set aside in bonded warehouses, and thus the sales took place within the state.

The court held that the appropriation of goods took place in the bonded warehouses within Tamil Nadu, making the sales taxable under the state's jurisdiction. The sales were deemed to have occurred inside the state as per Section 4(2) of the Central Sales Tax Act, 1956.

2. Sales in the Course of Export:
The appellants/petitioners claimed that the sales were in the course of export as the goods were delivered to foreign-going vessels and consumed outside Indian territorial waters. The court referred to the decision in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer, which established that goods must have a foreign destination to qualify as exports. Since the goods were consumed on board ships and did not have a foreign destination, the sales could not be considered as exports.

The court concluded that the sales were not in the course of export as there was no foreign destination for the goods, and the appropriation occurred within Tamil Nadu.

3. Legislative Competence of Tamil Nadu:
The appellants/petitioners argued that the State of Tamil Nadu lacked the legislative competence to levy sales tax on transactions occurring within territorial waters, which are vested in the Union Government as per Article 297 of the Constitution. The court noted that the sales took place within the bonded warehouses in Tamil Nadu, and thus the state's legislative competence was not in question.

The court did not find it necessary to rest its decision on the issue of territorial waters, as the sales were deemed to have occurred within Tamil Nadu based on the appropriation of goods.

4. Applicability of the Amendment to the Central Sales Tax Act, 1956:
The appellants/petitioners contended that the amendment introduced by Act 103 of 1976, which defined "crossing the customs frontiers of India," should be applied retrospectively. The court held that the amendment was not declaratory and did not have retrospective effect. The court emphasized that the customs station was within Tamil Nadu, and the amendment did not affect the position that sales beyond the customs barrier were still within the state.

Conclusion:
The court dismissed the civil appeals and writ petition, holding that the sales in question took place within the State of Tamil Nadu and were subject to tax under the Tamil Nadu General Sales Tax Act, 1959. The court also dismissed the special leave petitions, with each party bearing its own costs. The court's decision was based on the appropriation of goods within Tamil Nadu and the absence of a foreign destination for the goods, making the sales taxable within the state.

← Previous Next →