2012 (2) TMI 62 - SC - VAT and Sales Tax

Appellant sells liquor at duty free shops at Bengalaru airport, no tax payable as goods are sold in the course of import or before the goods have crossed the customs frontier of India and are directly sold to customers - Revenue argued after purchase of goods passenger crossed the custom frontiers and and sales were not effected by transfer of documents of title to the goods - Held That - The above argument is irrelevant. Transfer of document is one method and delivery may be physical also. Simply because the sales had not been effected by transfer of documents of title to the goods and the sales were effected by giving physical possession of the goods to the customers, it would not mean that the sales were taxable under the Act. - Decided in favour of assessee.

Issues Involved:
1. Taxability of sales at duty-free shops under the Karnataka Value Added Tax Act, 2003.
2. Applicability of Section 5 of the Central Sales Tax Act, 1956.
3. Jurisdiction of the State of Karnataka to impose tax on sales at duty-free shops.
4. Exhaustion of alternative statutory remedies before approaching the High Court.

Detailed Analysis:

1. Taxability of Sales at Duty-Free Shops:
The appellant, registered under the Karnataka Value Added Tax Act, 2003 (the Act) and the Central Sales Tax Act, 1956 (the Central Act), argued that no tax was payable on sales at duty-free shops at Bengaluru International Airport. The appellant contended that the goods were sold directly to passengers before crossing the customs frontiers of India, thus falling outside the purview of state taxation under Article 286 of the Constitution and Section 5 of the Central Act.

2. Applicability of Section 5 of the Central Sales Tax Act, 1956:
The appellant relied on Section 5 of the Central Act, which states that a sale or purchase of goods shall be deemed to take place in the course of import if it occurs before the goods have crossed the customs frontiers of India. The appellant argued that since the goods were sold at duty-free shops before crossing customs frontiers, these sales should be considered as taking place in the course of import.

3. Jurisdiction of the State of Karnataka:
The appellant asserted that the State of Karnataka could not impose tax on sales at duty-free shops as these transactions occurred outside the customs frontiers of India. The goods were kept in bonded warehouses and sold at duty-free shops before crossing customs frontiers, thus remaining outside the jurisdiction of state taxation as per Article 286 of the Constitution.

4. Exhaustion of Alternative Statutory Remedies:
The High Court of Karnataka dismissed the appellant's writ petition on the grounds that the appellant had not exhausted alternative statutory remedies available under the Act. The Division Bench upheld this view. However, the Supreme Court considered the clear legal position and the fact that the special leave petition had been admitted, deciding it would not be in the interest of justice to relegate the appellant to statutory authorities.

Supreme Court's Judgment:
The Supreme Court concluded that the sales at duty-free shops were not taxable under the Act as they occurred before the goods crossed the customs frontiers of India. The Court emphasized that goods sold at duty-free shops are deemed to be outside the customs frontiers, thus falling under the course of import as per Section 5 of the Central Act and Article 286 of the Constitution. Consequently, the assessment order by the Assistant Commissioner of Commercial Taxes was quashed.

Civil Appeal Nos. 10404-10412 of 2010:
The issues in these appeals were identical to those in Civil Appeal No. 2560 of 2010. Therefore, for the same reasons, these appeals were also allowed, and the respective assessment orders were quashed.

Conclusion:
The Supreme Court allowed the appeals, quashing the assessment orders related to the transactions at duty-free shops, and ruled that no tax could be imposed by the State of Karnataka on such transactions. The Court emphasized the clear legal position that sales at duty-free shops, occurring before the goods cross the customs frontiers, are not subject to state taxation.

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