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2014 (7) TMI 277 - HC - VAT and Sales TaxLiability to sale tax - Rate of tax - Inter-State sale of the goods or not - supply of goods for execution of such turnkey projects at Bombay High - whether Bombay High, which is situated in the exclusive economic zone is part of the territory of India - violation of principles of natural justice - Held that - though Union of India has certain rights over the exclusive economic zone, the Indian Union does not have sovereignty over such a region. Clause (a) to sub-section (7) of section 7, for example provides that the Union has, over the exclusive economic zone, sovereign rights for the purpose of exploration, exploitation, conservation and management of the natural resources. Sovereign rights are thus for the limited purposes provided therein. By virtue of clause (b) of subsection (7) of section 7 of the Maritime Zones Act it becomes further clear that as and when Union of India issues notification extending any enactment over the exclusive economic zone or part thereof such enactment extended is applicable as if the exclusive economic zone or part thereof to which it has been extended is a part of the territory of India. When the sale of goods took place at Bombay High, for which the goods moved from Hazira to Bombay High, such movement does not get covered within the expression movement of goods from one State to another contained in clause (a) of section 3 of the CST Act. It is clear that the goods had not been moved from one State to another since, in our opinion, Bombay High does not form part of any State of Union of India. - Decided in favour of assessee.
Issues Involved:
1. Authority to levy sales tax under the CST Act for transactions at Bombay High. 2. Correct rate of tax under the CST Act. 3. Imposition of penalty and principles of natural justice. 4. Past decisions on similar tax demands. Detailed Analysis: 1. Authority to Levy Sales Tax Under the CST Act: The petitioners challenged the authority of the respondents to levy sales tax under the CST Act for transactions occurring at Bombay High, located in the exclusive economic zone (EEZ), 180 km off the Indian coast. The court noted that the title of goods passed at Bombay High, not Hazira. The CST Act applies to inter-State sales, defined as sales occasioning the movement of goods from one State to another. The court examined whether Bombay High, part of the EEZ, is considered Indian territory under the CST Act. The court referred to the Maritime Zones Act, which grants India certain sovereign rights over the EEZ for resource exploitation but does not extend full sovereignty. The court concluded that Bombay High is not part of any Indian State, and thus, movement of goods from Hazira to Bombay High does not qualify as inter-State trade under Section 3 of the CST Act. The CST Act was not extended to the EEZ by any notification, making the tax demand invalid. 2. Correct Rate of Tax Under the CST Act: The petitioners argued that if tax were leviable, it should be at 4% instead of 10%, and further reduced if C forms were provided. The court did not address this issue in detail, as it focused on the primary question of the authority to levy tax. 3. Imposition of Penalty and Principles of Natural Justice: The petitioners contended that the penalty imposed violated principles of natural justice, as the notice for penalty did not specify the breaches. The court did not delve into this issue, as it confined its enquiry to the primary ground of the authority to levy tax. 4. Past Decisions on Similar Tax Demands: The petitioners highlighted that similar tax demands were previously dropped by the State authorities upon representations. The court did not consider this ground, focusing instead on the primary issue of tax authority. Conclusion: The court held that the CST Act does not apply to sales at Bombay High, as it is not part of Indian territory for the purposes of inter-State trade. The impugned tax demand was quashed. The court allowed the petition and provided the State eight weeks to file an appeal, during which the Rs. 25 crores deposited by the petitioners would not be refunded.
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