1960 (9) TMI 70 - SC - VAT and Sales Tax

Whether a transaction is outside the State? Held that - Appeal dismissed. These sales must, therefore, be treated as made within the State of West Bengal. The customs barrier is a barrier for customs purposes, and duty drawback may be admissible if the goods once imported are taken out of the country. The customs duty drawbacks have nothing to do with the sale of aviation spirit, which takes place in West Bengal. The customs barrier does not set a terminal limit to the territory of West Bengal for sales tax purposes. The sale beyond the customs barrier is still a sale, in fact, in the State of West Bengal. Both the buyer and the seller are in that State. The goods are also there. All the elements of sale including delivery, payment of price, take place within the State. The sale is thus completely within the territory of the taxing State.

Summary

Issues Involved:
1. Legality of sales tax on aviation spirit supplied to aircraft bound for foreign countries.
2. Interpretation and application of Article 286(1)(a) and the Explanation.
3. Interpretation and application of Article 286(1)(b) regarding sales in the course of export.

Issue-wise Detailed Analysis:

1. Legality of Sales Tax on Aviation Spirit Supplied to Aircraft Bound for Foreign Countries:

The appellant-companies, engaged in the business of petroleum products, challenged the imposition of sales tax on aviation spirit supplied to aircraft proceeding abroad under the Bengal Motor Spirit Sales Taxation Act, 1941, as amended. The Sales Tax Authorities in West Bengal assessed and demanded tax, which the appellant-companies paid under protest. The High Court dismissed their petitions under Article 226 questioning the legality of the imposition, leading to the appeals.

2. Interpretation and Application of Article 286(1)(a) and the Explanation:

The appellant-companies argued that the sales of aviation spirit were made in the course of export and thus outside the State of West Bengal, invoking Article 286(1)(a) and the Explanation. The High Court held that the sale was physically within West Bengal as both the seller and purchaser were present there, and delivery was beyond the customs barrier. The Court emphasized that the Explanation to Article 286(1)(a) was not applicable as it was meant to address situations involving more than one State. The Supreme Court agreed, stating that the Explanation creates a fiction deeming the sale to take place in the State where the goods are delivered for consumption, thus avoiding multiple taxation. However, in this case, no other State was involved, and the sale took place entirely within West Bengal.

3. Interpretation and Application of Article 286(1)(b) Regarding Sales in the Course of Export:

The appellant-companies contended that the sales were in the course of export as aviation spirit was taken out of India. The Supreme Court referred to previous decisions, emphasizing that a sale in the course of export must be integrally connected with the export and occasion the export. The Court held that aviation spirit loaded on aircraft for consumption did not qualify as export since it had no foreign destination where it could be imported. The sale was not integrally connected with taking out the aviation spirit and did not occur in the course of export. Therefore, Article 286(1)(b) did not apply.

Conclusion:

The Supreme Court concluded that the sales of aviation spirit were made within the State of West Bengal. The customs barrier did not limit the territory of West Bengal for sales tax purposes. All elements of the sale, including delivery and payment, occurred within West Bengal. The sale was not in the course of export, and Article 286(1)(a) and (b) were inapplicable. The appeals were dismissed with costs, upholding the High Court's decision.