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TMI Blog2014 (7) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - Special Civil Application No. 5575 of 2011 - - - Dated:- 2-9-2011 - AKIL KURESHI AND SONIA GOKANI, JJ. JUDGMENT :- The judgment of the court was delivered by AKII KURESHI J. Draft amendment dated April 22, 2011 is allowed. Amendments shall be carried out forthwith. The petitioners have challenged an order dated March 23, 2011 annexed at annexure A to the petition passed by the Deputy Commissioner of Commercial Tax, State of Gujarat (hereinafter referred to as, the Assessing Officer ). By the said order the assessing officer framed assessment in the case of the petitioner under the Central Sales Tax Act ( t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of reconstruction of SH complex platforms comprising process platform, gas compression platform, wellhead platform, etc. . 2. MR/OW/MM/BCPB2/02/2005 dated 06.02.2006 Survey, design, engineering, procurement, fabrication, installation and commissioning of BCP-B2 compressor platform with process platform bridge connected to BLQ2 platform . 3. MR/OW/MM/MHB S4WPP-1/16/2005 dated 21.02.2006 Survey, design, engineering, procurement, fabrication, installation and commissioning of NH, NE, N2 well platform in Mumbai High North asset BE platform in basin and satellite asset . 4. MR/OW/MM/PRP/ 02 (ICB) 2004 dated 06.05.2005 Survey, design, engineering, procurement, fabrication, installation and commissioning of pipeline replacement project on turnkey basis . It is the case of the petitioners and with respect to which no dispute has been raised by the respondents that all the above four contracts were indivisible turnkey projects consisting both of supply of goods and rendition of service including labour. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary 21, 2010 calling upon the petitioners to file reply within 15 days, why tax at the rate prescribed under the CST Act should not be levied. He also indicated his prima facie reasons for holding such a belief. He formed a prima facie opinion that there was no export of goods and that the CST Act would, therefore, apply and the petitioners cannot avoid the liability to pay tax at the appropriate rate. The assessing officer also issued a separate notice dated February 17, 2011, proposing to impose penalty on the petitioners and calling upon to show cause why such penalty should not be imposed under the CST Act. The petitioners responded to the said notice by a detailed representation dated February 24, 2011 raising several contentions regarding tax and penalty demands. The petitioners contended that the proposal for levying tax was without authority and that the demand for penalty was not supported by any specific instance of breach. The petitioners sent yet another communication dated March 22, 2011 to the assessing officer contending that before passing the order, following objections may be considered: (1) That the proposal for imposing penalty does not give any specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While in execution of such turnkey projects the petitioners supplied certain parts, equipments and machineries to ONGC from their depot at Hazira. Such machinery and other parts were transported by the petitioners to Bombay High. Upon completion of the turnkey project, the responsibility of the petitioners under the contracts came to an end. The title in the goods passed from the petitioners to ONGC only at Bombay High. It is, thus, the case of the petitioners that when the goods were transported from Hazira to Bombay High, there was no inter-State movement since Bombay High is located at a distance of about 180 kms from the shores of India and does not form part of Indian territory. It may be that for the limited purpose of permitting exploitation of the natural resources located there, certain provisions have been made. Nevertheless, sovereignty of the Indian State does not extend to the said region. Counsel further submitted that as and when appropriate notifications are issued under different fiscal statutes such as the Income-tax Act, Customs Act, etc., for the limited purpose indicated in such notifications, such area is deemed to be part of Indian territory. He submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the petitioners' goods cannot be said to be exported out of India and, that therefore, the petitioners' contention that tax under the CST Act cannot be levied is not correct. Counsel further submitted that the transaction in question was covered under section 3 of the CST Act since the sale occasioned the movement of goods from one Indian State to another. He, therefore, contended that the CST Act was applicable and demand of tax, interest and penalty was, therefore, justified. Counsel relied on the decision in the case of Burmah Shell Oil Storage and Distributing Co., of India Ltd. v. Commercial Tax Officer reported in [1960] 11 STC 764 (SC); AIR 1961 1 SC 315; [1961] 1 SCR 902 to contend that there was no export of goods in the present case. For the same purpose reliance was also placed on the decision of apex court in the case of Madras Marine and Co. v. State of Madras reported in [1986] 63 STC 169 (SC); [1986] 3 SCC 552 and in the case of State of Madras v. Davar and Co. reported in [1969] 24 STC 481 (SC); [1969] 3 SCC 406. Reliance was also placed on the decision of the Bombay High Court in the case of Oil and Natural Gas Corporation Ltd. v. Rt. Hon. Sir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial importance in inter-State trade or commerce and specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. Section 3 of the CST Act provides when sale or purchase of goods can be said to take place in the course of inter-State trade or commerce and reads as under: Section 3 of the CST Act: When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase, (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Section 4 of the CST Act provides when a sale or purchase of goods can be said to take place outside a State and reads thus: 4. When is a sale or purchase of goods said to take place outside a State. (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with subsection (2) to take place inside a State, such s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. Section 6 of the CST Act is a charging section and provides when the liability to tax on inter-State sales arises. Sub-section (1) of section 6, in particular, provides that subject to other provisions contained in the Act every dealer shall, with effect from the date as the Central Government may notify, be liable to pay tax under this Act on all sales of goods other than the electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. Proviso to sub-section (1) to section 6 provides that a dealer shall not be liable to pay tax on any sale of goods which in accordance with the provisions of subsection (3) of section 5, is a sale in the course of export of goods out of the territory of India. From the above statutory provisions following two principal questions, which need to be answered in this petition arise: (1) Whether sale of goods in question can be said to have taken place in course of inter-State trade or commerce since it occasions the movement of goods from one State to another? and; (2) Whether the sale of goods in question is one covered under subsection (3) of section 5 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act provides that the sovereignty of India extends and has always extended to the territorial waters of India and to the seabed and subsoil underlying and the air space over, such waters. Section 3 of the Maritime Zones Act reads as under: 3. (1) The sovereignty of India extends and has always extended to the territorial waters of India (hereinafter referred to as the territorial waters) and to the seabed and subsoil underlying, and the air space over such waters. (2) The limit of the territorial waters is the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline. (3) Notwithstanding anything contained in sub-section (2), the Central Government may, whenever it considers necessary so to do having regard to international law and State practice, alter, by notification in the Official Gazette, the limit of the territorial waters. (4) No notification shall be issued under sub-section (3) unless resolutions approving the issue of such notification are passed by both houses of Parliament. Section 5 of the Maritime Zones Act reads as under: 5. (1) The contiguous zone of India (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, (a) Sovereign rights for the purposes of exploration, exploitation, conservation and management of all resources; (b) exclusive rights and jurisdiction for the construction, maintenance or operation of artificial islands, off-shore terminals, installations and other structures and devices necessary for the exploration and exploitation of the resources of the continental shelf or for the convenience of shipping or for any other purpose; (c) exclusive jurisdiction to authorize, regulate and control scientific research; and (d) exclusive jurisdiction to preserve and protect the marine environment and to prevent and control marine pollution. Section 7 of the Maritime Zones Act pertains to exclusive economic zone and reads as under: 7(1) The exclusive economic zone of India (hereinafter referred to as the exclusive economic zone) is an area beyond and adjacent to the territorial waters, and the limit of such zone is two hundred nautical miles from the baseline referred to in sub-section (2) of section 3. (2) Notwithstanding anything contained in sub-section (1), the Central Government may whenever it considers necessary so to do having regard to International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures and devices in such designated area; or (iv) the protection of marine environment of such designated area; or (v) customs and other fiscal matters in relation to such designated area. Explanation. A notification issued under this sub-section may provide for the regulation of entry into and passage through the designated area of foreign ships by the establishment of fairways, sealanes, traffic separation schemes or any other mode of ensuring freedom of navigation which is not prejudicial to the interest of India. (7) The Central Government may, by notification in the Official Gazette, (a) extend, with such restrictions and modifications as it thinks fit, any enactment for the time being in force in India or any part thereof to the exclusive economic zone or any part thereof; and (b) make such provisions as it may consider necessary for facilitating of the enforcement of such enactment, and any enactment so extended shall have effect as if the exclusive economic zone or the part thereof, to which it has been extended is a part of the territory of India. (8) The provisions of sub-section (7) of section 6 shall apply in relation to the laying or maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order, it can be seen that the Act envisages territorial waters of India and limits of territorial waters is the line every point of which is at a distance of twelve nautical miles from the nearest point of the appropriate baseline. Sub-section (1) of section 3 specifies that the sovereignty of India extends and has always extended to the territorial waters of India and to the seabed and subsoil underlying and the air space over, such waters. Maritime Zones Act also envisages contiguous zones of India as the area beyond and adjacent to the territorial waters and the limit of the contiguous zone is the line every point of which is at a distance of twenty-four nautical miles from the nearest point of the baseline referred to in sub-section (2) of section 3. Sub-section (5) of section 5 empowers the Central Government by notification in Official Gazette to extend any enactment relating to any matter referred to in clause (a) or clause (b) of sub-section (4), namely, the security of India and immigration, sanitation, customs and other fiscal matters to the contiguous zone and also make such provisions as it may consider necessary for facilitating the enforcement of such enactme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economic zone or drill therein or construct, maintain or operate any artificial island, etc. Sub-section (6) of section 7 empowers the Central Government by notification in Official Gazette to declare any area of exclusive economic zone to be a designated area and to make such provisions as it may deem necessary with respect to, besides other purposes, customs and other fiscal matters in relation to such designated area. Sub-section (7) of section 7 authorizes the Central Government by notification in Official Gazette to extend with such restrictions and modifications as it thinks fit, any enactment for the time being in force in India or any part thereof to the exclusive economic zone or any part thereof and make such provisions as it may think necessary for facilitation of the enforcement of such enactment and any enactment so extended shall have effect as if the exclusive economic zone or the part thereof to which it has been extended is a part of the territory of India. From the above provisions it can clearly be seen 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. In view of the above discussion, it clearly emerges that 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. We may notice that similar issues came up before different courts including the apex court under different fiscal statutes such as the Customs Act, Central Excise Act and the Income-tax Act. The Income-tax Act, 1961 by virtue of sub-section (2) of section 1 extends to the whole of India. In the present form section 2(25A) of the Income-tax Act, 1961 reads as under: 2. (25A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 31, 1983, the Government of India issued Notification No. G. S.R. 304(E) (see [1983] 142 ITR (St.) 11), under section 6(6) and section 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (hereinafter referred to for the sake of brevity as, 'the said Act, 1976'). By the said notification the provisions of the Income-tax Act were made applicable from April 1, 1983, to the continental shelf and exclusive economic zone. It is important to note that in this case we are concerned with the concept of taxable territory of India under the Income-tax Act, 1961. This is important as it is only by virtue of notification dated March 31, 1983, that the continental shelf and the exclusive economic zone became part of the taxable territory with effect from April 1, 1983. Therefore, the said tax could not have been levied on the income which accrued in the accounting year ending March 31, 1983, when the territory in which it accrued was not the taxable territory to which the Income-tax Act applied. To levy the tax, the income must accrue in the territory to which the Income-tax Act applies. In this case article 297 of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f and the exclusive economic zone with immediate effect. Likewise in a notification dated June 11, 1987, the Central Government has extended the Central Excise and Salt Act, 1944, the Mineral Products (Additional Duties of Excise and Customs) Act, 1958 and the Central Excise Tariff Act, 1985 to the designated areas in the continental shelf and exclusive economic zone. Similarly, by notification issued in March, 1983 the Central Government has extended the Income-tax Act, 1961 to the continental shelf of India and exclusive economic zone in respect of income derived by every person from all or any of the activities specified in the notification. By a notification dated February 27, 2010 provisions of Chapter V of the Finance Act, 1994 (pertaining to service tax) have been extended to continental shelf and exclusive economic zone as indicated for the purposes specified in the notification. It can thus be seen that the Central Government has been issuing notifications extending different taxing statutes to designated areas, continental shelf and exclusive economic zone. Such notifications have been issued extending the Income-tax Act, 1961, Customs Act and the Customs Tariff Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 6 and sub-section (7) of section 7 create fiction by which continental shelf and exclusive economic zone are deemed to be a part of India for the purposes of such enactments which are extended to those areas by the Central Government by issuing a notification. In paragraph 77 of the decision, it was observed that the coastal State has no sovereignty in territorial sense of dominium over the contiguous zone, but it exercises sovereign rights for the purpose of exploring the continental shelf and exploiting its natural resources. In paragraph 79 it was observed that it is a concept of restricted sovereignty linked to the resources sense sans the incidents of territoriality. This is so because, in other respects, the status of the waters in this area as a part of the high seas is specifically recognised and retained in the convention. In this background, the apex court held as under: 85. Reading of sections 6 and 7 of the Maritime Zones Act, 1976 makes it clear that India's jurisdiction over the Maritime Zones Act, 1976 extends to the continental shelf and exclusive economic zone. Consequently, if mineral oil is extracted or produced in the exclusive economic zone or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tension of the laws by notification issued by the Central Government under sections 6 and 7 of the Maritime Zones Act. In the said case on extending the Customs Act and Central Excise Act, by virtue of notifications, the apex court held that any movement of goods to such exclusive economic zone would not be an export and no export benefit can be availed on such supply. It was further held that mineral oil produced in the exclusive economic zone and continental shelf will be chargeable to Central excise duty as goods produced in India. In the present case, however, we are confronted with the situation where the CST Act has not been extended by issuance of notification by the Central Government to the continental shelf or the exclusive economic zone. Coming to the decisions cited by the counsel for the State, we may record that the cases of Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC); AIR 1961 SC 315; [1961] 1 SCR 902, Madras Marine and Co. v. State of Madras [1986] 63 STC 169 (SC); [1986] 3 SCC 552 and State of Madras v. Davar and Co. [1969] 24 STC 481 (SC); [1969] 3 SCC 406, related to the question whether the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one of the three categories, in the present case, the court must hold that it is either inter-State sale or a local sale since the contention that it was an export sale has not been pressed. We are, however, unable to accept the contention. The observations of the apex court cannot be seen in isolation and it is well-settled that it is not observation of the court but what the court holds in the fact-situation of a given case which is the ratio that can be applied in similar set of facts and circumstances. In the decision of Murli Manohar Co. [1991] 80 STC 79 (SC); [1991] 1 SCC 377, the apex court was not considering the sale in the nature that we are confronted with. It was not a case where the sale of goods occasioned the movement from the Indian State to a territory which is not part of India and which is for the limited purpose of claiming rights to exploit the natural resources and exploration, etc., the Indian Union claims limited sovereign rights. The learned Government Pleader also referred to section 9 of the CST Act to contend that the State has the power to collect Central sales tax when the jurisdiction over the transaction is within the State. To such prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 226. In our opinion, though learned counsel appearing for the Revenue has relied upon several judgments of the Supreme Court regarding alternative remedy, the same are not applicable to the present case. In our view even if the petitioner files an appeal before the Commissioner of Income-tax, the Commissioner of Income-tax would be guided by what the circular of the Central Board of Direct Taxes says and, therefore, the remedy provided by way of appeal under the Act is futile and therefore also we are inclined to entertain this petition. In this regard, we may also rely on the decision of the apex court in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai reported in AIR 1999 SC 22, wherein it was observed that jurisdiction of High Court in entertaining a writ petition under article 226 of the Constitution of India in spite of alternative statutory remedy, is not affected specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation. In the case of State of U.P. v. Mohammad Nooh reported in AIR 1958 SC 86, the apex court observed that there ..... 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