1961 (9) TMI 42 - HC - VAT and Sales Tax

Issues Involved:

1. Assessability of transactions of sale of fuel oil sold to ocean-going vessels out of customs bonded stocks.
2. Determination of whether goods in customs bonded warehouses have crossed the customs frontier.
3. Interpretation of the term "in the course of import" under Article 286(1)(b) of the Constitution.
4. Application of customs duty and the impact of warehousing on the status of imported goods.

Issue-wise Detailed Analysis:

1. Assessability of Transactions of Sale of Fuel Oil Sold to Ocean-going Vessels Out of Customs Bonded Stocks:

The primary issue was whether the sales of fuel oil from customs bonded stocks to ocean-going vessels are assessable by the State. The Tribunal initially held that the goods had not crossed the customs frontier and were still in the stream of import, making the State incompetent to assess such sales to tax. However, the High Court disagreed, asserting that once goods have been subjected to customs duty, they are considered to have crossed the customs frontier, regardless of whether they are kept in bonded warehouses.

2. Determination of Whether Goods in Customs Bonded Warehouses Have Crossed the Customs Frontier:

The High Court examined whether the presentation of a bill of entry and the levy of import duty complete the course of import. The Court concluded that once goods are landed at a customs port and subjected to tax, they are considered to have crossed the customs frontier. The warehousing of goods for the importer's convenience does not indicate that the goods are still beyond the customs frontier.

3. Interpretation of the Term "In the Course of Import" Under Article 286(1)(b) of the Constitution:

The Court referred to the observations in the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory, which clarified that the term "in the course of import" implies a connected relation and movement of goods. The Court emphasized that the course of import ends when goods have passed the customs frontier, i.e., when customs duty has been levied and the importer has been permitted to clear the goods.

4. Application of Customs Duty and the Impact of Warehousing on the Status of Imported Goods:

The Court noted that under the Sea Customs Act, the customs duty is assessed when goods are landed, and the collection is postponed if warehousing is sought. However, the goods are considered to have crossed the customs frontier once the duty is levied, regardless of whether they are immediately cleared for home consumption or kept in bonded warehouses. The Court rejected the argument that goods remain in the course of import until they are cleared for home consumption.

Additional Observations:

The Court also addressed the reliance on the case of Empress Mills v. Municipal Committee, Wardha, which discussed the meaning of "imported into" and "exported from" in the context of terminal tax. The Court clarified that the course of import ends when customs duty is levied, not when goods are mingled with the local area's property.

The Court dismissed the extreme contention that the import is complete when goods cross the geographical frontier, emphasizing that the customs frontier is a notional barrier. The Court referred to the Andhra Pradesh High Court's decision in Burmah Shell Co., Ltd. v. State of Andhra Pradesh, which construed the customs frontier as the territorial sea limit. However, the Court did not adopt this view, focusing instead on the customs duty levy as the determinant.

Conclusion:

The High Court concluded that the sales were not in the course of import and upheld the State's authority to assess the transactions. The petitions were allowed with costs, and the assessees were ordered to pay counsel's fees. The Court's decision clarified that once customs duty is levied, the goods are considered to have crossed the customs frontier, ending the course of import.

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