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2017 (6) TMI 1091 - KERALA HIGH COURTInter-state sale or local sale - Does the movement of goods/sandalwoods sold by the respondent/Forest Department in a public auction from Kerala to the appellant, who took it to the unit situated in a Special Economic Zone in Tamil Nadu, on satisfaction of the due amount and taking delivery in Kerala, constitute a transaction “in the course of export of the goods outside the territory of India” to sustain the plea of the assesee that it is not taxable by the State? - Whether it will come within the purview of Section 5 (3) of the Central Sales Tax Act [the 'CST Act' in short] to get exemption from payment of tax? Held that: - By virtue of Article 286 of the Constitution of India, no State can impose tax on the sale or purchase of goods if it takes place (a) outside the State or (b) in the course of import of the goods into, or export of the goods out of the territory of India. By virtue of Clause 2 of Article 286, the Parliament may, by law, formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1). In the law enacted by the Parliament in this regard i.e. Central Sales Tax Act - In view of the specific definition of the term “crossing the customs frontiers of India” as defined under Section 2 (ab) of the CST Act, the meanings of the terms under the CST Act have to be read and understood as attributable to the words/phrases under the Customs Act. As rightly observed by the learned single Judge, sale effected to a unit in the Special Economic Zone as such cannot be deemed to be an export for the purpose of the CST Act. The exemption under Section 7 of the Special Economic Zones Act, in relation to tax liability with reference to any enactment mentioned under the first schedule [Central Statute], can be claimed only subject to the terms/conditions/limitations as may be prescribed. As such, the benefit under Section 7, if at all any, can be claimed only on issuance of Rules in this regard, in exercise of the rule making power given under the Statute, and till such time, the provision can only remain dormant. It will get activated only on formulation of necessary rules prescribing the terms/conditions/limitations and never before. Section 5 (3) of the CST Act will not come to the rescue of the petitioner. Sub section (4) of Section 5 clearly says that the provision under sub-section (3) shall not apply to any sale or purchase of any goods; unless the Dealer selling the goods furnishes to the prescribed authority, in the prescribed manner, a declaration duly filled and signed by the Exporter to whom the goods are sold [in the prescribed form]. The appellant does not have a case that the appellant Exporter had duly filled in and signed any declaration and handed it over to the Dealer/Seller [Forest Department of the State of Kerala] and no such form has been submitted by the State/Forest Department before the first respondent to have extended the benefit under Section 5 (3) of the Act. The terms “in the State” means in the State where the State law is applicable, i.e. situated within the State of Kerala. Admittedly, in this case, the appellant does not have any business place in the State of Kerala, the unit being situated in the Madras Export Processing Zone, Thambaram, Chennai. As such, Section 6 (7) (b) of the KVAT Act does not come to the rescue of the appellant in any manner. Unlike the case of goods brought into the DFS [Duty Free Shop] situated in an International Airport and sold to the customers, the goods in the instant case (Sandalwood) exclusively belong to Forest Department/State. It is open for the owner of the goods to stipulate the terms for sale of the goods of the owner, to the extent it is within the four walls of law. Apart from the revenue to be obtained towards the value of the property to the State/Forest Department, the State is also entitled to get appropriate extent of tax as well, as in any other instance of sale, if covered by any taxable event. The sale conditions were specifically laid down so as to protect the interest of the State/Department in all respects and it was accepting such terms that the appellant had participated in the bid. The terms of the 'e-auction' notification and the special conditions by way of Exts. P5/P6 clearly indicated that it was nothing but a 'local sale'. Having purchased the goods by participating in such sale and having effected the entire payment in terms of the Tender notification/Special conditions and having taken delivery of the goods from the godown of the State/Department in Kerala, the subsequent conduct of the appellant/bidder, whether he wanted to sell it within the State of Kerala or intended to take it from this State to some other place or whether he wanted to effect some export of the product manufactured by making use of the timber/Sandalwood purchased from the Department, is of no consequence. The sale is complete in the State of Kerala and by virtue of the terms notified, agreed and accepted, it was exigible to tax under the KVAT Act, which is not a legally or factually forbidden fruit. Appeal dismissed - decided against appellant.
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