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2016 (6) TMI 950 - GUJARAT HIGH COURT

2016 (6) TMI 950 - GUJARAT HIGH COURT - TMI - Demand of Sales Tax / VAT - Whether sale to Bombay High was an export - contract with ONGC for the commission of turnkey projects at Bombay High which is situated in exclusive economic zone of the coast of India. - Held that:- The Tribunal followed the decision of the Division Bench of this Court in the case of Larsen and Toubro Ltd. vs. Union of India and others [2014 (7) TMI 277 - GUJARAT HIGH COURT] - transaction of works contract with ONGC is an .....

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erred in law and in facts in holding that the sale to Bombay High was an export ? 2. Since the question does not bring about the dispute accurately, brief facts may be noted. Respondent assessee is a public limited company and is engaged in business of manufacturing engineering goods and execution of work contracts in different parts of the country. The company has manufacturing division at Hajira near Surat in the State of Gujarat. The company had entered into contract with ONGC for the commiss .....

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iable to CST. In view of this finding, the alternative contentions raised by the appellant are not required to be dealt with. 3. Learned counsel for the parties agree that issue is identical to one which has been decided by this Court in the case of Larsen and Toubro Ltd. (supra). For convenience, we may record the findings of the Court in the said judgment. 30. From the above statutory provisions it can be seen that as per Article 1 of the Constitution the territory of India comprises of the te .....

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ue underlying the ocean within the territorial waters, or the continental shelf or the Exclusive Economic Zone of India shall vest in the Union and be held for the purposes of the Union. Thus for the purpose of vesting of lands, minerals and other natural resources etc, clause (1) of Article 297 clearly provides that the same shall vest in the Union. However, this is not the same thing as to suggest that such areas of Exclusive Economic Zone form part of the Indian territory. For the purpose of .....

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nt of goods from one State to another. It is therefore, necessary for us to ascertain whether the movement of goods from Hazira to Bombay High can be stated to be a movement of goods from State of Gujarat to another State within the country. 31. From the statutory provisions contained in the Maritime Zones Act, as noted in the earlier portions of this 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 .....

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stance 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 fo .....

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r to a distance of two hundred nautical miles from the baseline referred to in sub-section (2) of Section 3. Sub-Section (2) of Section 6 provides that India has, and always had, full and exclusive sovereignty rights in respect of its continental shelf. It may be noted that the words used are sovereign rights and not sovereignty in respect of such continental shelf. Sub-Section (5) of Section 6 empowers the Central Government to issue notification to declare any area of the continental shelf and .....

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ection 7 of the Maritime Zones Act providing inter alia that the Union has exclusive sovereign rights in such exclusive economic zone for the purpose of exploration, exploitation, conservation and management of the natural resources, both living and non-living as well as for producing energy from tides, winds and currents. Union also has, within such exclusive economic zone exclusive jurisdiction to authorize, regulate and control scientific research and exclusive jurisdiction to preserve and pr .....

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erate 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 .....

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of India has certain rights over the Exclusive Economic Zone, the Indian Union does not have sovereignty over such an 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. Sub-Section (4) of Section 7 does not speak of unlimited sovereign ri .....

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overnment to issue notification to extend certain laws to any part of the exclusive economic zone and to make such provisions as are necessary for enforcement of such enactments. It is further provided that thereupon the enactments 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. The language used in clause (b) of sub-Section (7) of Section 7 to the Maritime Zones Act is significant as it does n .....

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is not the same thing as to suggest that Exclusive Economic Zone becomes part of the territory of India. It is not even the case of the respondents that the Exclusive Economic Zone is part of the territory of India as provided in Article 1 of the Constitution of India. There is no claim of sovereignty over such an area, it is sovereign rights which are extended to such area by virtue of formation of Exclusive Economic Zone for the limited purposes envisaged under the statute. By virtue of clause .....

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oved 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 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 statues such as the Customs Act, .....

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erritorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters." Presently, Section 2(25A) of the Income Tax Act thus provides that "India" means territory of India and several other areas including Exclusive Economic Zone. Prior to its amendment by the Finance Act, 2007 with effect from 25.8.1976, Section 2(25A) of the Indian Income Tax Act read as under:- "2(25A) &qu .....

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he case of McDermott International Inc (No.1) vs. Union of India (supra) held that the income which had arisen on account of work done beyond 12 nautical miles was not exigible to Income Tax. Madras High Court in the case of Commissioner of Income-tax vs. Roland William Trikard (supra) also applying the unamended Section 2(25A) held that in absence of any notification extending the Income Tax Act to continental shelf and exclusive economic zone (which was issued with effect from 1.4.1983) no tax .....

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ear ending March 31, 1983. On 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 exc .....

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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 Constitution is not relevant. For the purpose of deciding this matter the only relevant issue is whether the income earned by a non-resident accrued in a taxable territory prior to April 1, 1983. On facts it is clear that the foreign technician had earned salary income before .....

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no application to the facts of the present case as in those judgments the facts related to the amendment of the Income- Tax Act either by the Finance Act or by the Tax Law Amending Act which is not the case herein. In the present case, there is only a notification issued by the Central Government, that notification is issued not under the Income tax Act but under the said Act, 1976. For the aforestated reasons, we answer both the above questions in the affirmative, i.e. in favour of the assesse .....

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orm and in absence of a notification extending the Income Tax Act to Exclusive Economic Zone and such other areas, as already noted, different High Courts have held that no tax can be collected on the incomes arising out of the works done in such Exclusive Economic Zone. 39. It may further be noticed that Union of India has issued different notifications under different fiscal statues e.g. by a notification dated 19.9.1996 the Central Government has extended the Customs Act and the Customs Tarif .....

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nded 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. 40. By a notification dated 27.2.2010 provisions of Chapter V of 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 .....

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ontinental shelf or Exclusive Economic Zone. To our mind in absence of such notification, respondents could not have demanded tax under the CST Act from the petitioners on its sale of machinery, parts etc. to the respondent No.5, which sale was completed at Bombay High. 41. Decision of the Apex Court in the case of Aban Loyd Chiles Offshore Limited and another vs. Union of India and others (supra) is relevant for our purpose. In the said case, the facts were that the appellants had engaged in dr .....

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ection 2(24) of the Customs Act, 1962 and were entitled to consume imported stores without payment of customs duty. The appellant had imported the "stores" by air which landed at Sahara Airport. When they sought clearance to shift stores without payment of duty, the Revenue authorities opposed the same. The Revenue, relied on the decision of the Bombay High Court in the case of Pride Foramer vs. Union of India (supra), it was in this background the Apex Court considered the above noted .....

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conomic Zone. Referring to words "as if" used in the said provisions, it was observed that sub-Section (6) of Section 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 .....

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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 continental shelf and is brought to the mainland, it will not be treated as import and, therefore,, no customs duty would be leviable. Likewise, goods supplied to a place in the .....

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urt in Pride Foramer case would not result in any absurd situation as contended by the counsel for the appellants. The appellants want the Court to read Section 2(21) of the Customs Act in isolation, which would not be the correct approach. The Customs Act has to be read along with the provisions of the Maritime Zones Act, 1976." The Apex Court concluded as under: "The combined effect of these notifications is to extend the application of the Customs Act and the Customs Tariff Act to t .....

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ction of customs duties on goods imported into these areas as if these areas are a part of the territory of India. In these circumstances, the definition of "India" as given in Section 2(27) of the Customs Act gets extended by these provisions to cover areas declared as designated areas beyond the territorial waters and located the continental shelf and the exclusive economic zone of India." 42. The decision in the case of Aban Loyd Chiles Offshore Limited and another vs. Union of .....

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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 CST Act has not been extended by issuance of notification by the Central Government to the continental shelf or the exclusive economic zone. 43. Coming to the decisions cited by the .....

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ng that since there is no inter- State movement, CST Act would not apply. We, therefore, need not go any further into this aspect. 44. In the case of Oil and Natural Gas Corporation Ltd vs. Rt. Hon.Sir Michael Karr and another (supra), the Bombay High Court was concerned with the jurisdiction of arbitration proceedings and the decision therein, therefore, would have no direct bearing on the present issue. 45. In the case of Nand Lal Hira Lal vs. The Punjab State (supra), the Punjab and Haryana H .....

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ment of goods was from Punjab to Jammu to Kashmir, which was also part of the territory of India and thus squarely answered description sale of goods having occasioned the movement of goods from one State to another. Similar facts were involved in the decision of Madras High Court in the case of S. Mariappa Nadar and others vs. The State of Madras (supra). 46. In the case of Murli Manohar and Co. and anr. vs. State of Haryana and anr (supra), the Apex Court did observe that there can be movement .....

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rvations of the Apex Court by the counsel for the State. It was contended that since the sale can fall in 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 hol .....

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an Union claims limited sovereign rights. 47. Learned Government Pleader also referred to Section 9 of 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 preposition there cannot be any dispute at all. The Central Sales Tax envisages tax collection by the respective States as contained in Section 9 of the Act. For application of Section 9 of the Act, however, there must first be exigibility to tax o .....

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ailable. It is also true that the Courts normally do not permit the litigant to by-pass such alternative remedy, particularly in the matters of fiscal statues. However, there are certain well established and well accepted exceptions to such a rule. For example when it is found that action of the authorities is wholly without jurisdiction, the Court may in a given case exercise writ jurisdiction despite availability of alternative remedy. We are fortified by the decision of the Division Bench of .....

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bserved as under:- "However, in our opinion, the rule that the court would not entertain a writ petition under article 226, if there was an alternative remedy was a rule of judicial policy. " It was a rule of policy, convenience and discretion rather than a rule of law." If the alternative remedy was onerous and burdensome or the decision of an authority was without jurisdiction or in violation of the rules of natural justice or there was an error of law apparent on the face of th .....

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cular 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." 49. In this regard, we may also rely on the decision of the Apex Court in the case of Whirlpool Corporation vs. Registrar of Trade Marks,Mumbai and others 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 Constituti .....

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