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TMI Blog2017 (6) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... 'CST Act' in short] to get exemption from payment of tax ? Could it be regarded as an 'interstate sale' and if exemption sought for could be given in terms of Section 8 (6) of the CST Act or whether it is a 'local sale' as contended by the Department ? Can the appellant, who participated in the bid without demur as to the tender conditions, seek for any relief to get absolved from the tax liability under the Kerala Value Added Tax Act [the 'KVAT Act' in short] without challenging the provisions contained in the Tender at appropriate time or even later ? Will the 'Same Goods Theory' as explained by the Apex Court in State of Karnataka Vs. Azad Coach Builders Private Limited and another [(2010) 9 SCC 524] will help the appellant in any manner to cross the hurdle ?. These are the main points to be considered in this appeal preferred by the appellant/assessee. 2. The appellant is the proprietrix of an establishment run in the Madras Export Processing Zone, Thambaram, Chennai; engaged in the manufacture of essential oils, natural extracts and products of sandal wood, who is also stated as an 'exporter of sandalwood products'. So as to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was considered and rejected by the competent authority as per Ext.P19, holding that the bidder was not eligible for tax exemption in terms of Section 6 (7) (b) of the KVAT Act, it being a 'local sale'. In view of the turn of events, W.P.(C) No. 9096 of 2015 was sought to be withdrawn, without prejudice to the right to challenge the relevant proceedings including Ext. P19. The Writ Petition was accordingly dismissed as withdrawn, vide Ext. P20 judgment dated 27.05.2015. 6. The appellant approached this Court again by filing W.P. (C) No. 21530 of 2015 with the following prayers : " (i) a declaration that sale effected to a unit in Special Economic Zone established under the Special Economic Zone Act, 2005 by any dealer in the domestic tariff area is an export sale and no Value Added Tax can be levied or collected by the respondents in respect of such sale. (ii) a writ of Certiorari or any other writ, order or direction, quashing Exhibits P9, P10, P14, P16 and P19 in so far as it demand sale tax on the sale of sandalwood to the petitioner treating the transaction between the petitioner and respondents 2 to 4 as a local sale taxable under Section 6 (1) of the Kerala V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that every sale in the course of export shall be a 'zero rate sale'. It is pointed out that the appellant has no business place in the State of Kerala and that 'sandalwood' was purchased only to meet the export obligation under Exts. P2, P3 and P4 purchase orders issued prior to the date of sale. There is a further contention, as averred in paragraph 6 of the Writ Appeal, that the respondents were specifically informed before and after the 'e-auction' that the goods purchased were intended to be taken to a Special Economic Zone [though no material has been produced before this Court to substantiate the same]. By virtue of Section 6 (7) (b) of the KVAT Act, it is contended that a sale to Special Economic Zone is exempted from tax liability. 10. According to the learned Special Government Pleader, there is absolutely no merit of bonafides in the contention now put forth before this Court and that the issue is squarely covered against the appellant as per the ruling rendered by another Division Bench of this Court under similar circumstances involving sale of sandalwood in the auction conducted by the Forest Department in Kerala, Marayoor to the dealers outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.] (4) The provisions of sub-section (3) shall not apply to any sale or purchase of 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 a prescribed form obtained from the prescribed authority. (5) Notwithstanding anything contained in subsection (1), if any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase shall be deemed to take place in course of the export of goods out of the territory of India. Explanation:- For the purpose of this subsection, "designated Indian carrier" means any carrier which the Central Government may, by notification in the Official Gazette, specify in this behalf.]" In view of the specific definition of the term "crossing the customs frontie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c Zones Act, 'exemption' is dealt with under two heads i.e Section 7 as well as Section 50. Section 7 reads as follows : "7. Exemption from taxes, duties or cess.- Any goods or services exported out of, or imported into, or procured from the Domestic Tariff Area by.- (i) a Unit in a Special Economic Zone; or (ii) a Developer, shall, subject to such terms, conditions and limitations, as may be prescribed, be exempt from the payment of taxes, duties or cess under all enactments specified in the First Schedule." The above provision clearly stipulates that exemption from taxes, duties or cess on any goods imported into or exported out of the Special Economic Zone, to a unit in a Special Economic Zone, shall be subject to such terms and conditions as may be prescribed in respect of the tax due or cess under all enactments specified under the first schedule. Since the enactments specified in the first schedule are Central enactments, it deals with the powers of the Central Government. KVAT Act, under which the tax liability is now sought to be mulcted upon the appellant, is absolutely not an enactment in the 'first schedule' and hence Section 7 of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction between the terminology used under Sections 7 and 50; in so far as the obligation under Section 7 is 'mandatory', by virtue of the usage of the expression 'shall' [of course, subject to terms, conditions and limitation as may be prescribed]; whereas the exemption under Section 50 dealing with the State Government is 'directory', as the expression used is "may". No notification is stated as issued under Section 50 of the Act, nor any such notification is brought to the notice of this Court so as to claim the benefit under Section 50 of the Act. As it stands so, though it is stipulated under Section 53 of the Act that a Special Economic Zone shall, on and from the appointed day, be deemed to be a territory outside the customs territory of India for the purpose of undertaking the authorized operation and further that, though the Act is to have overriding effect by virtue of Section 51 of the very same enactment, it does not promote the case of the appellant in any manner. This is more so when no inconsistency is pointed out between the provisions of the Special Economic Zones Act and the KVAT Act, to attract Section 50 of the former Act. On the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is used and they are not words of restrictive content and ought not be so construed. Therefore, the test to be applied is, whether there is an in-severable link between the local sale or purchase on export and if it is clear that the local sale or purchase between the parties is inextricably linked with the export of the goods, then a claim under Section 5(3) for exemption from State Sales Tax is justified, in which case, the same goods theory has no application. 28. The facts of this case clearly reveal that the transaction between the assessee and the exporter is inextricably connected with the export of the goods to Sri Lanka. The communication between the foreign buyer and the exporter reveals that the foreign buyer wanted the bus bodies to be manufactured by the assessee under the specifications stipulated by the foreign buyer. The bus bodies constructed and manufactured by the assessee could not be of any use in the local market, but were specifically manufactured to suit the specifications and requirements of the foreign buyer. In the Purchase Order placed on the assessee by the exporter, it is specifically indicated that the bus bodies have to be manufactured in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a case for the appellant that the liability to pay tax stands totally 'excluded', by virtue of the provisions of the SEZ Act, read in the light of Article 286 of the Constitution of India, and hence that it is not a question of 'exemption'; the position could not be substantiated by the appellant to the satisfaction of this Court. 19. Even otherwise, 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. 20. During the course of hearing, a submission was made o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in (2007) 6 SCALE 284 [cited supra] required reconsideration. Later, the matter was considered by Larger Bench along with such other matters, when it was brought to the notice of the Court that the parties did not want to contest the matter and that the assessee wanted to participate in the proceedings, to have the assessment finalized. In the light of the said submissions, the appeals were disposed of without answering the reference; leaving it open to be answered in appropriate cases. 22. Referring to the various judicial pronouncements till date, the Apex Court in Commissioner of Commercial Taxes, Hyderabad Vs. Desai Beedi Company [(2015) 2 VST 242 (SC) - 3 member Bench] held that in order to constitute an 'interstate sale' the movement of goods should be occasioned by the sale and that the same must be inextricably connected with the sale. The assessee in the said case was engaged in the manufacture of 'Beedi' and was having factory and head office in Maharashtra, with a registered branch office in Andhra Pradesh. The 'Beedi leaves' were being purchased from Andhra Pradesh in the auction conducted by the Forest Department and thereafter it was being des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng their case that it was a 'local sale'. 24. The next question in the said context is with regard to the terms of the Tender, place of sale and time of completion of sale. Admittedly, the sale was notified as per Ext. P5 notification, subject to the tender conditions/general conditions and Ext. P6 special conditions, which clearly indicated that the sale was to be effected at the godown of the Forest Department, Marayoor in Kerala. Only those who chose to abide by the conditions could participate in the auction and it was accordingly that the appellant also participated in the Tender, accepting all the conditions stipulated in this regard. In an auction sale, the sale is complete when it is confirmed 'on the fall of the hammer' as held by the Constitution Bench of the Apex Court in Kil Kotagiri Tea and Coffee Estates Company Vs. State of Kerala [STC - 1965 - 16 - 467]. The position stands explained further by the Apex Court in the subsequent decision in Consolidated Coffee Ltd. Vs. Coffee Board, Bangalore [1980 (46) STC 164]. 25. In the instant case, the auction was by way of 'e-tender'. The Tender quoted by the appellant was found as the highest and acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, Marayoor payable at State Bank of Travancore, Munnar or by way of cash in Sub Treasury, Devikulam. It was further made clear under Clause 14 (a) (v) that the prevalent rate of KVAT (at present 14.5%) would be applicable to all successful bidders irrespective of destination of transportation of materials and purpose. Under Clause 14 (c), it has been categorically stated that the successful bidder will be able to remove all the bid Sandalwood only after he had remitted all the required payments as per the conditions of 'e-auction'. Under Clause 14 (d), the successful bidder is allowed to remove the logs without paying any ground rent within 40 days and a grace period of further four months is given, subject to payment of ground rent under four different slabs. Under Clause 15 (e) it is mentioned that if the successful bidder fails to remove the lot even after the extended period, all the lots will be re-auctioned; subject to the terms mentioned therein. Under Clause 26 (e), it is specifically mentioned that the persons/firms in whose name the sale is confirmed is forbidden to resell the wood in turn or to make negotiations with any other persons for such sale till al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 subse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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