TMI Blog2017 (6) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 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 dorm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - WA.No. 2665 of 2015, IN WP(C).21530/2015 - - - Dated:- 14-6-2017 - P.R. RAMACHANDRA MENON, AND A. M. BABU, JJ. For The Appellant : Advs.Sri.Raju Joseph (Sr.), And Sri.K.T.Poulose (Koratty) For The respondent : Sri. C. K. Govindan, Special Government Pleader For Taxes JUDGMENT Ramachandra Menon, J. 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 Tam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished in the Kerala State Gazette dated 04.11.2014 and Ext. P6 Special terms and conditions dated 23.12.2014. 4. Pursuant to the above Tender notification, the appellant satisfied the EMD and participated in the Tender; who came out successful in respect of 'three different lots'; based on which Exts.P7, P8 and P9 confirmation letters were issued, accepting the bid submitted by the appellant. Accordingly, the appellant was required to satisfy the due amount and also the tax under the KVAT Act. The due amount was satisfied and the entire tax liability was cleared as borne by Exts. P11 and P12 certificates issued by the authorities concerned. Eventhough the appellant had sought to spare her from the tax liability stating that her establishment was situated in a Special Economic Zone and not taxable, the request was turned down by the first respondent as per Ext. P14, pointing out that it was a 'local sale' and that the unit was situated outside the State. 5. After satisfying the tax as above, the appellant approached this Court by filing W.P.(C) No. 9096 of 2015 for getting her grievance redressed; wherein Ext.P17 interim order was passed on 30.03.2015 granting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omic Zone. ( v) to issue such other writ, order or direction which this Hon'ble Court may deem fit and proper in the facts and circumstances of the case. 7. A statement was filed from the part of the first respondent reiterating the stand of the Department and asserting that it was only a 'local sale' and not an interstate sale or sale in the course of export. After hearing both the sides, a learned single Judge of this Court made a threadbare analysis of the facts, figures and relevant provisions of law, after which interference was declined and the writ petition was dismissed. This forms the subject matter of challenge in this appeal. 8. Heard Mr. Raju Joseph, the learned senior counsel for the appellant and Mr. C.K. Govindan, the learned Special Government Pleader [Taxes] at length. 9. The sum and substance of the case projected by the appellant is that by virtue of the enactment of The Special Economic Zones Act, 2005, a unit in Special Economic Zone engaged in authorised operations is deemed to be a foreign territory for the purpose of trade and tariff and as such purchase of sandalwood by the appellant from the Forest Department in Kerala is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 50 of the Special Economic Zones Act. Since no such notification has been issued, the appellant is not entitled to get any relief, submits the learned Special Government Pleader. 11. 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, Section 5 reads as follows : 5. When is a sale or purchase of goods said to take place in the course of import or export:- ( 1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India; ( 2) A sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable by the State. This position is sought to be relied on by the appellant, pointing out that the term 'export' has been defined under Section 2 (m) of the Special Economic Zones Act 2005, which reads as follows : 2.Definitions. - In this Act, unless the context otherwise requires,- ( m) export means- ( i) taking goods, or providing services, out of India, from a special Economic Zone, by land, sea or air or by any other mode, whether physical or otherwise; or ( ii) supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer; or ( iii) supplying goods, or providing services, from one Unit to another Unit or Developer, in the same or different special Economic Zone; The appellant is placing reliance on sub clause (ii) of Section 2 (m). The learned single Judge has extracted definition of the term 'export' under Section 2 (m) [ there appears to be an inadvertent typing error in so far as all the three sub clauses (i) (ii) and (iii) have not been reproduced, but for clause (i) correctly given, whereas clause (iii) has been shown as clause (ii); omitting to extract clause (ii) ]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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. This is more so since it is a matter of 'exemption' from the existing position as to the liability to satisfy tax. The scope of similar provision in the Act and as to the dormancy had come up for scrutiny of a Full Bench of this Court [in relation to the amendment in Kerala Co-operative Societies Act and the Rules thereunder] and the position in this regard has already been explained as per the decision reported in 2016 (3) KLT 551 [Pradeep U.R. Vs. Kerala State Co-operative Election Comission - to which one of us was a member (PRRM (J) ] . We find support from the said ruling as well. 15. Coming to Section 50 of the Special Economic Zones Act, it deals with the power of the State Government to grant exemption. The provision reads as follows : 50. Power of State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on Section 5(3) of the CST Act, the following principles emerge : - To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export; - There must be obligation to export, and there must be an actual export. - The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export. - To occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India. 27. The phrase 'sale in the course of export' comprises in itself three essentials : (i) that there must be a sale: (ii) that goods must actually be exported and (iii) that the sale must be a part and parcel of the export. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burden is entirely upon the assessee, relating to the sale or purchase of goods and to establish that the penultimate sale [to be within the purview of Section 5 (3) of the CST Act to avoid the tax] is inextricably connected with the export of goods by the exporter to the foreign buyer. The law declared by the Apex Court was applied by this Court in a common judgment dated 29.07.2016 in W.A. Nos. 2246, 2249 and 2253 of 2006, reported in 2016 (4) KLT 191 [Gupta Enterprises Vs. Commercial Tax Officer and Ors. ] - to which one of us [PRRM (J)] was a member. It was also a case where tax exemption was sought for in respect of the auction sale of 'sandalwood' effected by the Forest Department of Kerala, stating that it will come within the purview of Section 5 (3) of the CST Act. Among other things, the Same Goods Theory was also sought to be pressed into service. The stand of the Department was that the commodity sold was 'sandalwood' whereas the goods exported were 'chips, dust' etc. which was not the same goods sold by the Department and hence outside the purview of Section 5 (3) of the CST Act. 'Sandalwood', admittedly, is a restricted item, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Economic Zone in the State for setting up the unit or use in the manufacture of other goods shall, subject to such conditions or restrictions, as may be prescribed, be exempted from tax]. It is quite evident from the above provision that the exemption given is only in respect of sale of building materials/industrial inputs/plant and machinery including components, spares, tools and consumables in relation to any developer or establishment situated in any special economic zone for setting up unit or in the manufacture of other goods, subject to terms/instructions as may be prescribed. Obviously, it does not extend to the goods sold for the purpose of export (as alleged). That apart, it is in respect of a sale to any Special Economic Zone in the State. 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. 21. Earlier, the Apex Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e movement of the goods from the godown was at the instance of the purchaser and that the final destination of the consignment in respect of the goods sold by the seller was inconsequential to the sale transaction. It was accordingly held that the events of sale of goods by the seller and movement of goods from the State of Andhra Pradesh to another State were not inextricably connected, but independent of each other and hence it was never an instance of 'interstate sale'. The appeal preferred by the Revenue was allowed and the verdict passed by the High Court was set aside accordingly, restoring the order passed by the revisional authority. 23. The Madras High Court had also an occasion to consider whether the sale of 'Sandalwood' in an auction effected in the State of Tamil Nadu and the movement of the goods to another State at the instance of the successful bidder, who was having the place of business in the latter State, would constitute an 'interstate sale' and whether demand of payment of tax under the Tamil Nadu VAT Act was justified or not. After detailed discussion of the relevant facts and the provisions of law, the Bench held in Karnataka Soap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while to go through the relevant terms/conditions of Ext. P5/P6 'e-auction' to have a better idea and understanding as to the course and events. 26. In Ext. P5 auction notification dated 22.12.2014, it was specifically made clear by the authorities of the Forest Department that the sale of Sandalwood by 'e-auction' scheduled on 5th and 6th of February, 2015 would be at the Government Sandalwood Depot, Marayoor. On becoming successful, it was also stated therein, that the successful bidder had to remit 35% of the bid value [after adjusting the EMD already paid] within the time as specified therein; clearly stating that mode of payment shall be through 'etreasury' of the Government of Kerala or Demand Draft (DD) drawn in favour of the Range Forest Officer, Marayoor; payable at the State Bank of Travancore, Munnar or by cash in Sub-Treasury, Devikulam. 27. In Ext. P6 special terms and conditions, as per Clause 4, the bidder or his authorised representative was granted liberty to inspect the materials, as specified, at the Marayoor depot in Kerala. In Clause 5 it was made clear that the auction sale would be 'As is where is and No Complaint Basis&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. As mentioned already, at no point of time had the appellant stated that the offer made by him in 'reauction' was subject to exemption to pay any tax under the KVAT Act or that the goods were being purchased 'in the course of export' through the unit in a Special Economic Zone situated in another State and that no tax under the local Statute would be payable. There is no such case as well. If at all any such case was there, the bid would not have been accepted, in view of the specific conditions set forth in Exts.P6. It was accordingly that the appellant participated in the Tender without raising any objections as to the tender conditions. The term wherever applicable under Clause 11 of Ext. P6 is with reference to different types of taxes mentioned in the opening portion i.e. KVAT, FDT, TCS and other Taxes, as the case may be. The mandatory requirement to satisfy KVAT is stated under Clause 14 (a) (v) as well; when it says that prevalent rate of KVAT (at present 14.5%) will be applicable to all successful bidders irrespective of destination of transportation of materials and purpose. Having participated in the bid without placing any rider or protest, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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