V.C. Daga, J.
1. This petition raises an interesting but intricate question as to whether sale of eatables or goods to foreign airlines for consumption on board during the period such aircraft is a foreign going aircraft constitute ''sale in the course of export' within the meaning of Section 5(1) of the Central Sales Tax Act, 1956 ('the CST Act', for short).
Factual scenario :
2. The factual scenario giving rise to the present petition is as under :
M/s. Narang Hotels and Resorts Pvt. Ltd., the petitioners herein are the registered dealer under the Bombay Sales Tax Act, 1959 ('the BST Act', for short). They have separate business unit, being the 'Flight Kitchen', which carried on business under the name and style 'Ambassador Sky Chef located at Vile Parle, Bombay-400 099 ('Flight Kitchen', for short).
3. The petitioners, with a view to have an early decision on the issue as to whether or not sales made by them from Flight Kitchen were liable to local sales tax, filed an application under Section 52(1)(c) of the BST Act to the Commissioner of Sales Tax, Maharashtra State, Bombay.
4. It was the contention of the petitioners that the sales of goods to the foreign airlines by the Flight Kitchen were in the course of export within the meaning of Section 5(1) of the CST Act. The said sales occasioned export of the goods out of the territory of India : by transfer of documents of title of the goods : after the goods crossed the customs frontiers of India, as such the sales effected by them to the foreign airlines were not exigible to the provisions of the BST Act.
5. The learned Commissioner of Sales Tax after hearing the parties was pleased to hold that the said transactions effected by the petitioners, detailed hereinabove, were liable to be taxed under the BST Act, they being local sales. In the result, the contentions raised by the petitioners did not find favour with the Commissioner of Sales Tax. The application moved by the petitioners under Section 52(1)(c) of the BST Act came to be rejected by order dated May 2, 1988.
6. Being aggrieved by the aforesaid order of determination dated May 2, 1988, the petitioners preferred an appeal under Section 55 of the BST Act before the Maharashtra Sales Tax Tribunal ('the Tribunal', for short) being Appeal No. 40 of 1988.
7. The Tribunal, after hearing the parties to the appeal by its well reasoned order, was pleased to reject all the contentions urged by the petitioners herein/appellants before the Tribunal. The contentions put forth by the petitioners before the Tribunal in support of their appeal were as under :
(a) That initial order for supply of foodstuffs placed by the foreign airlines is received by Flight Kitchen, which is always for a probable quantity of goods : thus the goods are unascertained in the Flight Kitchen.
(b) That the goods are ascertained when the order for specific quantity is received by supply unit a few minutes before the aircraft takes off. By that time goods already cross the customs frontiers of India after completing customs, quarantine and other legal formalities and are kept ready for delivery at supply unit at the airside tarmac across the Sahar customs station, as such the sale takes place beyond the customs frontiers of India and thereafter transfer of title in goods takes place with handing over of delivery order by supply unit to the foreign airlines, with a condition not to serve the foodstuffs to the passengers or utilise the goods on board till the aircraft crosses the boundary of India.
(c) That the sales of goods in question being in the course of export under Section 5(1) of the CST Act, as such not within the net of the BST Act.
None of the above contentions found favour with the Tribunal. The Tribunal was pleased to hold that the appropriation of the goods, in view of the terms of sale, takes place in the Flight Kitchen at Vile Parle, Bombay, which is six kilometres away from Sahar International Airport, Bombay, when the goods are segregated and ascertained for preparation and supply. Thus the sale takes place in the Flight Kitchen and that handing over of goods by its supply unit at tarmac with the delivery order to the foreign airlines is nothing but delivery of goods with a receipt evidencing acknowledgement of goods by the foreign going aircraft and that one of the conditions of sale prohibiting consumption of goods in India, not being legally enforceable for want of control, inspection and checking at the instance of the seller of goods has no legal standing or foundation;
8. The Tribunal also held that the sale having been effected for consumption on board during the period when the aircraft is a foreign going aircraft, the goods have no definite foreign destination, which is sine qua non for any transaction of export. The Tribunal thus held that neither such sales could be said to be in the course of export nor it occasioned such export or effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India, as such they are local sales exigible to the BST Act. Thus the appeal filed by the petitioners came to be dismissed with the aforesaid findings.
9. Not being satisfied with the aforesaid order of the Tribunal, the petitioners have preferred present writ petition under Article 226 of the Constitution of India to challenge the above order of the Tribunal.
Constitutional scheme and legislative structure :
10. Before embarking upon the rival contentions of the parties, we may proceed to notice the relevant provisions of the Constitution and other statutory provisions which have a bearing on the issue.
11. Under Article 286 of the Constitution of India restrictions have been placed on the power of the State to tax sales. Articles 286(1) and 286(2) lay down as under :
'286. Restrictions as to imposition of tax on the sale or purchase of goods.--(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place--
(a) outside the State ; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(2) 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).'
(3) ................
List I in the Seventh Schedule to the Constitution specifies the topics in respect of which the Union Parliament may legislate. Entries 92 and 92-A of the said List I provides as follows :
'92. Taxes on the sale or purchase of newspapers and on advertisements published therein.
92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.'
The Parliament in exercise of powers under Article 286, Sub-article (2) enacted the CST Act. The Parliament had passed the Act with a view to formulate the principles for determining as to when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside the State or in the course of import into or export from India, to provide for levy of collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce. Section 5 of the Act defines what Article 286 of the Constitution forbids and by virtue of Clause (2) of Article 286 the Parliament by enacting Section 5 of the CST Act has laid down the principles when a sale or purchase of goods takes place in the course of the import into or export of the goods outside India. Since a controversy has arisen as to the interpretation of principles embodied in Section 5(1) of the CST Act, it is necessary to examine the provisions of the said Act.
Section 3 of the CST Act provides : When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce. The relevant provisions of Section 3 are extracted below :
'A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase,--
(a) occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.'
Section 4 lays down when is a sale or purchase of goods said to take place outside a State. Sub-section (2) of Section 4 is extracted as follows :
'A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State,--
(a) in the case of specific or ascertained goods, at the time the contract of sale is made ; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation,'
Section 5 provides : When is a sale or purchase of goods said to take place in the course of import or export. Sub-section (1) of Section 5 is extracted below :
'(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.'
12. At this stage, it is necessary to refer to the history of the legislation for incorporating Section 2(ab) of the CST Act. In the case of State of Madras v. Davar and Co. : [1970]1SCR572 , the Supreme Court was faced with the question, namely, 'what does the expression crossing the customs frontiers of India in Section 5 of the CST Act means ?' In order to get over the difficulty to actually ascertain the point of time when ship crosses the territorial waters of India, faced by the Supreme Court in the case of State of Madras v. Davar and Co. [1969] 24 STC 481, the Law Commission recommended amendment to define the expression 'crossing the customs frontiers of India' that is how Section 2(ab) of the CST Act came on the statute book, which reads as under :
''Crossing the customs frontiers of India' means crossing the limits of the area of a customs station in which imported goods or exported goods are ordinarily kept before clearance by customs authorities.
Explanation.--For the purposes of this clause, 'customs station' and 'customs authorities' shall have the same meanings as in the Customs Act, 1962 (52 of 1962).'
13. The customs frontiers for the purpose of the CST Act is thus equated with the limits of the customs station in which the goods are stored, crossing of such station being regarded as amounting to crossing the customs frontiers of India. The 'customs station' referred to in this definition is the one which is defined as such under Section 2(13) of the Customs Act.
''Customs station' means any customs port, customs airport or land customs station.'
Customs port is defined in that Act in Section 2(12) :
''Customs port' means any port appointed under Clause (a) of Section 7 to be a customs port and includes a place appointed under Clause (aa) of that section to be an inland container depot.'
Section 7(a) of the Customs Act enables the Central Government, by notification in the Official Gazette, to appoint :
'(a) the ports and airports which alone shall be customs ports or customs airports for the unloading of imported goods and the loading of export goods or any class of such goods,'
The relevant sections of the Sale of Goods Act relevant to answer the issue involved need no reference at this stage, since the same are being referred to while dealing with the contentions raised by the rival parties.
14. On the canvas of the aforesaid provisions of the CST Act read with the Sale of Goods Act, 1930, especially, in the backdrop of the constitutional scheme engrafted under Article 286(1) of the Constitution referred to above, the questions that arise for consideration herein are : firstly, when the sale shall be deemed to take place in the course of the export of goods out of territory of India; secondly, what meaning should be given to the expression 'sale occasions such export' occurring in Section 5(1) of the CST Act and, thirdly, what do you mean by 'crossing the customs frontiers of India'. In order to answer third question posed herein : two incidental questions would require consideration, namely, (i) what are the limits of the area of the customs station and (ii) what is a customs port ?
15. In order to answer the above questions, Mr. Kapil Sibal and Mr. Aspi Chinoy, learned Senior Counsel appearing with Mr. B.C. Joshi for the petitioners and Mr. E.P. Bharucha, learned Senior Counsel with Mr. B. Patel appearing for the respondent-State of Maharashtra in their well searched submissions addressed us and referred to not only Indian authorities but also some decisions of English Court relevant to the issues involved which are referred to hereinbelow.
Submissions :
16. Mr. Sibal while challenging the judgment of the Tribunal took us through the text of Section 5(1) of the CST Act and submitted that the sales effected by the petitioners from their Flight Kitchen are effected to the foreign airlines in the course of export of goods out of territory of India or at any rate sales occasioned such export that too by transfer of documents of title (delivery order) to the goods after the goods have crossed the customs station at Sahar Airport in a mobile supply unit of the petitioners. In his submission, such sales shall have to be regarded as sales having taken place within the meaning of Section 5(1) read with Section 2(ab) of the CST Act, not exigible to tax under the BST Act. Mr. Sibal submits that the requirement of foreign airlines customers of the petitioners is that they shall only accept the goods after they have cleared customs/quarantine and other legal formalities and are ready for delivery at the tarmac as such title of the goods is required to be transferred by issuing delivery order from their Flight Kitchen to the airline representative directing the mobile supply unit to give delivery of the goods mentioned therein to the airline or bearer of the delivery order.
17. Mr. Sibal, with this preface, submits that Section 5(1) of the CST Act is divided into two limbs, whilst defining when sale of goods takes place in the course of export. One is where the sale itself occasions the movement of goods out of India and the other is where the sale is by a transfer of documents of title after the goods had crossed the Indian customs frontiers. Mr. Sibal contends that the petitioners/assessee are entitled to relief firstly under the first limb of Section 5(1) since the present case involves a sale, occasioning export of goods. He submits that the finding of Tribunal that for want of destination to the goods the sale in question does not occasion export, by relying upon the decisions of the apex Court in Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v, Commercial Tax Officer : [1961]1SCR902 and Madras Marine and Co. v. State of Madras [1986] 63 STC 169 is erroneous in law.
18. Mr. Sibal, while criticising the judgment of the Tribunal, first contends that the Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer : [1961]1SCR902 , was a decision at the time when the Customs Act and the CST Act both were not enacted. The case related to the transactions of 1953 as such it cannot be regarded as a precedent while interpreting Section 5(1) of the CST Act which also contemplates deemed export. Burmah-Shell : [1961]1SCR902 related to consumption of stores on board a ship or aircraft. Such consumption cannot possibly be a deemed export. Such sales or stores to the aircraft cannot possibly occasion the export of such goods because such goods are not meant for export but are meant for consumption as stores on the aircraft itself for use of the aircraft. In his submission, the case of Burmah-Shell : [1961]1SCR902 involved the consumption of aviation spirit by a foreign bound aircraft which cannot ever be considered as a sale occasioning the export of aviation spirit. Consequently, the fact and situation in Burmah-Shell : [1961]1SCR902 and the observations made in the context of the said fact-situation cannot be regarded as a precedent for the case in hand.
19. Mr. Sibal further submits that in Madras Marine and Co. v. State of Madras : 1986ECR165(SC) , the apex Court approved the observations in Burmah-Shell : [1961]1SCR902 which referred to a destination of goods to be exported. But Madras Marine : 1986ECR165(SC) again was a case involving the sale of stores since the petitioners therein were dealers in stores and were doing business as ship chandlers. The facts suggest that the stores meant for the use of foreign going vessels were received in a customs bonded warehouse, the goods being unascertained goods, and thereafter, indents were placed pursuant to which the goods were transferred to the foreign bound vessel. At the time of the placing of the indents, the goods were specific and ascertained within the territory of the State of Tamil Nadu. At the time when the judgment was rendered, Section 2(ab) was not applicable since the transactions in question were prior to September 7, 1976 when Section 2 was substituted and inserted by Act 103 of 1976. Mr. Sibal submits that Madras Marine : 1986ECR165(SC) can be differentiated on two counts ; one that the subject-matter of the goods that were dealt with and transferred by placing indents on bounded warehouses for the purposes of transfer to foreign bound ships were stores, and second that in the absence of Section 2(ab) sale was treated as having taken place within the State of Tamil Nadu since the sale had been completed within the State of Tamil Nadu and since it was not found as a matter of fact that the sale occasioned the export. The apex Court in that case found that Section 4 was applicable because that was a sale of ascertained goods within the State of Tamil Nadu which did not occasion the export to the foreign vessel, and in that context stated that the goods had no foreign destination, by relying on Burmah-Shell : [1961]1SCR902 .
20. Mr. Sibal submits that Madras Marine : 1986ECR165(SC) and all cases relied upon therein were all the cases of transfer of stores to a foreign bound vessel and did not involve the transfer of goods other than stores. He, therefore, submits that Burmah-Shell : [1961]1SCR902 and Madras Marine : 1986ECR165(SC) are for the proposition that in the case of stores, viz., aviation spirit, coal, for the crew and other items meant for use by the vessel itself in the normal course of its running cannot possibly fall within the first limb of Section 5 and the assessee cannot claim such transactions to be in the course of export in the sense that the sale in such transactions occasioned the export, because there is no destination for such items meant for consumption as stores by the aircraft itself.
21. Mr. Sibal submits that the conceptual term 'stores' is different from goods like food supplied on board an airline for the consumption of passengers. Section 2(38) of the Customs Act defines 'stores'. ''Stores' means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment whether or not for immediate fitting'. In his submission, it is clear from this inclusive definition that the stores meant for use in a vessel or aircraft are essential equipment for the functioning of the aircraft or vessel itself and, consequently, cannot possibly have a destination in the context of the expression of export under Section 5(1) of the CST Act.
22. Mr. Sibal again taking exception to the judgment of the Tribunal contends that even if the concept of destination was to be applied to the first limb of Section 5(1) since the petitioners' goods are not stores, the goods supplied by the petitioners from the Plight Kitchen to the foreign airlines have a destination. The destination is the end use of the goods supplied to the aircraft for each passenger. He submits that the term 'destination' used in Burmah-Shell : [1961]1SCR902 was in the context of the test laid down of there being two termini for the goods. In the instant case, the said test is satisfied as the termini are the petitioners and the passengers travelling. Further, in the instant case it is relevant to point out that there is an express term in the contract that the goods will not be consumed in India and the intention to export is manifest and that test also laid down in Burmah-Shell : [1961]1SCR902 is satisfied.
23. Mr. Sibal submits that the term 'destination' finds no mention in Article 286 nor in the CST Act. Since the word 'export' is used in Section 5, naturally, the said term must take its colour from the meaning of 'export' under the Customs Act, since the petitioners contend that it is an 'export' with reference to export laws of India. Now the term 'export goods' under the Customs Act means any goods which are to be taken out of India to a place outside India [Section 2(19)]. The word 'export' in Section 2(19) means taking out of India to a place outside India. Mr. Sibal submits that the matter stands concluded by the decision of the Supreme Court in the case of Collector of Customs, Calcutta v. Sun Industries [1988] 71 STC 149 ; : 1988(35)ELT241(SC) , wherein, while interpreting Section 2(18) of the Customs Act, the apex Court opined that the expression 'taking out of India to a place outside India' means any place in the high seas as long as it is beyond the territorial waters of India and 'high seas' would also mean a place outside India, being beyond the territorial waters of India. In interpreting the word 'place' under the Customs Act, the apex Court relied upon the dictionary meaning of place which refers to a portion of space occupied by or belonging to a thing under consideration. Therefore, the apex Court found that in international trade, any 'place' beyond the territorial waters of India would be a place outside the country and, therefore, the transaction of sale in question satisfy the definition of the word 'export' under the Customs Act is the submission advanced by Mr. Sibal to bring home his point.
24. With the aforesaid submission, Mr. Sibal switched over to the second part of Section 5(1) of the CST Act to establish that the sales in question have fulfilled both conditions so as to attract second limb which contemplates sale by transfer of document of title after the goods had crossed the Indian customs frontiers. He submits that Section 5(1) considers certain transactions of goods to be deemed to take place in the course of export only if either such sale occasions such export or is effected by a transfer of a document of title to the goods after the goods have crossed the customs frontiers of India. According to him, as to why the concept of destination may be relevant in the case of sale occasioning such export is because the expression 'occasioning such export' implies a destination. Once that destination is proved then such export shall be deemed to take place in the course of export. This concept of export is alien to the second limb of Section 5(1) which requires only two ingredients to be satisfied, viz., transfer of documents and the crossing of the customs frontiers of India. To say, therefore, that the concept of export is an additional ingredient incorporated in the second limb of Section 5(1) is erroneous in law. In any event, the judgment of the Supreme Court in the case of Minerals & Metal Trading Corporation of India Ltd. v. Sales Tax Officer : 1998ECR753(SC) supports the requirements in respect of the applicability of the second limb of Section 5 and only talks of the two ingredients referred to.
25. Mr. Sibal further submits that the delivery order issued by the petitioners upon their mobile unit stationed on the tarmac across the customs barrier is a document of title within the meaning of definition under Section 2(4) of the Sale of Goods Act, 1930. He placed reliance on the judgments of the Supreme Court in Bayyana Bhimayya & Sukhdevi Rathi v. Government, of Andhra Pradesh : [1961]3SCR267 and State of Andhra Pradesh v. Kolla Sree Ramamurthy : [1963]1SCR184 and the judgment of the Rings Bench in Ant. Jurgens Margarinefabrieken v. Louis Dreyfus & Co. (1914) 3 KB 40,
26. With the aforesaid submissions, Mr. Sibal went on to deal with the adverse findings recorded by the Tribunal in the light of the provisions of the Sale of Goods Act. Mr. Sibal submits that Section 23 of the Sale of Goods Act has no application and could not have been relied upon by the Tribunal because the parties under the contract intended that the property in the goods would pass from the petitioners to the airlines only upon the transfer of the delivery order. Section 19 of the Sale of Goods Act stipulates that in the context of sale of goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. This is in respect of sale of specific or ascertained goods. Section 19(2) stipulates that in ascertaining the intention of the parties regard shall be had to the terms of the contract between the parties and the circumstances of the case and that the rules contained in Sections 20 to 24 can only be referred to if the contract for sale of goods does not refer to the intention of parties. In this particular case, in his submission, the terms of the delivery order itself spell out the intention of the parties that the property in the goods would pass upon transfer of the delivery order and that the liability of the consignor in respect of the goods conies to an end upon transfer of the delivery order.
27. According to Mr. Sibal, the contract and understanding between the parties is also reflected in the document of April 1, 1987, (para 1) which clearly stipulates that the goods remain the property of the petitioners till the transfer of title by issuance of necessary delivery order and that the goods remain at the risk of the petitioners till delivery of documents of title. This is reiterated in para 5 ; wherein it is stipulated that the goods vest in the airlines only upon delivery of documents and after delivery of documents, the goods are exclusively at the risk of the airlines. This service contract stipulates the intention of the parties. The conduct of the parties does not suggest to the contrary. Consequently, in his submission, reliance on Section 23 of the Sale of Goods Act by the Tribunal is both illegal and inappropriate. Mr. Sibal relied upon the following judgments in Hoe Kim Seing v. Maung Ba Chit , Arcot Mills Limited v. State of Tamil Nadu and Agricultural Market Committee v. Shalimar Chemical Works Ltd. : AIR1997SC2502 , which according to him, lay down that if parties intention is clearly expressed as to when property in goods passes then one cannot go to the provisions of the Sale of Goods Act for ascertaining intention.
28. Mr. Sibal, alternatively, submits that assuming Section 23 of the Sale of Goods Act is applicable, the following tests will still have to be satisfied in terms of Section 23. First, that unascertained goods were in a deliverable state and unconditionally appropriated to the contract. Under Section 2(3), the term 'deliverable state' means when the goods are in such a state that the buyer would under the contract be bound to take delivery of them. In the present case, the contract stipulates to the contrary. Indeed, the delivery order stipulates that it is the responsibility of the petitioners to have the goods cleared through local customs and have them ready for delivery at consignor's supply unit across the Sahar customs station after which alone the consignee is liable to take delivery of the goods. Consequently, Mr. Sibal submits, if the goods are not in a deliverable state, Section 23 can have no application. Not being in a deliverable stage, they could not be unconditionally appropriated to the contract.
29. Mr. Sibal submits that the further requirement of Section 23is that this appropriation must be effected with the consent of the seller and the buyer. The revenue has not shown how the buyer and the seller in this case consented to the appropriation at the Flight Kitchen prior to the goods crossing the customs barrier and prior to the actual delivery at the tarmac by transfer of the delivery order. Consequently, he submits that Section 23 in its own terms does not apply to the facts of this case. Therefore, the foundation of the finding of the Tribunal that the property in the goods passed at the Flight Kitchen and that the goods were appropriated to the contract of sale at the Flight Kitchen is incorrect. Mr. Sibal submits that if this basic finding is incorrect then the conclusion of the Tribunal, that in the light of this finding the delivery order has no meaning, is thus erroneous.
30. Mr. Sibal further submits that the Tribunal in support of its finding that the property in the goods passed at the Flight Kitchen relied on condition No. 5 of the delivery order which was never relied upon by the revenue. He submits that another reason given by the Tribunal in upholding the revenues contention, that the goods were appropriated at the Flight Kitchen, is based on observations to the effect that the difference between the original order of the airlines on the basis of which the food was prepared and put in trays, and the final determination of the quantity of the food trays ultimately delivered to the airline was negligible, and that the numerical difference of a few items will not have any impact on the concept of 'appropriation' at Flight Kitchen. He submits that it is a settled law that only goods which are identified and ascertained can be appropriated to the contract. There is nothing on record to substantiate the contention of the counsel for the Revenue that the difference in the quantity of items of food prepared at the Flight Kitchen as per the airlines original order and the quantity of food delivered to the airlines at the tarmac is only a slight difference. In fact, such differences can be slight or substantial depending on the requirements of a particular flight. In any event, any variation in the quantity of food prepared at the Flight Kitchen and the number of items of food actually delivered to the airlines would mean that the goods are not identified and ascertained and, consequently, cannot be unconditionally appropriated to the contract at the Flight Kitchen. He submits that the Tribunal failed to appreciate that the appropriation can only take place in terms of the provision of law in respect of sale of goods dealing with appropriation, viz., Sections 19 to 23 of the Sale of Goods Act. The Tribunal has in this context relied on Section 23 which, according to him, is both inappropriate and illegal and, therefore, this finding of the Tribunal is erroneous. Mr. Sibal while concluding his submissions, submits that the sales considered from any angle are beyond the net of the BST Act.
Per Contra :
31. Mr. E.P. Bharucha, learned Senior Counsel for the respondents submitted that the foodstuffs sold by the petitioners to the foreign airlines were, according to the petitioners, appropriated to the contract only on the tarmac at Sahar airport beyond the customs barriers is factually incorrect. He submits that the goods are appropriated in Flight Kitchen. Alternatively, he submits that whether or not the appropriation of goods takes place at the tarmac at Sahar airport or at Flight Kitchen makes no difference, it being a 'sale' within the State of Maharashtra in either case.
32. Mr. Bharucha submits that Section 4 of the CST Act is a deeming provision. It provides that in case of unascertained goods, if the goods are within the State at the time of appropriation of the contract, the sale would be deemed to be a sale inside the State. He submits that in the facts of this case, even according to the petitioners, assuming that the appropriation takes place on tarmac at Sahar airport it being within territorial limits of the State of Maharashtra, the transaction will have to be treated as sale within the State and cannot be said to be a sale during the course of export. He submits that customs barrier or frontier does not affect the territorial limits of the State for the purposes of sales tax. In his submission, in order to constitute the sale within the State, the goods, if unascertained, should be appropriated to the contract of sale within the State and at that time the goods must be within the State. Such sale would be a sale within the State. No other consideration is relevant. Turning to the facts of the present case, Mr. Bharucha submits that all the ingredients of sale within a State are satisfied, as such the sale is liable to sales tax in the State of Maharashtra. He placed reliance on the judgments of the apex Court in Burmah-Shell Oil Storage and Distributing Co. of India v. Commercial Tax Officer : [1961]1SCR902 , Madras Marine and Co. v. State of Madras : 1986ECR165(SC) , State of Madras v. Davar & Co. : [1970]1SCR572 , State of Kerala v. Cochin Coal Company Ltd. : [1961]2SCR219 , Fairmacs Trading Company v. State of Andhra Pradesh .
33. Mr. Bharucha urged that the apex Court in the aforesaid three judgments referred to hereinabdve, while construing Article 286(1)(b) of the Constitution of India held that the term 'in the course of exports' implies that the goods must have a foreign destination because two notions of import and export go in pairs. He submits that the apex Court has rejected the wide definition of export as merely taking goods out of the country. Mr. Bharucha while elaborating his submission, submitted that in case of Burmah-shell : [1961]1SCR902 the sale of motor spirit to foreign going aircraft was regarded as a local sale and not a sale in the course of exports. The apex Court further held that the customs barrier does not limit to the territory of a State for the purposes of sales tax. The sale beyond the customs barrier is still a sale in the State, as such within the territory of taxing State,
34. Mr. Bharucha submits that even though the judgment in Burmah-Shell : [1961]1SCR902 covered a period prior to the coming into force of the CST Act, it was confirmed by the Supreme Court in the subsequent judgment in the case of Madras Marine [19861 63 STC 169 (SC), wherein the Apex Court dealt with the case of ship stores appropriated to the contract in customs bonded warehouse and delivered on board the ship. The apex Court held that all exports involve taking of goods out of the country but all the goods taken out of the country cannot be said to be exported. The test applied is that the goods must have a foreign destination where they can be said to be imported. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports. Mr. Bharucha submits that in Madras Marine [1986] 63 STC 169, the apex Court held that the sale took place within the State of Tamil Nadu where the appropriation of goods took place, even though it was in the customs bonded warehouse. The customs station was within the State of Tamil Nadu, as such the sale was held to be liable to local sales tax.
35. Mr. Bharucha, while refuting the submissions advanced by Mr. Sibal, submitted that the aforesaid judgment of the apex Court apply to fuel and ship stores and not to the foodstuffs is not correct. According to him, the 'stores' have been defined in Section 2(38) of the Customs Act to mean the goods to be used in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting. 'Goods' have been defined in Section 2(22) of the Customs Act to include along with others, stores and any other kind of movable property. According to him, a bare reading of these provisions would indicate that food being movables would be covered by the definition of stores. Mr. Bharucha pressed into service the CBC Circular No. 37/96-Cus dated July 3, 1996 which clarifies that ship stores include foodstuffs, alcoholic and other beverages on board of a ship. He submits that this circular was issued on the basis of the opinion by the World Customs Organisation. Thus it was clear that universally, foodstuffs and drinks consumed on board a vessel are regarded as ship stores. In order to buttress his submission, he brought to our notice the judgment of the CEGAT in the case of Commissioner of Customs and Central Excise, Rajkot v. Saibaba Ship Breaking Corporation (2002) 140 ELT 135 (Bom) ; wherein the above circular has been interpreted and followed. Adopting the reasons given in the said judgment by the Tribunal Mr. Bharucha submits that 'stores' would include foodstuffs and the judgments of the apex Court in Burmah-Shell : [1961]1SCR902 and Madras Marine 19861 63 STC 169, would apply with full rigour to the facts of the present case.
36. Mr. Bharucha submits that as per the petitioners the airlines intimate their approximate requirement of meals for the flight to the petitioners. The petitioners then prepare the meals and take it to the tarmac. The airlines then intimate the actual quantity required and thereafter the delivery order is issued. The delivery of actual required quantity is given and balance is returned. Mr. Bharucha, relying upon the findings of fact recorded by the Tribunal, contends that a small difference in the quantity at the tarmac would not make any difference, especially, when the preparation actually takes place in the flight kitchen. Mr. Bharucha submits that no evidence is produced by the petitioners to demolish the finding of the Tribunal that a small change in the quantity takes place at tarmac. Therefore, in the wake of these facts, Mr. Bharucha asserted that appropriation actually takes place in the flight kitchen and not at the tarmac.
37. Mr. Bharucha also submits that the sale being a local sale to which the provisions of Section 4 of the CST Act are applicable, as such question of same sale being sale in the course of export does not arise. In the alternative, he submits that if Section 4 does not apply to the facts of the present case, then, only resort to Section 5 of the CST Act can be made. He further submits that at any rate the test laid down in Section 5(1) of the CST Act is also not satisfied. Based on the description of Section 5(1) of the CST Act, he submits that following three criteria of Section 5(1) are not satisfied by the transaction in question, i.e., (a) the sale must be in the course of export ; (b) the sale to be effected by transfer of documents of title; and (c) the sale must be effected after the goods cross the customs frontiers of India. Mr. Bharucha while elaborating his submissions submits that the sale has to be in the course of export and reiterated his submissions noted hereinbefore relying on the apex Court judgments in Burmah-Shell : [1961]1SCR902 and Madras Marine [1986] 63 STC 169. He further submits that the words 'in the course of export' found in Article 286(1)(b) of the Constitution of India have been construed by the apex Court and the similar words which find place in Section 5(1) of the CST Act have been similarly construed. He further submits that the judgment relied upon by the petitioners in the case of Collector of Customs v. Sun Industries : 1988(35)ELT241(SC) with regard to the definition of export is irrelevant in the facts of the present case as the said judgment deals with the definition under the Customs Act. He submits that the contention based on the said definition has been rejected by the apex Court in Madras Marine [1986] 63 STC 169 while dealing with the issue of export under sales tax.
38. So far as submission advanced by Mr. Sibal with respect to delivery order is concerned, Mr. Bharucha submits that the delivery order is normally not a document of title of goods unlike a bill of lading or railway receipt or a lorry receipt. According to him, the delivery order has been referred to as a document of title to goods only by an inclusive definition under Section 2(4) of the Sale of Goods Act. This inclusive definition cannot be imported in a taxing statute like the CST Act. He submits that the Sale of Goods Act governs the relationship of contracting parties with respect to contracts for sale of goods. In fact, many of the provisions of the Sale of Goods Act can be excluded by the contract. The CST Act is a fiscal legislation. These two statutes are not in part materia, as such, relying on the provisions of the Sale of Goods Act, the delivery order cannot be projected as a document of title to the goods, Mr. Bharucha submits that no evidence whatsoever was led by the petitioners to show that catering industry regards, the delivery order as a document of title to goods by endorsement of which the title of goods passes. He placed reliance on paras (21) to (23) of the order of the Tribunal, wherein the Tribunal refused to accept the delivery order as document of title.
39. Mr. Bharucha taking us through the later part of Section 5(1) of the CST Act submits that Section 5(1) would apply in the case of exports only if the sale takes place by transfer of documents after the goods crossed customs frontiers of India. In the case of imports this section will apply only if the sale takes place by transfer of documents before the goods crossed customs frontiers of India. He submits that in the present case we are concerned with the export. In case at hand, the sale took place on the tarmac before the goods crossed the customs frontiers of India. According to him, by no stretch of imagination it can be said that the sale in the present case has taken place after the goods had crossed customs frontiers of India.
40. Mr. Bharucha submits that the apex Court had an occasion to consider the question of crossing of customs frontiers in the case of State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory : [1954]1SCR53 . In that case, the apex Court observed that detailed provisions have been made by the Legislature for levy of customs duty by officers of the Central Government who are stationed along the customs frontier. After appraising the goods exported or imported, the duties chargeable, if any, are computed and levied and it is not until this process is completed that the goods can be shipped for transportation in case of export or cleared by the consignee in case of import. He, therefore, submits that it would be logical to hold that the course of export out of, or of the import into, the territory of India does not commence or terminate until the goods cross the customs frontiers of India. Thus crossing of customs frontiers of India in case of export would arise only after all customs formalities are completed and goods are shipped for transportation and the journey starts.
41. Mr. Bharucha taking us through Section 2(ab) of the CST Act, which defines 'crossing the customs frontiers of India' submits that it means the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by the customs authorities. According to him, all goods for export have to be first brought to a customs area where customs formalities are completed before they are loaded on a vessel or an aircraft for transportation. Similarly, all imported goods have to be unloaded in a customs area where all customs formalities are completed before being allowed to leave or cross the customs area into India.
42. Relying on explanation to Section 2(ab) of the CST Act, Mr. Bharucha submits that the said sub-section defines a 'customs area' to be the limits of customs station and the term 'customs station' has to have the same meaning as in the Customs Act. He submits that as per the provision of Section 2(13) of the Customs Act, customs area means any customs port, customs airport or land customs station. According to him, customs airport has been defined in Section 2(10) to mean any airport appointed under Section 7(a) to be a customs airport. He pressed into service Notification No. 62/94-Cus dated November 21, 1994 issued under Section 7 and as amended from time to time which includes Sahar Airport to be a customs airport. According to him, under Section 8 of the Customs Act, the Commissioner has power to specify limits of customs area. The then Additional Collector of Customs issued a notification dated November 27, 1968 specifying the limits of Bombay Airport at Santacruz to inter alia include the whole aerodrome including the runways, the tarmac, the parking base, the hangers for parking and repairs, airline offices, buildings, petrol installations and structures bounded by and within the limits prescribed in the said circular. He further submits that the export goods first enter the customs area. All the customs formalities are completed in the said customs area. The permission of the customs officers is then obtained for export of goods. The goods are then loaded on to the aircraft. The aircraft then leaves the customs area. It is only when the aircraft leaves the customs area then only it can be said that it has crossed the customs frontiers of India.
43. As an extension of the said argument, Mr. Bharucha further submits that Section 5(1) of the CST Act can apply only if the sale by transfer of documents to title takes place after the aircraft has left the customs area. In the present case, admittedly, the goods were on the tarmac when the transfer took place. Thus, in his submission, the test of Section 5(1) is also not satisfied in the case at hand.
44. Mr. Bharucha, in order to bring home his above submission, relied upon transaction involving import of goods and submitted that on import the goods have to first land in the customs area. At that time they cannot be said to have crossed the customs frontiers of India for want of completion of customs formalities. Thereafter, on completion of customs formalities assessment of duty is made and duty, if any, is paid. The goods are then cleared by the customs and are brought out of the customs area into the country. It is only when the goods are cleared out of the customs area the goods get mingled with general mass of goods and merchandise in the country then it can be said that they have crossed the customs frontiers of India. Section 5(2) provides that for a sale to be in the course of import it must take place before the goods have crossed the customs frontiers of India. Applying the same analogy to a converse transaction involving import, Mr. Bharucha submits that the sale in the course of exports must take place only after the goods have crossed the customs frontiers of India meaning thereby vessel or aircraft must leave customs area towards its onward journey to a foreign destination. He submits that the judgment referred to by the petitioners in the case of Minerals & Metals Trading Corporation v. Sales Tax Officer : 1998ECR753(SC) is clearly distinguishable. The sale referred to therein was on high seas, whilst the sale in the present case is by appropriation of goods on tarmac within the territorial limits of the State of Maharashtra and before the goods had crossed the customs frontiers of India.
45. Mr. Bharucha turning to the prayer clauses of the petition and relief claimed therein submits that since the petitioners did not challenge the orders prior to 1985, consequently, those orders have become final and conclusive, as such it is not open for the petitioners to challenge the same and claim refund in this petition. In support of his submission, he relied upon the judgment of this Court in the case of Jayant Dyes & Chemical Co. v. Deputy Commissioner of Sales Tax (Adm. III) (2003) 27 MTJ 1 (Bom.). Mr. Bharucha, while concluding his submissions, submits that the sale of goods by the petitioners to the foreign airlinesrffor consumption on board during the period the aircraft is foreign going aircraft is nothing but a local sale as such liable to sales tax under the BST Act. He, therefore, submits that this petition is liable to be dismissed with costs.
Rejoinder :
46. In rejoinder, Mr. Sibal sharply reacted to the submissions advanced by Mr. Bharucha on behalf of the respondents that the provisions of the Sale of Goods Act do not apply in the present case in respect of the delivery order since the liability of the assessee under the CST Act is being determined. In this context, Mr. Sibal relied upon the definition of documents of title in the Sale of Goods Act. Section 2(4) of the Sale of Goods Act defines 'documents of title to goods' which include 'warrant or order for delivery of the goods'. Mr. Sibal submits that the contention of the revenue, that this definition cannot be relied upon since neither the CST Act nor the BST Act refers to any definition of documents of title and, therefore, that a delivery order is a document of title will have to be proved by placing reliance on custom and usage in the trade, is erroneous. In his submission, firstly, the transaction in question is a sale of goods. The items delivered are goods and they are sold by the petitioners/ consignor to the airlines/consignee. Nobody disputes the sale. They only dispute the situs of the sale. Consequently, being sale of goods, all provisions of the Sale of Goods Act apply. Secondly, the Tribunal itself has relied upon various provisions in the Sale of Goods Act to determine when the property in the goods passes. There is no other way to reach a conclusion as to when the property in the goods passes without reference to the various provisions of the Sale of Goods Act. Mr. Sibal submits that if the Sale of Goods Act is relied upon for the purpose of determining when the property in the goods pass and when the goods are appropriated to the contract of sale, there is no reason why the definition in the Sale of Goods Act of 'documents of title' cannot be relied upon, Mr. Sibal relied upon the judgment of the apex Court in the case of Mod. Serajuddin v. State of Orissa : AIR1975SC1564 , wherein the apex Court while dealing with the expression 'sale' under Section 5 of the CST Act held that the expression 'sale' in Section 5 of the CST Act has the same meaning as in the Sale of Goods Act. This is reiterated by the apex Court in Ferro Alloys Corporation Ltd. v. Union of India [1999] 112 STC 570.
47. Mr. Sibal submits that the next ingredient required to be proved by the petitioners was that the sale was effected by the transfer of documents of title, being the delivery order, after the goods had crossed the customs frontiers of India. The revenue in this respect has contended that the customs frontiers of India in terms of Section 2(ab) of the CST Act means crossing the limits of the area of a customs station. The term 'customs station' in turn is defined in the Customs Act in Section 2(13) which means any customs port, customs airport or land custom station. The boundaries of a 'customs airport' in the context of Bombay representing the limits of the Sahar International Airport is proved through a notification placed on record. Mr. Sibal submits that this entire submission of the Revenue proceeds on a misreading of Section 2(ab). Section 2(ab) of the Act of 1956 defines the crossing of customs frontiers of India to mean crossing the limits of the area of a customs station in which imported or exported goods are ordinarily kept before clearance. The expression 'before clearance' itself implies that crossing customs frontiers of India is a limited area of a customs station which is crossed after clearance by the customs authorities. The reliance therefore is placed on the definition of a 'customs station' in the Customs Act and further elaborating upon the outer limits of Sahar Airport has no bearing on the expression crossing the customs frontiers of India, on its own terms, therefore, this submission is erroneous. Mr. Sibal submits that in any event, if the said submission of the Revenue is correct, it would lead to absurd results both in the matter of exports and imports. The very reason why Section 2(ab) was incorporated in the Customs Act would be undone if such interpretation as contended by the Revenue is accepted. In his submission, the Revenue's submission is erroneous, which can be borne out from the following judgment of Andhra Pradesh High Court in Mineral and Metals Trading Corporation of India Ltd. v. State of Andhra Pradesh [1998] 110 STC 394 and the judgment of the West Bengal Taxation Bench in Brijlal Tulsian v. Commercial Tax Officer [1997] 107 STC 75.
48. Mr. Sibal, learned counsel for the petitioners, while reacting to the submissions advanced by Mr. Bharucha appearing for the Revenue relied upon Circular No. 37/96-Customs dated July 3, 1996 issued by the Ministry of Finance, Department of Revenue in the context of ship breaking with reference to the case of Commissioner of Customs v. Saibaba Ship Breaking Corporation , contends that the orders of the Tribunal are not binding upon the High Court and cannot be relied upon as precedent for the purpose of interpretation. He further contends that even in terms of the aforesaid order of the CEGAT the goods involved were stores because the foodstuffs and drink (along with other stores including fuel and oil for running of ship engines and other machinery mentioned therein) were for consumption by the crew. Items for consumption by the crew in any event would also be stores. Consequently, in his submission, the judgment has absolutely no application to the facts of the present case. The department in that context contended that foodstuffs were not input and, therefore, duty paid on them was not available for credit. The contention was that all items supplied including foodstuffs for consumption by the crew were a necessary part of the ship because without this the ship could not have sailed and reached the ship braking yard and, therefore, Modvat credit was claimed. Revenue contended that Modvat credit could only be restricted to the extent of the input contained in goods and material falling under item 15 of the Tariff. The CEGAT rejected the arguments relied upon in defense of stores in the Customs Act and, therefore, found that such goods are not classifiable under heading 89.08 and, therefore, not entitled for Modvat credit. Mr. Sibal thus submits that the judgment of the CEGAT has absolutely no bearing to the issues before this Court. Neither the circular nor the order of the CEGAT has any bearing to the facts of the present case.
49. Mr. Sibal also reacted to another argument raised by Mr. Bharucha, learned counsel for the Revenue and not raised at the time when the matter was argued before the Tribunal, that the sales in question are exigible to tax by virtue of Section 4 of the CST Act since all the sales which are the subject-matter of dispute in this petition were completed within the State of Maharashtra and that Sections 3, 4 and 5 of the CST Act are part of a scheme of which Section 4 is subject to Section 3. Mr. Sibal submits, if the situs of the sale under Section 4 is in a particular State and yet it is shown that the goods sold in a particular State occasioned the movement of goods from one State to another, then Section 3 would be applicable and the State in which the sale took place would have no authority to impose sales tax. Similarly, even though the situs of a sale takes place in a particular state but if it is shown that, the sale occasioned the export of such goods or that the sale was effected by transfer of documents of title to the goods after the goods had crossed the customs frontiers of India, then too Section 4 and the situs of sale would be irrelevant because under Section 5, no tax would be leviable to such a transaction. This issue stands concluded by several decisions of the Supreme Court and High Courts. He relied upon the following judgments : State of Karnataka v. B.M. Ashraf & Co. : (1997)8SCC468 , Onkarlal Nandlal v. State of Rajasthan : AIR1986SC2146 , N.D. Georgopoulos v. State of Maharashtra , Guduthur Thimmappa & Son v. State of Andhra Pradesh , Bengal Corporation Private Ltd. v. State of Madras [19651 16 STC 62 (Mad.) and Tata Iron and Steel Co. Ltd. v. V.S.R. Sarkar : [1961]1SCR379 .
50. Lastly, Mr. Sibal submits that assuming that the sale took place in the State of Maharashtra before the goods crossed the customs barrier, if the sale occasioned the export of the goods outside the territory of India, the State Government will have no right to tax such a transaction. Besides, if the goods are sold within the State of Maharashtra, but the sale is effected by a transfer of documents of title beyond the customs frontiers of India, then also the State of Maharashtra would not be entitled to levy any sales tax. Mr. Sibal contends that in the present case both limbs of Section 5(1) apply and that the State of Maharashtra is not entitled to levy tax even assuming that the situs of the sale is within the State.
The issue :
51. The crux of the issue in the present case is one of potential significance in relation to law of sales tax as indicated in the opening part of this judgment, which needs resolution on the basis of the law interpreted by the Supreme Court and various High Courts referred to by the rival parties during the course of their well studied submissions.
Authorities on issue :
52. The provisions of law referred to hereinabove in their interpretation have been attending attention of the Supreme Court as well as High Courts. We briefly make a reference to some of such decisions.
53. The principal decisions of the apex Court on interpretation of Article 286(1)(b) of the Constitution of India are : State of Travancore Cochin v. Bombay Company Ltd. [1952] 3 STC 434 (SC); AIR 1952 SC 366, State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC), Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer : [1961]1SCR902 and State of Kerala v. Cochin Coal Company Ltd. : [1961]2SCR219 .
54. In the first Travancore-Cochin case [1952] 3 STC 434 (SC): AIR 1952 SC 366, the respondents claimed exemption from assessment in respect of sales effected by them to foreign buyers of CIF or FOB terms on the ground that such sales took place in the course of the export of the goods out of the territory of India within the meaning of Article 286(1)(b) of the Constitution. It is noticeable in this case that the contracts were directly between the respondents and their foreign buyers. Therefore, the court held that the sales which occasioned the export in each case fell within the scope of the exemption under Article 286(1) of the Constitution.
55. In the second Travancore-Cochin case : [1954]1SCR53 , the respondents imported raw cashew nuts from abroad and neighbouring districts in the State of Madras. The respondents converted the same by certain processes into edible kernels and exported the kernels to foreign countries. The respondents claimed exemption under Article 286(1)(b) in respect of purchase of cashew nuts. The three propositions laid down in second Travancore-Cochin case [1953] 4 STC 205 (SC) are these. First, sales by export and purchases by import fall within exemption under Article 286(1)(b). Second, purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs barrier are not within the exemption. Third, sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs barrier are within the exemption, assuming that the State power of taxation extends to such transactions.
56. The second Travancore-Cochin case [1953] 4 STC 205 (SC), was on the question whether two categories of sale or purchase would fall within the scope of exemption under Article 286(1)(b) of the Constitution. As to the first category mentioned therein, the apex Court said that the exemption under Article 286(1)(b) was for sale or purchase of goods taking place in the course of import of the goods 'into' or export of the goods 'out of the territory of India. Reference to the goods and territory of India makes it clear that the words 'export out of and 'import into' mean that exportation out of the country and importation into the country respectively. According to the apex Court, the word 'course' denotes movement from one point to another and expression 'in the course' not only implies a period of time during which the movement is in progress, but postulates also a connected elation. On this reasoning the Apex Court held that a sale in the course of export means a sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities.
57. In Burmah-Shell : [1961]1SCR902 , the apex Court observed :
'While all exports involve a taking out of the country, all goods taken out of the country cannot be said to be exported. The test is that the goods must have a foreign destination where they can be said to be imported. It matters not that there is no valuable consideration from the receiver at the destination end. If the goods are exported and there is sale or purchase in the course of that export and the sale or purchase occasions the export to a foreign destination, the exemption is earned. Purchases made by philanthropists of goods in the course of export to foreign countries to alleviate distress there, may still be exempted, even though the sending of the goods was not a commercial venture but a charitable one. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports.'
58. In the case of State of Kerala v. Cochin Coal Company Ltd. [19611 12 STC 1 (SC), the apex Court held that the concept of export in Article 286(1)(b) of the Constitution postulates the existence of two termini as those between which the goods are intended to move or between which they are intended to be transported, and not a mere movement of goods out of the country without any intention of their being landed in specie in some foreign port.
59. The principal decision of the apex Court on interpretation of Section 5(1) of the CST Act are Ben Gorm Nilgiri Plantations Co., Coonoor v. Sales Tax Officer, Special Circle, Ernakulam : [1964]7SCR706 , Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras : [1970]3SCR147 ; the recent decision in Binani Bros. (P.) Ltd. v. Union of India : [1974]2SCR619 and Mod, Serajuddin v. State of Orissa : AIR1975SC1564 .
60. In the Ben Gorm Nilgiri Plantations case : [1964]7SCR706 the appellants were sellers of tea and their purchasers were local agents of foreign buyers. The sales were by public auction. The Apex Court held that a transaction of sale which is a preliminary to export of the commodity sold may be regarded as a sale for export, but is not necessarily to be regarded as one in the course of export, unless the sale occasions export. In this case the Apex Court found that the sales by the appellants were intended to be complete without the export and as such it could not be said that the sales occasion export. The sales were for export and not in the course of export.
61. In the Coffee Board case : [1970]3SCR147 the Coffee Board framed rules for sale of coffee to registered exporters. The Coffee Board contended that the auctions were in the course of export, because the sales themselves occasioned the export of coffee. The revenue contended that the sales were not bound up with the export. The Apex Court held that the phrase 'sale in the course of export' authorised not only a sale and an actual export but that the sale must be a part and parcel of the export. The word 'occasion' in the context of sale or purchase was held to mean to cause export or to be the immediate cause of export. In this case, the phrase 'sale in the course of export' was held to comprise of three essentials. First, there must be a sale. Second, the goods must actually be exported. Third, the sale must be a part and parcel of the export. To establish export a person exporting and a person importing are necessary elements as the course of export is between them. In this case, the apex Court discussed all its earlier decisions, some of which were on the meaning of phrase 'in the course of export' occurring in Article 286(1)(b). In this case it is said that the same meaning must obviously be given to the phrase 'in the course of export' or to the phrase 'occasions the export'.
62. In the case of Mod. Serajuddin v. State of Orissa [1975] 36 STC 136, the apex Court was concerned with the interpretation of words 'in the course of export' as found in Section 5(1) of the CST Act. While interpreting the said phraseology the Constitution Bench also construed identical phraseology found in Section 5(2) dealing with 'in the course of import'. The majority of the Constitution Bench speaking through Ray, C.J. upheld the decision of the High Court against the assessee and held that Section 5(1) of the CST Act a legislative meaning to the expressions 'in the course of export' and 'in the course of import'. The expression 'in the course' implies not only a period of time during which the movement is in progress but postulates a connected relation. Sale in the course of export out of the territory of India means sale taking place not only during the activities directed to the end of exportation of the goods out of the country but also as part of or connected with such activities. While considering the question whether the sale is in the course of export, the Constitution Bench ruled that the sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. To establish export a person exporting and a person importing are necessary elements and the course of export is between them. The Constitution Bench also observed that sale or purchase in the course of import as envisaged by Section 5(2) of the CST Act which is a part materia provision and is almost a mirror image of the provision of Section 5(1) dealing with converse type of cases and heavily relied upon another Constitution Bench judgment in the case of Binani Bros (P.) Ltd. v. Union of India : [1974]2SCR619 .
63. In the case of Ferro Alloys Corporation Ltd. v. Union of India [1999] 112 STC 570, the Apex Court while reversing the judgment of the High Court held that the sales were not in the course of export. In this case, the price of the goods was in US cents, the destination was a foreign port, Richco was required to arrange a certificate pertaining to the discharge of the charge chrome at the discharging port, the final settlement of the price was to be based on the weight determined either at the port of discharge or at the works of the ultimate buyer and the analysis mentioned in the certificate. Whether the charge chrome fell below the specifications could only be determined by the assay carried out at the port of discharge. Title to the charge chrome passed to Richco only when the goods were found to have met the contractual specification, which was abroad. Therefore, the Charge Chrome Agreements were the contracts of sales of charge chrome and not the Off-take Agreement. The sales of charge chrome under the charge chrome agreements were sales to Richco abroad and the export of the charge chrome was occasioned by the charge chrome agreements. The sales were in the course of export within the meaning of Section 5(3).
Consideration :
64. Having heard the rival parties at length, having examined the statutory provisions on the canvas of the provisions of Article 286(1)(b) of the Constitution, let us first consider the strength of the submission canvassed by Mr. Sibal that the interpretation of Article 286(1)(b) cannot be regarded as a precedent while interpreting Section 5 of the CST Act. Let us now turn to Article 286 of the Constitution.
65. As originally enacted, Article 286 fell into three parts : Article 286(1) prohibited the imposition of tax by a State on the sale or purchase of goods (a) outside the State, (b) in the course of import or export of the goods into or out of a territory of India and (c) sale as per fiction created by the explanation. Article 286(1)(a) originally contained the explanation, the reproduction of which is not necessary at this stage.
66. The original explanation to Article 286(1) was deleted by the Constitution (Sixth Amendment) Act after the judgment in the Bengal Immunity Co. Ltd. v. State of Bihar : [1955]2SCR603 , and Sub-articles (2) and (3) were inserted permitting the Parliament by law to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Sub-clause (1). The Parliament enacted Central Sales Tax Act, 1956 and formulated the principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1). Accordingly, Section 5 formulates the principle for determining when the sale or purchase of goods can be said to take place in the course of import or export. Section 5(1) lays down when sale or purchase of goods said to take place in the course of export, whereas Section 5(2) provides when the sale or purchase of goods said to take place in the course of import, Section 5(1) and Section 5(2) of the CST Act are similar. Section 5(2) is part materia and is almost a mirror image of the provision of Section 5(1) dealing with the converse type of case. The Constitution Bench judgment rendered by the Supreme Court in the case of State of Bihar v. Tata Engineering & Locomotive Co. Ltd. : [1971]2SCR849 had examined pari materia provision in Article 286(2) of the Constitution dealing with the sales in the course of inter-State trade or commerce. The Constitution Bench considered its earlier decisions and observed that the decided cases established that sales would be considered as sales in the course of export or import or in the course of inter-State trade and commerce :
'(1) when goods which are in export or import stream are sold; (2) when the contract of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of the goods takes place, and (3) where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported out of the State in which the delivery of goods takes place.'
From the above judgment it is clear that Article 286 and the interpretation put thereon by the apex Court from time to time can always be looked into while interpreting Section 5 of the CST Act. Thus, the submission canvassed by Mr. Sibal that it cannot be looked into is misplaced.
67. Having said so, we must now consider Article 286(1)(b). The words, 'in the course of ......import.....or export' occurring in Article 286(1)(b) have given rise to considerable litigation. In State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC), Patanjali Shastri, C.J. Observed :
'A purchase for the purpose of export like production or manufacture for export, is only an act preparatory to export and cannot.....be regarded as an act done 'in the course of the export of the goods out of the territory of India'......'
68. In Burmah-Shell case : [1961]1SCR902 , the Supreme Court said that the crucial test for determining 'export' was the sending of the goods to a foreign destination where they would be received as 'import' even though there was no valuable consideration from the receiver at the destination. The words 'export' and 'import' are correlative terms, that is, each implied the other. Consequently, aviation spirit loaded on board an aircraft for consumption, though taken out of the country was not exported, since it had no destination where it could be said to be imported and was, therefore, not a sale in the course of export. Secondly, the consumption of the spirit was for the use of the aircraft and the sale was not integrally connected with the taking out of the aviation spirit, the sale was not for purposes of export, and Article 286(1)(b) was not attracted. Applying this decision, the Supreme Court in the case State of Kerala v. Cochin Coal Company Ltd. : [1961]2SCR219 , held that the sale of bunker coal to be supplied from the assessee's depot in Candle Island in the State of Madras and trimmed into the ships standing in the port of Cochin enabling them to sail out of India were not sales 'in the course of export' within Article 286(1)(b) merely because the coal was to be carried outside India. Thus, mere intention to export, without an actual export, is not sufficient to constitute 'a sale in the course of export.'
69. In B.K. Wadeyar, Sales Tax Officer v. Daulatram Rameshwarlal : [1961]1SCR924 , the Supreme Court said it was well settled that if property in the goods passed to the buyer after they had crossed the customs frontier for the purposes of export to a foreign country, the sale had taken 'in the course of export' out of India. The normal rule in F.O.B. Contracts was that, in the absence of a special agreement, the property in the goods did not pass until the goods were actually put on board the ship. Normal F.O.B. contracts were exempt from sales tax under Article 286(1)(b).
70. Having understood Article 286(1)(b) in the language of the apex Court let us have a look at the provisions of Section 5 of the CST Act ; already reproduced hereinabove. Section 5 defines what Article 286 of the Constitution forbids and lays down the principles when a sale or purchase of goods takes place in the course of import into or export out of India. Since controversy has arisen as to the scope and interpretation of the principles laid down in Section 5(1) of the Act, it is necessary to dissect the said provision to understand the concept engrafted therein.
71. According to Sub-section (1) of Section 5 of the CST Act a transaction of sale may take place in the course of export in the following ways, viz. :
(i) Where the sale takes place in the course of export of goods out of the territory of India ;
(ii) Where the sale occasions the export of goods out of the territory of India ;
(iii) Where the sale effected by transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
Let us now consider whether the sales effected by the petitioners can fall in either of the categories referred to hereinabove.
In the course of export :
72. The sale in order to fall under this category must be a single sale which itself causes the export or is in the progress or process of export. In order to understand this concept one may notice, as already referred to hereinabove, the simple transactions involved in Wadeyar's case : [1961]1SCR924 where the course of export is quite clear and it is easy to see that the sale is integrally connected with export. In K.G. Khosla and Co. (P.) Ltd. v. Deputy Commissioner of Commercial Taxes : [1966]3SCR352 , the phrase 'in the course of import' was considered. It was held that in Section 3 of the CST Act the phrases 'occasions the movement of goods from one State to another' and 'occasions the import' means the same thing. The movement, it was pointed out must be the result of an agreement or an incident of contract of sale, although it was not necessary that the sale should precede the import. Applying the said concept to a converse transaction of export the movement of goods must be the result of an agreement or an incidence of contract of sale, although it is not necessary that the sale should precede the export.
73. A more direct authority is in Ben Gorm Nilgiri Plantations Co. : [1964]7SCR706 , In that case, sales of the tea chests at auctions held at Port Cochin were claimed to be exempt from the levy of sales tax by virtue of Article 286(1)(b). The question in the facts of the case was whether the sale to the agent or the intermediary was a sale in the course of export out of India. The apex Court found nothing in the transaction from which a bond could be said to spring between the sale and intended export linking them as part of the same transaction. The sellers had no concern with the export, the sale imposed or involved no obligation to export and there was possibility that goods might be diverted for internal consumption. The court considered the sales as sales for export and not in the course of export.
74. The principles to be deduced from the aforesaid case is that 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) the sale must be a part and parcel of the export.
75. It is no doubt true that each case will depend on its own fact. The facts always play their due part. Now turning to the facts of the case in hand the petitioners-sellers had no concern with the export. The sale did not involve any obligation to export. The sale was not the part and parcel of the transaction of the export. Turning to one of the conditions of delivery order, said to be the document containing terms and conditions of sale reads thus : 'The goods referred to in this delivery order are not meant for consumption in India' which means the obligation is on the buyer not to consume in India. The seller has no obligation, not even to export. The seller is not involved in export. Breach of this clause does not in any way affect the sale. For example, if the goods are consumed on board the aircraft in India, can it be said that there is no sale Therefore, this clause which is inserted with an intention to give the colour of the transactions falling under Section 5(1) of the CST Act, does not in any way make the transaction of sale other than local sale. One more condition which is part of condition No. 4 of the delivery order cannot be overlooked, which reads as 'the consignors shall not be liable for any deterioration in the quality of goods due to delay on consignee's part in taking delivery of goods', meaning thereby ; in the event of delay in taking delivery of the goods, may be due to cancellation of flight or due to some other technical defect in the aircraft preventing its travel, if the goods, namely, the eatables are spoiled the consignors will have to pay without taking the goods/eatables on board an aircraft. In such event there cannot be export. If this was so, such sale cannot be said to be a sale in the course of export. To constitute sale in the course of export, the sale must be a part and parcel of the export. The only sale which can give rise to export is the sale which by itself results in movement of the goods from the exporter to the importer. When the sale itself causes the export to take place that is to say when the exporter and the importer negotiate and complete the sale which without anything more would result in the export of the goods. No other sale can qualify for the exemption under Section 5(1) of the CST Act read with Article 286(1)(b) of the Constitution. The transaction of sale involved in the case in hand cannot be said to be a sale in the course of export. One of the indicia of sale in the course of export is the compulsion to export because the sale which is protected under Section 5(1) must itself be inextricably bound up with the export. This is not the situation in the case in question. Any buyer who himself is not the importer buys for export even if export ultimately results still it cannot be said to be a sale in the course of export. Such sale would be considered as sale for export assuming for the time being that Mr. Sibal is right in contending that merely taking goods out of the country without any destination amounts to export.
76. In short, any transaction of sale prior to the export of the commodity is not necessarily a sale 'in the course of export', unless there is an integral bond between such sale and the actual exportation ; the contract of sale must be such that there is an obligation (either contractual or statutory) to export on the part of the buyer : a mere acknowledge on the part of the buyer that the goods are being purchased with intention of exporting is not enough.
77. To establish an export, a person exporting and a person importing are necessary elements. As observed hereinabove, in the case at hand, no person exporting and person importing are to be found. What we get is a person selling, namely, the petitioners and the person purchasing the goods, namely, the foreign airlines. The purchase of goods is not for export but for consumption on board an aircraft during the period the aircraft is a foreign going aircraft.
Sale which occasions the export :
78. We are now required to find out what is meant by the phrase 'sale which occasions the export'. One thing is clear that language of Section 3, Section 5(1) and Section 5(2) of the CST Act is similar. The requirement of each of this provision for considering whether a sale or purchase of the goods can be said to have taken place in the course of inter-State trade or commerce or export or import are similarly worded. Under the first requirement so specified in each of the three cases, the sale or purchase in question should occasion the requisite movement of goods. This movement either may be from one State to another or it may be from another country to India or it may be from India to another country, as the case may be,
79. How does one determine whether the sale has occasioned the movement of goods from India to another country The apex Court as well as the various High Courts in the course several decisions which have been referred to hereinabove have laid down some basic tests to find out whether the sale has occasioned the requisite movement of goods which we propose to apply to the case in hand.
80. In Burmah-Shell case : [1961]1SCR902 it was pointed out that the word 'export' did not mean a merely 'taking out of the country' but that the goods must be sent to a destination at which they could be said to be imported. The same meaning must obviously be given to the phrase 'occasions the export'. We have thus to see whether the sale is one which is connected with the export of the goods from this country to an importer in another country. The course of export can only begin if there is movement from an exporter to an importer as the result of the sale, and then only the sale can be said to occasion the export. It is not enough that the sale is followed by an export or is made for the purpose or with a view to export ; the sale must be integrally connected with the export.
81. In B.K. Wadeyer's case : [1961]1SCR924 it was held that if the property in the goods passed to the buyer after crossing the customs frontiers for export out of India, the sale was in the course of export. This is because the course of export had already begun and therefore the sale followed the commencement of the export operation.
82. The apex Court unequivocally ruled that concept of export in Article 286(1)(b) and under Section 5(1) of the CST Act postulates the existence of two termini as those between which the goods are intended to move and between which they are intended to be transported and not a mere movement of goods out of the country without any intention of their being landed in specie in some other foreign port. In other words, the person exporting and the person importing are the necessary elements as the course of export is between them (see apex Court judgment in Burmah-Shell : [1961]1SCR902 , Cochin Coal Company Ltd. [1961] 12 STC 1 and Ferro Alloys Corporation Ltd. [1999] 112 STC 570. The view expressed by the apex Court in the aforesaid judgments is that an export sale will only be where the sale is to a foreign buyer with whom the local seller has privity of contract and as a direct result of such sale of goods are transported across the customs frontiers of India and further even if there is no export sale, if the sellers are able to establish that they continue to be owner of goods up to or beyond the time when the goods entered the export stream or until after the goods had crossed the customs barrier, the sale by them would be one 'in the course of export' even though the situs of sale may be in the local area.
83. As already discussed hereinabove, in order to prove that a sale had occasioned in the course of export one has to prove not only that the goods have moved from a place inside India to outside, but to a place outside India. Mere taking of the goods out of India does not amount to export of the goods. In the present case eatables are sold by the petitioners to foreign airlines for consumption on board an aircraft during the period an aircraft is a foreign going aircraft. Such transaction cannot be treated either as sales in the course of export or the sales, which have occasioned export.
84. The learned counsel for the petitioners relied upon the decision in the case of Sun Industries : 1988(35)ELT241(SC) . In that case, respondent shipped certain goods from Calcutta intended for delivery at Colombo. The ship proceeded on the voyage leaving the Indian territorial waters, but developed engine trouble, returned and ran aground in Indian territorial waters at Pradeep Port. The Assistant Collector of customs rejected the respondents claim for drawback on the ground that the goods could not have been deemed to be exported. The Tribunal accepted the claim. On appeal the apex Court held affirming the view of the Tribunal, that when ship got clearance and moved out of the Indian territorial waters, the export was complete and the title in the goods had passed to the purchasers. When goods were taken beyond the territorial waters of India, in such situation goods can be said to have been, 'taken to a place outside India' within the meaning of Section 2(18) of the Customs Act, 1962. The fact that the ship was brought back to India did not affect the position. The export was complete and the respondent was entitled to the benefit of drawback. This decision relied upon by the petitioners is not of any assistance to it. In the above case admittedly, the destination of goods was Colombo, a place outside India. Such a destination is conspicuously absent in the present case. Apart from this, the case of Sun Industries : 1988(35)ELT241(SC) came to be decided in the peculiar facts of that case. The claim of the petitioners that the destination of passengers or the destination of the aircraft should be the destination of eatables/goods cannot be accepted, as the goods sold were never intended to be taken to that destination. Even the alternative claim of the petitioners that the moment the goods were taken out of the Indian Territory the export was complete cannot be accepted.
85. In the case of Madras Marine Co. v. State of A.P. , a division Bench of the A.P. High Court had occasion to consider the provision of Section 5(1) of the CST Act with reference to Article 286 of the Constitution. In this case the assessee was a dealer in bonded stores and ship chandlers. It imported liquor from outside India and supplied it to vessels. The goods imported were kept in a bonded warehouse under the supervision of customs authorities. No customs duty was paid. On receipt of the orders from a ship's Masters, bills were prepared and goods were released. Customs officer accompanied the goods, kept them in a locker of the ship under the customs seal with an understanding that the seals would be opened and the goods made available for consumption only after the vessel travelled beyond the territorial waters of India. In the case in hand identical condition is to be found reading as, 'the goods referred to in this delivery order are not meant for consumption in India.' The assessees in this case of Madras Marine Co. [1984] 56 STC 155 (AP) contented that sale did not take place within the State and the sale was in the course of export and as such was not exigible to tax. Negativing the contention of the dealer, the division Bench of the High Court on the facts and circumstances of the case held that sale took place within the State and the sale was not in the course of export and was exigible to local sales tax.
86. In the case of the same assessee, i.e., Madras Marine and Co. v. State of Madras [1986] 63 STC 169, the apex Court, affirming the decision of the High Court and dismissing the writ petition and special leave, petitions held that as the goods were in bonded warehouses within the State of Tamil Nadu in case of ascertained goods at the time when the contract of sale was made and in case of unascertained goods at the time of their appropriation to the contract by the company, sales must be deemed to be within the State of Tamil Nadu under Section 4(2) of the CST Act. Delivery on board the foreign bound ship within the territorial waters did not make the sale one outside the State of Tamil Nadu. This was not a case of export as there was no destination for the goods in a foreign country. A sale therefore, beyond the customs barrier may still be a sale within the State.
87. From the above, it is clear though petitioners claim that the sales made by them were effected in the course of exports there was no place of destination outside India to treat the sales effected by the petitioners as sales in the course of export. The sales were effected to the customer who is a foreign airlines for consumption on board an aircraft during the course of foreign going journey which may have incidentally taken the goods beyond the territory of India for consumption of their foreign going passengers, that by itself could not be considered that the sales were effected in the course of exports. When a place of destination outside India is absent, mere transportation of goods beyond the Indian Territory does not amounts to sale in the course of export.
Sale by transfer of documents of title to the goods after the goods have crossed the customs frontiers of India :
88. Sales effected within the State by the exporter by transfer of document while the goods are beyond the customs frontiers of India are also within the exemption conferred by Sub-clause (1) of Section 5. Before considering the hotly contested issue as to whether or not on the facts and in the circumstances of the case the sale has taken place by transfer of title to the goods, we would prefer to address our self on another equally debated issue as to what is the concept of 'crossing the customs frontiers of India' or, in other words, when the goods cross the Indian customs frontiers.
89. Mr. Sibal, learned counsel for the petitioners pressed into service the judgment of the West Bengal Taxation Tribunal in Brijlal Tulsian v. Commercial Tax Officer [1997] 107 STC 75, to contend that the sales in question have taken place after crossing the customs frontiers of India, as such the sales occasioned export. At this state it is necessary to observe that reading of second limb of Section 5(1) of the CST Act makes it clear that if the sale is effected by transfer of documents of title to goods after the goods have crossed the customs frontiers of India, then the sale is deemed to have taken place in the course of export of the goods outside the Indian territories.
90. The definition in Section 2(ab) of the CST Act of the phrase, 'crossing the customs frontiers of India' reads thus : 'crossing the custom frontiers of India means crossing the limits of area of a custom station in which imported goods or export goods are ordinarily kept before clearance by customs authorities'. It was inserted by an amendment in 1976. The objects and reasons of the amendments were that the phrase had been interpreted to mean coterminus with the extent of territorial waters. This had given rise to practical difficulties, as it was difficult to determine whether at the time of sale or purchase the goods had entered or crossed the territorial waters. The actual checking of the goods used to take place in the customs station and not at the edge of the territorial waters. It was, therefore necessary to so define the expression. A customs station has, by reason of explanation to Section 2(ab), the same meaning as in the Customs Act, 1962 and that is 'any customs port, customs airport or land customs station.' A customs port is any port appointed under Clause (a) of Section 7 of the Customs Act to be a customs port (that Sahar International Port is a customs port is not in dispute) and includes a place appointed under Clause (ab) of that section to be an inland container report. Customs airport means any airport appointed under Clause (a) of Section 7. Land customs station means any place appointed under Section 7(b). A reading of Section 2(ab) makes it clear that if the goods cross the area of the customs station, viz., the customs port which is notified under Section 7 of the Act, and if the transfer of title in goods is effected by transfer of documents of title then it amounts to sale in the course of import.
91. In the light of the above, it is necessary to understand the concept of crossing the customs frontiers of India as defined under Section 2(ab), The customs area has been defined in Section 2(11) of the Customs Act as the area of customs station including the area where the export goods or import goods are ordinarily kept before clearance by the customs authorities. There is no definition of customs frontiers in the Customs Act. Section 2(ab) of the CST Act defines 'crossing the customs frontiers of India' as crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities. In the explanation to the said definition it is stated that the definition of expression 'customs station' and 'customs authorities' in the Customs Act shall apply to the CST Act. Therefore, within the meaning of Section 5(1) of the CST Act the expression 'crossing the customs frontiers of India' means crossing the limits of area of customs station in which the goods for export are ordinarily kept before clearance by the customs authorities, Thus, unless the limits of the customs station are crossed, the goods do not cross the customs frontiers of India.
92. According to Mr. Bharucha, learned counsel for the respondents, so long as the goods do not cross the area of any customs port, and here, the Sahar Airport, the transfer of title to goods will always be regarded as a local sale. According to Mr. Bharucha, merely storage of the goods in the customs area for delivery on delivery van or supply unit will not amount to crossing the limits of customs station. According to him, it is necessary that the goods must go out of the customs station by crossing the outer limits so that it would amount to crossing the area of customs station. According to him, mere bringing of goods into the customs station or on tarmac after customs and quarantine clearance will not amount to crossing the limits of customs area unless those goods have crossed the limits of customs station. Mere parking of the supply unit with goods even after completing the customs formalities will not amount to crossing of the customs frontiers of India.
93. In order to explain concept of crossing of the customs frontiers of India, Mr. Bharucha, relied upon the decision of the Supreme Court in Kiran Spinning Mills v. Collector of Customs : 1999(113)ELT753(SC) . As held by the Supreme Court in the case of Kiran Spinning Mills v. Collector of Customs : 1999(113)ELT753(SC) , which arose under the Additional Duty of Excise (Textiles and Textile Articles) Ordinance, 1978 the taxable event is the crossing of the customs barrier, and not the date when the goods had landed in India, or had entered the territorial waters. When goods are imported into India even after the goods are unloaded from the ship, and even after the goods are assessed to duty subsequent to the filing of a bill of entry, the goods cannot be regarded as having crossed the customs barrier until the duty is paid and the goods are brought out of the limits of the customs station. In the case of Kiran Spinning Mills v. Collector of Customs : 1999(113)ELT753(SC) , the apex Court has observed thus :
'In other words, the taxable event occurs when the customs barrier is crossed. In the case of goods which are in the warehouse, the customs barriers would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country.'
Based on the above judgment Mr. Bharucha contended and, in our opinion, rightly that in case of import the customs frontiers of India are not crossed until the goods find their free access into the country by crossing the outer limits of the area of customs station which is possible only at the time of clearance by the customs authorities. According to him, under Section 5(2) read with Section 2(ab) of the CST Act and the relevant definitions in the Customs Act, the expression 'before goods have crossed the customs frontiers of India' means before the goods have crossed the limits of customs station, namely, a customs port, or in other words, before the goods have crossed entire area of customs station including its outer boundary so that the goods can find their free access into the country beyond the customs station upon clearance by the customs authorities.
94. Mr. Bharucha, learned counsel for the respondents, applying the above concept to a converse case of export, submits that in case of import the expression 'before the goods have crossed the customs frontiers of India' means the goods must have crossed the limits of area of customs station, namely, customs port. In other words, the goods must move or undertake onward journey to a foreign destination and cross entire customs station including its outer boundary. Turning to the facts of this case, Mr. Bharucha submitted that the sales in question are complete much prior to crossing the limits of the area of customs station in which the goods are ordinarily kept by the customs authorities. In other words, the sales are complete before the goods have crossed customs station. Sales being before crossing the customs frontiers of India the sales are local sales exigible to local sales tax.
95. Mr. Sibal, learned counsel for the petitioners, in rejoinder, relying upon the judgment of the apex Court in the case of Minerals and Metals Trading Corporation of India Ltd. v. State of A.P. [1998] 110 STC 394, brought to our notice a passage in Empresa Siderurgica, S.A. v. Merced 337 US 154 reading as under :
'It is the entrance of the articles into the export stream that marks the start of the process of exportation. Then there is certainty that the goods are headed for their foreign destination and will not be diverted to domestic use. Nothing less will suffice.'
In his submission, once the goods are kept in the customs station, then, the goods shall be deemed to have been in the export stream. In our opinion, the concept sought to put in service cannot be applied to the facts of this case. The facts aforestated show that the delivery order is handed over to the foreign airlines prior to the goods crossing the customs frontiers of India. We see no difficulty in accepting the submission urged by Mr. Bharucha on this count. The submission sought to be advanced by Mr. Sibal with respect to the nature of the document styled as 'delivery order' to contend that it is a document of title, which Mr. Bharucha strongly refuted has become otiose in view of our findings recorded hereinabove. Either way, the finding on this question shall not change any complexion of the findings recorded or view taken by us on the substantive issue. We, therefore, do not propose to dwell further on this issue.
96. Having held that the sales are complete before the goods have crossed the customs station or before crossing the customs frontiers of India, let us find out as to when or at what point of time the sale is complete in the facts of the present case.
97. Let us first examine the meaning of sale as defined in the Act. Section 2(g) of the CST Act defines, 'sale' thus :
''Sale' with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on the hire-purchase or other system of payment by instalments, but does not include a mortgage or hypothecation of or a charge or pledge on goods.'
The above definition of sale in the Act shows that the word sale has been given a very wide meaning so as to include not only the sale of goods but also the transactions, namely, a transfer of goods on hire-purchase system. Further, the use of words, 'sale of goods' in Section 3 of the CST Act and the words, 'contract of sale' occurring in Section 4(2) of the CST Act has been assigned the same meaning which is wider to the meaning of sale in the general law. In such a situation the word 'sale' defined in Section 2(g) and also employed in Section 4 of the CST Act would embrace not only completed contract but also the contract of sale or agreement of sale even if such contract of sale or agreement of sale provides for delivery of goods as an incident of the contract of sale. This matter may be examined from another angle. An agreement to transfer goods to the buyer for a price is an important element of sale and the same can also be borne out from Section 4 of the Sale of Goods Act. If Section 4 of the Sale of Goods Act is read along with Section 4 of the CST Act it would mean that an agreement to sale would be a sale within the meaning of 'sale' provided that such agreement of sale stipulates such delivery of goods or delivery of goods is an incident of the contract of sale, in that case, such delivery of goods would be deemed to be occasioned by the sale. It is immaterial that actual delivery takes place later on. The apex Court had an occasion to adopt the similar interpretation of the word 'sale' as defined under Section 2(9) of the CST Act while considering the sales involved in the inter-State transaction in the backdrop of Section 3 of the said Act in the case of State of Maharashtra v. Embee Corporation : AIR1998SC1549 . The language of Sections 3, 5(1) and 5(2) of the CST Act is similar.
98. If the above interpretation is applied to the sale in question as projected in the petition, then, it would mean that irrespective of the condition in the agreement of sale that delivery of goods shall be after customs clearance, i.e., after goods have cleared all local customs, quarantine and all other legal formalities and are kept ready for delivery at the consignors' supply unit across the Sahar customs station, even in the presence of such condition in the agreement, compliance of customs clearance and other formalities on the part of the seller would be nothing but the incidence of contract of sale which can be said to have already taken place when the goods moved from flight kitchen which is located within the State, i.e., much before the delivery of goods and therefore, in our opinion, the sale in question shall be exigible to local sales tax under the BST Act.
99. Let us now switch over to another shed of the same issue. The submissions advanced by Mr. Bharucha, learned counsel for the respondents on second aspect of the same issue is that Section 4 of the CST Act is a deeming provision. It provides that in the case of unascertained goods, if the goods are within the State (i.e., in the present case State of Maharashtra) at the time of appropriation to the contract, the sale would be deemed to be a sale inside the State. In his submission, in the facts of the present case, admittedly, even according to the petitioners appropriation takes place at tarmac at Sahar Airport which is within the territorial limits of the State of Maharashtra. According to him, customs barrier or customs frontier does not affect the territorial limits of the State for sales tax purposes. Once the appropriation takes place within a State, it is a sale within that State and cannot be regarded as sale in the course of export.
100. Mr. Bharucha submits that all the ingredients of sale within the State, in so far as relevant to the facts of the present case are concerned, are satisfied, as such the sale in question is a sale in the State of Maharashtra liable to be taxed under the BST Act. He submits that it is not at all necessary to consider the provisions of the CST Act. This Court should stop at the stage of Section 4 of the BST Act only.
101. We may at this stage proceed to consider and find out the place of appropriation of contract in the light of the provisions of the Sale of Goods Act, 1930. It may be noted that exactly when property in goods passes from the seller to the buyer depends on the intention of the parties. This intention may, at times, be clearly expressed. If such intention is not clear, it has to be gathered from the conduct of the parties and from the circumstances of the case. Now, since parties may sometimes express their intention obscurely, courts in England have evolved certain rules of construction to govern such sales. Similar rules have been adopted by the Indian Sale of Goods Act, 1930. Thus, rules contained in Sections 20 to 24 of this Act apply, unless the parties have agreed otherwise. The Indian Sale of Goods Act as stated is based largely upon the English and American Acts. Under these Acts, namely, the English Sale of Goods Act, the American Uniform Sales Act and the Indian Sale of Goods Act, the relevant factor for determining where the sale takes place, is the intention of parties. A contract of sale, like any other contract, is a consensual act inasmuch as parties are at liberty to settle, amongst themselves, any terms they may choose.
102. Section 19 attempts to give effect to the elementary principle of the Law of contract that the parties may fix the time when the property in the goods shall be treated to have passed. It may be the time of delivery, or the time of payment of price or even the time of the making of contract. It all depends upon the intention of the parties. It is, therefore, the duty of the court to ascertain the intention of the parties and in doing so, they have to be guided by the principles laid down in Section 19(2) which provides that for ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
103. Section 19 of the Sale of Goods Act indicates that in case of unconditional contract of sale in respect of specified goods in a deliverable State, the property in the goods passes to the buyer at such time as the parties intend it to be transferred. Section 19(3) provides that Sections 20 to 24 contain the rules for ascertaining the intention of the parties as to the time at which the property in the goods shall be treated to have passed to the buyer. Both Sections 19 and 20 apply to the sale of 'specific' or 'ascertained' goods.
104. In Roe Kim Seing v. Maung Ba Chit , it was held that intention of the parties was the decisive factor as to when the property in goods passes to the purchaser. If the contract is silent, intention has to be gathered from the conduct and circumstances of the case.
105. To understand the rules as to passing of property, goods can be divided into three categories. In other words, for the purpose of transfer the property as between seller and buyer, goods can be divided into three classes, viz., (i) specific or ascertained goods ; (ii) generic or unascertained goods ; and (iii) goods sent for approval or 'on sale or return' basis.
106. The rules governing passing or transfer of property in the case of generic or unascertained goods are to be found in Sections 18 and 23 of the Sale of Goods Act.
107. Section 18 lays down where there is a contract for the sale of unascertained goods,--no property in the goods passes to the buyer, unless the goods are ascertained. For example, if 'A' agrees to sell to 'B' 20 tons of oil of certain description in his cistern, and he has more than 20 tons of oil of that description in his cistern, no property passes to 'B', until the 20 tons are separated from the rest and they are appropriated to the contract. Considering the rule engrafted in Section 18 and applying it to the facts of the case in hand, it is not difficult to hold that when the order is placed in flight kitchen it is for unascertained goods but the moment foodstuffs are prepared and goods are separated from the rest, they are deemed to have been appropriated to the contract. Assuming that we are not right in taking this view, even then, the petitioners are not in a better position in view of Section 23 of the Sale of Goods Act.
108. Section 23 of the Sale of Goods Act speaks about 'sale of unascertained goods' and the appropriation which reads as under :
'23. Sale of unascertained goods and appropriation.--(1) Where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied, and may be given either before or after the appropriation is made.
(2) Delivery to carrier.--Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.'
Let us take a simple example to understand the rule incorporated in Section 23 of the Sale of Goods Act. Thus, 'A' having quantity of sugar in bulk more than sufficient to fill 20 hogsheads, contracts to sell to 'B', 20 hogsheads of sugar. After the contract, A fills 20 hogsheads with sugar, and gives notice to B that hogsheads are ready, and require him to take them away. 'B' says that he will take them as soon as he can. By this appropriation by 'A', and assent by 'B', the property in sugar passes to 'B' (see Rodhe v. Thwaites 1827 6 B&C; 388.
109. The petitioners, in the present case relied upon the. affidavit of Mr. Sanjay Narang dated April 19, 1988 to spell out the terms of contract which, in our opinion, cannot be proved in such a manner. But for the time being let us presume that they are the terms of contract. From the affidavit, it is clear that the foreign airlines place an order with the petitioners for future goods. They are first class lunch/dinner which includes vegetarian and non-vegetarian food with super class breakfast including fresh juices, bread rolls, ice cubes, tea bags, fresh lime, jerry cans, etc. At the time of receipt of the order, the goods are not ready, they are unascertained goods. They are made ready in the Flight Kitchen. The flight kitchen transfers the same to the supply unit to be parked inside the International airport after completing customs, quarantine and other legal formalities and keep ready for being delivered to a foreign going aircraft. The final requirement of the quantity is notified to the supply unit just a few minutes before the flight takes off with slight modification or change in the quantity depending upon the eleventh hour cancellation or sale of tickets on counter. In the circumstances, it is not difficult to imagine that when the order is received by the flight kitchen the goods are unascertained. After receipt of the order the goods are segregated and food articles are prepared and are made ready for being delivered through supply unit at airport. Thus the goods are ascertained in the flight kitchen itself. Once the food articles are cooked and prepared they can be said to be the 'specific goods' in deliverable State. When the goods are loaded in the supply unit and the same is dispatched to the international airport they are in a deliverable State. At this juncture, if one takes a look at the terms and conditions of the delivery order, Clause (4) thereof reads as under :
'4. Since this delivery order is being presented after the goods have cleared all local customs, quarantine and the legal formalities and are ready for delivery at consignors supply unit across the Sahar customs station the consignee is liable to take delivery of the goods with utmost despatch and the consignors shall not be liable for any deterioration in the quality of the goods due to delay on consignee's part in taking delivery of the goods.'
Reading of the aforesaid clause/condition would show that upon clearance of customs, quarantine and other legal formalities when the consignor's supply unit is ready for delivery across the Sahar customs station, the consignee is bound to take delivery of goods and the consignor is absolved of the liability of the deterioration of the quality of the goods due to delay on consignee's part in taking delivery of the goods. What this condition denotes This condition clearly denotes that even prior to the delivery of the said order the title in the goods is passed or transferred to the foreign airlines subject to some minor plus or minus variation in the quantity of food articles depending upon 11th hour flight occupancy. Such condition is nothing but incorporation of rule contained in Section 23 of the Sale of Goods Act. Such condition can only be justified on the touch stone of Section 23. Once the goods are ready for supply, the goods are ascertained and appropriated to the contract. Alternatively, assuming that the sale can be said to have taken place with the completion of customs and quarantine formalities but before delivery of delivery order or goods in question. Such a sale being in the State of Maharashtra the same shall have to be treated within the net of the BST Act.
110. Having said so, let us turn to another condition, namely, condition No. 5, which reads as under :
'5. Notwithstanding the goods referred to herein being damaged and/or destroyed the consignee shall be liable to make payment for the same to the consignor and shall be entitled to receive any insurance claim receivable for such goods.'
This condition also clearly reiterates that the title of the goods stands transferred to the foreign airlines when their orders are accepted by the flight kitchen and goods are prepared and/or procured by them.
111. The cumulative reading of the above condition Nos. 4 and 5 would clearly spell out that these are the terms and conditions of the contract between the parties. That the seller is not liable for future loss due to deterioration in quality of the goods and that the goods are being dispatched at the risk of the petitioners may be through supply unit. Reading of condition 5 further compels us to logically infer that the consignee, namely, the foreign airlines under terms and conditions of the contract between the parties (which are not on record) appears to have taken insurance holding themselves as title holders of the goods so as to entitle them to receive an insurance claim for such a goods in the event of loss or damages to the goods. In other words, the foreign airlines/consignee has also paid premium for policy of insurance. Thus the consignee has treated the goods as its own property so that in the event of loss in transit they can validly set up their claim with the insurance company to get themselves compensated. In the circumstances, it is clear that the title in goods passes in favour of the foreign airlines in the State of Maharashtra.
112. Turning to the other aspect of the matter, relying on the submission of Mr. Sibal that the delivery order is a document of title, let us examine one more factor leading to time fact vis-a-vis operation of the conditions Nos. 4 and 5 extracted hereinabove. These terms and conditions are to be found in the delivery order. The delivery order is to be handed over to the consignee with the delivery of goods. Once the goods are delivered with delivery order, then sale of goods with delivery of goods is complete, in that event, the question of deterioration of quality of goods can hardly arise. No such question can arise once the delivery is accepted by the airlines and the sale is complete. This question would arise only in the event of non-delivery of goods or sale not being complete. In that event there cannot be delivery of delivery order. In absence of delivery order there cannot be a concluded contract enabling the consignor to claim damages even if goods are deteriorated in quality due to delay in taking delivery unless there is some other hidden contract between the parties.
113. We may at this stage observe as stated hereinabove that in the instant case, the deed of contract between the parties is not on record. The original terms and conditions of contract are also not on record. The facts clearly reveal that prior to the impugned transactions of sale the petitioners were treating the transaction of sales between them and the foreign airlines as the local transactions falling within the sweep of the BST Act and they were paying sales tax on sales effect in favour of foreign airlines. It is not possible for us to conceive that there may not be a written contract between the parties specifying the terms and conditions of the contract. It appears that subsequently, tailor-made terms and conditions of the contract were prepared and got printed on the back of the delivery order so as to bring the transactions of sale within the purview of Section 5(1) of the CST Act. As a matter of fact, condition Nos. 4 and 5 do suggest existence of written contract between the parties other than the contract sought to be projected in the shape or form of delivery order. The terms of contract could not have been proved by filing affidavit of Mr. Sanjay Narang. Since the petitioners have invoked jurisdiction under Section 52 of the BST Act, it was obligatory on their part to produce terms of contract on record if they wanted fair adjudication of the issue in their favour. Since both the authorities below relied upon the affidavit of Mr. Narang, we have also relied upon the same but with some reservation. The petitioners could not be heard of saying that burden of proof was on the authority collecting tax to show how are they entitled to claim the same and not on the petitioners. The apex Court in Hiralal v. Badkulal : [1953]4SCR758 held :
'Suit for recovery of amount due on basis of adjustment of accounts signed by defendant. Defendant denying correctness of amount found due. Defendant who is in possession of account books kept by him and from which the balance could be ascertained should produce them before court. He cannot be heard to say, relying upon the abstract doctrine of onus of proof, that it was no part of his duty to produce them unless he was called upon to do so.'
114. We, therefore, are of the view that the real contract between the petitioners and airlines is not on record. Had it been on record, it would have gone against the petitioners. In our view the material is on record is sufficient to justify the findings recorded by the Tribunal. Assuming that we are not right in our view, even then with the delivery of delivery order the sale being at tarmac before the goods having crossed the customs frontiers of India, the sale in question would be a local sale.
115. One more potent contention advanced by Mr. Bharucha needs little reference which suggests that the ship stores include foodstuff, alcoholic and other beverages since the goods are taken on board an aircraft to meet the requirements of the foreign going passengers. He further submits that the Customs Act being substantive law governing the customs, the provisions thereof can be looked into to find out as to how the goods in question were treated by the customs authorities.
116. He submits that under Section 69 of the Customs Act the goods can only be exported under the shipping bill or a bill of export. No such document is brought on record by the petitioners though they are presumed to be in possession thereof. Mr. Bharucha further submits that it is also difficult to believe that there would be no documents in possession of the petitioners to show as to what procedure was adopted and how the goods were treated by the customs when the goods were allowed to be taken on board an aircraft. Mr. Bharucha submits that in absence of any other evidence one can look into the provisions of the Customs Act and reasonably infer that the goods must have been treated as ship stores under Section 89 of the Customs Act. The customs officer must have determined the quantities having regard to the number of passengers and crew and length of the journey of the aircraft at the time of its departure while permitting airlines to take the goods on board. He also relied upon the Circular No. 37/96-Cus dated July 3, 1996 and judgment of the CEGAT in the case of Commissioner of Customs v. Saibaba Ship Breaking Corporation in support of his submission. It is true that the petitioners have not produced any documents in this behalf. In the circumstances of the case, Mr. Bharucha tried to contend that if the goods are treated as ship stores then, in that event, possibility of export of the goods to any other country has to be excluded. In his submission, the case of Burmah-Shell : [1961]1SCR902 will apply with full force if this contention is accepted. In our view, the submission advanced by Mr. Bharucha, no doubt is a potent contention but for want of documents and clear evidence with facts on record with respect to the procedure adopted by the customs no positive finding in this behalf can be recorded so as to reach to the finding that the goods supplied by the petitioners were ship stores.
117. In the result, in view of the aforesaid conclusions reached by us and in view of our finding that this transaction is not covered by the provision of Section 5(1) of the CST Act, in other words, in view of our finding that sale of goods by the petitioners to the foreign going airlines is a local sale within the meaning of the BST Act and not a sale covered under Section 5(1) of the CST Act, the petition fails and accordingly dismissed, however, with no order as to costs.
At this stage the learned counsel appearing for the petitioners sought continuation of the interim order which is already operating in favour of the petitioners right from the inception of the petition, so as to enable them to approach the apex Court. This request made by learned counsel for the petitioners is opposed by Mrs. Kajle, appearing for the revenue. However, considering the issues involved and the complexity thereof and taking into account the fact that the stay has been operating right from the inception of the petition, we see no difficulty in extending the period of interim relief for further period of twelve weeks from today. Accordingly, the interim relief is extended for twelve weeks from today.
C.C. expedited.