By TIOL News Service

MUMBAI, FEB 16, 2019: THE ISSUE IS - Whether when the title of goods imported is transferred only after the goods cross the customs frontiers, it is a case of local sale and not high sea sale. YES IS THE VERDICT.

Facts of the case

The assessee is a partnership firm, carrying on business as reseller and importer in HR/CR sheets, chashew and carnals. The assessee's place of business was visited by the Sales Tax Officer to examine the validity of high sea sales claimed as exempt from tax u/s 5(2). On verification of the relevant documents, it was found by the Officer that the assessee's claim of high sea sales for the year 1995-96 and 1996-97 was erroneous and thus the Officer directed the assessee to pay taxes on such sales. Accordingly, advance payments were made by the assessee. The Officer then communicated its findings to the concerned ward officer with a request to consider the advance payments in the assessment for the relevant periods.

However, during the assessment, the Ward Officer disallowed the claim of high sea sales an raised demands. The assessee appealed claiming that the bond sales were effected on high sea basis by transfer of documents of title happened before the goods have crossed the customs frontiers of India and hence were exempt from tax u/s 5(2). However, the first appellate authority confirmed the disallowance. On appeal, the tribunal allowed the bond sales as sales in the course of import exempt from tax u/s 5(2) and accordingly deleted the taxed levied. As the Revenue requesting the Tribunal to refer certain questions of law. The Tribunal partly allowed the reference application and referred the matter for opinion of the court on the question of interpretation of expressions, namely, "crossing the customs frontiers of India" and "crossing the customs barriers" in the context of two different taxing statutes, one being CST, 1956 and other Bombay Sales Tax Act, 1959.

On hearing the reference, the High Court held that,

++ the issue is whether the sales can be treated as sale in the course of import u/s 5(2) of the CST Act and hence exempt from the local tax. A combined reading of the definitions of the terms "customs airport", "customs area", "customs port" and "customs station" in the CST Act would indicate that these are the notified places where the goods on import, until they are cleared, have to be placed. Thus, once the imported goods are unloaded in the customs area, then, there has to be entry made, save and except such goods which are intended for transit and there is a provision for clearance of goods for home consumption. The question before us is the word "import" means bringing into India from a place outside India. The term "import manifest" is a term defined in section 2(24) together with "import report" required to be delivered under section 30. Section 2(25) deals with "imported goods" and we have seen that definition, which means any goods brought into India from a place outside India, but does not include goods which have been cleared for home consumption. The term "importer" is defined in section 2(26) to mean, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer. Thus, the term "imported goods" as defined would mean any goods brought into India from a place outside India. However, such goods cease to be imported goods once having cleared for home consumption. The "bill of entry" is defined in section 2(4) to mean a bill of entry referred to in section 46. The filing of bill of entry means the importer of any goods, on importation, presenting this bill to the proper officer for home consumption or warehousing. If they have to be cleared for home consumption, then, the procedure u/s 47 has to be followed and when they have to be warehoused after unloading, then, section 48 is the provision which has to be abided by the concerned persons;

++ section 5 is important and it says that a sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. In the facts of the present case, it is evident that the goods were in the customs bonded warehouse and the claim of high seas sale was disallowed. The transaction was treated as a local sale. According to the provisions of the Customs Act, the term "customs station" is defined to mean any customs port, customs airport or land customs station. Now, if the goods are stated to be crossing the customs frontiers of India, then, in terms of the Act that means crossing the limits of the area of customs station in which the imported goods or export goods are ordinarily kept before clearance by the customs authorities. That also is evident by the fact that when the goods arrive in India, they are dealt with by Chapter VI of the Act of 1962, which contains provisions relating to conveyances carrying imported or export goods. The clearance of imported goods and export goods is a matter dealt with by Chapter VII. Once the imported goods are unloaded in a customs area, they have to remain in the custody of the customs authorities until they are cleared for home consumption or are warehoused, then, presenting a bill of entry for home consumption or warehousing denotes that such goods which are imported have been cleared. The importation in that sense and as understood by the Customs Act, 1962 is complete. The goods themselves cease to be imported goods when they have been cleared for home consumption. The clearance of goods for home consumption is dealt with by section 47, but storage of imported goods in warehouse only because they are not cleared after unloading having been dealt with in section 48, does not mean that for the purposes of the CST Act, the goods have not crossed the customs frontiers of India. This is not a case where the deeming fiction in sub-section (2) of section 5 of the CST Act operates. Admittedly, this is not a case of a sale of goods occasioning the import, but what is claimed is that the sale is effected by transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. This later part is also belied by the fact that in this case, the bill of lading was issued on 15th September, 1995 and the bill of entry for the period 1995-96 for warehousing was filed on 13th November, 1995 and the agreement for sale has been executed thereafter. Once these are the admitted dates and events, then, this is not a case where the documents of title to the goods have been transferred before the goods have crossed the customs frontiers of India. This is, therefore, a local sale. Once on this factual position, the dealer claims the transaction to be effected by transfer of document of title to the goods before clearance from customs authorities, then, it is evident that the second limb of subsection (2) of section 5 of the CST Act is not attracted. Thus, where in the present case, the transfer of title document was after the goods crossing the customs frontiers of India, then, the question forwarded is answered in favor of the Revenue.

(See 2019-TIOL-355-HC-MUM-CT)