State of Kerala v Adani Exports Ltd (now Adani Enterprises Ltd)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** ## **THE HONOURABLE MR. JUSTICE ASHOK MENON** **TUESDAY ,THE 23RD DAY OF OCTOBER 2018 / 1ST KARTHIKA, 1940** **OT.Rev.No. 44 of 2014** **AGAINST THE ORDER/JUDGMENT IN TAVAT 532/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 19-09-2013** ## **REVISION PETITIONER/S:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER(LAW), COMMERCIAL TAXES, ERNAKULAM.** **BY SRI MOHAMED RAFIQ, SR GP** ## **RESPONDENT/S:** **M/S.ADANI EXPORTS LTD** **NOW KNOWN AS ADANI ENTERPRISES LTD., ADANI HOUSE, K.P.V. CHAMBERS, KOMBARA, ERNAKULAM-682011.** **BY ADVS. SRI.JOSON MANAVALAN SRI.K.JOHN MATHAI SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.BENNY THOMAS SRI.P.GOPINATH** **OTHER PRESENT:** ## **SRI N MURALEEDHARAN NAIR (SR)** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 23.10.2018, ALONG WITH OT.Rev.50/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _OTRev Nos.44 & 50 of 2014_ 2 **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **TUESDAY ,THE 23RD DAY OF OCTOBER 2018 / 1ST KARTHIKA, 1940** **OT.Rev.No. 50 of 2014** **AGAINST THE ORDER/JUDGMENT IN TAVAT 533/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM DATED 19-09-2013** ## **REVISION PETITIONER/S:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM** **BY SRI MOHAMED RAFIQ, SR GP** ## **RESPONDENT/S:** **M/S.ADANI EXPORTS LTD.** **NOW KNOW AS ADANI ENTERPRISES LTD, ADANI HOUSE, K.P.V.CHAMBERS, KOMBARA, ERNAKULAM [AMENDED] [NAME AND ADDRESS OF THE RESPONDENT IS AMENDED AS 'ADANI HOUSE, NR.MITHAKHALI CIRCLE, NAVRANGPURA, AHMEDABAD, GUJARATH -380009, TEL:09825153397, E-MAIL:INFO@ADANIGROUP.COM' VIDE ORDER DATED 12.11.2014 IN IA 2658/2014.]** **BY ADV. SRI.N.MURALEEDHARAN NAIR (SR)** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 23.10.2018, ALONG WITH OT.Rev.44/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** _OTRev Nos.44 & 50 of 2014_ 3 ## **O R D E R** ## **[ OT.Rev 44/2014 ,OT.Rev.50/2014 ]** ## Ashok Menon, J. The Revisions by the State are directed against the common order dated 19.09.2013 in T.A.(VAT) Nos.532 & 533 of 2010 of the Kerala Value Added Tax Appellate Tribunal, Ernakulam, pertaining to the assessment years 2005-06 and 2006-07. The question of law arising for consideration in these Revisions is whether the Tribunal was justified in holding the assessee eligible for exemption under Section 5(2) of the Central Sales Tax Act, 1956 (for short “CST Act”). 2. The facts in brief are thus: The assessee, M/s Adani Exports Ltd., is engaged in the import of furnace oil. The assessee imported 4013.164 MTS of furnace oil through Cochin Port, a portion of which was sold as high sea sales and another sold to Unit in the Special Economic Zone supported by Form 43. The exemption claimed on these sales were allowed. The controversy arose _OTRev Nos.44 & 50 of 2014_ 4 with respect to the quantity for which Bill of Entry for warehousing was filed and stored in the bonded warehouse of customs. This was later sold to purchasers who filed Bill of Entry for home consumption and cleared the goods from the Customs Bonded Warehouse. The said sales according to the Assessing Officer would be local sales exigible to tax. The sales effected from the Customs Bonded Warehouses were claimed to be sales in the course of import and exemption from payment of sales was claimed by virtue of Section 5(2) of the CST Act. 3. The Assessing Officer rejected the claims vide Annexure A orders, and completed the assessment under Section 24(1) of the Kerala Value Added Tax Act, 2003 (for short “KVAT Act”) holding that majority of the sales were effected after completion of the import. 4. First appeals filed by the assessee failed. The common order dated 07.06.2010 of Deputy Commissioner (Appeals), Commercial Taxes, Ernakulam is at Annexure B. 5. Second appeals were preferred by the assessee before the Tribunal and the Tribunal holding that the sale _OTRev Nos.44 & 50 of 2014_ 5 of the entire stock was effected prior to the goods crossing the “customs frontiers of India”, allowed the appeals. The Tribunal relied upon decisions of the Hon'ble Supreme Court and various High Courts; such as _**Garden Silk Mills Ltd. v. Union of India, (1999) 113 ELT 358 (SC); Kiran Spinning Mills v. Collector of Customs, (1999) 113 ELT 753 (SC); Hyderabad Industries Ltd. (1999) 108 ELT 321 (SC); State Trading Corporation of India Ltd. v. State of Tamil Nadu, (2003) 129 STC 294 (Mad); Newsprint Trading Corporation v. State of Assam (Gauhati), (2003) 129 STC 134; Tarajot Polymers Ltd. v. Deputy Commercial Tax Officer, Chennai, (2005) 140 STC 239; State of Tamil Nadu v. Rajan Universal Export (Mfrs) Pvt.Ltd., (2010) 28 VST 279 (Mad); Big Bags International (P) Ltd. v. Registrar, Tamil Nadu Taxation Special Tribunal, (2008) 13 VST 272 (Mad); BPL Telecom Ltd. v. State of Kerala (17 KTR 521);**_ and _**Indure Ltd. v. Commercial Tax Officer, 18 KTR 547,**_ to conclude that the assessee is entitled to the benefit of exemption under Section 5(2) of the CST Act. _OTRev Nos.44 & 50 of 2014_ 6 6. The Revenue is aggrieved by the exemption granted by the Tribunal and has therefore questioned the impugned order mainly raising the following grounds: The instrument of transfer (agreement) was not properly stamped and the document cannot be taken as a document of title, since the document was not properly stamped, as required under the Kerala Stamp Act. Secondly, only a few units were sold to the concerns in the Special Economic Zone (SEZ) as against Form No.43, for which exemption has been granted. Majority of the sale was after it was brought out of the customs frontiers and the Tribunal has misinterpreted the customs frontiers as contemplated under Section 2(ab) of the CST Act and 'customs port' and 'customs station' as defined under Section 2(12) & 2(13) respectively of the Customs Act. 7. We heard the learned Senior Government Pleader and the learned Counsel appearing for the assessee. 8. It has to be borne in mind that the document by virtue of which the goods were taken delivery of by the purchasers are not the agreements of sale, but the bill of _OTRev Nos.44 & 50 of 2014_ 7 entry for home consumption which was facilitated by the agreements. The finding of the Assessing Officer is that an insufficiently stamped instrument of conveyance, even pertaining to movable goods, is inadmissible in evidence, by virtue of Section 34 of the Kerala Stamp Act, 1959. What is used in the agreement is a stamp paper issued from Gujarat, which according to the Assessing Officer is in violation of Rule 4(1)(c) of the Kerala Stamp Rules, 1960. 9. What has to be emphasised is that the ground on which the sale in the course of import was doubted is that agreement for sale relied on is not properly stamped. It cannot be said that the delivery of goods was on the basis of the agreements or that the agreement was one for sale. The goods are movable property for which deed of conveyance is not essential. The agreement was only to facilitate the clearance of goods from the bonded warehouse of the Customs. The argument of the learned Senior Government Pleader for the Revenue that a document insufficiently stamped cannot be admitted in evidence, is also not acceptable to us. Because, even if it is found to be _OTRev Nos.44 & 50 of 2014_ 8 insufficiently stamped, it could be relied upon subject to impounding provisions. Then again, for collateral purposes the same would be looked into. The authorities, who have dealt with the goods, the customs authority, did not impound the document or direct the assessee to pay the stamp duty and penalty, which was essential in case the document has to be rejected as inadmissible. Even in case the documents are rejected, it could be so done only after affording an opportunity to argue against the impounding. Hence, we cannot agree with the learned Senior Government Pleader on the point that the agreements pertain to the sale of the imported furnace oil. 10. _**Garden Silk Mills Ltd.**_ (supra) was concerned with whether landing charges, which are imposed at or after the time of the discharge of the goods and prior to the clearance being granted under Section 47 of the Act, have to be included in determining the value thereof for the purpose of assessing the customs duty which would be chargeable. Finding it to be so includable it was held that Section 45 to 47 of the Customs Act, _“clearly show that_ _OTRev Nos.44 & 50 of 2014_ 9 _after the imported goods are discharged from the vessel at the wharf the importer cannot immediately take delivery thereof. The imported goods remain in the custody of the Port Trust Authorities till they are, inter alia, cleared for home consumption.” (sic-para 14)_ On when import gets completed it was held: _“18. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.”_ ## 11. In _**Kiran Spinning Mills Ltd.**_ (supra) the question was whether the Additional Excise Duty imposed on goods which were brought into the country before the levy came into force was applicable when the goods were cleared from the bonded warehouse of the Customs after the imposition. It was held so: _“6. Attractive, as the argument is, we are afraid that we do not find any merit in the same. It has now been held by this Court in Hyderabad Industries Ltd. v. Union of India, (1999) 5 SCC 15 that for the purpose of levy of additional duty Section 3 of the Tariff Act is a charging section._ _OTRev Nos.44 & 50 of 2014_ 10 _Section 3 sub-section (6) makes the provisions of the Customs Act applicable. This would bring into play the provisions of Section 15 of the Customs Act which, inter alia, provides that the rate of duty which will be payable would be (sic the rate in force) on the day when the goods are removed from the bonded warehouse. That apart, this Court has held in Sea Customs Act 1963 (3) SCR 787 at page 803 that in the case of duty of customs the taxable event is the import of goods within the customs barriers. 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. Admittedly this was done after 4-10-1978. As on that day when the goods were so removed additional duty of excise under the said Ordinance was payable on goods manufactured after 4-10-1978. We are unable to accept the contention of Mr Ramachandran that what has to be seen is whether additional duty of excise was payable at the time when the goods landed in India or, as he strenuously contended, they had crossed into the territorial waters. Import being complete when the goods entered the territorial waters is the contention which has already been rejected by this Court in Union of India v. Apar (P) Ltd., (1999) 6 SC 117 decided on 22-7-1999. The import would be completed only when the goods are to cross the customs barriers and that is the time when the import duty has to be paid and that is what has been termed by this Court in Sea Customs case - as being the taxable event. The taxable event, therefore, being the day of crossing of customs barrier, and not on the date when the goods had landed in India or had entered the territorial waters, we find that on the date of the taxable_ _OTRev Nos.44 & 50 of 2014_ 11 _event the additional duty of excise was leviable under the said Ordinance and, therefore, additional duty under Section 3 of the Tariff Act was rightly demanded from the appellants.” (underlining by us for emphasis)_ 12. The decisions relied on by the Tribunal, as noticed by us, would define what customs frontier is and when the import is completed. The import of goods into India would commence when the same enters the territorial waters, but continues and is completed only when the goods becomes part of the mass of goods within the Country, after crossing the customs barriers. There is no dispute that the goods held in the bonded warehouses, would be considered as having crossed the customs frontiers, only when they are taken out through such frontiers and the goods brought into the mass of goods within the Country. 13. The decisions referred to above clearly declare as to when the import is completed. There is no requirement that, to avail the benefit of Section 5(2) of the Central Sales Tax Act, the sale in the course of import should be a high sea sales, if it is not a sale that occasions such import. The Assessing Officer, labours under a _OTRev Nos.44 & 50 of 2014_ 12 misapprehension that, to avail the benefit under Section 5(2) the purchase by the end user should either occasion the import or it should be by transfer of documents when the goods are in the high seas, precisely before it enters the territorial waters. This understanding is contrary to the words employed in Section 5(2). The second limb of subsection (2) specifically speaks of crossing the customs frontiers. Only then the import is concluded and if there is a transfer of documents before crossing the customs frontiers then, the purchase is in the course of import and there can be no sale postulated in the State Of Kerala. 14. There is no doubt that in the instant case the furnace oil was imported in both the relevant years, sold to exempted units and the remaining sold to purchasers who filed Bills Of Entry for home consumption and cleared the goods through the customs frontiers. The Bill of Entry for home consumption was entertained by the Customs Authorities on the basis of the agreements and the invoices raised by the importer. The documents having evidenced the sale before the import was completed and the transfer of title _OTRev Nos.44 & 50 of 2014_ 13 to the goods; there cannot be any tax levied on the transaction as one carried out in the State. 15. The Assessing Officer had granted exemption only to the sale effected by the assessee to the units in SEZ against Form 43 and the rest of the sale was not granted exemption under Section 5(2) of the Act, which according to us was not appropriate. On the above reasoning, it has to be held that there is absolutely no merit in the revision filed by the State. The questions of law are answered in favour of the assessee and against the revenue. Both the Revisions are rejected without any order as to costs. ## **Sd/-** ## **K.VINOD CHANDRAN** ## **JUDGE** ## **Sd/-** **ASHOK MENON JUDGE** _dkr_