State of Karnataka vs Flemingo Duty-Free Shop Private Limited

N. Kumar, J.—This petition is preferred against the order passed by the Karnataka Appellate Tribunal, Bangalore in S.T.A. No. 407 of 2010 on 18th February, 2011 (Flemingo Duty-free Shop Private Limited, Navi Mumbai, Maharashtra v. State of Karnataka 2011(70) Kar. L.J. 645 (Tri.) (DB)) holding that the tax levied by the Assessing Authority and affirmed by the First Appellate Authority on the sales turnover of various items, which are purchased from outside the country is not in order, as such sales are in the course of import and are covered by Section 5(2) of the Central Sales Tax Act, 1956. The subject-matter of the appeal was an assessment order for the assessment year 2004-2005. The respondent was allotted duty-free shops at the arrival and departure terminals of the Bangalore International Airport (Old), Bangalore. The licence was granted to the respondent as private bonded warehouses for storage without payment of duty of the goods imported from foreign countries such as liquor, cigarettes, tobacco, perfumes, cosmetic, cameras, watches, transistors etc., and for sale at the duty-free shops. The duty-free shops operated by the respondent were in bond and the sales effected at the duty-free shops amounted to sales in the course of import falling u/s 5(2) of the CST Act, 1956 entitled to immunity from levy of tax under the State Sales Tax Act under Article 286(1) of the Constitution of India. Therefore, there was no necessity for the respondent to obtain registration under the then existing Karnataka Sales Tax Act, 1957 or under the present Karnataka Value Added Tax Act, 2003 introduced with effect from 1-4-2005 and to file any monthly statements/returns with payment of tax. The Assessing Authority passed the Assessment Order u/s 12(3) of the KST Act, 1957 for the year 2004-2005 (October 2004 to March 2005) for levy of tax aggregating to Rs. 29,91,002/- and penalty u/s 12(4) at Rs. 29,91,002/-. Hence, an appeal was preferred, which came to be dismissed. It is against the said order, the assessee preferred an appeal to the Tribunal, which held that it was not taxable. Aggrieved by the said order, the State has preferred this revision petition.

The Apex Court in the case of Hotel Ashoka (Indian Tour. Dev. Cor. Ltd.) Vs. Assistant Commissioner of Commercial Taxes and Another, , dealing with the question "whether sale of imported goods deposited in bonded warehouse, through duty-free shop situated in customs area of international airport is taxable under the Sales Tax Law of State?" has held as under:

When the goods are lying in the bonded warehouses, they are deemed to have been kept outside the customs frontiers of the country and the appellant was selling the goods from the duty-free shops owned by it at Bengaluru International Airport before the said goods had crossed the customs frontiers..... Thus, before the goods were imported in the country, they had been sold at the duty-free shops of the appellant...... In view of the aforestated factual position and in the light of the legal position stated hereinabove, it is very clear that no tax on the sale or purchase of goods can be imposed by any State when the transaction of sale or purchase takes place in the course of import of goods into or export of the goods out of the territory of India. Thus, if any transaction of sale or purchase takes place when the goods are being imported in India or they are being exported from India, no State can impose any tax thereon......... Upon perusal of the aforestated provision of Section 5 of the Central Act, it is clear 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 sale or purchase takes place before the goods have crossed the customs frontiers of India........ It cannot be disputed that the goods sold at the duty-free shops, owned by the appellant, would be said to have been sold before the goods crossed the customs frontiers of India, as it is not in dispute that the duty-free shops of the appellant situated at the International Airport of Bengaluru are beyond the customs frontiers of India i.e., they are not within the customs frontiers of India.......... If this is the factual and legal position, looking to the provisions of Article 286 of the Constitution, the State of Karnataka has no right to tax any such transaction which takes place at the duty-free shops owned by the appellant which are not within the customs frontiers of India.

In view of the aforesaid authoritative pronouncement of the Apex Court holding such sales which are in the course of import or export are not liable to pay tax under the Karnataka Sales Tax Act. The order passed by the Karnataka Appellate Tribunal cannot be found fault with. Accordingly, there is no merit in this petitions. Petition stands dismissed.

In view of the fact that there was no liability to tax, the tax collected by the State shall be refunded to the respondent within 45 days from today failing which, the said amount will carry interest at 18% p.a. from the date of payment of tax till the date of refund.