Taxation of Bonded Warehouse Sales: Nirmal Kumar Parsan vs. Commissioner of Commercial Taxes

The case of Nirmal Kumar Parsan vs. Commissioner of Commercial Taxes revolves around the taxation of goods stored in bonded warehouses and subsequently sold as ship stores to foreign-going vessels. The primary question before the Supreme Court was whether such sales could be considered as sales in the course of import and thus be exempt from sales tax under the West Bengal Sales Tax Act.

Background of the Case

The appellants, including Nirmal Kumar Parsan and Parsan Brothers, were engaged in importing foreign-made cigarettes and storing them in a customs-bonded warehouse in West Bengal. These goods were later sold to foreign-going ships without payment of customs duty. The appellants argued that these sales were conducted in the course of import and should not be subjected to state sales tax.

The assessment orders passed by commercial tax authorities rejected the claim for exemption, leading the appellants to challenge the decision before the West Bengal Taxation Tribunal, which also ruled against them. The Calcutta High Court upheld the Tribunal’s decision, prompting the appellants to approach the Supreme Court.

Arguments of the Appellants

The appellants contended that:

• The import process was not complete when the sales took place, as the goods remained within the bonded warehouse.
• The sales occurred in the course of import and should be deemed non-taxable under Article 286 of the Constitution and Section 5 of the Central Sales Tax (CST) Act.
• The sale transactions should be treated as high-seas sales similar to those occurring in duty-free shops, which are exempt from state taxation.
• The bonded warehouses should be considered part of the customs frontier, meaning that the goods had not technically entered the local market.

Arguments of the Respondents

The Commissioner of Commercial Taxes and other respondents countered that:

• The goods were physically present in West Bengal and were stored in bonded warehouses, not in high-seas transit.
• The sales were conducted within the state and hence fell within the purview of state taxation.
• The bonded warehouse was not part of a customs station, and therefore, goods stored there were considered to have crossed the customs frontiers of India.
• The exemption under Section 5(2) of the CST Act did not apply as the sales did not occasion import.

Key Observations of the Supreme Court

The Supreme Court analyzed the legal framework and factual circumstances, concluding that:

• The definition of “crossing the customs frontiers of India” under Section 2(ab) of the CST Act means moving out of a customs station, which does not include bonded warehouses.
• Sales from bonded warehouses take place after import is complete and thus do not qualify for exemption under the “sale in the course of import” principle.
• The sale transactions were completed in West Bengal, making them subject to state sales tax.
• The appellants failed to demonstrate that the sales directly occasioned the import of goods.

Verbatim Court Findings

The Supreme Court stated:

“A sale in the course of import predicates a connection between the sale and import. Where the sale is effected by the seller and the seller is not connected with the import which actually takes place, it is a sale for import. Where the import is the result of sale, the export being inextricably linked up with sale so that the bond cannot be dissociated without a breach of the obligations arising by statute, contract, or mutual understanding between the parties arising from the nature of the transaction, the sale is in the course of import.”

Additionally, the Court emphasized:

“The taxable event occurs when the customs barrier is crossed. The import would be completed only when the goods are sought to be taken out of the customs and brought to the mass of goods in the country. The customs barrier does not set a terminal limit to the territory of West Bengal for sales tax purposes. Sale beyond the customs barrier was still a sale in fact in the State of West Bengal.”

Final Judgment

The Supreme Court dismissed the appeals, holding that the sale of goods from bonded warehouses was subject to state sales tax as it did not qualify as a sale in the course of import. The judgment reinforced the principle that bonded warehouse transactions are taxable under state laws unless they meet the stringent criteria for exemption under the CST Act.

Final Verdict: Appeals dismissed.

Petitioner Name: Nirmal Kumar Parsan.
Respondent Name: Commissioner of Commercial Taxes & Ors..
Judgment By: Justice A.M. Khanwilkar, Justice Dinesh Maheshwari.
Place Of Incident: West Bengal.
Judgment Date: 21-01-2020.

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