FLEMINGO DFS PRIVATE LTD Vs. STATE OF KERALA

JUDGEMENT

(1.) WHETHER the sale of goods effected in duty-free shops (for short, "dfs") in the international airports is exempt from payment of sales tax under the Kerala General Sales Tax Act, 1963 (for short, "the Act") by virtue of article 286 (1) (b) of the Constitution of India and the provisions of sections 2 (ab) and 5 (1) and (2) of the Central Sales Tax Act, 1956 (for short, "the CST Act") is the main question involved in this writ petition. The petitioner is a company incorporated under the Companies Act, 1956 with its registered office at Surya Samudra, Beach Garden, Pulinkudi, Mullar P. O. , Thiruvananthapuram. The object of the company, it is stated, is to set up Duty-free Shops (DFS) at various international air ports in India and to import, export buy and sell, various goods which could be sold at the DFS. It carries on business of selling goods at the DFS allotted to it and located at the departure and arrival halls at Thiruvananthapuram International Airport. The goods sold in the DFS, it is stated, are the goods imported from foreign countries. It is the case of the petitioner that such sales at the arrival DFS falls under section 5 (2) of the CST Act, 1956, as the sales were in the course of import being effected by transfer of documents of title to the goods before the goods crossed the customs frontiers of India and the sale at the departure DFS are in the course of exports and therefore the taxation authorities in the State of Kerala have no authority to impose levy, demand or collect tax in the said transaction. The petitioner has also got a case that respondents 2 and 3 who are also allottees of duty-free shops at Thiruvananthapuram have been granted exemption from payment of sales tax by the State of Kerala on the turnover of sale of goods effected by them at the DFS (extension counter) at the arrival halls in all international airports in the State. According to the petitioner it is also entitled to the same exemption by virtue of the provisions of section 10 of the Act.

(2.) THE airport authority of India has granted licence and permitted the petitioner to operate DFS at the arrival and departure launches in the terminal buildings at the Thiruvananthapuram International Airport for a period of 5 years as per proceedings dated July 2, 2003 (exhibit P1 ). THE petitioner had commenced sale from August 17, 2003. Respondents 2 and 3 are also allottees of DFS at Thiruvananthapuram International Airport. THEy also trade in the same items of goods as are traded by the petitioner. THE petitioner had raised two main issues in this writ petition : (1) THE sale of goods effected from the arrival and departure halls of DFS are not exigible to tax and the authorities in the State have no power or jurisdiction to tax such sale and (2) in the alternative the exemption to respondents 2 and 3 alone and/or restricting the exemption granted to respondents 2 and 3 is bad in law since the same is arbitrary, irrational and violative of articles 14 and 19 (1) (g) of the Constitution of India.

(3.) SRI P. Chidambaram, learned Senior Counsel appearing along with Mr. A. Kumar for the petitioner raised the two issues which have already been mentioned in para 3 above. With respect to the first issue the Senior Counsel submitted that admittedly the petitioner is carrying on business of selling goods at the DFS allotted to it and located at the departure and arrival halls of the Thiruvananthapuram International Airport. The Senior Counsel submitted that the DFS both at the arrival and departure halls are located within the customs frontiers of India as defined in section 2 (ab) of the CST Act, 1956 and therefore the sale transactions effected in the DFS are outside the purview of the State authorities under the Act. The Senior Counsel submitted that the sales effected in the DFS are in the course of import and/or export falling under article 286 of the Constitution of India and as provided in sections 2 (ab), 5 (1) and 5 (2) of the CST Act, 1956. The Senior Counsel also took me to the various documents such as the certificate issued by the Airports Authority of India (exhibit P1), Circular No. 18/2003 dated August 14, 2003 (exhibit P2), true copy of the licence for private bonded warehouse issued to the petitioner by the Deputy Commissioner of Customs (exhibit P3), permission to transship cargo issued by the Assistant Commissioner of Customs dated July 15, 2003 (exhibit P3a), true copy of the general bond executed by the petitioner under section 59 (1) of the Customs Act, 1962 (exhibit P3b), true copy of General Bond executed by the petitioner under section 59 (2) of the Customs Act, 1962 (exhibit P3c) as also the affidavits dated January 14, 2003 filed by the petitioner. The Senior Counsel further submitted that the order (exhibit P5) issued by the first respondent rejecting the petitioner's request for exemption under section 10 of the Act is arbitrary, irrational and is violative of articles 14 and 19 (1) (g) of the Constitution of India. The Senior Counsel took me to the Government Order dated February 10, 2001 (exhibit P6) granting exemption to respondents 2 and 3 and submitted that the only condition imposed for the grant is that the consideration for such sale is paid in foreign exchange. The Senior Counsel submitted that if earning of foreign exchange is the object, the petitioner also is receiving the consideration for sale of the items in foreign exchange only. The Senior Counsel further submitted that if the exemption is limited to respondents 2 and 3 alone who are also having DFS in the same premises the passengers would naturally purchase goods only from the DFS which has got exemption from payment of sales tax. The Senior Counsel also submitted that exemption granted to the second and third respondents alone as per G. O. (P) No. 16/2001/pd dated February 10, 2001, etc. , is also arbitrary, discriminatory and is liable to be quashed. The Senior Counsel had relied on the decisions of the Supreme Court in J. V. Gokal & Co. v. Assistant Collector of Sales Tax (Inspection) [1960] 11 STC 186; AIR 1960 SC 595, Minerals and Metals Trading Corporation of India Ltd. v. Sales Tax Officer [1998] 111 STC 434, Garden Silk Mills Ltd. v. Union of India AIR 2000 SC 33. In re, Sea Customs Act, 1878, Section 20 (2) AIR 1963 SC 1760 as also in Kiran Spinning Mills v. Collector of Customs, AIR 2000 SC 3448. Respondents 2 and 3 are Corporations in which the State or the Central Government has got interest, in that, the State Government holds 26 per cent of the shares in the second respondent and the Minister is a member of the governing body and the third respondent is a Central Government undertaking. Since the petitioner has challenged the exemption order (exhibit P6) granted in favour of respondents 2 and 3 they have also filed statement/counter-affidavits in the case. The second respondent in the statement filed has stated that the primary objective of ITDC, a Central public sector undertaking is to promote tourism industry and cater to the needs of the national and international tourists and passengers and that the ITDC is also earning foreign exchange apart from discharging statutory duties. It is further stated that the profit earned by the ITDC is again re-invested for the expansion of tourist infrastructure within the country which aspect makes the ITDC stand on an altogether different footing than other private duty-free traders who operate with pure profit-motive. It is also stated that the classification made under section 10 of the KGST Act between the petitioner and the second and third respondents is on the basis of intelligible differentia and the classification has a rational nexus with the object sought to be achieved; the object behind the classification is to promote/encourage a public sector undertaking engaged in promoting the tourism of India and achieving foreign exchange, apart from discharging statutory duties; the profit making by the ITDC is going to the public exchequers of the Government of India which ultimately is to the benefit of the general public and also the national growth of this country. The third respondent in its counter-affidavit has stated as follows : " This respondent is an institution, in which State Government's interest is very much present by holding 26 per cent of the shares and the Minister's presence in the governing body. Taking into account the nature of the institution, Cochin International Airport Limited, it is a unique and pioneer venture in the country. To have an airport with the assistance of the public, Government wanted to see that this institution gets all concessions. The duty-free shop opened at Cochin International Airport was exempted, taking into account these factual position and the public interest involved. Whereas the petitioner is concerned, it is only a private entrepreneur and therefore, there is absolutely no comparison with this respondent to invoke the question of a discrimination, attracting article 14 of the Constitution. "