Sales Directly Linked To Export Cannot Be Taxed Under Central Sales Tax: Andhra Pradesh High Reaffirms

The Andhra Pradesh High Court has recently reiterated that where export is the direct result of a sale and the two form an integrated transaction that cannot be dissociated, such a sale is protected under Article 286 of the Constitution and cannot be subjected to State taxation.

Explaining the law, the Division Bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar held that a sale is “in the course of export” under Section 5(1) of the Central Sales Tax Act, 1956, when the sale itself occasions the export and the export is inextricably linked to the sale transaction.

The Court was hearing a writ petition filed by Fysolate Technologies, a manufacturer and seller of herbal extracts and plant products, which also exports products manufactured at its unit in Duvvada, Visakhapatnam SEZ.

For the assessment year 2013–14, the petitioner's claim for exemption on a turnover of Rs.120,58,52,518 was accepted in the original assessment order dated July 6, 2015. However, revision proceedings initiated by the Additional Commissioner of Commercial Taxes culminated in an order dated June 28, 2019, seeking to tax a turnover of Rs.123,49,01,931 on the ground that the transactions were not sales “in the course of export” within the meaning of Section 5(1) of the CST Act.

The Bench noted that the revisional authority had accepted that the goods had moved out of India and that the petitioner had received the sale consideration in foreign currency.

The Court observed:

“the 2nd respondent holds that the goods moved out of India, as a result of the sales to the foreign buyers and that the petitioner received the sale consideration, in foreign currency. It is not clear as to whether the 2nd respondent has deliberately misunderstood these provisions or he genuinely did not understand the meaning of the term 'in the course of export' in Section 5(1) of the CST Act.”

Expressing disapproval of the revisional order, the bench further remarked:

“It is unfortunate that an officer who has been in the department and was holding the post of an Additional Commissioner of Commercial Taxes could come up with an order of this nature.”

Holding the revision order dated June 28, 2019, to be unsustainable in law, the High Court set it aside, allowed the writ petition, and imposed costs of Rs. 10 thousand payable to the petitioner.

For Appellant: Advocates M.V.K. Murthy and M.V.J.K. Kumar