COLOMBO: In a landmark and closely watched ruling, Sri Lanka’s Supreme Court has decisively settled a long- standing dispute: the supply of bunker fuel to foreign- flagged vessels within Sri Lankan territorial waters is not an export.
Delivering the majority judgment, Justice A.H.M.D. Nawaz, with Justice Shiran Gooneratne concurring, held unequivocally that such transactions amount to “a sale of goods simpliciter” – not an export in law.
The case arose from appeals by eight bunker fuel companies, which challenged the position of the Inland Revenue Department – previously upheld by the Court of Appeal – that bunkering did not qualify as an export. The companies argued that because these transactions generated foreign currency earnings, they should be treated as exports and therefore qualify for zero-rated VAT and tax concessions.
The Supreme Court rejected that argument
THE ANALOGY THAT LANDS
To underline the point, the Court drew practical comparisons.
A foreign tourist purchasing an antique in a Sri Lankan store does not make the shop an exporter. Similarly, a traveller buying chocolates at duty-free does not transform the transaction into an export.
“By no stretch of imagination,” the reasoning implies, can such sales be classified as exports.
The same logic applies to bunker fuel.
GLOBAL CONSISTENCY
The majority judgment aligns with international jurisprudence. Courts in several jurisdictions have similarly held that bunkering constitutes a domestic sale, not an export, regardless of the currency in which payment is made.
THE TAX CONSEQUENCE
Bunkering companies cannot claim zero-rated VAT Their profits are fully taxable
Export-linked tax concessions do not apply
Analysts suggest this could bolster state revenue at a time of fiscal strain.
A NOTE OF DISSENT
Justice Thurairajah, in a dissenting judgment, took a contrary view, favouring the position advanced by the bunker fuel companies. However, the majority ruling now stands as the final legal position.
THE FINAL WORD
With this judgment, the Supreme Court has drawn a clear and definitive line.
Bunkering is not export. It is sale and it is taxable.
