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2004 DIGILAW 424 (KER)

C. A. CHACKO v. STATE OF KERALA

2004-09-07

G.SIVARAJAN

body2004
JUDGMENT G. SIVARAJAN, J. – Petitioner is the proprietor of a small-scale industrial unit by name M/s. Orjay Enterprises, Hospital Road, Kollam. It carries on business in manufacture of ready-made garments and its sale. The assessments of the petitioner for the years 1995-96 and 1996-97 were originally completed under the Kerala General Sales Tax Act, 1963 (for short, "the Act") as per orders (exhibits P1 and P2). Exemption was granted in respect of ready made garments manufactured by the petitioner's unit for the said two years. However, the said assessments were reopened under section 19 of the Act by issuing notices dated October 30, 2000 (exhibits P3 and P4). Petitioner filed objections (exhibit P5). The assessing authority passed reassessment orders dated November 16, 2000 and November 6, 2000 (exhibits P6 and P7 respectively) in which the exemption already granted to the petitioner's unit was taken away. Petitioner had challenged exhibits P6 and P7 orders in this writ petition. Shri C. K. Thanu Pillai, learned counsel appearing for the petitioner, submits that the petitioner's unit is entitled to get exemption from payment of sales tax on its turnover by virtue of Notification S.R.O. No. 1727/1993 under Schedule V, item No. 4 and that the assessing authority has erroneously rejected the said claim. Counsel took me to the notification, particularly Schedule V, item No. 4 and submits that the petitioner's unit is entitled to get exemption from payment of sales tax under the Act up to a turnover of Rs. 10 lakhs and in cases where the turnover exceeding Rs. 10 lakhs, exemption to the extent of Rs. 10 lakhs and tax has to be paid on the balance amount. Counsel submits that this is the position with reference to the notification in respect of all the years in which the turnover exceeds Rs. 10 lakhs. Counsel relies on the decision in A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SC), in support. Learned Government Pleader, appearing for the respondents, on the other hand, submits that under the Notification S.R.O. No. 1727/1993, Schedule V, item No. 4, exemption is available only if the manufacturer's total turnover does not exceed Rs. 10 lakhs in a year and that the exemption to the tune of Rs. 10 lakhs available only in the first year of crossing the said limit. 10 lakhs in a year and that the exemption to the tune of Rs. 10 lakhs available only in the first year of crossing the said limit. The Government Pleader submits that condition (ii) in item No. 4 of Schedule V has stated so. Special Government Pleader accordingly submitted that the assessing authority was perfectly justified in passing the revised order under section 19 of the Act denying the benefit of exemption already granted. In order to appreciate the contentions, it is necessary to refer to Notification S.R.O. No. 1727/1993 issued under section 10 of the Act. This notification is issued in supersession of the earlier notification mentioned in Schedule I thereto and the Government having considered it in public interest made an exemption in respect of the tax payable under the Act, inter alia, by manufacturers on their turnover of sale of goods mentioned in column No. 2 of Schedule V subject to the conditions specified in column 3 against each. Schedule V deals with the goods the turnover of sale of which is exempt under sub-clause (4) of clause 1. Item No. 4 with the conditions read as follows : ----------------------------------------------------------------------------- Sl. Name of goods manu- Conditions No. factured and sold ----------------------------------------------------------------------------- 4. Ready-made (i) Manufacturer's total turnover does not garments, brassieres exceed rupees ten lakhs in a year, and hosiery goods provided, if during the course of the year the turnover crosses Rs. 10 lakhs limit, tax will be levied only on the part of the turnover which exceeds that limit. [Explanation. - While reckoning the above limit, the turnover of goods manufactured by different units under the same brand name shall be cumulated (Added by S.R.O. No. 427/95)] (ii) Basic exemption will be available only during the year in which the turnover crosses this limit. (iii) For a period of four years from 1-4-1991 to 31-3-1995, subject to the condition that the tax already collected will be paid over to Government and tax remitted to Government will not be refunded." ----------------------------------------------------------------------------- Under item No. 4 ready made garments, brassieres and hosiery goods manufactured in the State are entitled to exemption subject to fulfilment of the conditions specified in column No. 3. The first condition is that the manufacturer's total turnover does not exceed Rs. 10 lakhs in a year. It also provides that if during the course of the year the turnover crosses the Rs. The first condition is that the manufacturer's total turnover does not exceed Rs. 10 lakhs in a year. It also provides that if during the course of the year the turnover crosses the Rs. 10 lakhs limit, tax will be levied only on the part of the turnover which exceeds the limit. The Explanation added by Notification S.R.O. No. 427/1995 with effect from April 1, 1995 states that while reckoning the above limit, the turnover of goods manufactured by different units under the same brand name shall be cumulated. The second condition is that basic exemption will be available only during the year in which the turnover crosses this limit. Condition (iii) in Schedule V, item No. 4, states that exemption is for a period of 4 years from April 1, 1991 to March 31, 1995 subject to the condition that the tax already collected will be paid over to the Government and tax remitted to the Government will not be refunded. However, this condition was further amended under which exemption was available for a period of two years from April 1, 1995 to March 31, 1997 subject to the conditions mentioned above. Explanatory Note to S.R.O. No. 658/94 states that in the case of units which crossed the exemption limit of Rs. 10 lakhs during the course of the year the unit would not have collected tax on the first Rs. 10 lakhs. In such a case if tax is levied on the whole turnover, the unit will be liable to pay tax which it has not actually collected. It was further observed that this is not the intention of the notification and the Government have decided to limit the levy of tax only on that part of the turnover which crosses the Rs. 10 lakhs limit. It is necessary in this context to understand what exactly is the purport of condition (i) of item No. 4 of Schedule V of Notification S.R.O. No. 1727/93 which provides that the manufacturer's total turnover does not exceed Rs. 10 lakhs in a year. 10 lakhs limit. It is necessary in this context to understand what exactly is the purport of condition (i) of item No. 4 of Schedule V of Notification S.R.O. No. 1727/93 which provides that the manufacturer's total turnover does not exceed Rs. 10 lakhs in a year. Total turnover defined in section 2(xxvi) of the Act means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax including the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India. There is an Explanation which is not relevant for the purpose of this case. From the first part of the condition it would appear that in order to get exemption from payment of sales tax under the Act and as per the notification with reference to item No. 4 of Schedule V, manufacturer's total turnover shall not exceed Rs. 10 lakhs. If it exceeds Rs. 10 lakhs, the exemption will not be available. The proviso to the first condition is also relevant. It provides that if during the course of the year the turnover crosses the Rs. 10 lakhs limit, tax will be levied only on that part of the turnover which exceeds that limit. From the second condition it would appear that the basic exemption of Rs. 10 lakhs is applicable only during the year in which the turnover crosses this limit. From this it would appear that if for any year the turnover exceeds Rs. 10 lakhs, petitioner will not get the benefit of exemption in the subsequent years even if the turnover is below Rs. 10 lakhs. It would appear from a reading of the two parts of the first condition that there is some inconsistency, for, as per from the first part if the total turnover exceeds Rs. 10 lakhs, no exemption will be granted, but the second part would say that in a case where the turnover exceeds Rs. 10 lakhs during the course of the year, exemption will be granted up to Rs. 10 lakhs and tax will be assessed for the balance amount. 10 lakhs, no exemption will be granted, but the second part would say that in a case where the turnover exceeds Rs. 10 lakhs during the course of the year, exemption will be granted up to Rs. 10 lakhs and tax will be assessed for the balance amount. The inconsistency, it would appear, is mainly because the expression used in the first part is "total turnover" whereas in the latter part the expression used is "turnover". Does it mean the expression "turnover" used in the latter part refers to the total turnover ? It is relevant to note in this context that by virtue of section 5 of the Act, the charging section, tax is only on the "taxable turnover" of the year. In other words, tax is not on the total turnover but only on the taxable turnover as computed under the Rules. Taxable turnover of course is arrived at by applying the provisions of rule 9 of the Kerala General Sales Tax Rules, 1963, and by the application of the said rule, naturally the inter-State turnover and export turnover are deducted from the total turnover. However, such a deduction is not contemplated with reference to Notification S.R.O. No. 1727/93, Schedule V, item No. 4. In these circumstances, it is necessary to reconcile with the two parts of the first two conditions in column No. 3 of item No. 4 of Schedule V. The expression used in the second part is very crucial. It says that if during the course of the year the turnover crosses Rs. 10 lakhs, tax will be levied only on the part of the turnover which exceeds that limit. Thus if the petitioner who had manufactured the goods mentioned in item No. 4 of Schedule V had effected local sales of such goods inside the State until the turnover of such local sales reaches Rs. 10 lakhs, there is no obligation to collect any sales tax. Once the turnover exceeds Rs. 10 lakhs there is an obligation on the part of the petitioner to collect tax in respect of the turnover that exceeds Rs. 10 lakhs. Here it is necessary to note that the expression "turnover" occurring in the second part of condition (i) has to be understood as the "total turnover" referred to in the first part and not the turnover as defined under the Act. 10 lakhs. Here it is necessary to note that the expression "turnover" occurring in the second part of condition (i) has to be understood as the "total turnover" referred to in the first part and not the turnover as defined under the Act. As an illustration, the goods manufactured inside the State by a small-scale industrial unit sells the goods locally and by way of inter-State sale, as soon as the sales turnover of local sales as well as the inter-State sale reaches Rs. 10 lakhs, the petitioner has to start collection of sales tax on the further local sales of the manufactured goods. As a further illustration if an assessee who had manufactured goods mentioned in item No. 4 of Schedule V inside the State first effects sale of goods locally to the tune of Rs. 10 lakhs, the entire Rs. 10 lakhs turnover will be entitled to exemption provided in item No. 4, Schedule V. But if an assessee first effects inter-State sale of the manufactured goods to the tune of Rs. 10 lakhs after the commencement of the year and thereafter effects local sales of the manufactured goods, exemption under Schedule V will not be available to such a dealer. Similarly, if the dealer effects local sales to the tune of Rs. 5 lakhs and inter-State sale to the tune of Rs. 5 lakhs, thus reaches the limit of Rs. 10 lakhs all local sales effected thereafter is eligible to tax. So far as inter-State sales turnover is concerned, there is no exemption under this notification. As such in such a case a dealer will get exemption only in respect of the turnover of local sales of Rs. 5 lakhs. This I think is the only way in which the inconsistency can be reconciled. This is in so far as the first condition is concerned. The further question which arises for consideration in this case is that if during the first year of exemption itself the total turnover exceeds Rs. 10 lakhs and the benefit of the first condition is available whether such benefit can be availed of in the subsequent years up to the period for which the exemption is granted. Reading condition (ii), it will be difficult to hold that for all the years for which exemption is provided under condition (iii) the situation obtained in the first condition can be availed. Reading condition (ii), it will be difficult to hold that for all the years for which exemption is provided under condition (iii) the situation obtained in the first condition can be availed. Condition (ii), as already noted clearly provides that basic exemption will be available only during the year in which the turnover crosses this limit. The contention of the counsel for the petitioner is that since condition (ii) does not provide that the basic exemption will be available during first year in which the turnover crosses this limit as provided in the Explanation to item 8 of Schedule V to Notification S.R.O. No. 1728/93 unless the word "first" is read into condition (ii) such result cannot be reached. The submission of the counsel for the petitioner appears to be reasonable. Exemption in respect of ready-made garments, etc., mentioned in item No. 4 of Schedule V is provided only for a limited period of 4 or 5 years. If, eventually the total turnover exceeds Rs. 10 lakhs in a year and for the subsequent years it does not reach Rs. 10 lakhs, it cannot be said that the petitioner is not entitled to the benefit of the notification. In this view of the matter reading condition (ii) in the manner suggested by the counsel, the petitioner is entitled to get exemption up to a limit of Rs. 10 lakhs within the period of exemption provided in condition No. (iii). In the light of the above, exhibits P6 and P7 orders cannot stand and I set aside the same accordingly. It is for the assessing authority to pass fresh orders pursuant to exhibits P3 and P4 notices in accordance with law and in the light of the legal position explained in this judgment. This will be done, with notice and opportunity to the petitioner, within a period of three months from the date of receipt of a copy of this judgment. Writ petition is disposed of as above. Order on C.M.P. No. 59852 of 2000 in O.P. No. 34882 of 2000 is closed. Petition disposed of accordingly.