Research › Search › Judgment

Kerala High Court · body

2005 DIGILAW 435 (KER)

STATE OF KERALA v. P. MOHAMMED

2005-07-01

K.T.SANKARAN, P.R.RAMAN

body2005
JUDGMENT P. R. RAMAN, J. – The following is the question of law raised for consideration in this revision : "Is not the Tribunal in error in holding that the assessee is entitled to concessional rate of tax in respect of sale of gunny bags to a manufacturer of cattle feed, when the sales turnover of cattle feed stands exempted from payment of tax under S.R.O. No. 504/89 ?" The assessee is a manufacturer and dealer in gunny bags. He filed valid form 18 declaration supplied by the buyer, viz., M/s. Koyemco Solvent Extraction, Calicut, who purchased the said gunny bags for packing cattle feeds produced by them. The Additional Income-tax Officer found that since the respondent/assessee has sold gunny bags against form 18 declarations to a dealer in cattle feed, which was exempted from payment of tax for the period from April 1, 1989 to March 31, 1991 by virtue of the notification granting exemption, he is not entitled to the concessional rate of tax. It was held that under section 5(3) of the Kerala General Sales Tax Act, 1963, the respondent/assessee is not entitled to the benefit of concessional rate of tax based on the form 18 declaration issued by the buyer. Hence the return was rejected and assessment was completed disallowing the claim of concessional rate of tax based on form 18 declarations. The appellate authority, namely, Appellate Assistant Commissioner of Sales Tax, confirmed the said view. However, on further appeal, the Tribunal held, following an earlier Full Bench decision of the Tribunal that the expression "goods liable to tax" and "exempted goods" are distinct and different and gunny bags sold for packing exempted cattle feed are also entitled for the reduced rate of tax. At the instance of the department, this tax revision case is filed raising the above question. At the instance of the department, this tax revision case is filed raising the above question. Section 5(3) of the Kerala General Sales Tax Act reads as follows : "Notwithstanding anything contained in sub-section (1) or sub-section (2), the tax payable by a dealer in respect of any sale of industrial raw materials, component parts or packing materials which is liable to tax at a rate higher than two per cent when sold to industrial units for use in the production of finished products inside the State for sale or for packing of such finished products inside the State for sale, as the case may be, shall be at the rate of only two per cent on the taxable turnover relating to such industrial raw materials, component parts, or packing materials, as the case may be : Provided that this sub-section shall not apply where the sale of such finished products is not liable to tax either under this Act or under the Central Sales Tax Act, 1956 (Central Act 74 of 1956) or when such finished products are exported out of the territory of India : Provided further that the provisions of this sub-section shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner a declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in the prescribed form." Admittedly, the assessee furnished form 18 declarations duly filled in and signed by the dealer to whom the goods are sold. As such, the second proviso is not attracted. As far as the first proviso is concerned, the provisions contained in this sub-section will not apply where the sale of such finished products is not liable to tax either under this Act or under the Central Sales Tax Act. In other words, the finished products if not liable to tax under this Act, then alone the provisions of sub-section will not apply. Here, admittedly, cattle feed is an item included in the Schedule of finished products liable to be taxed under the Kerala General Sales Tax Act. However, the cattle feed was exempted from payment of tax by virtue of the notification issued. Here, admittedly, cattle feed is an item included in the Schedule of finished products liable to be taxed under the Kerala General Sales Tax Act. However, the cattle feed was exempted from payment of tax by virtue of the notification issued. The Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706; AIR 2004 SC 1107 held as follows : "In our view, the contention of the respondents proceeds on the fallacious premise that liability to taxation is the same as payment of tax. Liability to taxation is a legal situation; payment of tax is a fiscal fact. For the purpose of application of article 4 of the DTAC, what is relevant is the legal situation, namely, liability to taxation, and not the fiscal fact of actual payment of tax. If this were not so, the DTAC would not have used the words 'liable to taxation', but would have used some appropriate words like 'pays tax'. On the language of the DTAC, it is not possible to accept the contention of the respondents that offshore companies incorporated and registered under MOBA are not 'liable to taxation' under the Mauritius Income-tax Act; nor is it possible to accept the contention that such companies would not be 'resident' in Mauritius within the meaning of article 3 read with article 4 of the DTAC." The apex Court in Associated Cement Companies Ltd. v. State of Bihar [2004] 137 STC 389 at page 397 held thus : "Crucial question, therefore, is whether the appellant had any 'liability' under the Act. The answer to this lies in section 3 of the Act which is extracted above and is the charging section. ........ Sub-section (3) of section 7 stipulates that State Government may, by notification and subject to such conditions or restrictions as it may impose, exempt from sales tax or purchase tax certain sales or purchases as the case may be. The question of exemption arises only when there is a liability. Exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the statute and the latter on computation in accordance with the provisions of the statute and Rules framed thereunder if any. It is to be noted that liability to pay tax chargeable under section 3 of the Act is different from quantification of tax payable on assessment. The former depends on charge created by the statute and the latter on computation in accordance with the provisions of the statute and Rules framed thereunder if any. It is to be noted that liability to pay tax chargeable under section 3 of the Act is different from quantification of tax payable on assessment. Liability to pay tax and actual payment of tax are conceptually different ..........." As we have already noticed, the expression used in the first proviso to sub-section (3) of section 5 as it stood at the relevant point of time as extracted above would clearly show that only if the goods in question is non-exigible to tax under the Kerala General Sales Tax Act or under the Central Sales Tax Act, that sub-section will not apply. There is no case for the department that cattle feed is not an item liable to be taxed under the Kerala General Sales Tax Act at the relevant time. Gunny bags so imported are also used for packing the cattle feed manufactured by the dealer to whom it was sold. Hence merely because the manufacturer of cattle feed was exempted from payment of tax will not disentitle the respondent from claiming concessional rate of tax based on form 18 declaration issued by the buyer. Hence we hold that the Tribunal is not in error in holding that the assessee is entitled to concessional rate of tax in respect of sale of gunny bags to the manufacturer of cattle feed. We answer the question in the negative in favour of the assessee and against the Revenue. The tax revision case is dismissed. No costs. Petition dismissed.