IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 269 of 2009()
1. M/S.COMBINED FOODS PVT.LTD.,
... Petitioner
Vs
1. STATE OF KERALA, REPRESENTED BY
... Respondent
For Petitioner :SRI.V.V.ASOKAN
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :14/12/2009
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
V.K.MOHANAN, JJ.
....................................................................
S.T.Rev. Nos.269 & 270 of 2009
....................................................................
Dated this the 14th day of December, 2009.
JUDGMENT
Ramachandran Nair, J.
The main question raised in the connected revisions filed by the
assessee is whether they are liable to pay tax under Section 5(3)(ii) of
the KGST Act for the differential tax on purchase of various items used
in the manufacture of Ice Cream which was stock transferred to outside
State for sale in other States. Petitioner is a manufacturer of Ice
Cream under brand name and for manufacture of Ice Cream, petitioner
purchased various raw materials and packing materials by availing
concessional rate under Section 5(3)(i) of the KGST Act. According to
the petitioner, prior to the amendment by Finance Act, 2000 with effect
from 1.4.2000, the proviso to Section 5(3)(i) made a condition that the
items manufactured or packed with the raw materials or packing
materials purchased by availing concessional rate should be sold within
the State or from Kerala as interstate sale, so that the product suffers
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sales tax in Kerala either under the KGST Act or under CST Act.
However, from 1.4.2000 the proviso was deleted and consequently
even if the item manufactured or packed with raw materials or packing
materials purchased by availing concessional rate is stock transferred
outside the State, still the differential tax on raw material or packing
material cannot be demanded from the manufacturing unit which
availed the concessional rate under Section 5(3)(i) of the Act. The
lower authorities, however, rejected the claim probably because the
main clause talks about sale of the finished products as a condition for
eligibility for concessional rate on raw material or packing material.
We have heard counsel appearing for the assessee and the Government
Pleader appearing for the respondent.
2. The relevant provision after the amendment with effect from
1.4.2000 is extracted hereunder for easy reference:
“S.5(3)(i) Notwithstanding anything contained in sub-
section (1) the tax payable by a dealer in respect of any sale
of industrial raw materials, component parts, containers or
packing materials which are liable to tax at a rate higher than
three per cent when sold to any industrial unit 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 three per cent
on the taxable turnover relating to such industrial raw
materials, component parts, containers, or packing materials,3
as the case may be.
Provided that the provisions of this clause shall not
apply to any sale unless the dealer selling the goods furnishes
to the assessing authority in the prescribed manner
declaration duly filled in and signed by the dealer to whom
the goods are sold containing the prescribed particulars in the
prescribed form.
(ii) Where any dealer, after purchasing any goods by
furnishing a declaration as mentioned in the proviso to clause
(i), fails to make use of the same he shall be liable to pay the
tax that would have been payable by him, had the declaration
not been furnished, less the tax, if any, paid by him and the
same shall be levied and collected as if it is a tax due from
him.”
The first proviso that was there in Section 5(3)(i) upto 31.3.2000
provided that an industry availing concessional rate for purchase of raw
materials or packing materials should sell the products in Kerala or
from Kerala so that tax is paid either under the local Act or under the
CST Act for availing concessional rate on raw material or packing
material used for manufacture or packing of such goods. However, the
said proviso was deleted and the purpose of deletion as conveyed by
the Minister while presenting the Budget on 14.3.2003 is as follows:
“202. In order to promote manufacturing activity
within the State, the concessional rate of three per cent
under Section 5(3) of the KGST Act will be made applicable
to all purchases of raw materials used for manufacture of
goods within the State irrespective of whether the product is4
liable to tax or not. Additional revenue of Rs.2 Crores is
expected by preventing trade diversion.”
3. It is obvious from the above that the amendment was made to
take away the specific condition that existed until then, which provided
that products manufactured or packed with the raw material or packing
material purchased at concessional rate should suffer tax either under
the KGST Act or CST Act. Therefore, in our view, after the deletion
of the above proviso with effect from 1.4.2000, the industrial units
purchasing raw materials or packing materials at concessional rate are
not liable to pay tax under Section 5(3)(ii) even if the goods
manufactured or packed with the raw material or packing material
purchased at concessional rate of tax is stock transferred out of the
State or exported from the State. The next question to be considered is
whether the main clause still imposes the condition that the goods
produced or packed should be sold in or from Kerala for availing
concessional rate for the purchase of raw materials or packing materials
for its manufacture or packing. In our view, the only condition for
availing concessional rate is manufacture or packing of goods within
the State and it’s sale may take place anywhere. The production or
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packing of goods for sale only means that the goods are for the purpose
of trade and not for own consumption. In other words, if goods are
manufactured or packed for own consumption and not for sale, then
still probably the industrial unit purchasing raw material or packing
material for manufacture or packing of goods other than for sale will
not be entitled to concessional rate. We, therefore, allow the revisions
by reversing the orders of the Tribunal and that of the first appellate
authority and direct the Assessing Officer to revise the assessment by
cancelling the demand of differential tax under Section 5(3)(ii) of the
Act for the raw materials or packing materials purchased at
concessional rate which are used in the manufacture or packing of
goods for stock transfer.
4. The next question pertains to assessment of old freezers which
is an item taxable under Vth Schedule. Petitioner’s case is that the
freezers were purchased from SSI units by availing concessional rate
and, therefore, they are entitled to exemption on second sales.
Exemption on second sales will be available on Vth Schedule items
only if tax is paid at the rate applicable on sale by a dealer to customer
or to any other dealer not for sale. Generally speaking, second sale
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exemption is available only when full rate of tax is paid on the
purchase in the State. However, question to be considered is whether
purchase from SSI unit by availing concessional rate will be sufficient
compliance of payment in terms of column 8 of the Vth Schedule.
Since none of the authorities have considered the scope of exemption
claimed by the assessee with reference to documents, we set aside the
orders of the Tribunal and that of the first appellate authority on this
issue and remand the matter to the Assessing Officer for
reconsideration after giving opportunity to the assessee. The S.T.
revisions are allowed to the extent indicated above.
C.N.RAMACHANDRAN NAIR
Judge
V.K.MOHANAN
Judge
pms