IN THE HIGH COURT OF KERALA AT ERNAKULAM
ST.Rev..No. 164 of 2006()
1. STATE OF KERALA.
... Petitioner
Vs
1. KUNHIKANNAN JEWELLERY,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent :SRI.T.M.SREEDHARAN
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :12/02/2009
O R D E R
C .N. RAMACHANDRAN NAIR &
K. SURENDRA MOHAN, JJ.
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S.T. Rev. No. 164 & 163 OF 2006
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Dated this the 12th day of February, 2009
C.R.
JUDGMENT
Ramachandran Nair,J.
Connected Revision cases are filed by the State against the order
of the Sales Tax Appellate Tribunal holding that respondent has no
liability to pay purchase tax under Section 5A on the turnover of
bullion purchased from non-resident Indians. We have heard
Government Pleader appearing for the petitioner and counsel appearing
for the respondent.
2. Non-residents are granted exemption on sales turnover of
bullion under entry 10 of Schedule II of SRO 1727 of 1993. However,
in order to prove exemption purchaser has to issue declaration in
Annexure I of the said notification. Respondent admittedly has not
issued any declaration in Annexure I in terms of the notification.
However since respondent did not produce any sale bills issued by non-
resident Indians, the assessing officer levied tax under Section 5A
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treating the purchases as made in circumstances in which no tax is
payable by the sellers. The Tribunal however held that since
respondent has not issued any declaration, liability under Section 5A
cannot be fastened on purchaser merely because sellers are not assessed
to tax. Government Pleader submitted that since bullion purchased by
respondent was consumed in the manufacture of ornaments, which
were sold by the respondent, the purchases will attract tax under
Section 5A because purchases were in circumstances in which no tax
is payable by the seller. However, respondent’s counsel contended that
bullion is an item taxable at sale point and the turnover is assesable at
the sale point at the hands of the sellers. According to counsel for the
respondent, respondent has furnished names and addresses of sellers
from whom bullion was purchased.
3. After hearing both sides and after going through the order of
the Tribunal, we do not think the view taken by the Tribunal can be
sustained. Purchase tax is payable under Section 5A if the commodity
purchased is taxable and the purchase is in circumstance in which no
tax is payable by the seller at the point of sale of goods in the State.
This position is made clear by the decision of the Supreme Court in
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STATE OF TAMIL NADU V. M.K. KANDASWAMY, 36 STC 191,
and that of this Court in DEPUTY COMMISSIONER (LAW) V.
ALAPPAT (EXPORTS) P.LTD., (2003) 2 KLT 731.
4. The contention of the Government Pleader that since sellers
are entitled to exemption by virtue of the notification above referred,
liability under Section 5A is automatic on the purchaser because
purchaser is engaged in manufacture of gold ornaments from bullion is
not acceptable as such. Similarly, the contention of the respondent that
since declaration in Annexure I is not issued by them to the sellers,
they cannot be assessed under Section 5A is equally unacceptable. If
any non-resident Indian who has sold bullion to the respondent is
engaged in the business of importing and selling of bullion and if the
turnover of such non-resident Indian exceeds taxable limit, then sales
tax should be assessed and recovered from such non-resident Indian as
bullion is an item taxable at the sale point under Section 5(1) read with
relevant entry of the First Schedule to the KGST Act. If a non-resident
liable to pay tax on sales of bullion wants to claim exemption under the
notification above referred then he ought to have obtained declaration
from the respondent in Annexure I and claimed exemption. However,
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if the non-resident who made sales to the respondent escaped liability
on account of lapses on the part of the department, the same will not
justify assessment of turnover under Section 5A on the respondent. It
is for the respondent to produce sale bills or purchase vouchers to
prove that non-resident seller was engaged in the “business” of
importing and selling of bullion and his turnover was above the limit
that attracts liability under Section 5(1) for the purpose of escaping
liability under Section 5A of the Act. In the normal course a non-
resident Indian occasionally visits his home and he cannot be expected
to be doing business in the import and sale of bullion. However, if any
such non-resident Indian who sold bullion to the respondent was
engaged in the business attracting liability then the turnover
representing purchases from such non-resident cannot be assessed at
the hands of the purchaser. The respondent has no case that sellers
have charged sales tax from them which obviously means that sellers
claim exemption on such sales. Since the item purchased is admittedly
consumed in the manufacture of gold ornaments, respondent will be
liable to pay tax under Section 5A if the purchase is in circumstances in
which no tax is payable by the seller which is either by virtue of
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exemption available under notification SRO 1727/93 or on account of
the fact that seller is not a dealer engaged in the business of sale of
bullion. The Tribunal’s order cannot be sustained because the Tribunal
declared exemption in favour of the respondent merely because they
have not issued declaration in Annexure I. We have already held that
even if declaration prescribed under the notification is not issued, a
non-resident seller cannot be assessed unless it is proved that such non-
resident who made sales to the respondent is engaged in the business
which is to be proved with reference to periodicity, frequency and
volume of sales.
We therefore allow the Tax Revision Cases by setting aside the
order of the Tribunal and remand the matter to the assessing officer for
giving opportunity to the respondent to produce purchase vouchers or
sale bills pertaining to purchase of bullion from non-residents
containing the names and addresses and proof of sellers identity for the
assessing officer to conduct enquiry and to exclude so much of the
purchases from non-residents who were liable to pay tax under Section
5(1) of the Act. We make it clear that merely because sellers who are
liable under Section 5(1) are not assessed or cannot be assessed on
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account of limitation is not a ground for fastening liability on the
respondent under Section 5A. Respondent is given two months’ time
from the date of receipt of a copy of this judgment for furnishing
particulars, and records before the assessing officer. However, if no
proof is produced within the period granted above, towards proof of
purchase with names and addresses of the non-residents then the
assessment made under Section 5A will stand confirmed.
(C.N.RAMACHANDRAN NAIR)
Judge.
(K. SURENDRA MOHAN)
Judge.
kk
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