Deepa Panels vs State of Kerala

H.L. Dattu, C.J.—These revision petitions are filed by a dealer registered under the provisions of the Kerala General Sales Tax Act, 1963 ("the Act", for short) being aggrieved by the orders passed by the Sales Tax Appellate Tribunal in T. A. No. 329 of 2004 dated August 10, 2004, T. A. No. 100 of 2007 dated August 6, 2007 and T. A. No. 133 of 2007 dated August 6, 2007.

These revision petitions pertain to the assessment years 1998-99, 1996-97 and 2001-02, respectively.

The assessee is a small-scale industrial unit. It is engaged in the manufacture of chemically treated rubber wood products.

At the outset, we intend to observe that, the rubber wood purchased by the assessee is not an item taxable at the last purchase point.

The assessee had approached the General Manager, District Industries Centre for grant of exemption from payment of tax under the Act, in view of S.R.O. No. 499/1990 which was substituted by S.R.O. No. 1729/1993 with effect from April 1, 1993.

The General Manager, District Industries Centre, by his order dated March 18, 1998, has granted exemption from payment of Kerala general sales tax/Central sales tax/purchase tax for the period from August 23, 1995 to August 9, 2000 for a sum of Rs. 24,96,442.

For the assessment year 2001-02, the assessee had filed its annual returns claiming exemption from payment of purchase tax. Since the assessing authority was of the opinion that the assessee is not entitled to the claim made, had issued pre-assessment notice, inter alia, informing the assessee that it is not entitled for exemption of payment of purchase tax u/s 5A of the Act, and had issued notice u/s 17(3) of the Act proposing to complete assessment on best-judgment basis. The assessee had filed its reply to the notice issued. After considering the objections filed, the assessing authority has passed an order by confirming the proposal made and accordingly had issued notice demanding payment of purchase tax and the interest. Aggrieved by the orders passed by the assessing authority, the assessee had filed appeal before the first appellate authority. The first appellate authority has confirmed the orders passed by the assessing authority.

For the assessment years 1996-97 and 1998-99, initially, the assessing authority had completed the assessments and had granted exemption even from the payment of purchase tax. Having come to know that the orders so passed by him is irregular and improper and contrary to the certificate issued by the General Manager, had initiated proceedings u/s 19 of the Act for the purpose of passing reassessment order for the assessment years in question. Before doing so, the assessing authority had issued notice u/s 19(1) of the Act and in that had stated as under:

Being manufacture of treated rubber wood products, the assessee is liable to pay tax u/s 5A of the Act on the purchase turnover of rubber wood purchased from unregistered dealers and used for manufacturing finished products from season and treatment. But the above turnover has escaped from assessment already completed. The turnover so escaped will be reassessed by reopening the assessment u/s 19(1) of the Act.

The assessee is not eligible to get set-off of the tax and surcharge dues on the purchase turnover u/s 5A of the Act mentioned in item No. 2 above in the light of decision of the honourable Supreme Court of India reported in [2001] 124 STC 233(SC) : [2002] 10 KLT 69 in the case of State of Kerala v. Vattukalam Chemicals Industries and hence will be demanded. The assessee was also given an opportunity of being heard in the matter at 11 a.m. on February 28, 2004.

After the receipt of the notice, the assessee had filed its reply, and, in that the assessee had stated that, in view of the exemption certificate granted by the General Manager, District Industries Centre, the assessee is entitled for exemption from payment of purchase tax. The assessee had also relied on the observations made by this Court in the case of Deputy Commissioner of Sales Tax (Law), Ernakulam v. Surya Refineries (P) Ltd. [1991] KLJ (Tax Cas) 513.

The assessing authority, after noticing the objections filed by the assessee and also after referring to the decision of this Court had come to the conclusion that the assessee is not entitled for exemption of levy of purchase tax u/s 5A of the Act.

Aggrieved by the orders of assessment passed for the assessment year 2001-02 and orders of reassessment for the assessment years 1998-99 and 1996-97 passed by the assessing authority, the assessee had filed appeals before the Sales Tax Appellate Tribunal as provided u/s 34(1) of the Act. The Tribunal by its orders dated August 10, 2004 and August 6, 2007 has rejected the appeals filed against the reassessment orders/assessment orders for the assessment years in question.

Aggrieved by the findings and conclusions reached by the Tribunal, the assessee is before us, in these tax revision cases. The assessee has framed the following questions of law for our consideration and consequent decision.

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has erred in law in upholding annexure A revised order considering the fact that the original assessment order is set aside by the Appellate Tribunal itself in annexure B order ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in upholding the denial of exemption on purchase tax on the turnover of rubber wood used for manufacturing, considering the fact that the Sales Tax Exemption Certificate granted by the District Industries Centre includes exemption on purchase tax also and in the light of the law laid down in Surya Refineries case [1991] KLJ 513?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has erred in law in confirming the levy of tax u/s 5A solely based on the dictum laid down by the honourable Supreme Court in State of Kerala Vs. M/s. Vattukalam Chemicals Industries, in which there was no consideration of the subsequent notification?

Sri N. Muraleedharan Nair, learned Counsel appearing for the assessee, would contend that, the assessee, in view of the certificate issued by the General Manager of District Industries Centre, is entitled for exemption from payment of purchase tax u/s 5A of the Act. The learned Counsel would further submit that, correctly understanding the scope of the certificate, the assessing authority, initially had granted exemption from payment of purchase tax for the assessment years 1996-97 and 1998-99, and, thereafter forming a second opinion, had initiated proceedings u/s 19 of the Act and the same is impermissible in law. Secondly, the learned Counsel would submit that, in view of the certificate issued by the General Manger, District Industries Centre, the assessee is entitled not only for exemption from payment of sales tax, and is also entitled for exemption from payment of purchase tax u/s 5A of the Act. In support of that contention, the learned Counsel relies on the observations made by this Court in the case of Deputy Commissioner of Sales Tax (Law), Ernakulam v. Surya Refineries (P) Ltd. [1991] KLJ (Tax Cas) 513 and the dicta and the observations made by the apex court in the case of Pondicherry State Cooperative Consumer Federation Ltd. v. Union Territory of Pondicherry [2007] 10 VST 630 and State of Kerala Vs. M/s. Vattukalam Chemicals Industries, . In conclusion, the learned Counsel would submit that the orders of reassessment passed by the assessing authority and the orders passed by the Tribunal require to be interfered by this Court in exercise of the powers u/s 41 of the Act.

Per contra, Sri Muhammed Rafiq, the learned Government Advocate appearing for the Revenue would submit that, in view of the decision of the apex court in the case of State of Kerala v. Vattukalam Chemicals Industries [2001] 124 STC 233 the assessee is not entitled for exemption from payment of purchase tax. Further, the learned Counsel would submit that, S.R.O. No. 499/1990, which has been replaced by S.R.O. No. 1729/1993, in fact, was the subject-matter of the apex court in the aforesaid decision, and, the court has stated that since the item in question is not taxable at the last purchase point, the assessee is not entitled for exemption from payment of purchase tax.

The apex court in the aforesaid decision has observed as under ( 124 STC 237):

The respondent-assessee purchased copper scrap for use in the manufacture of copper sulphate. It is an admitted position that copper scrap is not taxable at the point of last purchase in the State. On the plain words of the notification, the exemption given thereby is, therefore, not available to copper scrap and, therefore, to the particular copper scrap purchased by the assessee.

The argument of learned Counsel for the assessee is that the assessee had purchased the particular copper scrap from unregistered dealers so that, in so far as the particular copper scrap was concerned, it became taxable at the point of last purchase in the State and, therefore, the particular copper scrap was entitled to the exemption given by the notification. The argument is misplaced. The notification applies to goods of the description that are taxable at the point of last purchase in the State under the Act. The particular copper scrap is not goods of a description which are taxable under the Act at the point of last purchase in the State. The particular copper scrap is, therefore, not entitled to the benefit of the exemption under the notification. The question is not whether the particular copper scrap which the respondent purchased became, by reason of circumstances, taxable at the point of last purchase in the State but whether copper scrap as a description of goods is taxable under the Act at the point of last purchase in the State. Since it is not, the benefit of the notification does not extend to the particular copper scrap purchased by the respondent.

In the instant case, as we have noticed earlier, the item in question is not an item taxable at the last purchase point. Keeping that aspect of the matter in view, the apex court in the case of State of Kerala v. Vattukalam Chemicals Industries [2001] 124 STC 233(Ker) on a more or less similar issue has concluded that the assessee therein is not entitled for exemption from payment of purchase tax. In our view, the dicta laid down by the apex court in the case of State of Kerala v. Vattukalam Chemicals Industries [2001] 124 STC 233(Ker) would apply to the facts of the present case. However, Sri Muraleedharan Nair, learned Counsel appearing for the assessee, has brought to our notice the decision of this Court in Deputy Commissioner of Sales Tax (Law), Ernakulam v. Surya Refineries (P) Ltd. [1991] KLJ (Tax Cas) 513 and the decisions of the apex court in Pondicherry State Cooperative Consumer Federation Ltd. v. Union Territory of Pondicherry [2007] 10 VST 630 and Vadilal Chemicals Ltd. v. State of Andhra Pradesh [2005] 142 STC 76(AP).

In those decisions, the court was concerned with the exemption certificate issued by the District Industries Department. The exemption certificate so issued was tried to be interpreted by the assessing authority and thereby tried to deny the exemption that was granted. In a situation of that nature, the courts were of the opinion that since the District Industries Department consists of three members, one of which is also a sales tax member, the assessing authority could not have meddled with the exemption granted by a superior authority. It is on that ground that the court had annulled the orders passed by the assessing authority.

In the instant case, the question is whether the assessee is entitled for exemption from payment of purchase tax. In fact, in the certificate issued, the General Manager of District Industries Centre has specifically stated that the petitioner is entitled for exemption only on goods manufactured and sold and no exemption is granted from payment of purchase tax.

In that view of the matter, it is difficult to accept the submissions made by Sri Muraleedharan Nair, learned Counsel appearing for the assessee. Therefore, we are of the opinion that the Tribunal, rightly understanding the scope of the exemption certificate issued by the General Manger of the District Industries Centre and also relying upon the observations made by the apex court in the case of State of Kerala v. Vattukalam Chemicals Industries [2001] 124 STC 233(Ker), has rightly rejected the appeals filed by the assessee. We do not see any error of law in the orders passed by the Tribunal which would call for our interference. In that view of the matter, the revision petitions require to be rejected and accordingly they are rejected.

In view of the orders passed in the revision petitions, all pending interlocutory applications are closed. Ordered accordingly.