State of Kerala vs Thanikudam Bhagavathi Mills (P.) Ltd.

C.N. Ramachandran Nair, J.—Question raised in the connected tax revision cases filed by the Revenue is whether the sales made by the Respondent of cotton yarn is local sale or inter-State sale. The assessment pertains to the years 1998-99 and 1999-2000. The Respondent was enjoying sales tax exemption on local sales by virtue of certificate issued by the Industries Department. However, no exemption was available on inter-State sales. It appears from the correspondence, namely, letter accompanied by the return filed by the Respondent that the Respondent tried to get exemption on CST sales also. Pending the Respondent''s attempt to get exemption from Government, the Respondent went on filing monthly returns in form No. 2 prescribed under the CST Rules without payment of tax. However, since exemption was not granted, inter-State sales were assessed. In the assessment, the Respondent claimed the sales as local sales on the ground that the purchaser''s agent came from outside Kerala, took delivery and transported the goods outside Kerala. Though the assessing officer rejected the claim, it was allowed in first appeal and confirmed by the Tribunal against which these revisions are filed. We have heard Special Government Pleader appearing for the Petitioner and counsel appearing for the Respondent.

During hearing, the Government Pleader produced the assessment records wherein it is seen that the entire turnover involved was returned by the Assessee in the CST return filed in form No. 2. In the covering letter issued by the Respondent along with return, it is specifically stated that inter-State sales are claimed exempt because of the Respondent''s expectation of exemption from Government. We do not know on what basis the Respondent after failing to get exemption from Government can convert inter-State sales to local sales. Obviously the Respondent''s effort is to get over liability under the CST Act by twisting the facts. The Respondent admittedly has not produced any details or evidence about the agency transaction or even how the agent transported the goods from out of Kerala. The Respondent has no case that the so-called agent has registration under the KGST Act or CST Act in Kerala without which he cannot transport the goods. On the other hand, factually it is proved that goods were transported under cover of delivery notes in form No. 26 issued by the Respondent. The Respondent has not furnished any details of the sales and the payments arranged by the so-called agent. It is patently clear that the introduction of agent and claim of sale to him in Kerala is only to camouflage inter-State sales as local sales to avoid payment of CST. It is also worthwhile to mention that even if goods are lifted by agent, the sale will still be inter-State sale because pursuant to contract of sale the goods moved out of the State. Admittedly goods sold were consigned outside the State and the movement of goods were under cover of documents of transport issued by the Respondent. We do not think the Respondent was entitled to contend such declared inter-State sales as local sales later. The orders of the first appellate authority as well as the Tribunal are factually and legally unsustainable. We, therefore, reverse the orders of the Tribunal and that of the first appellate authority and restore the assessment order. The revision cases are allowed as above.