1966 (9) TMI 127 - HC - VAT and Sales Tax

Issues Involved:
1. Determination of the first sale in the State for tax liability.
2. Classification of sales as inter-State sales.
3. Applicability of Section 3 of the General Sales Tax Act, 1125.
4. Compliance with Rule 27(5) of the General Sales Tax Rules, 1125, and Rule 32(13) of the Kerala General Sales Tax Rules, 1963.

Detailed Analysis:

1. Determination of the First Sale in the State for Tax Liability:
The petitioner, a registered dealer, claimed exemption from tax for certain transactions involving the sale of U.B. Light Lager Beer and U.B. Sun Lager Beer. The core issue was whether the sales by McDowell & Co. Ltd., Shertallai, to the petitioner constituted the first sale in the State, making the petitioner's subsequent sales non-taxable. The respondent contended that the sales by United Breweries Ltd., Bangalore, were directly to the petitioner, making the petitioner's sales the first sales in the State and thus taxable.

2. Classification of Sales as Inter-State Sales:
The court examined whether the sales by United Breweries Ltd., Bangalore, to McDowell & Co. Ltd., Shertallai, and subsequently to the petitioner were inter-State sales. According to Section 3 of the Central Sales Tax Act, 1956, a sale is deemed inter-State if it occasions the movement of goods from one State to another. The court found that the movement of goods from Bangalore to Ernakulam was occasioned by the sales to McDowell & Co. Ltd., Shertallai, not directly to the petitioner. The excise permits taken in the petitioner's name were merely for facilitating transport and did not indicate a direct sale contract between United Breweries Ltd. and the petitioner.

3. Applicability of Section 3 of the General Sales Tax Act, 1125:
The respondent argued that under Section 3 of the General Sales Tax Act, 1125, the petitioner could be assessed for the transactions in question. However, the court held that the first sales in the State were by McDowell & Co. Ltd., Shertallai, to the petitioner, and thus the petitioner's sales to its customers were not the first sales in the State. Consequently, Section 3 was deemed inapplicable.

4. Compliance with Rule 27(5) of the General Sales Tax Rules, 1125, and Rule 32(13) of the Kerala General Sales Tax Rules, 1963:
The respondent contended that the petitioner was required to obtain declaration forms from the seller, McDowell & Co. Ltd., to show that tax had been paid, as per Rule 27(5) and Rule 32(13). The court, referencing the State of Orissa v. Tulloch and Co. Ltd., held that these rules were not mandatory. The petitioner argued that invoices and bills from McDowell & Co. Ltd. indicated that tax had been paid on the transactions, and if this point had been raised earlier, they could have provided evidence to prove tax payment by McDowell & Co. Ltd.

Conclusion:
The court quashed the assessment orders (exhibits P-3 and P-4) concerning the turnover of beer sales for the years in question, allowing the petition to this extent. The respondent was directed to recompute the tax based on this judgment and issue fresh demands. The petition was dismissed in other respects, and no order as to costs was made. The petition was partly allowed.

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