1978 (8) TMI 210 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability under Section 5A of the Kerala General Sales Tax Act.
2. Exemption under Section 10 of the Kerala General Sales Tax Act.
3. Interpretation of "goods liable to tax" under Section 5A.
4. Distinction between non-liability and exemption from tax.

Detailed Analysis:

1. Liability under Section 5A of the Kerala General Sales Tax Act:
The primary issue revolves around the application of Section 5A, which imposes a purchase tax on dealers who purchase goods in circumstances where no tax is payable under Section 5. The court noted the necessary conditions to attract liability under Section 5A: the assessee must purchase from a registered dealer or any other person, the purchase must be in circumstances where no tax is payable under Section 5, and the goods must be consumed in the manufacture of other goods for sale or otherwise. The court emphasized that for this case, only sub-clause (a) of subsection (1) of Section 5A is applicable.

2. Exemption under Section 10 of the Kerala General Sales Tax Act:
The court examined the exemption granted under Section 10 through Notification G.O. (Ms.) No. 95/72/TD, which exempts the tax payable on the sale of polished synthetic gems. The assessee argued that this exemption should nullify the liability under Section 5A. The court referred to the precedent set in Malabar Fruit Products Company v. Sales Tax Officer, Palai, where it was held that goods exempted under Section 10 are not liable to tax under the Act, thus supporting the assessee's contention.

3. Interpretation of "goods liable to tax" under Section 5A:
The court analyzed the interpretation of "goods liable to tax" by referencing the Supreme Court decision in State of Tamil Nadu v. M.K. Kandaswami, which dealt with similar provisions under the Tamil Nadu General Sales Tax Act. The Supreme Court's interpretation was that goods exempted from tax under Section 10 are not "taxable goods" and thus cannot be taxed under Section 5A. The court found this reasoning directly applicable to the present case, concluding that the synthetic gems, being exempted from tax, are not liable under Section 5A.

4. Distinction between non-liability and exemption from tax:
The Government Pleader argued that there is a distinction between non-liability to tax and an exemption from tax. However, the court, relying on the Supreme Court's decision in Kandaswami's case, held that the combined effect of a provision imposing liability and one granting exemption is to nullify the liability to tax. The court also addressed the argument regarding the range of exemption not being co-extensive with the range of liability under Section 5A. It concluded that since synthetic gems are taxed only at the point of sale under Section 5(1)(ii), the exemption granted effectively nullifies the tax liability under Section 5A.

Conclusion:
The court allowed the tax revision cases, setting aside the orders of the Sales Tax Appellate Tribunal. It held that the combined effect of the exemption under Section 10 and the provisions of Section 5A is to relieve the assessee from liability to tax on the sale of synthetic gems. The court concluded that the sale of synthetic gems is not liable to tax under the Act or is under circumstances where no tax is payable. The petitions were allowed with no order as to costs.