1992 (4) TMI 229 - HC - VAT and Sales Tax

Issues Involved:

1. Legitimacy of the sale of liquor by the assessee to M/s. Shaw Wallace and Company Limited as the first sale within the state.
2. Whether the transactions were a device to evade tax.
3. Applicability of section 19B of the KGST Act.
4. Whether the sale to the Beverages Corporation should be treated as the first sale.
5. Tribunal's consideration of the higher price realized by M/s. Shaw Wallace and Company Limited.
6. Application of rule 13(1) of the Foreign Liquor Rules.
7. Allowability of sales tax collected while under-billing goods.

Issue-wise Detailed Analysis:

1. Legitimacy of the Sale of Liquor by the Assessee to M/s. Shaw Wallace and Company Limited:

The Tribunal found that the sale of liquor by the assessee to M/s. Shaw Wallace and Company Limited was the first sale within the state, taxable under the KGST Act. The assessee had a valid agreement with M/s. Shaw Wallace and Company Limited, and the sale was conducted as per this agreement. The Tribunal concluded that the sale to M/s. Shaw Wallace and Company Limited was genuine and not merely a paper transaction. The title to the goods passed to M/s. Shaw Wallace and Company Limited when the goods were delivered to the Beverages Corporation under instructions from M/s. Shaw Wallace and Company Limited.

2. Whether the Transactions Were a Device to Evade Tax:

The Revenue argued that the transactions were a device to evade tax, citing the higher price realized by M/s. Shaw Wallace and Company Limited from the Beverages Corporation. However, the Tribunal found no evidence to support this claim. The Tribunal noted that the higher price was due to the brand name and goodwill of M/s. Shaw Wallace and Company Limited, which the assessee did not own. The Tribunal concluded that the transactions were genuine business transactions and not a device to evade tax.

3. Applicability of Section 19B of the KGST Act:

The Tribunal found that section 19B of the KGST Act was not applicable in this case. This conclusion was based on the Division Bench decision in Devassy v. State of Kerala, which held that section 19B did not apply to the facts of the case. The Tribunal noted that no material was placed before it to justify the applicability of section 19B.

4. Whether the Sale to the Beverages Corporation Should Be Treated as the First Sale:

The Tribunal rejected the Revenue's argument that the sale to the Beverages Corporation should be treated as the first sale. The Tribunal found that the sale by the assessee to M/s. Shaw Wallace and Company Limited was the first sale, and the sale by M/s. Shaw Wallace and Company Limited to the Beverages Corporation was a separate, subsequent sale. The Tribunal concluded that the price paid by the Beverages Corporation could not be treated as the turnover of the assessee.

5. Tribunal's Consideration of the Higher Price Realized by M/s. Shaw Wallace and Company Limited:

The Tribunal found that the higher price realized by M/s. Shaw Wallace and Company Limited from the Beverages Corporation was due to the brand name and goodwill of M/s. Shaw Wallace and Company Limited. The Tribunal concluded that the assessee could not be taxed on this higher price, as it did not own the brand name or goodwill. The Tribunal directed the assessing authority to assess the assessee based on the sale consideration received from M/s. Shaw Wallace and Company Limited.

6. Application of Rule 13(1) of the Foreign Liquor Rules:

The Tribunal found that the sale of liquor by the assessee to M/s. Shaw Wallace and Company Limited was the first sale within the state, notwithstanding the relevant statutory provisions. The Tribunal noted that the assessee had complied with all legal formalities for the transport and delivery of the goods. The Tribunal concluded that the sale to M/s. Shaw Wallace and Company Limited was valid and taxable as the first sale.

7. Allowability of Sales Tax Collected While Under-billing Goods:

The Tribunal found that the sales tax collected while under-billing the goods was an allowable deduction in computing the taxable turnover of the assessee. The Tribunal noted that this issue depended on the resolution of the other questions and concluded that the sales tax collected was allowable if the other questions were resolved in favor of the assessee.

Conclusion:

The Kerala High Court upheld the Tribunal's findings and conclusions, dismissing the Revenue's revisions. The Court found that the Tribunal's findings were based on material evidence and were not perverse or arbitrary. The Court concluded that the assessee could only be taxed on the sale consideration received from M/s. Shaw Wallace and Company Limited and not on the higher price realized by M/s. Shaw Wallace and Company Limited from the Beverages Corporation. The Court also found that the transactions were genuine business transactions and not a device to evade tax. The Court dismissed the tax revision cases with costs.

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