1998 (2) TMI 545 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Applicability of purchase tax under Section 5A of the Kerala General Sales Tax Act, 1963.
2. Interpretation of Notification S.R.O. No. 968/80 regarding tax exemption for small-scale industrial units.
3. Distinction between total tax exemption and conditional tax exemption.
4. Judicial precedents related to tax exemption and purchase tax applicability.

Issue-wise Detailed Analysis:

1. Applicability of Purchase Tax under Section 5A of the Act:
The primary issue was whether purchase tax under Section 5A can be levied on a person who purchased taxable goods from a newly set up small-scale industrial unit eligible for tax exemption under a notification issued under Section 10 of the Act. Section 5A(1) states that purchase tax is levied on goods purchased in circumstances where no tax is payable under Section 5, and the goods are consumed in manufacturing, disposed of in any manner other than by sale in the State, or dispatched outside the State. The court held that the purchase tax is applicable if the conditions in clauses (a), (b), or (c) of Section 5A are satisfied.

2. Interpretation of Notification S.R.O. No. 968/80:
The Notification S.R.O. No. 968/80 exempts new small-scale industrial units from sales tax on the turnover of goods produced and sold by them for five years. The assessee argued that imposing purchase tax on goods bought from these units would negate the financial incentive intended by the notification. However, the court emphasized that the clear wording of the Act takes precedence over the supposed objectives or intentions of the Legislature. The notification does not extend the exemption to the purchaser, only to the small-scale unit selling the goods.

3. Distinction between Total Tax Exemption and Conditional Tax Exemption:
The court distinguished between total tax exemption and conditional tax exemption. It referred to previous cases where commodities were fully exempt from tax, such as synthetic gems in T.S. Govindarajulu Naidu v. State of Kerala, which meant no tax was payable under Sections 5 or 5A. However, in the present case, resin is not totally exempt; only the sales turnover of newly set up small-scale units is exempt. Therefore, the purchase of resin by the assessee is taxable under Section 5A.

4. Judicial Precedents:
The court examined several precedents:
- T.S. Govindarajulu Naidu v. State of Kerala: The Supreme Court upheld that no tax is payable under Section 5 or 5A if the commodity itself is fully exempt.
- State of Tamil Nadu v. M.K. Kandaswami: The Supreme Court clarified that taxable goods might not be taxed in the seller's hands due to specific circumstances but can be taxed in the purchaser's hands.
- Deputy Commissioner of Sales Tax (Law) v. International Fisheries Ltd.: The court held that water sold by a local authority is exempt, but purchase tax is applicable if the purchaser uses it in specified ways.
- Consolidated Coffee Limited v. Coffee Board and Jagatjit Sugar Mills v. State of Punjab: These cases confirmed that purchase tax is payable by the purchaser even if the seller is exempted from tax.
- Pournami Oil Mills v. State of Kerala: The Supreme Court ruled that industries set up after a certain date would not benefit from the earlier, more extensive tax exemptions.

Conclusion:
The court concluded that resin, a taxable item, purchased by the assessee from a newly set up small-scale industrial unit exempt from sales tax, is subject to purchase tax under Section 5A. The exemption applies only to the seller, not the purchaser. Therefore, the assessee is liable to pay purchase tax as per the conditions outlined in Section 5A. The petition by the Revenue was allowed, revising the order of the Sales Tax Appellate Tribunal.