1998 (7) TMI 679 - HC - VAT and Sales Tax

Summary

Issues:

1. Interpretation of Notification (S.R.O. No. 319 of 1984) regarding exemption on purchases of coir yarn.
2. Application of explanation to section 2(xxvi) of the Kerala General Sales Tax Act, 1963.
3. Determination of tax liability on coir yarn purchases made during different assessment years.

Issue 1: Interpretation of Notification (S.R.O. No. 319 of 1984) regarding exemption on purchases of coir yarn

The High Court examined whether the revision-petitioner, referred to as "the assessee," was entitled to exemption under Notification (S.R.O. No. 319 of 1984) for purchases of coir yarn during the assessment year 1983-84. The notification exempted purchases of coir yarn from a certain date in 1984. The assessee argued that the closing stock of 1983-84, deemed as part of the total turnover for 1984-85, should be considered as purchases for the latter year and thus exempt under the notification. However, the Court emphasized that exemptions must be proven rigorously and construed strictly. Exemption was available only for purchases made during 1984-85, not those deemed so by fiction.

Issue 2: Application of explanation to section 2(xxvi) of the Kerala General Sales Tax Act, 1963

The Court analyzed the explanation to section 2(xxvi) of the Act, which deems the closing stock of purchases liable to tax as part of the total turnover for the subsequent year. This provision aims to ensure that goods taxable at the point of last purchase are accounted for until sold or acquire last purchase status. The Court clarified that the explanation does not presume that closing stock of one year automatically becomes purchases of the next year. It serves the purpose of including closing stock in total turnover until tax liability arises, rather than creating a presumption of actual purchases.

Issue 3: Determination of tax liability on coir yarn purchases made during different assessment years

The Court highlighted that purchases of coir yarn reflected in the closing stock of 1983-84 and forming part of the total turnover for 1984-85 were taxable in the latter year. The explanation to section 2(xxvi) ensures continuity in accounting for goods until they are sold or become last purchases. The Court emphasized that the purpose of the exemption was not to presume purchases but to prevent goods from escaping taxation until they acquire last purchase status. Consequently, the Court held that the assessee could not claim exemption for purchases made during 1983-84, as they were reflected in the closing stock and part of the total turnover for the subsequent year.

In conclusion, the High Court dismissed the revision petition, ruling against the assessee's claim for exemption under the notification for coir yarn purchases made during the year 1983-84. The judgment underscored the strict interpretation of exemptions and the purpose of the explanation to section 2(xxvi) in ensuring proper tax accounting for goods until they acquire last purchase status.