2006 (6) TMI 478 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of section 5A of the Kerala General Sales Tax Act, 1963 regarding the tax liability on water charges paid by a public sector undertaking.
- Application of legal principles from previous court decisions in determining tax liability on consumed goods.
- Relevance of apex court judgments in overruling previous decisions and establishing the correct interpretation of tax provisions.

Analysis:
The tax revision case before the Kerala High Court involved the tax liability of a public sector undertaking, Cochin Shipyard Limited, for water charges paid during the assessment year 1981-82. The assessing authority noted that the assessee had paid significant water charges but had not declared this amount as taxable turnover under section 5A of the Act. The matter proceeded to the Deputy Commissioner (Appeals) and then to the Tribunal, where the appeal was partly allowed based on a previous court decision in Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd. The Tribunal held that the water consumed in the manufacturing process did not contribute to the end-product and thus was not subject to tax under section 5A.

However, the State challenged this decision in revision, arguing that subsequent apex court rulings had overruled the Thomas Stephen case and clarified that even if water is not used in the manufacturing process, it is still liable for purchase tax under section 5A. On the other hand, the assessee contended that only water used in the manufacture of the end-product should be taxable under section 5A. The court referred to the relevant provisions of section 5A, emphasizing the tax liability on goods consumed in manufacturing or used in any other manner not by way of sale.

The apex court's decision in Nandanam Construction Company's case was pivotal in clarifying the scope of section 5A and overturning previous interpretations. The court highlighted that the intention of the Legislature was to levy purchase tax on goods consumed either in manufacturing for sale or in any other manner. It was established that once goods are utilized and cease to exist in their original form for sale or purchase, they become liable for tax under section 5A. Therefore, the court concluded that even if water was consumed otherwise and not in the manufacturing of the end-product, it falls under the purview of section 5A, making the water charges paid by the assessee exigible to purchase tax.

As a result, the revision was allowed, setting aside the Tribunal's order and restoring the assessing authority's decision to include the water charges in the taxable turnover under section 5A of the Act. The judgment reaffirmed the application of legal principles from apex court decisions in interpreting tax provisions and determining the tax liability on consumed goods, emphasizing the legislative intent behind such provisions.