2005 (7) TMI 622 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of the provision under section 5(3) of the Kerala General Sales Tax Act regarding concessional rate of tax for sale of gunny bags to a manufacturer of cattle feed.
- Determining whether the exemption of cattle feed from tax payment affects the entitlement to a concessional rate of tax for gunny bags sold for packing the exempted cattle feed.

Analysis:
The case involved a dispute regarding the entitlement to a concessional rate of tax for the sale of gunny bags to a manufacturer of cattle feed, where the cattle feed itself was exempted from tax payment. The assessee, a manufacturer and dealer in gunny bags, had sold gunny bags to a dealer in cattle feed against valid form 18 declarations. The tax authorities rejected the claim of concessional rate of tax, stating that the assessee was not entitled to it as the cattle feed was exempted from tax payment under a notification. The Tribunal, however, held that the expression "goods liable to tax" and "exempted goods" are distinct, and gunny bags sold for packing exempted cattle feed are entitled to the reduced rate of tax.

The key provision in question was section 5(3) of the Kerala General Sales Tax Act, which provides for a concessional rate of tax for certain sales. The section specifies that the concessional rate shall not apply if the sale of finished products is not liable to tax under the Act. In this case, although cattle feed was a taxable item, it was exempted from tax payment by a notification. The Tribunal's decision was supported by legal principles emphasizing that liability to taxation is different from the actual payment of tax. The Tribunal correctly interpreted the provision to allow the concessional rate for gunny bags sold for packing exempted cattle feed.

The judgment referred to relevant legal precedents to support the interpretation of tax liability and exemption. The Supreme Court's decision highlighted the distinction between liability to taxation and actual payment of tax, emphasizing the legal situation of tax liability. Another case cited clarified that liability to pay tax is different from the quantification of tax payable, emphasizing the statutory charge for tax liability. Applying these principles, the Court concluded that the assessee was entitled to the concessional rate of tax for the sale of gunny bags to the manufacturer of cattle feed, despite the exemption of cattle feed from tax payment.

In conclusion, the Court upheld the Tribunal's decision, ruling in favor of the assessee and dismissing the tax revision case filed by the department. The judgment clarified that the exemption of cattle feed from tax payment did not disentitle the assessee from claiming the concessional rate of tax for the sale of gunny bags. The decision was based on a thorough analysis of the relevant legal provisions and established principles regarding tax liability and exemptions.