2006 (9) TMI 521 - HC - VAT and Sales Tax

Summary

Issues: Liability to pay sales tax on the sales turnover of a Benz brand car sold during the year 1998-99.

Analysis:
The main issue in this case is whether the petitioner is liable to pay sales tax on the sales turnover of a Benz brand car sold during a specific year. The petitioner, a registered trader under the Kerala General Sales Tax Act, retained the car purchased as a business asset. The assessing officer treated the sale of the car as a transaction incidental to business and imposed tax. The first appellate authority, however, considered the petitioner's purchase as a local purchase from an importer, categorizing it as a second sale not liable to be assessed. On the contrary, the Tribunal held that without proof of tax payment on the first sale, the petitioner is indeed liable to pay tax.

During the hearing, the petitioner's counsel argued that the Tribunal erred in overturning the first appellate authority's decision, which classified the petitioner's sale as a second sale within the state. The court rejected this argument, emphasizing that not all first sales attract sales tax under the Act. Tax liability arises when the first sale is conducted by a dealer subject to tax obligations. If the previous owner was not a dealer engaged in business and the car was a personal asset, the sale to the petitioner would not incur tax liability. However, if the seller was a dealer, the petitioner needed to provide evidence such as a sale bill or cash memo demonstrating tax payment under the KGST Rules. Since the petitioner failed to produce such proof, the court concluded that the sale by the petitioner constituted the first taxable sale under the Act, given the petitioner's status as a registered dealer conducting business in the state.

Furthermore, the court clarified that under the Act, the definition of "business" encompasses transactions related to trade, commerce, or incidental to such activities. Selling a business asset during the course of business is subject to tax under the KGST Act. Consequently, the court upheld the Tribunal's decision and dismissed the sales tax revision case, affirming the petitioner's liability to pay tax on the sale of the Benz brand car.