2008 (2) TMI 829 - HC - VAT and Sales Tax

Liability for tax under section 5A of the Act on the purchase of goods manufactured by an exempted unit in the appellant s brand name - Held that - In this case since the supplier is entitled to exemption on their sales by virtue of another notification issued under section 10 of the Act, there was no necessity for the appellant to issue any declaration in terms of sub-section (2A) of section 5 for the seller to claim exemption. However, all the conditions of section 5(2B) are satisfied inasmuch as the appellant has purchased and despatched the branded goods to outside the State otherwise by way of inter-State sale and since the supplier has not paid sales tax on their sales by virtue of exemption granted to them, the appellant is liable to pay tax under section 5(2B) of the Act. Therefore, even if the first point raised is answered in favour of the appellant, the appellant has no escape from liability by virtue of operation of section 5(2B) of the Act.

Summary

Issues:
- Challenge against clarification order under section 59A of the Kerala General Sales Tax Act, 1963 regarding liability for tax under section 5A on purchase of goods manufactured by an exempted unit in the appellant's brand name.
- Appellant's liability under section 5A of the Act.
- Appellant's liability under section 5(2B) for payment of sales tax by the brand-name holder.

Analysis:

1. Challenge against Clarification Order under Section 59A:
The appellant contested the clarification order issued by the Commissioner of Commercial Taxes under section 59A of the Kerala General Sales Tax Act, 1963. The specific challenge was directed towards the decision on question No. 1(b) concerning the appellant's liability for tax under section 5A of the Act on the purchase of goods manufactured by an exempted unit in the appellant's brand name. The Commissioner clarified that the appellant would be liable to pay tax under section 5A(1)(c) when goods are dispatched outside the State, except as a direct result of sale or purchase in the course of inter-State trade or commerce. The appellant challenged this order under section 40 of the KGST Act.

2. Appellant's Liability under Section 5A:
The court examined the appellant's liability under section 5A of the Kerala General Sales Tax Act. The appellant, a registered dealer marketing products under their brand name, purchased goods from an exempted industrial unit in the Cochin Export Processing Zone. The Commissioner held that since the manufacturer enjoyed sales tax exemption, the appellant would be liable to pay tax under section 5A(1)(c) when dispatching goods outside the State. The court upheld the Commissioner's order, emphasizing that the appellant's liability under section 5A was established due to the taxable nature of the goods and the exemption granted to the manufacturer.

3. Appellant's Liability under Section 5(2B):
The court further analyzed the appellant's liability under section 5(2B) of the Act, which pertains to payment of sales tax by the brand-name holder when goods are dispatched outside Kerala otherwise than by way of sale in the course of inter-State trade or commerce. While the appellant did not issue a declaration to the manufacturer under section 5(2A), the Commissioner determined that the appellant was liable under section 5(2B) as all conditions were met, and the supplier had not paid sales tax due to exemption. Therefore, the appellant was deemed liable to pay tax under section 5(2B) despite the outcome of the earlier issue. The court dismissed the appeal based on these findings.

In conclusion, the High Court of Kerala upheld the Commissioner's order regarding the appellant's liability under sections 5A and 5(2B) of the Kerala General Sales Tax Act, dismissing the appeal on both issues.