2007 (8) TMI 680 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, has not the Appellate Tribunal gone wrong in holding that the reduction in rate of tax on the sales turnover of the rubber goods by G.O. (Ms) No. 124/88/ID dated August 31, 1988 is not a general reduction within the meaning of section 8(2A) of the CST Act? Is not the reduction in the rate of tax on the sales turnover of rubber goods provided by annexure A order unconditional, not in specified circumstances, not at specified stages and not with reference to turnover of goods and therefore a general reduction in the rate of tax as provided under section 8(2A) of the CST Act? Held that - In the instant case, the order passed by the State Government granting certain exemption is only on finished rubber goods produced/manufactured in factories in Kerala and it is only those industries which will be entitled for reduced rate of tax, in such circumstances, by no stretch of imagination, the said notification can be said to be a notification granting general exemption from payment of sales tax liability. In that view of the matter the assessee cannot press into service the provisions of section 8(2A) of the Act for grant of reduced rate of tax under the CST Act. Therefore, we are of opinion that assessing authority as well as the Tribunal was fully justified in rejecting the claim of the assessee. In that view of the matter, the sales tax revision petitions require to be rejected and accordingly, it is rejected. The questions of law framed are answered against the assessee.

Issues Involved:
1. Legality of the order passed by the Kerala Sales Tax Appellate Tribunal rejecting the claim for reduced rate of tax on inter-State sales.
2. Interpretation of the exemption/reduction in tax rate under G.O. (Ms) No. 124/88/ID dated August 31, 1988.
3. Applicability of Section 8(2A) of the Central Sales Tax Act, 1956.

Issue-Wise Detailed Analysis:

1. Legality of the Order Passed by the Kerala Sales Tax Appellate Tribunal:
The petitioner challenged the legality of the order passed by the Kerala Sales Tax Appellate Tribunal, which rejected the claim for a reduced rate of tax on inter-State sales as provided under Section 8(2A) of the CST Act. The Tribunal had upheld the decision of the assessing authority and the first appellate authority, which had both rejected the petitioner's claim for reduced tax rates on the grounds that the exemption granted under the Government Order was not a general exemption but was subject to specific conditions.

2. Interpretation of the Exemption/Reduction in Tax Rate under G.O. (Ms) No. 124/88/ID dated August 31, 1988:
The petitioner, a small-scale industrial unit engaged in the manufacture and sale of tread rubber, argued that the Government Order dated August 31, 1988, provided a general reduction in the rate of tax on the sales turnover of rubber goods to three percent. The petitioner contended that this reduction was unconditional and not restricted to specific circumstances or stages, and therefore should be considered a general reduction under Section 8(2A) of the CST Act. However, the assessing authority and the Tribunal found that the Government Order was intended to encourage the setting up of rubber industries in Kerala and provided specific concessions and incentives to new rubber industries, such as exemption from purchase tax on rubber used in new industries, additional capital subsidy, and reduced sales tax on finished rubber goods produced in Kerala. The Tribunal concluded that the reduction in tax rate was not a general reduction but was conditional and specific to new rubber industries in Kerala.

3. Applicability of Section 8(2A) of the Central Sales Tax Act, 1956:
The core issue was whether the exemption/reduction in tax rate under the Government Order qualified as a general exemption under Section 8(2A) of the CST Act. Section 8(2A) provides that the tax payable under the CST Act shall be nil or calculated at a lower rate if the sale or purchase of goods is exempt from tax generally under the State sales tax law. The Explanation to Section 8(2A) clarifies that an exemption is not considered general if it applies only in specified circumstances or under specified conditions. The court referred to the Supreme Court's decisions in Commissioner of Sales Tax, Jammu and Kashmir v. Pine Chemicals Ltd. and State of Uttar Pradesh v. Hindustan Safety Glass Works (P.) Ltd., which emphasized that a general exemption means that goods are totally exempt from tax without any conditions or specified circumstances. In the present case, the court found that the Government Order was not a general exemption as it provided specific concessions to new rubber industries and was not applicable to all sales of rubber goods generally. Therefore, the petitioner was not entitled to the benefit of reduced tax rates under Section 8(2A) of the CST Act.

Conclusion:
The court upheld the decisions of the assessing authority and the Tribunal, concluding that the Government Order did not provide a general exemption from tax but was conditional and specific to new rubber industries in Kerala. Consequently, the petitioner was not entitled to a reduced rate of tax on inter-State sales under Section 8(2A) of the CST Act. The sales tax revision petitions were rejected, and the questions of law framed were answered against the petitioner.

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