2006 (8) TMI 569 - HC - VAT and Sales Tax

Summary

Issues:
Levy of tax under section 5A of the Kerala General Sales Tax Act, 1963 on purchase of green tea leaves for production of manufactured tea for export.

Analysis:
The court examined whether the Sales Tax Appellate Tribunal was correct in confirming the levy of tax under section 5A on the purchase of green tea leaves by the petitioner for the production of manufactured tea for export. The petitioner, a Small Scale Industry (SSI) unit, enjoyed sales tax exemption and was entitled to a refund of tax levied on green tea leaves used in the production of manufactured tea, as per the Explanation to the charging entry 150(i) of the Act. The purchases were made from unregistered dealers, and since tax was payable on local and inter-State sales of manufactured tea, the petitioner was exempt from purchase tax under section 5A. The Tribunal upheld the tax levy on green tea leaves under section 5A due to the consumption of these leaves in the production of manufactured tea, even though the export turnover of manufactured tea did not attract sales tax.

The petitioner relied on a previous court decision but the court rejected the argument that green tea leaves and manufactured tea were the same. The court emphasized that green tea leaves and manufactured tea were distinct items with different commercial characteristics. The court highlighted that the charging entry provided for a refund of tax on green tea leaves when tax was levied on the sale of manufactured tea, and exemption under section 5(3) applied only to goods sold or purchased against export orders. Since the petitioner did not have a purchase order for the export of green tea leaves, they were liable to pay tax under section 5A on the purchase turnover of green tea leaves used in the production of manufactured tea for export. The court clarified that the previous decision cited by the petitioner did not establish that green tea leaves and manufactured tea were equivalent, but rather that both were taxable under the Act to prevent a cascading tax effect on the final product.

Based on the above analysis, the court dismissed the tax revision and affirmed the Tribunal's order, concluding that the levy of tax under section 5A on the purchase of green tea leaves for the production of manufactured tea for export was justified.