2009 (12) TMI 868 - HC - VAT and Sales Tax

Whether assessee are liable to pay tax under section 5(3)(ii) of the Kerala General Sales Tax Act, 1963 for the differential tax on purchase of various items used in the manufacture of ice-cream which was stock transferred to outside State for sale in other States? Held that - If goods are manufactured or packed for own consumption and not for sale, then still probably the industrial unit purchasing raw material or packing material for manufacture or packing of goods other than for sale will not be entitled to concessional rate. We, therefore, allow the revisions by reversing the orders of the Tribunal and that of the first appellate authority and direct the assessing officer to revise the assessment by cancelling the demand of differential tax under section 5(3)(ii) of the Act for the raw materials or packing materials purchased at concessional rate which are used in the manufacture or packing of goods for stock transfer. The question to be considered is whether purchase from SSI unit by availing of concessional rate will be sufficient compliance of payment in terms of column 8 of the Fifth Schedule. Since none of the authorities have considered the scope of exemption claimed by the assessee with reference to documents, we set aside the orders of the Tribunal and that of the first appellate authority on this issue and remand the matter to the assessing officer for reconsideration after giving opportunity to the assessee. The sales tax revisions are allowed to the extent indicated above.

Summary

Issues:
1. Liability to pay tax under section 5(3)(ii) of the Kerala General Sales Tax Act, 1963 for the differential tax on purchase of items used in the manufacture of ice-cream stock transferred to outside State.
2. Interpretation of the relevant provisions after the amendment with effect from April 1, 2000 regarding concessional rates on raw materials and packing materials.
3. Exemption on second sales of old freezers purchased from SSI units and compliance with the Fifth Schedule.

Analysis:
1. Liability under section 5(3)(ii) for ice-cream manufacture: The main issue raised was whether the assessee is liable to pay tax under section 5(3)(ii) for the differential tax on items used in manufacturing ice-cream stock transferred outside the State. The court noted the deletion of the proviso to section 5(3)(i) from April 1, 2000, which previously required products to be sold in Kerala or from Kerala for concessional rates. After the deletion, industrial units purchasing raw materials at concessional rates are not liable to pay tax under section 5(3)(ii) even if goods are stock transferred out of the State. The court clarified that the only condition for concessional rate eligibility is manufacturing or packing within the State, and sale can occur anywhere. The revisions were allowed, directing the cancellation of the demand for differential tax.

2. Interpretation of amended provisions: The court analyzed the purpose of the amendment made in 2003 to promote manufacturing activity within the State by applying the concessional rate to all purchases of raw materials used for manufacturing goods, irrespective of the product's tax liability. The court emphasized that the deletion of the proviso removed the requirement for products to suffer tax under local or CST Acts. It was clarified that concessional rates apply as long as goods are manufactured or packed within the State, regardless of the sale location. The court reversed the lower authorities' decisions and directed the assessing officer to revise the assessment accordingly.

3. Exemption on second sales of old freezers: The issue regarding exemption on second sales of old freezers purchased from SSI units was raised. The petitioner claimed exemption based on the purchase at a concessional rate. The court highlighted that second sale exemption on Fifth Schedule items requires full tax payment on purchase in the State. Since the authorities did not consider the exemption scope with reference to documents, the court set aside their decisions and remanded the matter to the assessing officer for reconsideration after providing an opportunity to the assessee. The sales tax revisions were allowed in this regard.