2010 (11) TMI 878 - HC - VAT and Sales Tax

Whether the Tribunal was justified in cancelling levy of tax under section 5A of the Kerala General Sales Tax Act, 1963? Held that - It is seen from the assessment order that the assessee is given set-off of tax levied on paddy against tax liability on rice and only net amount is allowed set-off from the exemption available in the certificate. In view of the scheme of levy stated as above, it will be perfectly in order to set off the tax liability determined under section 5A also against exemption available under certificate of exemption along with net tax determined on rice after reducing the tax levied on paddy. In other words, the total amount to be set off against exemption granted under certificate should be the tax levied on rice without granting rebate of tax on paddy. The assessing officer is directed to verify the exemption granted for all the years based on the certificate and the scheme suggested above will be applied only if the assessee continued business till full exemption available under certificate is set off as indicated above. Sales tax revision is allowed to the extent indi cated above.

Issues:
1. Justification of cancelling levy of tax under section 5A of the Kerala General Sales Tax Act, 1963.
2. Interpretation of the decision of the Supreme Court in Surendra Modern Rice Mill's case.
3. Application of tax exemption on the sale of products manufactured by a rice mill.
4. Assessment of tax liability on paddy and rice under section 5A.
5. Set-off of tax liability on paddy against tax on rice and exemption available under the certificate.
6. Verification of exemption granted and application of the scheme for set-off.

Analysis:

The main issue in this case revolves around the cancellation of the levy of tax under section 5A of the Kerala General Sales Tax Act, 1963, and the interpretation of the Supreme Court's decision in Surendra Modern Rice Mill's case. The respondent, a rice mill, enjoyed sales tax exemption on the sale of products like rice and rice bran. The controversy arose because the assessing officer levied and demanded tax on the purchase turnover of paddy, which was then set off against the tax on the sale of rice produced by the mill. The Tribunal, following the Supreme Court decision, cancelled the levy of tax on paddy under section 5A. However, the High Court reversed this decision based on the legislative safeguard against the multiplicity of tax levies on both paddy and rice falling under declared goods.

The court highlighted that the factual position in the case of a rice mill differs from other cases considered by the Supreme Court. While the Supreme Court applied a decision regarding the levy of tax on ingots to the rice mill's case, the legislative framework provides protection against multiple tax levies on paddy and rice. The court emphasized that tax on paddy should be levied under section 5A if the conditions are satisfied, especially when the purchase is from unregistered dealers and rice is manufactured from the procured paddy. The court referenced a previous judgment to support the levy of tax on paddy for an industrial unit enjoying sales tax exemption on rice products.

Regarding the set-off of tax liability on paddy against tax on rice and the exemption available under the certificate, the court directed the assessing officer to set off the tax liability determined under section 5A against the exemption available in the certificate without granting a rebate of tax on paddy. This scheme should be applied if the assessee continues business until the full exemption available under the certificate is set off. The court allowed the sales tax revision to the extent indicated above, emphasizing the proper application of the set-off scheme and verification of the exemption granted.

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