2011 (8) TMI 996 - HC - VAT and Sales Tax

Review petition - Held that - Even at the review stage, the review petitioner was not willing to concede the true facts before this court. Even after threatening the review petitioner that the court will order heavy cost for trying to mislead the court, only technical arguments are raised without honestly conceding that the beneficiaries of the review petitioner and the holding company are the members of the Dhoot family which fact stands admitted in the affidavit filed by the petitioner. We, therefore, feel the review petitioner is liable to pay cost in this matter. Accordingly, we impose a cost of ₹ 25,000 (rupees twenty five thousand only) on the review petitioner with a direction to them to deposit the same before the High Court Legal Services Committee and produce the receipt in court within 30 days from now.

Summary

Issues:
- Constitutional validity of Section 5(2) of the Kerala General Sales Tax Act
- Nature of relationship between two companies under the same family control
- Assessment of tax liability under Section 5(2) for inter se sales between group companies
- Interpretation of Section 5(2) regarding sales of branded goods to the market

Constitutional Validity of Section 5(2):
The judgment upholds the constitutional validity of Section 5(2) of the Kerala General Sales Tax Act, which authorizes the levy of tax on branded goods at the point of sale by brand name holders. The court affirmed that sales by brand name holders to the market are deemed first sales, attracting tax liability under this provision.

Nature of Relationship Between Companies:
The review petitioner, a subsidiary of M/s. Videocon International Ltd., was found to be the brand name holder of "Sansui" products in India. Despite initial denials, evidence established the close relationship between the two companies under the control of the Dhoot family, leading to the dismissal of claims that the review petitioner was not a subsidiary.

Assessment of Tax Liability for Inter Se Sales:
The court emphasized that the primary purpose of Section 5(2) is to assess sales of branded goods by the brand name holder to the market. Inter se sales between brand name holders, aimed at reducing tax liability, are not intended to be covered by this provision. The assessing officer correctly levied tax on the review petitioner under Section 5(2) for real sales made to the market.

Interpretation of Section 5(2) Regarding Sales of Branded Goods:
In line with a previous judgment, the court clarified that the objective of Section 5(2) is to tax sales of branded goods to the market by the brand name holder. Sales between brand name holders are not within the scope of this provision. The review petition, devoid of merit, was dismissed, and the review petitioner was ordered to pay a cost of Rs. 25,000 for attempting to mislead the court.

The judgment underscores the importance of transparency and honesty in legal proceedings, highlighting the consequences of withholding relevant information. The interconnected relationships within corporate structures were scrutinized to ensure compliance with tax laws, ultimately upholding the assessment of tax liability under Section 5(2) for genuine sales transactions to the market.