2011 (6) TMI 702 - HC - VAT and Sales Tax

Whether the second sale of branded goods can be treated as deemed first sale only when first sale is not by the brand name holder no matter the second sale also happens to be made by the owner of the very same brand name under which the goods are manufactured and marketed? Held that - For the purpose of section 5(2) inter-dealer sales between the brand name holders should be ignored and the last sale by the brand name holder to the market should be treated as deemed first sale for levy of tax and assessment under section 5(2) of the Act. It is immaterial whether there is one sale or more than one sale among brand name holders within the group all of which should be ignored and the last sale by the brand name holder to the market is assessable as deemed first sale under section 5(2) of the Act. We therefore do not find any merit on this ground raised and consequently reject the petitioner s challenge against the assessment confirmed by the Tribunal. The petitioner is entitled to the relief by way of credit and set-off of tax to the extent the petitioner produces evidence regarding collection and remittance of tax by the first sellers i.e. the manufacturers of the goods from the petitioner which are also companies within the same group

Summary

Issues Involved:
Interpretation of section 5(2) of the Kerala General Sales Tax Act, 1963 regarding levy of tax on branded products at the point of sale by the brand name holder.

Analysis:

Issue 1: Interpretation of section 5(2) of the Act
The judgment discusses the introduction of the VAT regime in 2005-06 and the amendment to the Act in 1998 with the inclusion of section 5(2) to levy sales tax on branded products at the point of sale by the brand name holder. The purpose was to prevent tax evasion by ensuring tax collection on genuine wholesale prices of branded goods upon introduction to the market. The case involves a scenario where brand name holders gave brand name rights to sister concerns involved in manufacturing products, leading to a claim for exemption from tax on second sales, which was rejected by the assessing officer, the first appellate authority, and the Tribunal.

Issue 2: Application of section 5(2) to inter-dealer sales within the same group
The petitioner argued that the second sale of branded goods should not be treated as a deemed first sale under section 5(2) when the first sale is also by the brand name holder. The court examined the purpose of the legislation to levy tax on the genuine wholesale price of goods upon introduction to the market. It emphasized that inter-dealer sales between brand name holders within the same group should be disregarded, and the last sale to the market by the brand name holder should be considered as the deemed first sale for tax assessment under section 5(2).

Issue 3: Benefit of set-off under rule 32(13B) of the Kerala General Sales Tax Rules
The judgment acknowledged the benefit of set-off available to the petitioner under rule 32(13B) for tax collected and remitted by the first seller when the second seller is assessed on sales under section 5(2) of the Act. The court held that the petitioner is entitled to credit and set-off of tax upon providing evidence of tax collection and remittance by the first sellers, who are also companies within the same group.

In conclusion, the court dismissed the revision case, upholding the assessment confirmed by the Tribunal, and granted the petitioner the relief of credit and set-off of tax under rule 32(13B) of the Kerala General Sales Tax Rules, subject to the production of necessary evidence.