2017 (10) TMI 1018 - HC - VAT and Sales Tax

Levy of purchase tax - The stand of the Department is that since the petitioner is not liable to pay tax on sales of treated Rubber wood by virtue of the exemption order, the petitioner cannot have the benefit of S.R.O.No.9/2007 - whether the petitioner is entitled for the benefit of exemption of purchase tax payable under S.5A of Kerala General Sales Tax Act, 1963? - Held that - The petitioner themselves are the manufacturer. They are exempted from payment of sales tax. All manufacturers, who are liable to pay tax either under KGST Act or Central Sales Tax are eligible for exemption. Nobody has a case that the petitioner is not liable to pay tax but for the exemption given to them. Granting an exemption itself would show that the petitioner is liable to pay tax. Non-payment of tax itself will not make the manufacturer ineligible for the benefit of S.R.O.No.9/2007. Since the petitioner is liable to pay sales tax, though they need not pay tax by virtue of exemption, certainly, they would be entitled for the benefit of S.R.O.No.9/2007 - petition allowed.

Summary

Issues:
1. Entitlement of petitioner for exemption of purchase tax under S.5A of Kerala General Sales Tax Act, 1963.
2. Interpretation of notification S.R.O No.9/2007 dated 3.1.2007.
3. Rejection of exemption claim and issuance of assessment orders.

Analysis:

1. The petitioner, a small scale industrial unit manufacturing treated rubber wood and furniture, sought exemption from purchase tax under S.5A of the KGST Act based on a notification issued by the Government. The petitioner was initially found eligible for sales tax exemption for a specific period. A notification, S.R.O No.9/2007, granted exemption from purchase tax on rubber wood used in manufacturing other products, subject to tax liability under either KGST Act or Central Sales Tax Act. The Department rejected the petitioner's claim, arguing that only manufacturers liable to pay tax under the mentioned Acts are entitled to the exemption.

2. The Department's stance was supported by a reference to a previous judgment involving different circumstances. In that case, dealers purchasing goods from exempted small scale industrial units challenged the imposition of purchase tax, contending that since the manufacturers were exempt from sales tax, they should not be liable for purchase tax. However, in the present case, the petitioner is the manufacturer and exempt from sales tax. The Court differentiated the situations, emphasizing that the petitioner's eligibility for exemption under S.R.O No.9/2007 is not negated by their non-payment of tax due to the exemption. As the petitioner is liable to pay sales tax but exempted, they are entitled to the benefit of the notification. Consequently, the Court allowed the writ petitions, quashing the rejection of exemption claim and setting aside the assessment orders.

3. The judgment clarified that the petitioner's eligibility for exemption under the notification was not contingent on actual tax payment but on their liability to pay tax. By upholding the petitioner's entitlement to the exemption despite non-payment due to the exemption, the Court established a precedent for similar cases. The decision highlighted the importance of interpreting tax exemption provisions in favor of manufacturers fulfilling tax liability conditions, even if exempted from actual tax payment.