2014 (11) TMI 245 - HC - VAT and Sales Tax

Levy of 16 per cent tax on the sale of deep freezers - Held that - Tribunal, the last fact-finding authority, in our opinion, has misconceived the principles underlying the virtue of brevity. In annexure C order it merely says that since the appellant purchased deep freezer from exempted class of dealers and no tax was paid, the assessment levying 16 per cent tax on its sale is in accordance with law. The Tribunals would do well to examine the facts of the transaction and relate it to the law applicable, being the last fact-finding authority, so as to give a clearer picture. In the absence of such examination, we have thoroughly examined the assessment order as such. The entire controversy revolves around the sale of deep freezers and the levy of 16 per cent on turnover of ₹ 5,15,860. Admittedly on first sale of deep freezers no tax was payable since the sale was by SSI units, eligible for exemption. The discussion above would show that if the assessee purchased it for sale, then the subsequent sale if to another registered dealer for sale, then the liability to tax on such sale would be 12 per cent and any subsequent sale which is the last sale would be leviable at four per cent. However, if the assessee s sale is to a registered dealer not for sale or to an unregistered dealer, then necessarily the assessee s liability would be 16 per cent. If the assessee has purchased it as capital goods and effecting sale of used freezers, whatever be the period of use, then tax would be payable only on the amount of such sale as indicated above. The contention that the assessee leases out the deep freezers and since the definition of sale includes a lease cannot hold good. The transfer of right to use resulting from a transaction of lease is taxable at the rate of eight per cent under sub-clause (iii) of sub-section (1) of section 5 of the Act. Assessment order also does not give us a complete picture. The action of the assessing officer in adding gross profit and the submission of the assessee that they are intermediary dealers within the State would make the transactions fall either under the first limb of the proviso or the second limb of the proviso; depending upon to whom the sale is effected. However, we also find from the reconciliation statement of the assessee extracted in page 5 of the assessment order that depreciation has been claimed on deep freezers and loss of sales on fixed assets had been deducted to the profit and loss account. This reveals an improper marshalling of facts by all the authorities concerned. Whether the assessee is an intermediary seller and if so whether the sale is to a registered dealer for sale or otherwise has essentially to be determined before the rate of tax leviable is decided. In such circumstances, the sale price of the assessee would be relevant for determination of the turnover on which the rate of tax is to be applied. There is no room for deducting depreciation or loss because then it is a sale of goods and not sale of fixed assets. However, if the assessee is making second hand sales of deep freezers, then again what is taxable is the consideration for such sale and there can be no addition of gross profit to the purchase turnover. We are afraid that the authorities below have not examined the facts in the proper perspective - Matter remanded back - Decided in favour of Assessee.

Summary

Issues Involved:
1. Levy of 16% tax on the sale of deep freezers.
2. Interpretation of the fourth proviso under sub-clause (v) of section 5 of the Kerala General Sales Tax Act.

Detailed Analysis:

Issue 1: Levy of 16% tax on the sale of deep freezers

The assessee, a manufacturer and dealer in ice-creams, challenged the levy of 16% tax on the sale of deep freezers, which were purchased from SSI units eligible for exemption. The assessee contended that the first point of sale was exempted, and hence, the liability should be for the second point of sale, which should be taxed at 4% as per the Fifth Schedule of the Act.

The Tribunal upheld the fast track team's decision, which found that since the assessee's purchase had not suffered tax, the levy of 16% was in accordance with the law. The assessee argued that the exemption on the first sale should not shift the levy to a higher rate for subsequent sales.

Issue 2: Interpretation of the fourth proviso under sub-clause (v) of section 5 of the Act

The court framed the question of law to determine the correct interpretation of the fourth proviso under sub-clause (v) of section 5 in the context of multi-point levy of tax when the first sale is exempted.

The court examined the provisos under sub-clause (v) and the relevant columns in the Fifth Schedule. It concluded that the fourth proviso has two limbs, each with different ramifications:

1. First Limb: If no tax is payable on the first sale within the State to a registered dealer for sale, the subsequent sale by the purchasing dealer within the State is taxable at 12% as per column (4) of the Fifth Schedule. Any further sale, being the last sale, is taxable at 4% as per column (6).

2. Second Limb: If there are no two points of sale within the State, the subsequent sale by the purchasing dealer to a person other than a registered dealer or to a registered dealer not for sale is taxable at 16% as per column (8), deeming it to be both the first and last sale within the State.

The court emphasized that the proviso shifts the levy in cases where the first sale is exempted, ensuring that the multi-point levy is maintained. The distinction between "liability" and "payability" was highlighted, referencing the Supreme Court's decision in Azadi Bachao Andolan, which clarified that liability to tax remains unaffected by exemption, though the payability is extinguished.

Application to the Case:

The court found that the Tribunal had not thoroughly examined the facts and merely upheld the 16% levy without proper analysis. The court noted that if the assessee was an intermediary dealer, the subsequent sale would be taxable at 12% if to a registered dealer for sale, and any last sale at 4%. If the sale was to a registered dealer not for sale or to an unregistered dealer, the rate would be 16%.

The court also addressed the issue of adding gross profit to the purchase value for second-hand deep freezers, deeming it erroneous. It clarified that tax should be levied on the actual sale amount of second-hand goods, not on an inflated value.

Conclusion:

The revision petition was allowed, and the orders of the authorities below were set aside. The matter was remanded to the assessing authority for de novo consideration, in accordance with the law and the court's observations. The correct interpretation of the fourth proviso under sub-clause (v) of section 5 was provided, ensuring that the multi-point levy is applied appropriately in cases of exempted first sales.