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TMI Blog2010 (6) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... Act read with rule 18(3) of the Rules and under section 9(2) of the CST Act and also issued notice in form No. 6 under rules 17A(2), 37 and 38 of the KST Rules on March 3, 2004. The respondent assessed the total taxable turnover and disallowed reimbursement of Rs. 19,36,999 claimed under section 5A of the KST Act by his order dated March 3, 2004. The petitioner also filed a rectification letter under section 25A of the KST Act on March 17, 2004. Being aggrieved by the order of the respondent, the petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals), City Division, Bangalore challenging, inter alia, disallowance of reimbursement under section 5A as unjustified, by contending that the definition of "sale" encompasses branch transfer as per Explanation 4 of section 2(1)(t) of the Act. The Joint Commissioner, however, dismissed the appeal by order dated September 3, 2004 against which, an appeal was preferred before the Appellate Tribunal in S.T.A. No. 2582 of 2004 which was also dismissed by order dated August 6, 2007. Being aggrieved by the said order the petitioner has filed this revision petition by raising the following questions of law: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 5A of the Act as the intention of the Legislature was to extend certain benefits with regard to component parts and consumables. Per contra, the learned Government Advocate has contended that in the instant case, the manufactured goods were sold not within the State but to the purchasers outside the State and that as between the petitioner/ company in Karnataka and its other branches there was no sale as such but only stock transfer and therefore there was no compliance with the conditions mentioned under section 5A of the KST Act and the Tribunal, therefore, rightly disallowed reimbursement under the said section which order does not call for any interference in this revision petition. She has also relied upon the decisions of this court rendered in the case of Sipani Fibres v. State of Karnataka reported in [1993] 91 STC 261 and the case of B.V. Aswathaiah & Bros. v. State of Karnataka [2010] 31 VST 496 (Karn), which decision has referred to the decision in Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 rendered by the apex court to contend that since there has been no sale, the reimbursement cannot be granted to the petitioner-assessee under section 5A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich such inputs are purchased, either due to cessation of his manufacturing activity or for any other reason, but has not sold away such inputs, he shall be liable to pay the difference between the tax payable at the rate specified under section 5 and the tax computed at the rate of two or three per cent, as the case may be, on the turnover relating to the sale of such quantity of these inputs to him as have remained unutilised with him for the declared purpose at the end of the period specified above. (3) If any person,- (i) not having his manufacturing unit inside the State, purchases any inputs and claims reimbursement under sub-section (2), or (ii) having his manufacturing unit inside the State and claiming reimbursement on purchase of any inputs under sub-section (2), sells away such inputs contrary to such claim, the assessing authority, after giving such person, a reasonable opportunity of being heard, shall, by order in writing, impose upon him by way of penalty a sum, which shall not be less than double the amount of tax leviable under section 5 on the sale of the inputs so purchased, but which shall not exceed three times the amount of such tax; (iii) having his manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture, either by itself or in combination with other raw materials; or (b) a processing or any other chemical solvent (including chemicals used for testing, analysis or research) used in the solvent extraction process or a catalyst required in the manufacturing process, but it does not include fuels and consumable stores of similar type. (4) The expression "consumables" does not include petroleum products falling under serial number 11A of Part F, serial number 12 of Part M and serial number 5 of Part P of the Second Schedule. Explanation II.-For the purpose of this section, the expression 'tax payable', shall not include the tax payable under section 6B of the Act." Chapter 3 of the KST Act deals with incidence and levy of tax. Section 5 as it then stood states that every dealer shall pay for each year, tax on his taxable turnover at the rate of ten per cent at the point of first sale. Section 5A speaks about the reimbursement of tax on industrial inputs. It states that if a registered dealer purchases industrial input liable to tax under section 5 from another registered dealer for use by the former as a component part or raw material or packing material of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture HDPE tapes "for sale" as the buyer never "sold" any HDPE tapes and the manufacture of tapes by the buyer (dealer) was not meant for sale to anyone as HDPE tapes were at the most an intermediate product captively consumed in the manufacture of the fabric. The Division Bench further held as follows (page 266 in 91 STC): ". . . The idea is to give the benefit of section 5A(1) to the industrial input meant to be used in the manufacture of goods in the State; the manufacture is to be inside the State; but said goods are to be manufactured for sale. If the manufacture is not for sale then section 5A(1) cannot be availed of, at all by the purchaser of the inputs. If taxable goods are manufactured inside the State, though the said goods need not be sold inside the State, but meant for sale anywhere, benefit of section 5A(1) can be availed of, by the dealers. 'Intention to manufacture inside the State for sale' are the crucial words, which cannot be ignored while construing section 5A(1). If the purchaser of the industrial input had no intention at all to manufacture taxable goods 'for sale', furnishing of a declaration in form No. 37 by him would be circumventing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within the State,- (i) in the case of specific or ascertained goods, at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. (c) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to have taken place in the State, if the goods are within the State at the time of such transfer, irrespective of the place where the agreement for works contract is made, whether the assent of the other party is prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of goods; a transfer of title in the goods and followed by delivery of goods by transferor to the transferee. Consequently, the transferor would lose all right, title and interest in the goods. Therefore, there has to be a delivery of goods by the seller to the purchaser pursuant to the transfer of ownership of the goods which has to take place during the course of trade or business and for which there is a consideration fixed. In the instant case, the authorities including the Tribunal has held that there is stock transfer of the goods manufactured by the petitioner to its branches and that such a stock transfer does not come within the definition of the term "sale" under the Act. According to the said authorities stock transfer of the goods in the instant case outside the State are otherwise by way of sale and therefore, reimbursement of tax is not permissible with regard to the goods which are the subject-matter of stock transfer and that if the sale has taken place within the State, then only the benefit of section 5A is applicable. However, on a reading of the judgment of this court in Sipani Fibres [1993] 91 STC 261 it becomes clear that the sale need not take place withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would have constituted a part of the total turnover". In the said decision, the judgment of the apex court in Hotel Balaji's case [1993] 88 STC 98 is cited as follows (pages 142 and 143 in 88 STC): ". . . The levy created by the said provision is a levy on the purchase of raw material purchased within the State which is consumed in the manufacture of other goods within the State. If, however, the manufactured goods are sold within the State, no purchase tax is collected on the raw material, evidently because the State gets larger revenue by taxing the sale of such goods (The value of manufactured goods is bound to be higher than the value of the raw material). The State Legislature does not wish to-in the interest of trade and general public-tax both the raw material and the finished (manufactured) product. This is a well-known policy in the field of taxation. But where the manufactured goods are not sold within the State but are yet disposed of or where the manufactured goods are sent outside the State (otherwise than by way of inter-State sale or export sale) the tax has to be paid on the purchase value of the raw material. The reason is simple: if the manufactured go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se than by way of sale or are consigned to manufacturer's own depots (or to the depots of his agents) outside the State of Gujarat. What in effect the State says is this: 'Raw material when purchased is taxable but I won't tax the raw material if you sell the goods manufactured out of such raw material within the State because I derive larger revenue there; I do not want to tax both the raw material and the manufactured goods, in the interest of trade and public. But if you dispose of the manufactured goods in some other manner, I will tax the purchase of raw material because there is no reason why I should forego the purchase tax due to raw material, when I am not getting any revenue from your method of disposal or dispatch of manufactured products'. There is nothing objectionable in the State saying so. It can indeed rely on the principle of the decision of this court in Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax reported in [1992] 87 STC 186 (SC). . ." In the case of Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax reported in [1992] 87 STC 186, the apex court, while dealing with rules 41 and 41A of the Bombay Sales Tax R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ashtra, but were despatched to out-State branches and agents and sold there, no sales tax can be or is levied by the State of Maharashtra. The State of Maharashtra gets nothing in respect of such sales effected outside the State. In respect of such sales, the rule-making authority could well have denied the benefit of set-off. But it chose to be generous and has extended the said benefit to such out-State sales as well, subject to deduction of one per cent of the sale price of such goods sent out of the State and sold there. Therefore, the apex court in the said case clearly held that the State of Maharashtra had no legal right to collect sales tax in respect of sales made outside the State of Maharashtra, but by virtue of rules 41 and 41A of the Bombay Sales Tax Rules, a concession was shown and a setoff was given in respect of out State sales as well which was a generous benefit extended by the State. Therefore, on a reading of the aforesaid judgments of the apex court it becomes clear that with regard to sales made within the State and in respect of which sales tax was remitted, the benefit of reimbursement of purchase tax to the manufacturing dealer under section 5A of the KST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods should have been a subject-matter of levy of tax under section 5 of the KST Act, i.e., sold within the State. It is only then, the reimbursement under section 5A of the Act arises. From the aforesaid discussion what becomes apparent is that "stock transfer" or "a consignment sale" by an assessee who is a manufacturer does not come up within the definition of "sale " and in the instant case, it is held by all the authorities that stock transfer of the goods by the assessee does not come within the definition of "sale" and the petitioner is not entitled to the benefit of section 5A of the Act since there is no sale at all in the instant case with regard to the quantity of goods which are a subject-matter of stock transfer. However, such of the goods which are not a subject-matter of stock transfer and which come within the definition of "sale", then in that case, if the sale has taken place within the State of Karnataka, then applying the reasoning of the apex court in Hotel Balaji's case [1993] 88 STC 98, the petitioner would be entitled to the benefit of the provision under section 5A of the Act. The facts and the ratio in the decision of the apex court in Assessing Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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