IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY FRIDAY, THE 4TH FEBRUARY 2011 / 15TH MAGHA 1932 ST.Rev..No. 78 of 2010() ------------------------ AGAINST THE ORDER DATED 23/09/2009 IN TA.169,170/2009 IN TA.168/2009 of DY.CMRR.KERALA AGRL.IT & STAT,EKM. .................... REVISION PETITIONER/RESPONDENT/REVENUE ---------------------------------------------------------- STATE OF KERALA REPRESENTED BY JOINT COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY MR.MOHAMMED RAFEEQ, GOVERNMENT PLEADER RESPONDENT(S): APPELLANT/ASSESSEE --------------------------------- M/S.AYYAPPA ROLLER FLOUR MILLS LTD., IV/758, S.KALAMASSERY, COCHIN - 682 033. ADV. SRI.ANIL D. NAIR FOR R THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 04/02/2011, ALONG WITH STRV NOS. 81 & 83 OF 2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- S.T.Rev. Nos.78, 81 & 83 of 2010 --------------------------------- Dated, this the 4rd day of February, 2011 J U D G M E N T Ramachandran Nair, J. These Revision cases are filed by the State challenging order of the Tribunal cancelling assessments made on the respondent assessee for the assessment years 2000-01, 2001-02 & 2002-03. 2. We have heard learned Government Pleader appearing for the State and Shri.Anil D.Nair, learned counsel appearing for the respondent assessee. 3. The respondent is a flour mill, which is engaged in production and sale of wheat products under the brand name “Seven Stars”. A major business of the respondent is milling wheat and supplying maida to Modern Food Industries Ltd. (MFIL), which is manufacturing bread under the brand name “Modern Bread”. The arrangement is that the MFIL will supply wheat to the respondent and the respondent in turn mill the same into various products and they will return only maida, and balance products namely, sooji, S.T.Rev.Nos.78, 81 & 83 of 2010 -2- atta, wheat bran, etc are purchased by the respondent from the MFIL. These products are again sold in packed form with the brand name “Seven Stars”. It is seen that the MFIL instead of purchasing and supplying wheat to the respondent, authorised the respondent to purchase wheat in the account of MFIL and process the same in terms of the agreement entered into between the parties. 4. In the returns filed the respondent claimed second sale exemption on the wheat products namely, sooji, atta, bran etc, on the ground that the purchases are from MFIL. However, the Assessing Officer found that second sale exemption cannot be granted because sales of branded products are deemed first sale taxable under Section 5(2) of the Kerala General Sales Tax Act (hereinafter referred to as the Act for short). The Assessing Officer also treated the supply of wheat by the MFIL to the respondent as purchase and levied purchase tax, which was cancelled in appeal and there is no challenge against the same. However, the Tribunal cancelled assessments under Section 5(2) of the Act, i.e. the assessment on sale by brand name holder, on the technical ground that there is no proposal for assessment under Section 5(2) in the pre-assessment notice. S.T.Rev.Nos.78, 81 & 83 of 2010 -3- 5. During hearing, learned Government Pleader pointed out that except for the year 2000-01, for the other two years there is specific proposal in the pre-assessment notice to make assessment under Section 5(2), and so much so, orders of the Tribunal relating to these two years are patently illegal. Learned counsel for the respondent assessee brought to our notice the assessment order for the year 2000-01, wherein the Assessing Officer made assessment under Section 5(2) without a detailed proposal issued in the pre- assessment notice. Therefore, we have to necessarily interfere with the Tribunal's order for the assessment years 2001-02 and 2002- 03 because they have cancelled the assessments on the wrong assumption that assessments were made under Section 5(2) on the products sold under the brand name without issuing pre- assessment notices with specific proposal. Since pre-assessment notices were issued containing the proposal, the technical flaw found by the Tribunal is incorrect and therefore, the Tribunal's orders for these two years are liable to be set aside. 6. So far as the order of the Tribunal for the year 2000-01 is concerned also, contention of the learned Government Pleader is that even that assessment cannot be set aside by the Tribunal even S.T.Rev.Nos.78, 81 & 83 of 2010 -4- if the same was completed without issuing a proposal for assessment under Section 5(2). Learned counsel for the assessee, on the other hand, contended that assessment made without making a proposal will be a complete violation of Section 17(3) of the Act, because purpose of pre-assessment notice is to afford reasonable opportunity to the assessee. Even though we find force in the contention of the assessee that is accepted by the Tribunal, we feel in this case the assessment cannot be cancelled on this technical ground because entire details were available in the returns filed and in the Form 50B furnished. There is no proposal to make an addition to the turn over, and what they have done in the course of assessment is that they applied the provision under which assessment is to be made. Therefore, the deviation done by the Assessing Officer is only application of legal provision in the assessment of the turn over of purchases and sales of various items. In fact, second sale exemption on the turn over claimed by the assessee was disallowed by stating that the said turn over is taxable under Section 5(2) of the Act. Here again, we agree with the assessee's contention that the assessee should have been given an opportunity to file objection. Learned Government Pleader's S.T.Rev.Nos.78, 81 & 83 of 2010 -5- contention is that the factual position that is sale of products under the band name “Seven Stars”, is not being contested, the issues are only legal, and probably the Assessing Officer would have discussed the legal issues with the assessee at the time of finalisation of the assessment. Even though we agree with the assessee that requirement of notice or an opportunity to file reply or even a proposal before disallowance of second sale exemption claimed by the assessee and making assessment under Section 5(2) is mandatory, we do not think the assessments get invalid on this ground. The effect of the Tribunal's order in cancelling the assessments is such that the cancellation of assessments on the turnover of Brand sales by the Tribunal leaves a vacuum in the assessments in as much as the Tribunal has not exempted second sale exemption to the assessee as claimed by him. In fact, they have not considered the merit of the case. In view of the above findings, we set aside the orders of the Tribunal to the extent relating to assessments of the turn over made under Section 5(2) and remand the matter to the Tribunal for a decision on merits after hearing both sides. We make it clear that since for the two years there are proper pre-assessment notices and S.T.Rev.Nos.78, 81 & 83 of 2010 -6- replies given by the assessee, there is no need for remanding one year case alone by the Tribunal to the Officer for issuing pre- assessment notices and for a decision by him after giving an opportunity to the assessee on the very same question on which the matter has to be decided by the Tribunal on merits for the other two years. In other words, the Tribunal should consider and decide the respondent's liability for tax under Section 5(2) with reference to the facts on record and law, particularly decisions of this Court. We also make it clear that since the MFIL has charged tax on first sale of the products, the respondents should be given credit of such tax if the Tribunal sustains Section 5(2) assessments. (C.N.RAMACHANDRAN NAIR, JUDGE) (BHABANI PRASAD RAY, JUDGE) jg