IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 14TH DECEMBER 2009 / 23RD AGRAHAYANA 1931 ST.Rev..No. 269 of 2009() ------------------------- TA.220/2008 of S.T.A.T.ADDL.BENCH,TVM. .................... PETITIONER/PETITIONER/PETITIONER/ASSESSEE ------------------------------------------------------------- M/S.COMBINED FOODS PVT.LTD., KOTTIYAM P.O., KOLLAM. BY ADV. SRI.V.V.ASOKAN SRI.K.S.SAJEEV KUMAR RESPONDENT(S): RESPONDENT/RESPONDENT/REVENUE -------------------------------------------- STATE OF KERALA, REPRESENTED BY JOINT COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY G.P. SRI.MOHAMMED RAFIQ THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ALONG WITH S.T.REV. NO.270/2009 ON 14/12/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... S.T.Rev. Nos.269 & 270 of 2009 .................................................................... Dated this the 14th day of December, 2009. JUDGMENT Ramachandran Nair, J. The main question raised in the connected revisions filed by the assessee is whether they are liable to pay tax under Section 5(3)(ii) of the KGST Act for the differential tax on purchase of various items used in the manufacture of Ice Cream which was stock transferred to outside State for sale in other States. Petitioner is a manufacturer of Ice Cream under brand name and for manufacture of Ice Cream, petitioner purchased various raw materials and packing materials by availing concessional rate under Section 5(3)(i) of the KGST Act. According to the petitioner, prior to the amendment by Finance Act, 2000 with effect from 1.4.2000, the proviso to Section 5(3)(i) made a condition that the items manufactured or packed with the raw materials or packing materials purchased by availing concessional rate should be sold within the State or from Kerala as interstate sale, so that the product suffers 2 sales tax in Kerala either under the KGST Act or under CST Act. However, from 1.4.2000 the proviso was deleted and consequently even if the item manufactured or packed with raw materials or packing materials purchased by availing concessional rate is stock transferred outside the State, still the differential tax on raw material or packing material cannot be demanded from the manufacturing unit which availed the concessional rate under Section 5(3)(i) of the Act. The lower authorities, however, rejected the claim probably because the main clause talks about sale of the finished products as a condition for eligibility for concessional rate on raw material or packing material. We have heard counsel appearing for the assessee and the Government Pleader appearing for the respondent. 2. The relevant provision after the amendment with effect from 1.4.2000 is extracted hereunder for easy reference: “S.5(3)(i) Notwithstanding anything contained in sub- section (1) the tax payable by a dealer in respect of any sale of industrial raw materials, component parts, containers or packing materials which are liable to tax at a rate higher than three per cent when sold to any industrial unit for use in the production of finished products inside the State for sale or for packing of such finished products inside the State for sale, as the case may be, shall be at the rate of three per cent on the taxable turnover relating to such industrial raw materials, component parts, containers, or packing materials, 3 as the case may be. Provided that the provisions of this clause shall not apply to any sale unless the dealer selling the goods furnishes to the assessing authority in the prescribed manner declaration duly filled in and signed by the dealer to whom the goods are sold containing the prescribed particulars in the prescribed form. (ii) Where any dealer, after purchasing any goods by furnishing a declaration as mentioned in the proviso to clause (i), fails to make use of the same he shall be liable to pay the tax that would have been payable by him, had the declaration not been furnished, less the tax, if any, paid by him and the same shall be levied and collected as if it is a tax due from him.” The first proviso that was there in Section 5(3)(i) upto 31.3.2000 provided that an industry availing concessional rate for purchase of raw materials or packing materials should sell the products in Kerala or from Kerala so that tax is paid either under the local Act or under the CST Act for availing concessional rate on raw material or packing material used for manufacture or packing of such goods. However, the said proviso was deleted and the purpose of deletion as conveyed by the Minister while presenting the Budget on 14.3.2003 is as follows: “202. In order to promote manufacturing activity within the State, the concessional rate of three per cent under Section 5(3) of the KGST Act will be made applicable to all purchases of raw materials used for manufacture of goods within the State irrespective of whether the product is 4 liable to tax or not. Additional revenue of Rs.2 Crores is expected by preventing trade diversion.” 3. It is obvious from the above that the amendment was made to take away the specific condition that existed until then, which provided that products manufactured or packed with the raw material or packing material purchased at concessional rate should suffer tax either under the KGST Act or CST Act. Therefore, in our view, after the deletion of the above proviso with effect from 1.4.2000, the industrial units purchasing raw materials or packing materials at concessional rate are not liable to pay tax under Section 5(3)(ii) even if the goods manufactured or packed with the raw material or packing material purchased at concessional rate of tax is stock transferred out of the State or exported from the State. The next question to be considered is whether the main clause still imposes the condition that the goods produced or packed should be sold in or from Kerala for availing concessional rate for the purchase of raw materials or packing materials for its manufacture or packing. In our view, the only condition for availing concessional rate is manufacture or packing of goods within the State and it's sale may take place anywhere. The production or 5 packing of goods for sale only means that the goods are for the purpose of trade and not for own consumption. In other words, if goods are manufactured or packed for own consumption and not for sale, then still probably the industrial unit purchasing raw material or packing material for manufacture or packing of goods other than for sale will not be entitled to concessional rate. We, therefore, allow the revisions by reversing the orders of the Tribunal and that of the first appellate authority and direct the Assessing Officer to revise the assessment by cancelling the demand of differential tax under Section 5(3)(ii) of the Act for the raw materials or packing materials purchased at concessional rate which are used in the manufacture or packing of goods for stock transfer. 4. The next question pertains to assessment of old freezers which is an item taxable under Vth Schedule. Petitioner's case is that the freezers were purchased from SSI units by availing concessional rate and, therefore, they are entitled to exemption on second sales. Exemption on second sales will be available on Vth Schedule items only if tax is paid at the rate applicable on sale by a dealer to customer or to any other dealer not for sale. Generally speaking, second sale 6 exemption is available only when full rate of tax is paid on the purchase in the State. However, question to be considered is whether purchase from SSI unit by availing concessional rate will be sufficient compliance of payment in terms of column 8 of the Vth Schedule. Since none of the authorities have considered the scope of exemption claimed by the assessee with reference to documents, we set aside the orders of the Tribunal and that of the first appellate authority on this issue and remand the matter to the Assessing Officer for reconsideration after giving opportunity to the assessee. The S.T. revisions are allowed to the extent indicated above. C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms