IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM MONDAY, THE 27TH JULY 2009 / 5TH SRAVANA 1931 ST.Rev..No. 247 of 2008() ------------------------- TA.96/2007 of S.T.A.T.ADDL.BENCH,ERNAKULAM .................... PETITIONER/APPELLANT/ASSESSEE: --------------------------------------- BHARATH PETROLEUM CORPORATION LTD. DR.SALIM ALI ROAD, ERNAKULAM. BY SR. ADV. SRI.ARSHAD HIDAYATULLAH SRI.V.V.ASOKAN SMT.S.AMINA RESPONDENT(S): RESPONDENT/REVENUE: ---------------------------------- STATE OF KERALA, REPRESENTED BY JOINT COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY SPL. G.P. SRI.VINOD CHANDRAN THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 27/07/2009, ALONG WITH STRV NO.112 OF 2009 & STRV NO.137 OF 2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & C.K.ABDUL REHIM, JJ. .................................................................... S.T.Rev. Nos.247 of 2008 & 112 & 137 of 2009 .................................................................... Dated this the 27th day of July, 2009. ORDER Ramachandran Nair, J. The question raised in the revisions filed by the two oil companies both under the control of the Central Government is whether LPG bottled and sold by them in their cylinders under brand names attract tax under Section 5(2) of the KGST Act. The Tribunal based on another decision of this court in BECHU & COMPANY AND OTHERS V. ASSISTANT COMMISSIONER (ASSMT.) (2003) 132 STC 68 held that since the sale is under the brand name "Bharath Gas" in the case of one company and "Indane" in the case of another company, sales tax is payable at the point of sale by the petitioners, though they are in fact second sellers of the item in the State after purchase from Kochin 2 Refineries Limited. We have heard Senior counsel Sri.Arshad Hidayatullah, appearing for the petitioner in S.T. Rev. No.247/2008, Sri.Jose Joseph, counsel appearing for the petitioner in S.T.Rev. Nos.112 & 137/2009 and Special Government Pleader appearing for the respondent. 2. The contention raised by the petitioners is that they are buying LPG in bulk from the Refinery owned and managed by Kochin Refineries Limited who have collected sales tax on LPG at the point of first sale in the State at the rate specifically prescribed for the item in the First Schedule to the KGST Act and so much so, the bottling and sale of the same by them is only second sale entitled to exemption as the commodity is taxable only at the point of first sale in the State. The case of the respondent is that since item is repacked and sold by petitioners in retail packs under the brand name "Bharath Gas" and "Indane" and with their trademarks on the cylinders, such sales are covered by Section 5(2) of the KGST Act. Section 5(2) is extracted hereunder for easy reference. "Notwithstanding anything contained in this Act, in 3 respect of manufactured goods other than tea, which are sold under a trade mark or brand name, the sale by the brand name holder or the trade mark holder within the State shall be the first sale for the purposes of this Act." 3. Senior counsel appearing for the petitioner contended that though LPG is distributed to the consumers in metal cylinders, the sale is on returnable basis and therefore, there is no sale of the commodity in the packed form as such. In other words, the condition of sale is that the consumer on exhausting the contents by use should return the cylinder in the same form and so much so, there is no sale of the commodity under the brand name with the container. Special Government Pleader on the other hand contended that what attract tax is sale under brandname and return of cylinder does not affect applicability of Section 5(2). Counsel for the petitioners relied on decision of the Supreme Court in ASTRA PHARMACEUTICALS (P) LTD. V. COLLECTOR OF C.EXCISE, CHANDIGARH (1995(75) E.L.T. 214) and contended that the facts are similar because what the petitioners are using is only a house name and not a product name or brand name as 4 claimed by the respondents. Counsel has also referred to the decision of the Southern Bench of the Central Excise Tribunal which in COMMISSIONER OF C.EX., MANGALORE V. MALABAR OXYGEN PVT. LTD. (2005 (183) E.L.T. 223) held that marking and labeling of assessee-company's name on gas cylinders for the purpose of identification as per Gas Cylinder Rules, 1981 cannot be considered as affixing brand name. Relying on this decision of the Tribunal and Rule 6(2) of the Gas Cylinder Rules, 2004, counsel for the petitioners contended that basic purpose of giving a name to Gas and writing on the cylinder is to identify the cylinder. It is submitted that LPG cylinders of all the Oil Companies engaged in distribution and sale have red colour as required under the Explosive Rules and therefore, specific name is required to be written on the cylinder for the purpose of identification. 4. After hearing both sides, we are of the view that Section 5 (2) has no application in the case of sale of LPG for more than one reason. In the first place, price is controlled by Government of 5 India through the Committee constituted by it at all levels i.e. at the point of production and sale by the Refinery and by fixing dealer margins and consumer price. Further, it is common knowledge that LPG is not available in the open market and neither manufacturers nor distribution companies or even dealers are entitled to sell LPG cylinders in open market at price of their choice. On the other hand, the consumer price of the commodity is fixed by the Government and distributors are appointed areawise for distribution of the Gas cylinder among the consumers for domestic use, mainly for cooking. What is sought to be achieved by Section 5(2) is to collect tax on the real price of the commodity. In fact it is common practice among big brand name holders to get goods manufactured by small scale industrial units, affix the brand name and sell the same commodity in the market at a high price. The general scheme of levy of sales tax under the KGST Act is at first sale point and therefore, for commodities sold under brand name, tax will be payable on first sale by manufacturers at ridiculously low price to Brand name holders who get the goods 6 manufactured through these units and later sell the commodity in brand name at higher price on which no tax will be payable. In order to collect tax on the real value of the commodity, Legislature has chosen to introduce Section 5(2) whereby a fiction is created making sale by the brand name holder as the first sale in the State on which tax is payable. Therefore, a commodity like LPG which is distributed among consumers, that too, at a heavily subsidised price, cannot be said to be covered by Section 5(2) irrespective of whether manufacturing companies under Central Government adopt various names for identifying the cylinders or for any other purpose. Of course since the long term strategy of the Government of India is to decontrol and remove the subsidy scheme, commodities like LPG may later on get sold in the open market on a competitive basis. Probably there is scope for assessment of LPG sold under brand name after complete decontrol and deregulation of it's pricing and marketing. As of now, we are of the view that there is no scope for assessing LPG under Section 5 (2) merely because marketing companies have given various names 7 for their Gas, that too, based on the company's name. In fact it is pertinent to note that the Legislature is well aware of the names of the Public Sector Companies engaged in marketing of LPG and the nature and use, but still in the Entry in the First Schedule to KGST Act, along with petroleum products LPG is provided a uniform rate of tax at the point of first sale in the State. Therefore, we are of the view that the order of the Tribunal sustaining the assessment under Section 5(2) on the sale of LPG in cylinders by the petitioners to the dealers at fixed and at same price for both the companies, is unauthorised. We, therefore, allow the revisions by reversing the orders of the Tribunal and cancel the assessments with direction to the Assessing Officer to grant exemption on proved second sales. 5. Another question raised in S.T. Rev. No.137/2009 is whether the Tribunal was justified in confirming assessment of the turnover of LFHSD & HFHSD other than at the rate applicable to HSD i.e. High Speed Diesel. It is evident from the orders of the Tribunal that the assessee has explained based on certificate that both the products are nothing but different forms of diesel 8 containing low percentage of sulfur. The department has no case that the variation in sulfur content in the same item takes it outside the scope of High Speed Diesel. In fact, the products are different varieties of diesel with varying flash points. So long as the identity of the item is not lost and the nature of use is also not changed, the product continues to be HSD and, therefore, we uphold the claim of the assessee. Accordingly the assessment confirmed by the Tribunal is reversed on this issue but with direction to the Assessing Officer to assess both items at the rate applicable to HSD. 6. An alternate contention raised by the assessee before the Tribunal is that if furnace oil is found to be ineligible for concessional rate against Form 18, then the sales to 100% EOUs are entitled to benefit of concessional rate under Notification SRO 1091/99. Even though this issue does not arise from the order of the Tribunal, this being an alternate ground, we direct the officer to consider it and decide afresh after giving opportunity to the assessee. 9 7. Another issue raised in S.T. Rev. No.112/2009 pertains to disallowance of concessional rate on sale of Naphtha, Furnace Oil, Bitumen and HSD. Counsel for the petitioner contended that the Assessing Officer misunderstood a portion of Naphtha sales to FACT as sale of Furnace Oil and disallowed concessional rate. Similarly concessional rate is disallowed in respect of a portion of sale of HSD to KSEB for the reason that it is for sale of other commodities. So far as bitumen is concerned, petitioner's contention is that the purchaser is using it in the manufacture of product namely, rubber coat which is an adhesive for fixing rainguard on rubber trees. On going through the orders of the Tribunal and that of the lower authorities, we find that the Assessing Officer has not verified the details contained in the purchase orders and declarations and therefore, we set aside the orders of the Tribunal and remand the matter to the Assessing Officer for verification of declarations with quantity, value etc. against sale bills issued by the petitioner and to allow the claim to the extent proved by the petitioner. We make it clear that if there 10 is any doubt about the end use of the product, the officer should issue notice to the purchaser, reconfirm the use and then grant eligible relief. It is also made clear that sale of furnace oil is not entitled to concessional rate as the same being a fuel is not consumed in the manufacture of any product. S.T. Revision cases are disposed of as above. C.N.RAMACHANDRAN NAIR Judge C.K.ABDUL REHIM Judge pms