IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY MONDAY, THE 28TH FEBRUARY 2011 / 9TH PHALGUNA 1932 OT.Rev.No. 68 of 2010() ----------------------- AGAINST ORDER IN TAVAT.40/2010 of KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM .................... PETITIONER/APPELLANT IN TA (VAT) 40/2010 ------------------------------------------------------------ SRI. SASIKUMAR, M/S. ASWAS AGENCIES, KOZHIKODE. BY ADV. SRI.R.RAMADAS RESPONDENT(S): RESPONDENT IN TA (VAT) 40/2010 --------------------------------------------- STATE OF KERALA BY MR.SHAMSUDDEEN, GOVERNMENT PLEADER THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 28/02/2011, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- O.T.Rev.No.68 of 2010 --------------------------------- Dated, this the 28th day of February, 2011 J U D G M E N T Ramachandran Nair, J. This is a revision filed under Section 63 of the Kerala Value Added Tax Act (hereinafter referred to as the Act for short) challenging the orders of the Tribunal confirming penalty levied on the petitioner for alleged evasion of tax for interstate purchase of steel cylinders used in the packing and sale of medical oxygen. 2. We have heard learned counsel appearing for the appellant and learned Government Pleader for the respondent, and have also gone through the impugned order. 3. Section 6(5) of the Act provides for payment of presumptive tax @ 0.5% of the turn over if the dealer not being the first seller of goods has an annual turn over of below Rs.50 lakhs. The petitioner is engaged in the business of purchase and sale of medical oxygen in the State. The petitioner supplies cylinders to medical oxygen producing Companies for the Companies to fill up the cylinders with oxygen and sell the quantity filled to the petitioner through invoices. Medical oxygen purchased in cylinders OT Rev.No.68/2010 -2- is distributed to various customers and the petitioner collects back the cylinders again for refilling. For the purpose of business, the petitioner purchased 150 cylinders from a dealer in Tamilnadu, and while under transport the goods were detained alleging attempt of evasion of tax because the petitioner transported the goods under cover of Form 16 prescribed under Rule 58(18) of the Kerala Value Added Tax Rules (hereinafter referred to as the Rules for short), which provides for transportation of goods by persons other than registered dealers. The goods detained were released on payment of security, and thereafter in the course of adjudication, the Sales Tax Officer (Enquiry) levied penalty under Section 47(6) of the Act for attempted evasion of tax for the cylinders purchased by the petitioner from outside Kerala. Appeal filed against the penalty order was unsuccessful before the first appellate authority and also before the Tribunal. It is against the order of the Tribunal confirming penalty, the petitioner has filed this revision case before us. 4. Before us learned counsel for the petitioner contended that goods imported are capital goods, which are not for sale, and therefore levy of penalty is unauthorised. Learned Government OT Rev.No.68/2010 -3- Pleader, on the other hand, contended that the petitioner answers the description of “importer” defined under Section 2(xxii) of the Act. Since a dealer paying presumptive tax is not entitled to import goods from outside the State, penalty for evasion of tax is rightly levied under Section 47(6) of the Act is the contention of the learned Government Pleader. 5. On going through the Tribunal's orders, we find that the Tribunal has concluded that the import of cylinders by the petitioner is not only in violation of Section 6(5) of the Act but also in violation of Rule 58(18) of the Rules, in as much as Form 16 cannot be used for transport of goods by a registered dealer which the petitioner is. Therefore the question has to be considered with reference to the relevant provisions of Section 6(5) of the Act and also definition of the terms “importer” and “business” given under Sections 2(xxii) & 2 (ix) of the Act respectively. These provisions are extracted hereunder for easy reference:- “6(5) : Notwithstanding anything contained in sub- section (1), but subject to sub-section (2), any registered dealer not being,- (a) an importer; or (b) a dealer making any sale in the course of interstate trade or commerce or export; or (c) a dealer registered under the Central Sales Tax Act, 1956 (Central Act 74 of 1956); or OT Rev.No.68/2010 -4- (d) a dealer effecting first taxable sale of goods within the State; or (e) a dealer covered by sub-section (IA); or (f) a contractor, Whose total turnover for a year is below fifty lakh rupees, may, at his option, pay tax at the rate of half percent of the turnover of sale of taxable goods as presumptive tax instead of paying tax under sub-section (1)” “2(xxii) “importer” means any person who obtains or (bring any taxable goods) from any place outside the State or country whether as a result of purchase or otherwise for the purpose of business;” “2(ix) “business” includes (a) any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (b) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern;” 6. What is clear from Section 6(5) extracted above is that an importer is not entitled to claim benefit of payment of presumptive tax under Section 6(5) of the Act. Further, from clause(d) of Section 6(5), it is clear that a dealer who does not effect first taxable sale of goods within the State is entitled to pay presumptive tax if his turn over is 50 lakhs or below. “Importer” is defined as any person who obtains or brings taxable goods from any place outside the State or OT Rev.No.68/2010 -5- country for the purpose of business. Even though business is given a very wide meaning as is clear from the definition clause, the question is whether the term 'business' contained in the definition of “importer” takes in purchase of goods for use as capital goods. In our view, the term 'business' referred to in the definition clause of “importer” for the purpose of exclusion from the purview of Section 6(5) is only trading. In other words, a person importing goods from outside the State for re-sale only falls within the definition of “importer”. “Capital goods” is defined under Section 2(x) of the Act in the following lines :- “Capital goods means plant, machinery, equipments including pollution / quality control, lab and cold storage equipments used in manufacture, processing excluding for job works or rendering of services, packing or storage of goods in the course of business and delivery vehicles but shall not include such goods and civil structure as may be notified by Government.” The cylinders imported by the petitioner is for repeated packing of medical oxygen, which is the commodity purchased and sold by the petitioner. So much so, the petitioner is not engaged in trading of cylinders and he, therefore, cannot be said to be engaged in the business of cylinders within the meaning of 'business', which is the term contained in the definition clause of “importer”. So much so, OT Rev.No.68/2010 -6- when a dealer in second sale of medical oxygen, which is taxable goods, imports cylinders as capital goods for packing and sale of medical oxygen, he cannot be said to be an “importer” of cylinders disentitling him to the benefit of payment of presumptive tax under Section 6(5) of the Act. 7. Learned Government Pleader appearing for the respondent referred to the decision of the Supreme Court in State of Orissa and another v. Asiatic Gases Ltd., reported in 7 VST 531, wherein the Supreme Court held that collection of rent for cylinders supplied in the course of sale of medical oxygen will amount to transfer of right to use the goods on which tax is payable. We do not want to deal with the nature of arrangements made between the petitioner and the customers in the course of sale of medical oxygen in the cylinders belonging to the petitioner and the collections he is making, because these are matters arising in the course of assessment in which the Assessing Officer is free to levy tax on all transactions exigible to tax. However, we do not think the liability to pay tax on rental charges, if any, collected by the petitioner in the course of sale of medical oxygen will render the petitioner liable for penalty under Section 47(6) of the Act in respect OT Rev.No.68/2010 -7- of the purchase of cylinders from Tamilnadu and the transport of the same under cover of Form 16 prescribed under Rule 58(18) of the Rules. This is because the purchase of cylinders is for use as capital goods and it will continue to be capital goods used in the course of trade i.e. purchase, packing and sale of medical oxygen by the petitioner. 8. In view of the contention raised by the learned Government Pleader about the possible liability of tax on the petitioner for rentals if any collected for allowing the customers to use the cylinders belonging to the petitioner, we do not want to consider the petitioner's entitlement to pay presumptive tax under Section 6(5) of the Act, which will also depend on whether the turn over exceeds 50 lakhs or not in an year, which is also a matter to be considered by the Assessing Officer. Leaving open all these issues to be considered in the course of assessment by the Assessing Officer, we hold that the interstate purchase of cylinders as capital goods by the petitioner will not make him an “importer” within the meaning of that term contained in Section 2(xxii) of the Act, and consequently the transaction does not by itself disentitle him to pay presumptive tax under Section 6(5) of the Act. Consequently we OT Rev.No.68/2010 -8- hold that there is no attempt of evasion of tax in the interstate purchase of cylinders by the petitioner. 9. Even though Rule 58(18) of the Rules does not authorise the petitioner being registered dealer to use Form 16 for transport of capital goods, namely cylinders purchased interstate, the petitioner's counsel submitted that through a circular the Commissioner has permitted registered dealers also to transport goods purchased for own use under cover of Form 16 issued. In view of the Commissioner's order, we feel the violation, if any by the petitioner is only technical not involving any evasion of tax, and so much so, there is no case of penalty against the petitioner. In view of the finding above, we allow the revision case by setting aside the orders of the Tribunal and by canceling the penalty levied on the petitioner under Section 47(6) of the Act. Sd/- (C.N.RAMACHANDRAN NAIR, JUDGE) Sd/- (BHABANI PRASAD RAY, JUDGE) jg //TRUE COPY// PA TO JUDGE.