IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER MONDAY, THE 3RD NOVEMBER 2008 / 12TH KARTHIKA 1930 ST.Rev..No. 278 of 2006 ------------------------- ( AGAINST THE ORDER IN T.A.NO. 454 OF 2004 OF THE SALES TAX APPELLATE TRIBUNAL, ADDL. BENCH, ERNAKULAM.) REVISION PETITIONER/APPELLANT/ASSESSEE: ------------------------------------------------------- T.K. AJITH KUMAR, LAKSHMI ENTERPRISES, ERNAKULAM. BY ADV. SRI.N.MURALEEDHARAN NAIR & ADV.SRI.V.K.SHAMSUDHEEN. RESPONDENT/RESPONDENT/REVENUE: ------------------------------------------ STATE OF KERALA. BY SR. GOVERNMENT PLEADER ADV. SHRI MUHAMMED RAFIQ. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 03/11/2008 ALONG WITH W.A. No.411/2006, THE COURT ON SAME DAY PASSED THE FOLLOWING: H.L.DATTU, C.J. & A.K.BASHEER, J. ------------------------------------------------------ S.T.Rev.Nos.278 of 2006 & 411 of 2006 --------------------------------------------- Dated, this the 3rd day of November, 2008 O R D E R H.L.Dattu, C.J. The assessee, a dealer registered under the provisions of the Kerala General Sales Tax Act, 1963, (“Act” for short) calls in question the correctness or otherwise of the orders passed by the Kerala Sales Tax Appellate Tribunal, Additional Bench-I, Ernakulam in T.A.Nos.454/2004 and 310/2005 dated 15.8.2005 and 14.3.2006 respectively. While rejecting the assessee's appeal, the Tribunal has relied on the Full Bench decision of the Tribunal in the assessee's own case in T.A.No.668/2002 dated 8.2.2003, for the assessment year 1998-99. The facts noticed by the Tribunal while disposing of the aforesaid appeal is as under:- “The facts of the case are not in dispute. The assessees are sole consignment agents of their principals, M/s.ICI India Limited, and they have got a branch at Ernakulam named M/s.Lakshmi Distributors. The Sales tax Registration Number assigned to both the Head Office and Branch is the same. The assessee treated the transactions involved in transfer of goods worth Rs.77,16,773.94 to branch S.T.Rev.No.278/2006 & 411 /2006 -2- as first sale, and on this ground claimed exemption on the sale of said goods by Branch treating them as second sales”. 2. The findings and the conclusions reached by the Tribunal on the aforesaid facts is as under:- “But, it is well established principle that “one cannot sell goods to himself”. It is true that the assessee, while transferring the goods to its own branch, treated it as sale and collected tax which was remitted to Government. But, this does not make the transfer a sale under the Act as there are no two legal entities. The assessee and its branch function under a single sales tax registration issued from the office. So, the contention of the Revenue that the first appellate authority erred in granting exemption on a turnover of Rs.77,16,773.94 treating it as second sales by the assessee is correct and, accepting the said contention, we set aside this finding of the first appellate authority on this issue”. 3. These revision petitions are for the subsequent assessment years. The assessee has framed the following questions of law for our consideration and decision. They are as under: i). Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in S.T.Rev.No.278/2006 & 411 /2006 -3- confirming the findings of the lower authorities that the sale made by the petitioner as an agent of his principal to himself as proprietor of his business will not amount to sale when the petitioner invoiced the goods and paid the price of the goods to his principal? ii). Whether on the facts and in the circumstances of the case, the denial of claim of second sale by the authorities below on the ground that the earlier transaction was not sale as confirmed by the Appellate Tribunal is correct in law especially in the light of principles of law laid down in the decisions reported in (1996) 18 STC 325 (1974) 33 STC 356, (1995) 99 STC 155 etc.? 4. The undisputed facts are: Sri.Ajith Kumar is a dealer registered under the provisions of the KGST Act. He claims that he is an agent for distribution of products of his principal, M/s.ICI India Ltd. For his business convenience, he has named his agency business as 'M/s.Laxmi Enterprises'. He has also branch office and again for his business convenience he has named his branch office as M/s.Lakshmi Distributors. S.T.Rev.No.278/2006 & 411 /2006 -4- 5. Sri.Ajith Kumar claims that he does business in the name of Laxmi Enterprises both as an agent and some times also purchases medicines from the Principal. The levy of tax on which is on the first sale point. 6. The assessee effects transfer of goods/sale of goods so purchased from M/s.ICI India Ltd to its branch office. The branch office effects sale of such medicines. 7. In the annual returns filed for the assessment year in question, the assessee claims that the sale effected by his branch office by name Ajith Kumar/M/s.Laxmi Distributors as second sales and therefore not exigible for payment of tax under the Act. The assessing authority, following the decision of the Full Bench of the Tribunal in the assessee's own case for the previous assessment year has concluded that there cannot be a sale between the same persons. The view of the assessing authority is accepted by the first appellate authority and also by the Sales Tax Appellate Tribunal. 8. Sri.V.K.Shamsudheen, learned counsel appearing for the assessee informs us that M/s.Laxmi Distributors effects purchases from M/s.ICI India Ltd. directly, and, thereafter effects sale of commodity purchased. The facts noticed by the assessing authority, S.T.Rev.No.278/2006 & 411 /2006 -5- first appellate authority and the Tribunal would not support this contention of the learned counsel. 9. After going through the orders passed by the Tribunal for the previous assessment year and the orders passed by the assessing authority and the Tribunal for the assessment years in question, we understand the transaction in the fallowing manner: 10. M/s. ICI India Ltd is a dealer in medicines. The levy of tax on the sale of medicine is on the first sale point in the State by a dealer who is liable to tax under Section 5 of the Act. 11. Sri.Ajith Kumar is a dealer registered under the Act. He has two entities, one as M/s.Laxmi Enterprises and the other as M/s.Laxmi Distributors. These entities do not have a separate registration under the Act and secondly, Sri.Ajith Kumar who has registered himself as a dealer under the Act represents both these entities. 12. M/s.Laxmi Enterprises, they not only act as agent of M/s.ICI India Ltd, but sometimes purchases medicines from its principal. As an agent he distributes the medicines to various dealers and collects commission from his principal and sometimes purchases medicines from its principal and effects sale of such medicine to himself that is to M/s.Laxmi Distributors which does not have separate registration S.T.Rev.No.278/2006 & 411 /2006 -6- number. 13. In the returns filed, it was stated that the sale made by M/s.Laxmi Enterprises to M/s.Laxmi Distributors is the first sale and the sale made by the Laxmi Distributors is a second sale, and, therefore it is exempted from payment of tax under the Act. This theory propounded by Sri.Ajith Kumar, agent representing M/s.Laxmi Enterprises and M/s.Laxmi Distributors is not accepted by any one of the authorities. 14. Sri.V.K.Shamsudheen, learned counsel appearing for the assessee would submit that the reasoning and conclusions reached by the assessing authority as well as by the Tribunal are in direct conflict with the decision of the Bombay High court in the case of Commissioner of Sales Tax Vs. Paragji Mulji & Co. ( 1995 (99) STC 155 } and the decision of the Apex Court in the case of Karnataka Pawn Brokers' Association and Others Vs. State of Karnataka and Others {1998 (111) STC 752}. 15. In the first decision on which reliance was placed by the learned counsel, the facts were as under: The respondent therein had acted as commission agent for sale of the principal's goods and also carried on business of selling similar goods of its own. The dealer had kept both the transaction S.T.Rev.No.278/2006 & 411 /2006 -7- separately in its books of accounts. The question before the Court was whether the respondent as an agent of the principal was entitled to sell the goods belonging to the principal and pass good title to the purchaser. The tribunal held that appropriation of the principal's goods by the dealer did not amount to sale. The learned Judges of the Bench of the High Court, after referring to the earlier case laws were of the opinion that, as an agent of the principal he is entitled to sell the goods belonging to the principal and pass good title to the purchaser. Instead of selling the goods to third parties as an agent he is entitled to purchase the goods for himself by debiting the goods account in his books and crediting the same in the accounts of the principal for the price of the same. The moment this was done, the sale of the goods of the principal was complete and the title therein got vested in the dealer in his independent capacity. The dealer thus acted as two different legal entities. When he transferred the goods belonging to his principal to himself, he acted not only as an agent of the principal but also as proprietor of his own business. On such transfer, he ceased to be a trustee of the principal and became a debtor for the sale price thereof. There was nothing wrong or illegal in his dual capacity coming into play in such transactions. Such transactions clearly fell within the definition of “sale”. Therefore, the S.T.Rev.No.278/2006 & 411 /2006 -8- Tribunal was not right in holding that the appropriation of the principal's goods by the agent to himself did not constitute sale of goods. 16. The decision of the Apex Court in the case of Karnataka Pawn Brokers' Association and Others Vs. State of Karnataka and Others {1998 (111) STC 752} is more or less on the same lines. 17. In the instant case we are not faced with the said situation. We do concede that as an agent of a principal he is entitled to purchase the goods of his principal and can effect sale of such goods to third parties. 18. M/s. ICI India Ltd is a principal and it primarily deals in medicines. As an agent of the principal, the assessee can supply goods to third parties and collect commission from his principal. As an agent, it can also purchase the goods for itself and effect sale of such goods. 19. The question before us is, after such purchase when he sells to himself, that is, from Ajith Kumar/Laxmi Enterprises to Ajith Kumar/Laxmi Distributors - could that be called as a sale as defined under Section 2 (xxi) of the Act? 20. Section 2 (xxi) of the Act defines sale as to mean every transfer whether in pursuance of a contract or not of the property in S.T.Rev.No.278/2006 & 411 /2006 -9- goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge etc.. 21. To constitute sale under the Act, there must be transfer of property in goods and the transfer must be from one person to another in the course of trade or business. The other things mentioned in the definition clause may not be relevant for the purpose of this case. 22. In the instant case, as noticed by the Tribunal, in the assessee's own case for the assessment years 1998-1999, Ajith Kumar in the name of M/s.Laxmi Enterprises has transferred goods to Ajith Kumar/Laxmi Distributors and for the sale effected by Laxmi Distributors has claimed exemption on the ground that it is a second sale. Keeping in view the meaning of the expression 'sale' that finds a place in the provisions of the Act, the Tribunal has come to the conclusion that the transaction cannot be said to be in the course of trade or business, and would not be a sale within the meaning of Sale as defined under KGST Act, and further to constitute a sale, there must be two different persons in the ordinary sense of the term person. The Tribunal has also observed that a dealer registered under the Act transfers goods from one entity to another, it would really be a case of S.T.Rev.No.278/2006 & 411 /2006 -10- one person transferring the goods to himself and therefore, cannot be sale between them and accordingly has come to the conclusion that exemption claimed on the second sale by the assessee cannot be accepted. We are in agreement with the findings and conclusions reached by the Appellate Tribunal. Repetition of the reasoning in other form may not be necessary. 23. In view of the above discussion, we are of the opinion that the Tribunal was fully justified in rejecting the second appeal filed by the assessee. Accordingly, while rejecting the revision petitions, we sustain the orders passed by the Tribunal. Ordered accordingly. (H.L.DATTU) CHIEF JUSTICE (A.K.BASHEER) JUDGE MS/dk