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 15TH NOVEMBER 2010 / 24TH KARTHIKA 1932 ST.Rev..No. 104 of 2010() ------------------------- TA.453/2009 of S.T.A.T.ADDL.BENCH,ERNAKULAM .................... REVN.PETITIONER/RESPONDENT/REVENUE ------------------------------------------------------ STATE OF KERALA, REP. BY DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM. BY GOVERNMENT PLEADER SRI. MOHAMMED RAFEEQ RESPONDENT(S): APPELLANT/ASSESSEE --------------------------------- SRI.P.D.THOMAS, PUTHEN MODERN RICE MILL, OKKAL. ADV. SRI.T.M.SREEDHARAN FOR R SMT.C.K.SHERIN FOR R SRI.V.P.NARAYANAN FOR R THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 15/11/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR, & BHABANI PRASAD RAY, JJ. -------------------------------------------- S. T. Rev. No. 104 of 2010 -------------------------------------------- Dated this the 15th day of November, 2010 JUDGMENT Ramachandran Nair, J. The question raised is whether the Tribunal was justified in cancelling levy of tax under Section 5A of the KGST Act applying the decision of the Supreme Court in SURENDRA MODERN RICE MILL'S case which was decided by the Supreme Court along with PEEKAY RE-ROLLING MILLS (P) LTD. V. ASST. COMMISSIONER, (2007) 6 VST 541 (SC). We have heard Government Pleader appearing for the petitioner and Sri. T.M. Sreedharan, counsel appearing for the respondent-assessee. 2. The facts leading to controversy are the following. Respondent-assessee is a Rice Mill enjoying sales tax exemption on the sale of products manufactured by it like rice, rice bran, etc. by virtue of certificate of exemption issued to it under Notification SRO 1729/1993. Paddy is raw material out of which rice is produced in the Mill. STRV 104/2010 2 Admittedly both the paddy and rice fall under declared goods, and restriction in regard to levy of tax on these products contained in Section 15(c) of the Central Sales Tax Act, 1956 is that while levying tax on rice, rebate should be allowed on tax if any levied on paddy. In other words, when there is levy of tax on paddy, the same has to be set- off against levy of tax on rice. In this case the assessee happens to be the purchaser of paddy and since source of it's purchase is not known or declared to the department, tax is payable under Section 5A of the Act. However, tax paid at the hands of the assessee is to be set-off from the tax levied on the sale of rice produced by it. In this case, what is done by the assessing officer in the assessment issued to the respondent is to levy and demand tax on the purchase turnover of paddy and then reduce the same while levying tax on the sale of rice. Since respondent enjoyed exemption the net amount found payable as tax for the sale of rice is set off from the exemption amount covered by the certificate issued to the respondent. Even though the first appellate authority dismissed the appeal, the Tribunal following the above decision of the Supreme Court cancelled the levy of tax under Section 5A on paddy against which State has filed this Revision. 3. Before us Government Pleader submitted that PEEKAY RE- STRV 104/2010 3 ROLLING MILLS (P) LTD.'s case decided by the Supreme Court is now referred to Larger Bench of the Supreme Court and he produced copy of Reference Order issued by the Supreme Court before us. We notice that the Supreme Court has not considered the factual position in regard to rice mill while deciding the case in SURENDRA MODERN RICE MILLS' case. In fact the Supreme Court just applied the decision in PEEKAY RE-ROLLING MILLS (P) LTD.'s case to the Rice Mill's case as such though factual position is different in the case of rice mill. As already stated, Legislature itself has provided safeguard against multiplicity of levy of tax on both paddy and rice falling under declared goods. So much so, the position is such that levy of tax on both paddy and rice has to be considered at the hands of dealer. In PEEKAY RE- ROLLING MILLS (P) LTD.'s case Supreme Court found that there is levy of tax at the point of purchase of ingots by the SSI unit because it was purchased from another industrial unit which was liable to pay tax, but for the exemption granted to that unit. So much so, the Supreme Court held that there is levy at the hands of the seller of ingots, no matter such levy did not lead to collection of tax. So far as the case of paddy is concerned, there is no such position available here. It is not known wherefrom respondent procured paddy. If purchase is not from STRV 104/2010 4 any dealer liable to pay tax, then there cannot be any levy of tax on paddy at all. In fact, purchase may be from farmers, petty dealers, etc. who are not liable to tax as dealers under the Act. However, unless there is proof of levy of tax at the hands of selling dealer, Section 5A is applicable because respondent admittedly purchased paddy from unregistered dealers and manufactured rice out of the same. In fact, exemption is obtained by respondent under SRO 1729 of 1993 on the ground that it is engaged in manufacture of rice from paddy. So much so, tax is to be levied on the purchase of paddy under Section 5A as all the conditions of Section 5A are satisfied. We have in a detailed judgment in EMPEES MODERN RICE MILLS V. STATE OF KERALA, (2009) 4 K.L.T. 433 considered this issue and declared that levy of tax on paddy on an industrial unit which enjoys sales tax exemption on sale of products, namely, rice, rice bran, etc., is perfectly in order. We feel the above decision squarely applies here and so much so, the decision of the Tribunal has to be reversed and we do so. 4. It is seen from the assessment order that the assessee is given set-off of tax levied on paddy against tax liability on rice and only net amount is allowed set-off from the exemption available in the certificate. In view of the scheme of levy stated as above, it will be STRV 104/2010 5 perfectly in order to set off the tax liability determined under Section 5A also against exemption available under certificate of exemption along with net tax determined on rice after reducing the tax levied on paddy. In other words, the total amount to be set off against exemption granted under certificate should be the tax levied on rice without granting rebate of tax on paddy. The assessing officer is directed to verify the exemption granted for all the years based on the certificate and the scheme suggested above will be applied only if the assessee continued business till full exemption available under certificate is set off as indicated above. ST Revision is allowed to the extent indicated above. (C.N.RAMACHANDRAN NAIR) Judge. (BHABANI PRASAD RAY) Judge. kk STRV 104/2010 6