Ultra Tech Cement Ltd vs The State Of Kerala on 30 November, 2009

IN THE HIGH COURT OF KERALA AT ERNAKULAM

WA.No. 1565 of 2006(B)

1. ULTRA TECH CEMENT LTD.,

... Petitioner

Vs

1. THE STATE OF KERALA,

... Respondent

2. THE ASSISTANT COMMISSIONER (ASSESSMENT),

3. THE ASSISTANT COMMISSIONER (AUDIT ASSMT)

4. THE COMMISSIONER OF COMMERCIAL TAXES,

For Petitioner :SRI.A.KUMAR

For Respondent :GOVERNMENT PLEADER

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR

The Hon'ble MR. Justice V.K.MOHANAN

Dated :30/11/2009

O R D E R

C.R.

C .N. RAMACHANDRAN NAIR &

V.K. MOHANAN, JJ.

--------------------------------------------------- W.A. Nos. 1565, 1566,1567, 1572, &

1573 OF 2006 & W.P.C. Nos. 32010/06,

23152/2007, 8494 & 27050/2008

----------------------------------------------------- Dated this the 30th day of November, 2009

JUDGMENT

Ramachandran Nair, J.

The question raised in the connected Writ Petitions and Writ Appeals is whether the appellants/petitioners are entitled to exemption from tax payable under the Value Added Tax Act, 2003, hereinafter called the "Act", on the discount allowed by them after sales through credit notes issued to purchasers. Excepting one or two assessee- dealers who are engaged in sale of automobiles and spares, all other assessees are either manufacturers or wholesalers of cement. Admittedly assessees made sales, collected tax under the Act, and remitted the same along with monthly returns. However, according to them, depending upon the target achieved, and the prompt payments, assessees have later issued credit notes to dealers representing discount which appellants/petitioners are entitled to deduction in the 2

determination of taxable turnover and therefore the tax paid on the discount given should be refunded to them. The learned single Judge considered all the contentions in a detailed judgment but rejected the claim stating that the provisions of the Act and Rules and Form 8, which is the format of tax invoice prescribed under the Act and Rules do not provide for deduction of discount except cash discount

separately shown in the tax invoice. It is against this judgment of the learned single Judge that Writ Appeals are filed by some of the assessees. However, when Writ Appeals are posted for hearing, pending Writ Petitions are also posted and we have heard senior counsel Sri. K.P. Kumar and other counsel appearing for the appellants/petitioners and Special Government Pleader appearing for the respondents.

2. Sales tax under the VAT regime came into force in the State with effect from 1.4.2005. The charging Section, namely, Section 6(1) of the Act provides for levy of tax on the taxable turnover. "Taxable turnover" under Section 2(l) means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. 3

"Turnover" as defined under Section 2(lii) and clause (ii) of Explanation III to Section 2(lii) provides for exclusion of discount in the computation of turnover. The said clause of Explanation III providing for deduction of discount as originally contained in the statute is as follows:

(ii) Any cash discount on the price allowed in respect of any sale where such cash discount is shown separately or any amount refunded in respect of articles returned by customers shall not be included in the turnover. The above provision was substituted by the following clause by Act 39 of 2005 notified on 28.8.2005 with retrospective effect from 1.4.2005: (ii) Any discount on the price allowed in respect of any sale where such discount is shown separately in the tax invoice and the buyer pays only the amount reduced by such discount; or any amount refunded in respect of goods returned by customers shall not be included in the turnover. The question raised in all these cases pertains to

interpretation of the above provision. In the first place, senior counsel Sri. K.P. Kumar and other counsel appearing for the assessees contended that tax could be levied only on the sale price, and cash discount granted should not 4

constitute price at all and so much so it cannot be treated as forming part of turnover much less taxable turnover, irrespective of how and when such discount is granted. Alternatively they contended that discount allowed to their dealers through credit notes issued later was allowable under the original provision prior to it's amendment and disallowance is only on account of retrospective amendment made by Act 39 of 2005 which according to them is arbitrary and liable to be declared unconstitutional by this Court as violative of Articles 14, 19 (1)(g) and 301 of the Constitution of India. We therefore proceed to consider one after another of the contentions raised on behalf of the assessees.

3. Before proceeding to consider the case on merits, we have to consider the distinction between the scheme of tax on sale of goods both under the VAT regime and under the Sales Tax Act existing prior to that. Under the Sales Tax Act except few items, all other goods were taxable at the point of first sale in the State. Therefore tax was levied and collected only from the first seller. Contrary to this, the scheme under the VAT regime is that tax collected by the first seller is given as input tax credit to the second seller, and the tax paid by the second 5

seller is given as input tax credit to the third seller and ultimately the entire tax is borne by the ultimate consumer. In other words, tax paid on the value addition by series of dealers is ultimately passed on to the ultimate customer and dealers get reimbursement of the tax paid by them. Since Section 11(1) of the Act provides for input tax credit, the Government decided to prescribe procedure for grant of

input tax credit. For this purpose, form of Tax Invoice itself is prescribed under Rule 58(10) of the VAT Rules, which makes it mandatory that every dealer shall compulsorily issue bill in the prescribed format. Form 8 prescribed under the said rule specifically requires the seller to show all the details including the value or price on which tax is collected, and the amount of tax collected with specific column for discount and free gift allowed. In other words, unlike under the provisions of the Sales Tax Act and Rules, Form 8 prescribed under the VAT Rules provides for specific deduction of discount and charge of tax is on the net value which is the taxable turnover. Even though counsel appearing for the assesses relied on several decisions of the Supreme Court and that of the High Courts on discount, particularly the decision in D.C. LAW v. ADVANI OERLIKON (P) LTD., 45 STC 32 (SC) we do not think 6

these decisions have any relevance for the purpose of deciding the assesses' claim for deduction under the VAT regime the features of which we have already found are different from the scheme available under the Sales Tax Act. We therefore proceed to consider the case with reference to the statutory provisions. The contention of the assessees that discount is allowable irrespective of time and manner in which the seller gives it to the purchaser does not find a place in the statute. On the other hand, provision of deduction of eligible discount is specifically covered by clause (ii) of Explanation III to definition of "turnover". Going by the main clause in the definition, namely, turnover, it is clear that tax is on the actual sale price. Explanation specifically clarifies that any discount on the price allowed in respect of any sale if shown separately has to be excluded. Admittedly under the original provision and in the amended provision, eligibility for deduction of discount is only when it is allowed on the price and only if it is separately shown. The amendment made by

Act 39 of 2005 to Explanation III to Section 2(l) was for inclusion of "tax invoice" and the requirement of purchaser paying only the sale price reduced by discount amount. The question to be considered is whether original 7

provision which did not contain these words conveys a different meaning or whether the amendment made is only clarification of the original provision. There is no dispute that Form 8 which is the tax invoice prescribed under Rule 58(10) provides for separate column for discount and the rule makes it mandatory for a selling dealer to compulsorily raise invoice in the prescribed form. So much so, in our view discount if separately shown as stated in the original Explanation means only discount shown separately in the tax invoice. Therefore even prior to clarification made by Act 39 of 2005, the requirement of showing discount separately in the original provision can only mean showing discount separately in the tax invoice. Another addition made in the amended provision for allowing discount is that sale price should be the mount reduced by discount amount granted. In our view, when discount is given from the sale price by the seller and tax is charged on the net price after excluding the discount, seller's claim is only sale price reduced by discount and no buyer can be called upon to pay discount amount after seller grants it as reduction in the tax invoice itself. Original provision did not contemplate buyer paying discount amount along with price or in other words, payment is always net of the 8

discount. Therefore in our view the additions made to Explanation III (ii) to Section 2(l) through amendment with retrospective effect do not convey any new meaning and content to the original provision to which only further clarification is made to avoid unnecessary controversy and litigation. Since we have already found that amendment has not brought out any new provision or condition for allowing

discount and is only a meticulous clarification of the original provision, there is no need for going into constitutional validity of the amendment with retrospective effect which does not arise for consideration because, in our view, the provision which originally stood also did not entitle the assessees for claiming deduction of discount granted other than in the tax invoice. In other words the meaning and scope of provisions before and after amendment are that no dealer is entitled to deduction of discount unless it is separately shown in the tax invoice and the price collected is net of the discount.

4. Senior counsel appearing for the assessees relying on Entry 54 of List II of 7th Schedule to the Constitution contended that discount which does not form part of price cannot be brought to tax as the constitutional entry authorises only tax on sale of commodity which 9

means that tax should be on actual sale price. We do not think the contention is tenable because it is within the powers of the Legislature to prescribe terms and conditions for grant of deduction from sale price. In fact dealers are entitled to give discount at any time that is after raising tax invoice and after making sales through credit notes after the end of the month, quarterly, periodically or even after the end of the year. However, question to be considered is what discount qualifies for deduction from payment of tax. It is obvious from the statutory provisions discussed above that in order to qualify any discount for deduction whether it be trade discount, or cash discount, or any other form of discount, such discount should be shown in the tax invoice separately and the sale price along with tax thereon should be collected from the buyer without including the discount granted. Since conditions for deduction of discount from taxable turnover is mandatory, appellants/petitioners have no escape from liability to pay tax on the original sale price

on which they have in fact collected sales tax and remitted the same. The present attempt to get refund of tax paid based on the discount allowed through credit notes in our view is not tenable and is not permissible under the Act. 10

For the forgoing reasons, we confirm the judgment of the learned single Judge upholding disallowance and demand of tax on discount given after sales through credit notes. However, since the Legislature itself has felt that discount provision calls for clarification, we feel penal provision should not be invoked against the appellants/petitioners, provided they accept disallowance, clear the arrears if any, with interest due thereon. We therefore direct the respondents to recall the orders in the case of such of the appellants/petitioners who concede liability in terms of the judgment and who remit balance tax if any along with applicable rate of interest within three weeks from the date of receipt of a copy of this judgment. (C.N.RAMACHANDRAN NAIR)

Judge.

(V.K. MOHANAN)

Judge.

kk

11

Madras Cements vs Assistant Commissioner (Audit ... on 18 July, 2006Equivalent citations: 2006 (3) KLT 626, 2006 147 STC 626 KerAuthor: K B Nair

Bench: K B Nair

JUDGMENT

K. Balakrishnan Nair, J.

1. The petitioners in these Writ Petitions, except the petitioner in W.P.(C) 16114/2006, are manufacturers of cement. The petitioner in W.P.(C) 16114/2006 is a dealer in heavy vehicles. They have approached this Court, mainly, challenging Clause (ii) of Explanation 111 to Section 2(lii) of the Kerala Value Added Tax Act. 2003. The said explanation has been introduced by an amendment (Act 39 of 2005) published on 28.8.2005 with retrospective effect from 1.4.2005. The brief facts pertaining to each of the cases are summarised below:

W.P.(C) 12809/2006

2. The petitioner is a public limited company, incorporated under the Companies Act. It is a registered dealer under the K.V.A.T and C.S.T. Acts. It is engaged in the manufacture and sale of cement in the southern States, including Kerala. The petitioner used to allow trade discount to the wholesale dealers and retail dealers, according to the practice, normally prevailing in the trade. The normal trade practice was to allow discount for prompt cash payments, target achievements etc. The above discounts, allowed as a regular trade practice, were being deducted from the total turnover, as per the provisions of the Kerala General Sales Tax Act. Even if the discount was allowed not at the time of actual sale, but on a later date, say, at the end of the month, which did not make any difference, it was treated as a trade discount and deducted from the total turnover. The said practice, concerning diminution of the sale price by the grant of discount, was recognized and the benefit was enjoyed by the dealers under the K.V.A.T. Act 2003 also. The

definition of "sale price" contained in Section 2 (xliv) of the said Act reads as follows:

sale price 'means the amount of valuable consideration received or receivable by a dealer for the sale of any goods less any sum allowed as cash discount, according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods or services at the time of or before delivery thereof, excise duty, special excise duty or any other duty or taxes except the tax imposed under this Act.

The relevant portion of Section 2(iii) defining turnover reads as follows:

turnover' means the aggregate amount for which goods are either brought or sold, supplied or distributed by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or for other valuable consideration, provided that the proceeds of the sale by a person not being a Company or Firm registered under the Companies Act, 1956 (Central) Act 1 of 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover.

The definition of turnover also contained provisions for excluding discounts. Explanation III (ii) of Section 2(lii) before its amendment by Act 39/2005, reads as follows:

Any cash discount on the price allowed in respect of any sale where such cash discount is shown separately or any amount refunded in respect of articles returned by customers shall not be included in the turnover.

The main part of the definition "sale", contained in Section 2(xliii), reads as follows:

'sale' with all its grammatical variations and cognate expressions means any transfer whether in pursuance of a contract or not of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge.

When these provisions are read together, the discounts allowed by the petitioner to the purchasing dealer during the return period, were liable to be deducted from the turnover, it is submitted. But, while so, an amendment was introduced to the Kerala Value Added Tax Act, by Act 39/2005, with effect from 1.4.2005. The said amendment was notified on 28.8.2005. As per that amendment, Clause (ii) of Explanation III to the definition "turnover" contained in Section 2(lii) was amended. The said amended clause reads as follows:

Any discount on the price allowed in respect of any sale where such discount is shown separately in the tax invoice and the buyer pays only the amount reduced by such discount: or any amount refunded in respect of goods returned by customers shall not be included in the turnover.

With the introduction of the said amendment, discount which can be deducted from the turnover is the one, included in the tax invoice. Tax invoice, as per the definition in Section 2(xlix), includes a bill of sale containing such particulars as may be prescribed. The petitioner, bonafide believing that exemption will granted to the discount allowed, filed the monthly returns accordingly. The 2nd respondent assessing authority issued Ext.Pl series notices, proposing to reject the returns filed by it. The petitioner filed Ext.P2 reply. While so,

the 3rd respondent issued Ext.P3 pre-assessment notice under Section 24 of the KVAT Act, 2003. The petitioner filed Ext.P4 detailed objection. It is also submitted that after the introduction of the amendment, the petitioner is showing the discount allowed by it in the tax invoice itself. The petitioner further submits that denial of the benefit of trade discount, while computing turnover, for the reason that it is not included in the bill of sale, is arbitrary, irrational and unconstitutional. So, it prays to declare that the amendment introduced to Clause (ii) of Explanation III to Section 2(lii) is unconstitutional. The petitioner also seeks consequential relief of quashing Ext.Pl series notices and Ext.P3 pre-assessment notice.

W.P.(C) 12877/2006

3. The contentions of the petitioner herein, who is a manufacturer of cement, are identical to those of the petitioner in W.P.(C) 12809/2006. In this case, apart from challenging the amendment introduced to Clause (ii) of Explanation III to the definition of turnover, it also challenges the deletion of Rule 10(a) of the K.V.A.T. Rules with retrospective effect from 1.4.2005. In this case, the 1st respondent rejected the monthly returns filed by the petitioner for the period from April 2005 to August 2005, overruling its objections and passed the assessment orders Exts,P3 to P7, on 17.4.2006. The petitioner also seeks to quash those assessment orders.

W.P.(C) 15425/2006

4. In this case, apart from challenging Clause (ii) of Explanation III to Section 2(lii), defining turnover, the petitioner also challenges the newly introduced Explanation VII to the said provision. The petitioner herein has been served with Ext.P 10 series notices by the 2nd respondent

under Section 22(1) of the K.V.A.T. Act, proposing to reject the returns filed by it, for the period from August 2005 to January 2006. It also challenges the said notices in this Writ Petition.

W.P.(C) 16114/2006

5. The petitioner herein is a dealer in heavy vehicles. It challenges the amendment to Clause (ii) of Explanation III to Section 2(1ii). Apart from that the petitioner also challenges Ext.P3 notice issued under Section 67(1)(d) of the K.V.A.T. Act, proposing to impose penalty on it for the irregularities in the returns for the months of April 2005 to December 2005.

W.P.(C) 16162/2006

6. The petitioner herein challenges the amendment to Clause (ii) of Explanation III to Section 2(lii) and also the newly added Explanation VII to that Section. It also challenges Ext.PIO series notices, issued under Section 24(2) of the K.V.A.T. Act by the 3rd respondent, concerning the assessments for the months from April 2005 to February 2006. Challenge is also made against Ext.P12 series assessment orders passed by the 3rd respondent, in respect of the above period, rejecting Ext.Pl 1 reply, submitted by the petitioner.

W.P.(C) 16174/2006

7. The petitioner herein challenges the amendment to Clause (ii) of Explanation III to Section 2(lii) of the K.V.A.T. Act and also Explanation VII to the said Section.

8. Since the main challenge in these writ petitions was to a statutory provision, the respondents did not file any counter affidavit. Heard the learned Counsel on both sides. Sri .C.

Natarajan. senior counsel, Dr. K.B. Mohammedkutty, senior counsel, and learned Counsel M/s. K.Srikumar, Premjit Nagendran and A.Kumar addressed arguments on behalf of the Writ Petitioners. Sri.Raju Joseph, learned Special Government Pleader (Taxes) appeared for the State.

9. The learned Counsel for the petitioners submitted that the trade discounts granted by the petitioners to their dealers can, never, be treated as part of the sale price, for the reason that the discount is allowed by issuing credit notes during the month end or subsequently. The same cannot be included in the sale price, for the reason that the discount was not shown in the bill of sale. The legislative Entry 54 of List II only enables to levy tax on sale or purchase of goods. In exercise of that power, the legislature is not competent to provide an artificial meaning to sale price. Discount is never treated as part of the sale price. If the present amendment, by which Clause (ii) of Explanation III has been amended, is allowed to stand, it will amount to levying tax on something, which does not form part of sale price. Therefore, such an amendment is ultra vires of the provisions of the Constitution. The same being arbitrary, violates the fundamental rights of the petitioners under Article 14 of the Constitution of India. The amendment also violates their fundamental rights under Article 19(1)(g). The same also offends Art-301 of the Constitution of India, it is submitted. Amplifying the above points, the learned senior counsel Sri.C.Natarajan submitted that the Kerala Value Added Tax Act provides for filing returns, not only on monthly basis, but also, for quarterly and yearly self assessments/assessments. So, the credit notes issued during the return/assessment period can be reckoned. The operation of the Act is not confined to individual sales/tax invoices. The scheme of the Act does not exclude the consideration of ancillary documents such as credit notes, for determining turnover. The charging provision, namely, Section 6 declares that the

charge of tax is on the sales or purchase of goods, as provided in the Act and the liability to pay tax will depend upon the taxable turnover, which in turn, is the aggregate of the sale consideration. The credit note cuts down the sale consideration receivable by the seller. It diminishes the price and therefore, the discount given in the form of credit note is outside the price. There can be no tax on something, which does not come within the purview of price. In support of the above submissions, reliance is placed on State of Tamil Nadu v. Ultramarine and Pigments Limited (1980) 46 STC 220 (Mad.), State of Madras v. Jeewanlal (1929) Limited (1973) 32 STC 649 (Mad), D.C. (Law) v. Advani Oerlikon (Private) Limited (1976) 37 STC 1 (Ker) and D.G. Law v. Advani Oerlikon (Private) Limited 45 STC 32 (SC). These decisions hold that discount does not form part of the sale price. It is further added that the definition of tax invoice is an inclusive definition. It includes bill of sale and ancillary documents to the invoice. The explanation cannot restrict the provisions like the definition clauses for sale, sale price, turnover etc. Price has a definite legal connotation and it is an essential component of sale. So, the legislature cannot artificially define price. Such a definition will render the provision unconstitutional. In support of the above submission, reliance is placed on the decisions in State of Madras v. Ganon Dunkerley & Co. (Madras) Limited and Mc Dowell and Co. Ltd. v. State of Kerala and

Ors. (2002) 10 KTR 652 (DB). A few decisions under the Central Excise Act were also cited, to show that trade discount is excluded, to arrive at wholesale price.

10. The learned senior counsel Dr.K.B.Mohammedkutty also supported the above contentions. The learned Counsel further submitted that the requirement of showing discount in the tax invoice was not a requirement between the period 1.4.2005 and 28.8.2005. Therefore, the retrospectivity given

to the amendment will seriously prejudice the Writ Petitioners. It is something impossible of performance now, to issue trade invoice, showing discounts with retrospective effect. So, in any view of the matter, it is contended that the retrospectivity given to the amendment is ultra vires and unauthorised. The learned senior counsel also pointed out that the deletion of Rule 10(a) of the K.V.A.T. Rules with retrospective effect from 1.4.2005 is unauthorised by the provisions of the Act. The learned Counsel appearing in the connected cases supported the above contentions.

11. The learned Special Government Pleader pointed out that cement under the K.G.S.T. Act was a single point commodity and therefore, tax was collected only at the point of first sale and all subsequent sales were exempted. Though, monthly returns were filed under the K.G.S.T. Act the assessments were done only annually, on the basis of the annual returns and corresponding accounts. So, there was no difficulty to take into account, the discounts given by the manufacturer. If discounts are subsequently given, the proportionate tax collected from the purchaser will be returned to him. But the learned Special Government Pleader points out that under the VAT system, sale at every point is taxable. The tax paid by the dealer is known as input tax and the tax collected by the dealer is known as output tax. A dealer paying input tax can deduct the amount of tax paid from the output tax to be paid and the balance alone need be paid to the exchequer. Normally, in the case of cement, there will be three sales before it reaches the consumer. The first sale is from the manufacturer to the wholesale dealer, who, in turn, will sell it to the retail dealer. From the retailer, it is sold to the consumer. Under Section 11(9) of the K.V.A.T. Act, in order to claim input tax credit, the purchasing dealer shall obtain and keep the purchase invoice, showing the input tax paid by him. Sub-rule(10) of Rule 58 of the K.V.A.T. Rules stipulates that every seller

shall issue a bill or invoice or cash memorandum in respect of every sale, in Form No. 8. Form No. 8 would show that the details to be entered in it, include taxable value and the tax collected. A manufacturer, who is selling goods to the wholesale dealer, should issue a cash memorandum in Form No. 8. showing the sale price as well as the tax amount. The purchasing dealer can avail input tax credit when he effects sale. The input tax credit is calculated on the basis of the tax invoice. The dealer, who purchases goods from the manufacturer when makes sale to the retailers, collects tax on the basis of the selling price and from the tax, so collected, the input tax already paid by him, is deducted and the balance alone is paid to the State. The retailer, who effects sale to the consumer will collect tax, on the basis of his selling price and after adjusting the tax paid by him as input tax, the balance is paid to the State, as output tax. Thus, from the chain of events, it can be seen that the tax paid by the last seller alone, is received by the State, as the payments made by the earlier dealers are reimbursed to them, from the tax collected by them. The learned Special Government Pleader further points out that cement, being a perishable commodity, it cannot be stocked for long. Every month, there will be a lot of purchases and sales. By the time, the discounts are received at the end of the month or quarter or year, the stock is already sold out and tax is collected from the consumer. So, if discounts are allowed after the sale is effected, the differential tax will be retained by the dealer/manufacturer. No dealer can retain the tax collected by him. He should pay it to the State exchequer. The learned Special Government Pleader added that the above position was in existence with effect from the date of enforcement of the K.V.A.T. Act. Explanation Ill(ii) to the definition of "turnover" did not insist that cash discounts should be shown separately in the invoice. Rule 10 of the K.V.A.T. Rules also did not specifically insist for showing cash discount in the tax invoice. Rule 10(a) only insisted that

all amounts allowed as cash discount, shall be deducted from the total turnover of the dealer, provided such discount is allowed in accordance with the regular practice in the trade and also that the accounts show that the purchaser has paid only the sum originally charged, less the discount. By the amendment, it is now clarified that the discount allowed should be shown separately in the tax invoice. In view of the said clarification, Rule 10(a) became redundant and was deleted with retrospective effect. In the light of the decisions of the Apex Court, clarificatory legislation is always retrospective. Therefore, the challenge to the retrospectivity given to the amendment is not sustainable, it is contended.

12. The learned Special Government Pleader added that the contention of the learned Counsel for the petitioners that the impugned provisions violate Articles 14 and 19(1)(g), is made without any basis. The contention that the present amendment goes beyond the powers conferred on the legislature, under Entry 54 of the State List of the 7th Schedule to the Constitution, is also unsustainable. It is trite law that every legislative entry is a field of legislation and the respective Legislatures can legislate on all aspects, which will reasonably come within the scope of the legislative field. The legislature is competent to make provision on discounts. In fact, the discount given by way of credit notes, is an incentive given to the dealers to do more business for the manufacturer. Further, Section 7 never prohibited reckoning of trade discount. The contention that the impugned amendments will be hit by Article 301 of the Constitution of India, is plainly unsustainable. The challenge to the deletion of Rule 10(a) is also unsustainable, for the reason that the Rule was redundant, in view of the provisions in the Act, it is submitted.

13. The learned Special Government Pleader also submitted that the explanation newly introduced to Clause (ii) of

Explanation III to Section 2(lii), in no way, runs counter to the provisions contained in the Sale of Goods Act, especially, in view of the definition of "price" contained in Section 2(10) of the Sale of Goods Act. 1930. He further points out that the decisions relied on by the learned Counsel for the petitioners were rendered under the provisions of the earlier enactments like Tamil Nadu Sales Tax Act. K.G.S.T. Act and Central Sales Tax Act. In view of the provisions contained in the K.V.A.T. Act, providing for input tax credit, the decisions under the earlier enactments can have no application, while interpreting the provisions of the said Act, it is submitted. In support of his submissions, the learned Special Government Pleader relied on the decisions in Ambica Mills Ltd. v. State of Gujarat 1964 15 STC 367 and India Pistons Limited v. State of Tamil Nadu (1974) 33 STC 472 and also a few other decisions.

14. The short point that arises in these Writ Petitions, is whether the cash discount given through credit notes, subsequent to the date of sale, but within the return/assessment period, should be deducted from the turnover, which is the aggregate sale consideration. I feel that the same can be decided, without any difficulty, by referring to the relevant provisions of the Act. The legislature is always competent to make a provision, concerning, how the claim for deduction of discount in the sale price can be allowed. Going by Form No. 8, prescribed under Rule 58(10) of the K.V.A.T. Rules, it was obligatory to show the gross value, the cash discount and the net value, apart from taxable value and tax amount. So, tax is collected for the taxable value, which is the aggregate of the net value and excise duty, if any, payable. The net value is arrived at, by deducting the cash discount from the gross value. So, even if subsequently, some cash discount is given, by issuing a credit note, the same cannot be treated as a deduction on the sale price. The pleadings in these Writ Petitions would

show that trade discount given on the price shown in the list always reflects in the tax invoice and is never treated as part of the turnover. But, cash discount in the form of credit notes are subsequently given for prompt payment of the sale consideration and also for achieving targets in the sales. Though, they are called as cash discounts in fact those payments are incentive payments, which cannot be treated as part of the sale price. As rightly pointed out by the learned Special Government Pleader, the goods received from the manufacturer by the wholesale dealer are re-sold to the retailer and from there, to the actual consumer, who bears the entire tax burden. By the time cash discount is given, all these transactions may take place. The cash discount can be deducted from the sale price, if only it is shown that the wholesale dealer has made the sale after the receipt of the cash discount and the benefit of the cash discount has been given to the retailer, who, in turn, has passed the benefit to the consumer. Without any such claim or materials, the claim made by the petitioners that the cash discount paid by them to their dealers should be given credit in the sale price, cannot be accepted. Further, along with every sale covered by the bill of sale, the manufacturer has collected tax. He cannot appropriate a portion of it, on the ground that subsequently, he has given some discount to his dealer.

15. The contention of the petitioners that the non-exclusion of cash discount from the sale price, for the reason that the same was given subsequent to the sale, is ultra vires of the provisions of the Constitution, cannot be accepted. It is well settled law that every legislative entry is only a field of legislation and the legislature, subject to the limitations in the Constitution, has got plenary powers to legislate under the relevant field. So, if the State Legislature provides that cash discount will be excluded from the sale price, if only it is shown in the tax the same is perfectly within jurisdiction

and intra vires. The contention of the petitioners that the same runs counter to the concept of sale and sale price, as explained by the Courts, cannot be accepted. The Courts can say only, what is the law or what was the law. But, the legislature can say, what should be the law. The said power has been invoked in this case. Under our Republican Constitution, the people, through their delegates in the legislature, decide what are the laws which should govern them. The courts, which are answerable only to Law and God under our constitutional scheme, have only the power to interpret the law. If the courts are to make law and claim that the same will bind the legislature, the same will amount to disturbing the constitutional symmetry. In this context, it is apposite to quote the words of Abraham Lincoln in his second inaugural speech, which read as follows:

The candid citizen must confess that if the policy of the Government upon vital questions affecting the whole people, is to be irrevocably fixed by decisions of the Supreme Court, the instant they are made in ordinary litigation between parties in personal actions, the people will have ceased to be their own rulers, having to that extent, practically resigned their own government into the hands of that eminent Tribunal.

16. On merits also, the case of the petitioners is unsustainable. The legislature has not provided that something, which is not part of the sale price, shall be treated as sale price. It has expressly excluded discounts, including cash discount, as evident from Rule 58(10) and the Form prescribed thereunder. The newly introduced explanation provided only a clarification, as to how can avail the benefit of cash discount. Therefore, the challenge made against the newly introduced Clause (ii) of Explanation III to the definition of turnover, is unsustainable. The same is the case of the challenge against Explanation VII thereto. The

actual tax payer is the consumer. The dealers only collect the tax and pay it to the Government. By the introduction of this Explanation, neither the fundamental rights of the petitioners under Article 14 or Article 19(1 )(g) nor their constitutional rights under Article 301 of the Constitution are affected. The contentions urged in this regard are plainly unsustainable, as they are made without any supporting materials or arguments. Therefore, the challenge to the amendments mentioned above and to the deletion of Rule 10(a) is repelled. Having regard to the nature of the dispute raised for decision in this case, I feel that it is unnecessary to refer to the decisions cited by both sides in detail.

17. An explanation newly introduced, can operate retrospectively. It only explains what was always there. The said principle will squarely apply to this case. Further, the contention that the explanation is modifying the main provision, is also not sustainable. The VAT Act, which provides for taxation at multi point sales and adjustment of input tax, also contemplates collection of tax on price reduced by discount, which should reflect in the bill of sale, as evident from Form 8. The claim of the petitioners that retrospective exclusion of the cash discount will seriously prejudice them, as they have already given cash discount, cannot be accepted. The petitioners have collected tax from the dealers, as per the bill of sale, which is in Form No. 8. Therefore, they are bound to pay it to the Government. If the contention of the petitioners is accepted and the tax liability is reduced, based on the cash discount subsequently given, the petitioners will be keeping a portion of the tax they have already collected from the purchasing dealers. That will amount to unjust enrichment. So, the claim of the petitioners for relief, at least in relation to the period from April to August, 2005 also cannot be accepted.

In the result, the Writ Petitions fail and they are dismissed

M/S.Venus Marketing, ... vs State Of Kerala on 6 July, 2011

IN THE HIGH COURT OF KERALA AT ERNAKULAM

OT.Rev.No. 76 of 2010()

1. M/S.VENUS MARKETING, PUTHIYARA,CALICUT.

... Petitioner

Vs

1. STATE OF KERALA.

... Respondent

For Petitioner :SRI.R.RAMADAS

For Respondent : No Appearance

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR The Hon'ble MR. Justice P.S.GOPINATHAN

Dated :06/07/2011

O R D E R

C.R.

C.N.RAMACHANDRAN NAIR &

P.S.GOPINATHAN, JJ.

.................................................................... O.T. Rev. No.76 of 2010

.................................................................... Dated this the 6th day of July, 2011.

JUDGMENT

Ramachandran Nair, J.

The short question raised in the revision case filed by the assessee is whether the Tribunal was justified in confirming disallowance of input tax credit claimed by the assessee for the year 2005-2006 under Section 11(1) of the Kerala Value Added Tax Act (hereinafter called "the Act"). We have heard counsel for the petitioner and Government Pleader appearing for the State.

2. VAT regime was introduced in the State from 2005-2006 onwards. Registered dealers paying tax under Section 6(1) of the Act on the sale of goods at the rates prescribed in the various Schedules to the Act are entitled to claim input tax credit based on purchase bills as provided under Section 11(1) of the Act. However, Section 6(5) of the Act provides that those registered dealers with turnover below Rs.50

lakhs in an year are entitled to remit tax at .5%(half percent) of the O.T.RV.76/2010 2

turnover. However, the dealers paying presumptive tax under Section 6(5) are not entitled to claim input tax credit on the purchases by virtue of prohibition contained under Section 11(4) of the Act. The assessee claimed that their turnover during the year 2005-2006 will be less than Rs.50 lakhs and based on the said premises they started paying presumptive tax at .5%(half percent) of the turnover for the year 2005- 2006. The total turnover declared in the returns filed was only Rs.44 lakhs. However, department conducted inspection in the succeeding year on 22.3.2007 during which they noticed massive suppression of purchase and sales practised by the petitioner. Consequent upon the detection of unaccounted sales, the petitioner paid compounding fee of Rs.2 lakhs and avoided penalty. Further, the petitioner filed a revised return for 2005-2006 declaring a turnover of Rs.82.94 lakhs as against the turnover of Rs.44 lakhs declared in the original return. In other words, search and detection of unaccounted sales in the year 2007 led to disclosure of almost double the amount of turnover conceded in the year 2005-2006. Even though assessment for 2005-2006 was made by O.T.RV.76/2010 3

making further addition over and above the revised turnover declared by the petitioner after search, in the course of appeals the additions were deleted, but the assessment was sustained based on the revised return filed by the petitioner i.e. on the turnover of Rs.82.94 lakhs as against Rs.44 lakhs originally declared. In the assessment so completed, the Assessing Officer disallowed petitioner's claim for input tax credit under Section 11(1) of the Act. Assessee failed in the two level appeals to get input tax credit and consequently this revision is filed before us against the order of the Tribunal.

3. As already stated above, input tax credit under Section 11(1) is available to only registered dealers paying tax under Section 6(1) of the Act which provides for payment of tax at the rates provided under various Schedules to the Act. The petitioner admittedly remitted presumptive tax only under Section 6(5) of the Act at .5%(half percent) and by virtue of Section 11(4), petitioner was not entitled to input tax credit. However, the question to be considered is whether input tax credit can be claimed after detection of suppressed sales and O.T.RV.76/2010 4

Consequent assessment made at the Schedule rate as against the presumptive tax paid by the petitioner. Petitioner's case is that once the assessment is made at the Schedule rate, petitioner becomes liable for payment of tax under Section 6(1) and so much so, petitioner is entitled to input tax credit. Government Pleader on the other hand submitted that petitioner being a registered dealer paying tax under Section 6(5) can be granted the benefit of input tax credit only in accordance with the Rules and only if petitioner complies with the formalities. The relevant Rules in this regard namely, Rule 12(7) and (8) are extracted hereunder for easy reference.

"12. Determination of input tax credit in respect of opening stock:-

..........

(7) Where a dealer who had opted for payment of tax under sub-section (5) of section 6 or under section 8 changes over to the payment of tax under sub-section (1) of section 6, he shall submit an application in Form No.25A along with a stock inventory on the date of change over, duly certified by a Chartered Accountant or a cost accountant, where the

dealer is covered by the provisions of section 42, and a statement of the purchase bills issued O.T.RV.76/2010 5

by registered dealers paying tax under sub-section (1) of section 6, within fifteen days from the date of change over. ..............

(8) Where the dealer referred to in sub-rule (7) or in sub-rule (7A) has submitted the statements as required by the said sub-rule, the assessing authority shall verify the claim and, where it is satisfied that the claim is in order, permit the dealer to claim input tax credit in respect of such goods held as opening stock in three equal monthly instalments commencing from the return period subsequent to the date of order allowing such input tax credit." What is clear from Rule 12(7) is that a dealer paying presumptive tax should furnish Form No.25A along with stock inventory on the date of change over and a statement of purchase bills issued by registered dealers paying tax under Section 6(1) within 15 days from the date of change over. If the dealer is covered by compulsory audit, the dealer's application in Form No.25A should be certified by a Chartered Accountant or Cost Accountant. What sub-rule (8) says is that the Assessing Officer is bound to scrutinise documents submitted as above and if he is satisfied that the claim made is in order, he should permit the dealer to claim input tax credit in respect of such goods held as O.T.RV.76/2010 6

opening stock in three equal monthly instalments. Admittedly the petitioner has not done any of these because petitioner neither conceded the date on which the turnover crossed Rs.50 lakhs making him liable for payment of tax under Section 6(1) nor did he submit Form No.25A or statement of purchase bills as required under sub-rule (7). So much so, the Assessing Officer had no occasion to pass orders under sub-rule (8) of Rule 12 granting facility to the

petitioner to claim input tax credit on the opening stock held by him.

4. The next question to be considered is whether the compliance of sub-rules (7) and (8) of Rule 12 as stated above is mandatory to get input tax credit on the opening stock held. Under the above stated procedure of the Act and Rules, for a dealer who changes over from scheme of payment of presumptive tax under Section 6(5) to payment of tax under Section 6(5), eligibility for input tax credit is on the opening stock held on the date of such switch over. In this case it is not even known as to which date the petitioner had crossed Rs.50 lakhs limit during 2005-2006. The contention of counsel for the petitioner O.T.RV.76/2010 7

is that petitioner is entitled to input tax credit for the year as a whole as the entire turnover is assessed at the Schedule rate. We are unable to accept this contention because petitioner who was paying presumptive tax under Section 6(5) has to necessarily follow the procedure prescribed under Rule 12(7) by furnishing Form No.25A along with statement of purchase bills for change over to the scheme of payment of tax under Section 6(1). In order to avail the benefit, petitioner has to get permission from the officer who grants it under sub-rule (8) on being satisfied after verifying Form 25A and the accounts furnished. In the absence of compliance of statutory formalities provided in the above Rules, petitioner was rightly declined input tax credit. So far as petitioner's contention that petitioner is entitled to input tax credit under Section 11(1) by virtue of assessment of the entire turnover for 2005-2006 at Schedule rate is concerned, we do not think the contention is acceptable because under Rule 12(8) there is no provision to grant input tax credit to dealers claiming benefit under Section 6(5) for any period prior to filing of Form No.25A even in cases where the O.T.RV.76/2010 8

dealer was denied the benefit claimed under Section 6(5) and assessed under Section 6(1) of the Act for the whole year. We are further of the view that benefits like input tax credit should be made available to dealers conforming to statutory provisions in regard to maintenance of accounts, filing of returns and remittance of tax and eligibility for input tax credit is not a matter to be considered when suppression is detected. The department should be slow to grant concessions and benefits like input tax credit for dealers who are involved in tax evasion and benefit should be given strictly in accordance with the provisions of the Act and Rules. We, therefore, dismiss the revision case. Sd/-

C.N.RAMACHANDRAN NAIR

Judge

Sd/-

P.S.GOPINATHAN

Judge

True copy

P.S. to Judge

pms

M/S.Fantacy Sales Corporation vs The Sales Tax Inspector on 8 March, 2007

IN THE HIGH COURT OF KERALA AT ERNAKULAM

WP(C) No. 2844 of 2007(L)

1. M/S.FANTACY SALES CORPORATION,

... Petitioner

Vs

1. THE SALES TAX INSPECTOR,

... Respondent

2. THE COMMERCIAL TAX INPSECTOR,

3. THE SALES TAX OFFICER,

4. THE COMMISSIONER OF COMMERCIAL TAXES,

5. THE STATE OF KERALA,

For Petitioner :DR.K.B.MUHAMED KUTTY (SR.)

For Respondent : No Appearance

The Hon'ble MR. Justice K.BALAKRISHNAN NAIR

Dated :08/03/2007

O R D E R

K.BALAKRISHNAN NAIR, J.

---------------------------------------------------------- W.P.(C) NOS.34390 & 34662/2006, 80, 134, 293, 411,511, 606, 680, 851, 952, 991, 1189, 1191, 1361, 1372, 1431, 1442, 1449, 1454, 1456, 1464, 1465, 1478, 1482, 1492, 1493, 1494, 1503, 1529, 1532, 1539, 1609, 1639, 1685, 1692, 1698, 1715, 1716, 1717, 1718,

1945, 1949, 1970, 1976, 2095, 2146, 2148, 2194, 2278,

2281, 2288, 2292, 2318, 2336, 2377, 2381, 2382, 2396,

2512, 2531, 2536, 2537, 2538, 2539, 2606, 2667, 2689,

2768, 2772, 2773, 2789, 2796, 2828, 2840, 2844, 2878, 2903, 2904, 2907, 2911, 2922, 2923, 2924, 2980, 2983, 3009, 3036, 3062, 3069, 3076, 3079, 3081, 3082, 3087, 3090, 3092, 3093, 3094, 3095, 3099, 3188, 3199, 3203, 3204, 3220, 3221, 3227, 3281,

3345, 3461, 3465, 3471, 3472, 3473, 3474, 3500, 3543, 3566, 3619, 3620, 3621, 3622, 3623, 3632, 3645, 3738,

3777, 3795, 3797, 3798, 3800, 3803, 3804, 3805, 3807, 3813, 3828, 3937, 3946, 3949, 3950, 3959, 3962, 4098, 4189, 4206, 4236, 4246, 4277, 4287, 4315,

4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616,

4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319,

5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550,

5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, 6129, 6136, 6250, 6262, 6268, 6269, 6276, 6297, 6409, 6424, 6437, 6622, 6646, 6651, 6752, 6816, 6823, 6824, 6852, 6855, 6982, 6985, 6992, 6997, 7005, 7173, 7174, 7175, 7329, 7334, 7346, 7545, 7550, 7661, 7733 & 7738/2007

------------------------------------------------------------ JUDGMENT

The constitutional validity of sub-section (16A) of Section 47 of the Kerala Value Added Tax Act and the sustainability of two circulars issued Wpc 2844/2007 & con.cases 2

by the Commissioner of Commercial Taxes under the said provision are the points, that arise for decision in these writ petitions. Since same points arise for decision in all these writ petitions, they are heard and disposed of by this common judgment. W.P.(C) No.2844/2007 is treated as the main case.

W.P.(C) No.2844/2007:

2. The petitioner, which is a firm, is a dealer in glass sheets. It is an assessee on the files of the 3rd respondent, Sales Tax Officer, Manjeri under the Kerala Value Added Tax Act (hereinafter referred to as the KVAT Act) and the Central Sales Tax Act. The 4th respondent Commissioner of Commercial Taxes issued Circular No.50/2006, in exercise of his powers under clause ( c) of sub-section (2) of Section 3 read with sub-section (16A) of Section 47 of the KVAT Act, 2003, directing to collect sales tax in advance at the border check-posts, at the time of import of certain evasion-prone commodities named therein into the State. The said circular dated 18.12.2006 is marked as Ext.P1 in the writ petition. The relevant portion of the said circular reads as follows:

"In exercise of the powers conferred by clause (c ) of sub- section (2) of section 3, read with sub-section (16A) of section 47 of the Kerala Value Added Tax Act, 2003, the undersigned, having considered it necessary to prevent evasion of tax in respect of the following evasion-prone commodities, order that tax in Wpc 2844/2007 & con.cases 3

respect of the estimated sales turnover shall be collected at the Check Posts at the time of import into the State at the rates specified against each commodity below:

Sl.No. Commodities Rate of tax 1 Marble Slabs and Tiles 20.00% 2 Granite Slabs and Tiles 20.00% 3 Ceramic Floor and Wall Tiles including vitrified tiles 20.00% 4 Lift, Elevators and Escalators 12.50% 5 Glass Sheets 12.50% Cuddapah Stones, Kotta Stones, any other similar 6 stones and slabs 12.50% 7 Readymix Concrete 12.50% 8 Generator whether assembled or not 12.50% 9 Timber 12.50% 10 Live Chicken and Chicken Meat 12.50% 11 Petroleum Products other than LPG 12.50% 12 Bitumen 4.00% While estimating the sale value, guidelines already circulated for valuation of items such as Chicken, Timber, etc. shall be followed.

The dealers who pay advance tax as detailed above can adjust the said amount against the output tax due for the month while filing return for the respective return period.

These orders shall take immediate effect."

On the representation of the dealers, further clarifications were issued regarding the collection of sales tax in advance as per Circular No.53/2006 dated 22.12.2006. The relevant portion of the said circular, which is produced as Ext.P2 in the writ petition is extracted below: Wpc 2844/2007 & con.cases 4

"As per Circular No.50/2006 instructions were issued for collection of Advance Tax in respect of twelve evasion-prone commodities at the entry points in to the State such as Check Posts, Ports, Airports and Railway Stations.

Now it is brought to the notice of the Commissionerate that dealers are experiencing inconvenience for remitting tax at the entry point in respect of the consignment, especially

where the entry point is far from the ordinary place of business. Suggestions have been put forth from the trade to permit them to remit the tax before the concerned assessing authority. This issue has been examined and the following further instructions are issued. Dealers may remit the tax on the consignments in advance before the respective assessing authority if they can provide details of the consignment such as copy of the bill/invoice, vehicle number, and name of the entry point (Check Post/Port/Airport/Railway Station)

While estimating the sale price for the purpose of collecting the advance tax the assessing authority shall consider the value as disclosed in the invoice/bill, transporting charges and an estimated gross profit at 5%. In the case of stock transfer no gross profit shall be considered for the purpose of computing the sale price.

On acceptance of Advance Tax, the assessing authority shall issue a certificate which specifies:

details of bills/invoice,

name of goods,

their quantity and value as per accompanying

documents,

the value adopted by him for purposes of Advance Tax,

details of the Advance Tax remitted,

and name of the entry point in to the State.

These certificates may be delivered in original or faxed to the entry point at the option of the dealer.

Wpc 2844/2007 & con.cases 5

The Check Post authorities shall accept such certificates and permit the consignments to be transported after satisfying the genuineness of the certificate with reference to the consignment.

Assessing authorities shall maintain a register in respect of the details of certificates issued and Check Post authorities will maintain a separate register containing the details of consignments allowed on the basis of such certificates. All officers are reminded that Advance Tax remittances shall be credited under the same Head of Account as VAT. To monitor these payments a separate register shall be maintained."

3. On the strength of the above circulars, two consignments of the petitioner were detained at the check-posts and it was called upon to pay tax in advance, by issuing Exts.P3 and P4 notices dated 19.1.2007 and 22.1.2007 respectively. Feeling aggrieved by Exts.P3 and P4, this Writ Petition is filed, seeking the following reliefs:

"i) To call for the records leading to Exhibit P3 and Exhibit P4 notices and quash the same by issuing a writ of certiorari or any other appropriate writ, direction or order. ii) To direct the first, second and third respondents to release the goods and vehicle covered by Exhibit P3 and Exhibit P4 notices and future goods and vehicles of the petitioner without detention as per Exhibit P1 and Exhibit P2 circulars by issuing a writ of mandamus or any other appropriate writ, order of direction.

iii) To declare that sub-section (16A) of Section 47 of the KVAT Act and Exhibit P1 and Exhibit P2 circulars are Wpc 2844/2007 & con.cases 6

unconstitutional and invalid."

Pursuant to the interim order of this Court, the goods were released, on executing simple bond without sureties.

4. The petitioner seeks the above reliefs on the following grounds: Exts.P1 and P2 circulars are illegal and unconstitutional. They are not supported by any statutory provision and therefore, will be hit by Article 265 of the Constitution of India. Sub-section (16A) of Section 47 of the KVAT Act is ultra vires of the constitutional provisions concerning sales tax. Imposition, levy and collection of tax in advance before the sale is effected, is unconstitutional. The taxable event is the sale and collection of tax before the sale takes place is, therefore, unconstitutional. The provisions contained in Chapter V of the KVAT Act concerning assessment, collection or payment of tax do not authorise collection of tax in advance, by issuing a circular by the 1st respondent. Section 3(2)(c) authorises to issue only administrative instructions. The Commissioner of Commercial Taxes cannot exercise the statutory power of taxation, based on the said provision. This position is covered by the decision of the Division Bench of this Court in Choice Plywood Industries v. State of Kerala (2006(2) KLT 513). Sub-section (16A) of Section 47 is unconstitutional in as much as the said provision gives unlimited discretion to the Wpc 2844/2007 & con.cases 7

Commissioner in respect of taxation. On the strength of it, he can include any commodity under the category of evasion-prone commodities. The delegation in favour of the Commissioner is excessive and therefore, vitiated. Sub-section (16A) of Section 47 is violative of Articles 14, 19(1) (g), 246, 265 and 301 of the Constitution. The circulars are in excess of the constitutional powers of the State flowing from Entry 52 of List II of the 7th Schedule. The detention of the goods at the check-post is oppressive and illegal. The Division Bench of this Court has declared that entry tax is

unconstitutional and invalid. In order to get over the said judgment, these circulars have been issued. Therefore, they are liable to be quashed. The levy is discriminatory in as much as the goods moving within the State are not subjected to such a disability. On the above grounds, the petitioner prayed for granting all the reliefs sought in the writ petition.

5. The respondents have filed a counter affidavit in W.P.(C) No.411/2007, which is one of the writ petitions, which are disposed of by this common judgment. The learned Special Government Pleader appearing for the respondents submitted that the said counter affidavit is adopted in this and other connected writ petitions. The contentions in the said counter affidavit are the following: Sub-section (16A) of Section 47 of the KVAT Act is a valid piece of legislation enacted by the State legislature in exercise Wpc 2844/2007 & con.cases 8

of its power under Articles 242, 245 and 246 of the Constitution of India read with Entry 54 of List II of the 7th Schedule. Entry 54 is: "Taxes on the sale or purchase of goods other than newspaper subject to the provisions of Entry 92A of List I". Entry 54 is the field of legislation. The legislature can make laws not only on the legislative entry, but on incidental matters. Such power flows from the words of Article 246. The contention that the attempt is to collect tax even before the incidence of tax, is not correct. The purport of the provision and the circulars is only to plug the evasion of tax. A genuine and honest dealer cannot have any grievance about the statutory provision and the circulars. No reasonable impediment is created as per this provision. The collection of tax in advance is not arbitrary or unreasonable. The impugned provision or circulars do not infringe the right of the petitioners under Article 14 or Article 19(1)(g) of the Constitution of India. The section does not violate any of the constitutional provisions. The petitioners have failed to

dislodge the presumption of constitutionality in favour of the statute. In taxing matters, the courts must normally respect the legislative judgment. The allegation that the issuance of the circulars is to get over the decision of the Division Bench of this Court dated 18.12.2006 in O.P.No.434/1996 and connected cases, is absolutely baseless. Some dealers transport certain commodities, using the registration numbers of the Wpc 2844/2007 & con.cases 9

Kerala dealers. Complaints regarding clandestine transport by bogus parties have been received from honest dealers in the State. In order to prevent clandestine transport of goods into the State, circular No.50/2006 was issued. The direction to pay tax in advance cannot be termed as one amounting to collection of tax from a dealer before the incidence of tax under the KVAT Act. The investigation conducted by the Department revealed that certain goods are evasion-prone and therefore, they are included in Ext.P1 circular. To enable the Commissioner to take effective steps, Section 47 was amended, introducing sub-section (16A). The circulars were issued in public interest, to safeguard the interest of the State and also the interest of honest dealers. Ext.P2 circular was issued to minimize the inconvenience caused to the dealers in bringing goods from outside. Payment of advance tax is not a new levy. No additional liability is cast on the dealer. The incidence of tax continues to be the sale of goods. The dealers are permitted to adjust the advance tax, paid in accordance with the circulars, against the tax due during the same month. The tax paid can be adjusted towards the output tax due for the month. There is no insistence that the set off shall only be against the very same items on which advance tax was paid. The dealers can pay the tax before the assessing authorities also. No honest dealer, as stated earlier, can have any Wpc 2844/2007 & con.cases 10 grievance against the circulars. There is no lack of jurisdiction for the Commissioner to issue the

circulars. What is attempted to be collected in advance on the strength of sub-section (16A) is only the tax payable under the KVAT Act. Nothing more is levied or collected by way of advance tax. The sub-section and the circulars only envisage prevention of evasion of tax. Therefore, they cannot be described in any way as unconstitutional. So, the respondents pray for dismissal of the writ petition.

6. Heard Dr.K.B.Mohammedkutty, learned senior counsel for the writ petitioner. I also heard M/s.V.P.Sukumar and A.Kumar, apart from other learned counsel, appearing for the petitioners in the connected writ petitions. Sri.V.V.Asokan, Special Government Pleader (Taxes) was heard on behalf of the respondents. Learned senior counsel Dr.K.B.Mohammedkutty submitted that sub-section (16A) of Section 47 of the KVAT Act authorises the Commissioner to direct payment of tax in respect of the sale of evasion-prone goods before the date prescribed for payment. He has no authority to direct payment of tax before the sale takes place. Rule 22 of the KVAT Rules prescribes that the payment of tax relating to the sale of a particular month shall be made before the 10th of the next month. As per Section 47(16A) the Commissioner can at the most direct that the tax shall be paid at any point of time after the sale and before Wpc 2844/2007 & con.cases 11

the 10th of the next month. Under the K.G.S.T. Rules, advance tax is confined to the month of March alone, which is to be paid before 31st of March. There is no provision in the KVAT Act to collect tax before the sale is effected. The taxable event is sale and nobody can demand sales tax before the sale takes place. Ext.P1 circular deals with tax on estimated turnover before the sale takes place. Tax is demanded before the goods reach the destination. The circulars are ultra vires of sub-section (16A) itself. The charging section is Section 6 and the charge is on the

turnover, which is attained only by sale. The circular is issued in violation of the parent provision. Collection of tax must be authorised by law and not by administrative instruction or executive fiat. The power under Section 3(2)(c) of the KVAT Act is administrative in character.

7. The learned senior counsel further submitted that sub-section (16A) suffers various constitutional infirmities. Instead of conferring delegated power on the Government, it is delegated to a person. Evasion- prone commodities is a vague concept and therefore, the provision confers unbridled power on the Commissioner. Even an honest dealer, who is dealing in goods, which are labelled as evasion-prone goods, has to pay advance tax. Sub-section (16A) suffers from the vice of excessive delegation. The impugned provision is violative of Article 14 of the Wpc 2844/2007 & con.cases 12

Constitution of India. Further, the circulars violate the freedom of trade under Articles 19(1)(g) and 301 of the Constitution of India. The Government have no jurisdiction to stop inter-State movement of goods. The goods purchased for own use are also held liable. If there is any doubt in interpreting a taxing statute, the doubt must go in favour of the assessee, submitted the learned senior counsel.

8. Learned counsel Sri.V.P.Sukumar also adopted the contentions of learned senior counsel Dr.K.B.Mohammedkutty. The learned counsel further submitted that what is demanded under the impugned circulars is entry tax, though the nomenclature of advance tax is employed. What has been prohibited by the Division Bench of this Court, is sought to be implemented in another garb, it is submitted. In the absence of any concluded sale, there cannot be any levy and collection of sales tax. Persons who do export sale only, are also bound to pay advance tax.

Evasion-prone goods are 'notified goods' in the KVAT Act. But, circular 50/2006 takes in other items also, which are not included among the 'notified goods'. By virtue of Article 265 of the Constitution, tax can be levied only under the authority of law. But, the Commissioner under the impugned circulars is trying to collect tax without the authority of law. But by virtue of Section 47(16A), the Commissioner can pre-pone the date of Wpc 2844/2007 & con.cases 13

payment of tax, to a day between the date of sale and the appointed day. He cannot go to a date before the date of sale. So, the impugned circulars are ultra vires of Section 47(16A) of the KVAT Act. Learned counsel Sri.A.Kumar and other learned counsel supported the above said contentions. The learned Special Government Pleader reiterated the contentions of the 4th respondent pleaded in his counter affidavit and submitted that the impugned provision and the circulars are valid. He heavily relied on the presumption of constitutionality available in favour of a legislation.

9. The learned counsel for the petitioners relied on the following decisions:- In re Art.143, Constitution of India, etc. (AIR 1951 SC 332), M/s.Pannalal Binjraj v. Union of India (AIR 1957 SC 397), K.T.Moopil Nair v. State of Kerala (AIR 1961 SC 552), Atiabari Tea Co. Ltd. v. The State of Assam & Others [(1961)1 SCR 809], State of Punjab v. Jullundur Vegetables Syndicate (AIR 1966 SC 1295), M/s.Devi Das v. State of Punjab (AIR 1967 SC 1895), Delhi Municipality v. B.G.S. & W Mills (AIR 1968 SC 1232), Yogesh Trading Co. v. Intelligence Officer of Sales Tax and Others (1970 KLT 154), M/s.Govind Saran Ganga Saran v. S.T.Commr. (AIR 1985 SC 1041), State of Bihar v. Harihar Prasad Wpc 2844/2007 & con.cases 14

Debuka [(1989)2 SCC 192], M/s.Goodyear India Ltd. v. State of Haryana (AIR 1990 SC 781), Sudhi v. Intelligence Officer

[(1992)85 STC 337], Puri Municipal Council v. Indian Tobacco Co. Ltd. [(1996)1 SCC 293], State of Kerala v. T.C.M. Co. [1999(1) KLT 91 (SC)], Gajanana Agencies v. State of Kerala (2002(3) KLT 242), State of Kerala v. Alex George [(2005)1 SCC 299], Reliance Generators (P) Ltd. v. State of Kerala (2005(2) KLT 573), Choice Plywood Industries v. State of Kerala (2006(2) KLT 513), State of Rajasthan v. Rajasthan Chemists Assn.[(2006)6 SCC 773] and Kagaz Print-N-Pack (I) P. Ltd. v. State of Haryana [(2007)5 VST 26 (P & H)]. The learned Special Government Pleader on the other hand, relied on the decisions in R.S. Joshi v. Ajit Mills Ltd. [(1977)4 SCC 98], R.K.Garg v. Union of India [(1981)4 SCC 675], M.R.F. Ltd. v. Asst. Commissioner [1995(1) KLT 809 (FB)], State of A.P. v. McDowell & Co. (AIR 1996 SC 1627), Union of India v. Sanyasi Rao [(1996)219 ITR 330], State of Bihar v. Bihar Distillery Ltd. [(1997)2 SCC 453], Venee Corporation. v. Commissioner of Commercial Taxes (2002(1) KLT 456), State of West Bengal v. E.I.T.A. India Ltd. [(2003)5 SCC 239] and A.B.C. (India) Ltd. v. State of Assam [(2005)142 STC 88].

Wpc 2844/2007 & con.cases 15

10. Section 47(16A) reads as follows:

"47. Procedure for inspection of goods in transit:--

(1) ............................................................................ (16A) Notwithstanding anything contained in this Act or the rules made there under, the Commissioner may where he deems it necessary to prevent any evasion of tax, direct that the tax in respect of the sale of any evasion prone commodities, as may specified by him, shall be paid before the date prescribed for its payment under this Act." (Emphasis supplied)

The learned counsel for the petitioners, at the time of final hearing, did not attack the above quoted sub-section as

unconstitutional, on the ground that it authorises collection of tax even before the occurrence of the taxable event. According to them, the said provision only authorises the Commissioner to issue circulars to demand tax after the taxable event, that is, the sale of goods, but before the appointed day for payment of tax by the dealer. But, I think, the said interpretation, if accepted, will make the provision meaningless. The provision is introduced to prevent evasion of tax. If the above interpretation of the petitioners that tax can be demanded only after the sale takes place, is accepted, the very purpose of the section will be defeated. If evasion of tax is to be prevented, the same can be done only by demanding tax in advance before the occurrence of the taxable event. It is true, while interpreting a taxing statute, if there is any doubt, the Wpc 2844/2007 & con.cases 16

same should go in favour of the assesee. But, in this case, if the interpretation advanced by the petitioners is accepted, the same will render the provision ineffective to prevent evasion of tax. So, the 'golden rule' of interpretation has to be followed. The 'golden rule' is dealt with in Principles of Statutory Interpretation (G.P.Singh - Eighth Edition), in the following words:

"VISCOUNT SIMON, L.C., said: 'The golden rule is that the words of a statute must prima facie be given their ordinary meaning'. Natural and ordinary meaning of words should not be departed from 'unless it can be shown that the legal context in which the words are used requires a different meaning'. Such a meaning cannot be departed from by the judges 'in the light of their own views as to policy' although they can 'adopt a purposive interpretation if they can find in the statute read as a whole or in material to which they are permitted by law to refer as aids to interpretation an expression of Parliament's purpose or policy'. For a modern statement of the rule one may refer to the speech of LORD

SIMON OF GLAISDALE in a recent case where he said: 'Parliament is prima facie to be credited with meaning what is said in an Act of Parliament. The drafting of statutes, so important to a people who hope to live under the rule of law, will never be satisfactory unless courts seek whenever possible to apply 'the golden rule' of construction, that is to read the statutory language, grammatically and terminologically, in the ordinary and primary sense which it bears in its context, without omission or addition. Of course, Parliament is to be credited with good sense; so that when such an approach produces injustice, absurdity, contradiction or stultification of statutory objective the language may be modified sufficiently to avoid such disadvantage, though no further'."

Wpc 2844/2007 & con.cases 17

Maxwell on The Interpretation of Statutes deals with the golden rule in the following words:

"The so-called 'golden rule' is really a modification of the literal rule. It was stated in this way by Parke B.: 'It is a very useful rule, in the construction of a statute, to adhere to the ordinary meaning of the words used, and to the grammatical construction, unless that is at variance with the intention of the legislature, to be collected from the statute itself, or leads to any manifest absurdity or repugnance, in which case the language may be varied or modified, so as to avoid such inconvenience, but no further.'. 'If', said Brett L.J., 'the inconvenience is not only great, but what I may call an absurd inconvenience, by reading an enactment in its ordinary sense, whereas if you read it in a manner in which it is capable, though not its ordinary sense, there would not be any inconvenience at all, there would be reason why you should not read it according to its ordinary grammatical meaning'." In the light of the above principles, sub-section

(16A) has to be read as authorising the Commissioner to direct payment of tax before the taxable event takes place. Otherwise, the purpose of the sub-section, namely, prevention of evasion of tax will be defeated. Therefore, the circulars have to be held intra vires of sub-section (16A).

11. The petitioners submit, if such an interpretation is accepted, it will make sub-section (16A) unconstitutional. They point out that the taxable event is the sale. The Constitution authorises the legislature to impose tax on sale. So, the demand of tax even before the sale takes place is unauthorised by the constitutional provisions, it is submitted by the Wpc 2844/2007 & con.cases 18

petitioners. Though, in support of this submission, several decisions were relied on by the petitioners, they mainly relied on the decision of the Apex Court in State of Rajasthan v. Rajasthan Chemists Assn. [(2006)6 SCC 773]. The question that arose before the Supreme Court in that case was whether the measure to which the rate of tax was to be applied on single point transaction of sale of any formulation (medicine) by the wholesaler to the retailer could be something notional, which was not related to the subject of tax, namely, the Maximum Retail Price which could be chargeable subsequent to the taxing event, by a retailer. The High Court held that where the price is the basis for measuring tax, it must relate to the actual transaction of sale and not the price at which sale might take place in future. The Supreme Court upheld the decision of the High Court. The learned counsel for the petitioners relied on the following portion of the judgment:

"12. Significantly, the Court observed about the substance of the levy as under: (Budh Prakash Case, (1955)1 SCR p.248)

'The substance of the matter is that the sales tax is a levy on the price of the goods, and the reason of the thing requires that such a levy should not be made, unless the stage has been reached when the seller can recover the price under the contract.'

13. The aforesaid decision makes it clear that subject to 'tax on sales of goods' in Entry 48 of List II of the Seventh Wpc 2844/2007 & con.cases 19

Schedule of the 1935 Act providing for legislative field of sale of goods ought to be confined to levy of tax on sales of goods as defined in the Sales Act and in substance, it is a levy on price of goods and the State Legislature does not have the power to enlarge the definition of sales by creating a legal fiction and levy tax on a sale which has not come into existence.

Xxxx xxxx xxxx xxxx

15. After referring to the definition of the expression 'sale of goods' from the times of Roman law and the law in England, this Court (at SCR pp.396-97) culled out and approved the following principle stated in Benjamin's book Sale of Goods:

'Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements viz.

(1) parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which is transferred from the seller to the buyer; and (4) a price in money paid or promised.'

xxxxx xxxxx xxxxx xxxxx

32. It was a case in which weight of the commodity was made the basis for levy of the tax. But, price of goods was

approved to be the usual meaning of levy of tax on sale of goods. It does not deviate from the basic principle that a tax of any nature is determined ex hypothesi on occurrence of the taxing event. Its actual computation and collection takes place later on through the machinery provided. However, the determination of charge ex hypothesi instantly on occurrence of the taxing event which inheres into it that measure of tax is integrally connected with occurrence of the taxing event and is not postponed to a later date.

Xxxxx xxxxx xxxxx xxxxx

40. However, this case did not lay down the principle that where price is the measure to which rate of tax can be applied, it can be something else other than the price Wpc 2844/2007 & con.cases 20

component of taxing event, whether agreed by mutual consent or as regulated by statutes.

Xxxxx xxxxx xxxxx xxxxx

53. By devising a methodology in the matter of levy of tax on sale of goods, law prohibits taxing of a transaction which is not a completed sale and also confines sale of goods to mean sale as defined under the Act. This cannot be overridden by devising a measure of tax which relates to an event which has not come into existence when tax is ex hypothesi determined, much less which can be said to be a completed sale and which cannot be the subject of legislation providing tax on 'sale of goods' by transplanting a sum related to as 'likely price' to be charged for subsequent sale to be taxed by the devise of measuring tax for the completed transaction which has become subject of tax.

Xxxxx xxxxx xxxxx xxxxx

55. If the legislation can provide for a measure of tax on the subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done, the legislation can provide for any measure the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which the legislature may provide will make little difference. It is not contended by the appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, but a transaction of 'sale of goods' as defined under the Sales Act."

12. The learned Special Government Pleader on the other hand, relied on the decision of the Apex Court in State of West Bengal v. E.I.T.A. India Ltd. [(2003)5 SCC 239]. In the said decision, the Apex Wpc 2844/2007 & con.cases 21 Court upheld the validity of certain provisions of the West Bengal Sales Tax Act, which included two sub-sections providing for payment of tax in advance. The relevant provisions are sub-sections (7) and (8) of Section 11, which are quoted below for convenient reference:

"11. Liability to pay tax on sales by casual trader:-- (1).......................................

(7) If the Commissioner or any person appointed under

sub-section (1) of Section 3 to assist him is satisfied that a casual trader may become liable to pay tax under sub-section (1) in respect of any goods, he may, in order to secure payment of tax that may become due upon determination of tax under sub-section (3) and for reasons to be recorded in writing, demand from such casual trader an amount in advance equivalent to the amount of tax that may

become due from him after determination, or security for an equivalent amount, after taking into consideration the saleable value of such goods.

(8) The amount in advance equivalent to the amount of tax that may become due from a casual trader after de

termination after taking into consideration the sa leable

valu

e of

the goods as aforesaid shall, on demand under sub-

section (4), be paid by him in advance and shall be adjusted with the amount of tax due from him; and the security, if any, for the equivalent amount shall, on demand, be furnished by him, and shall be refunded to him, in such manner and on such terms and conditions as may be prescribed."

The tax payable in advance has to be computed based on the "saleable value"of the goods. So, the tax in advance is authorised to be collected before the actual sale takes place. The Apex Court upheld the above Wpc 2844/2007 & con.cases 22

provisions, on the ground that they were enacted to prevent evasion of tax, which will come under the legislative field covered by Entry 54, List II of the 7th Schedule to the Constitution. The relevant portion of the judgment reads as follows:

"16. A careful reading of sub-section (7) makes it clear that the Commissioner or any person appointed under sub-section (1) of Section 3 to assist him, on being satisfied that a casual trader may become liable to pay tax under sub-

section (1) thereof in respect of any goods, may with a view to secure payment of tax that may become due upon determination under sub-section (3) and for reasons to be recorded in writing, demand from such casual trader an amount in advance equivalent to the amount of tax that may become due from him after determination, or security for an equivalent amount after taking into consideration the saleable value of such goods. It does not postulate payment of advance tax. What it aims is an amount in advance equivalent to the amount of tax that may become due from a casual trader or security for an equivalent amount depending upon the saleable value of the goods in question. There is thus a clear nexus between the amount in advance or security and the levy of impost on the casual trader. The provision is meant to ensure collection of tax. Sub-section (8) provides for payment of the amount in advance or the security, if any, referred to in sub-section (7) by a casual trader on demand under sub-section (4) at the time bringing any goods, except those specified in Schedules I and IV or those notified under Section 10(2) of the Act, for being adjusted with the amount of tax due from him and for refund after due adjustment in the prescribed manner.

17. It is, thus, clear that sub-sections (3), (4), (5), (6), (7) and (8) are part of the same scheme aimed at prevention of evasion of tax payable under the Act. Sub-sections (10) and (12) are consequential provisions. Sub-section (10) empowers Wpc 2844/2007 & con.cases 23

the Commissioner or the authorised officer to seize the goods with containers or other packing materials, if any, when he has reason to believe contravention of the restrictions and conditions provided in sub-sections (4) and (5) or non- compliance with sub-sections (6) and (8). In the case of seizure of goods under sub-section (10), imposition of penalty is authorised under sub-section (11). Sale of the

seized goods in open auction on failure to pay the penalty is dealt with in sub-section (12). It is a common ground that these sub- sections stand or fall along with sub-sections (5), (7) and (8). We have indicated above that the impugned sub-sections of Section 11 are enacted to prevent evasion of tax payable under the Act. The main challenge against those provisions is on the ground of legislative competence.

18. On the issue of legislative competence, we shall refer to Entry 54 of List II of the Seventh Schedule to the Constitution which is the field of State legislation for imposing taxes on the sale or purchase of goods, other than newspaper. This entry is subject to the provisions of Entry 92-A of List I of the Seventh Schedule to the Constitution. It is well settled that the State Legislature, while providing for levy of impost, has power to provide for incidental matters, including measures for prevention of evasion of tax.

19. In Nand Lal Raj Kishan v. CST [(1962)1 SCR 283]

the validity of Section 8-A of the Bengal Finance (Sales Tax) (Delhi Amendment) Act, 1956 was assailed in a writ petition filed under Article 32 of the Constitution. That provision enables the Commissioner of Sales Tax to demand security from dealers for payment of tax. The contention of the petitioner was that the section conferred undefined, unlimited and unrestricted power to the Commissioner and that there was no limit fixed for the amount of security. It was also urged that no enquiry was contemplated before fixing the amount of security. The validity of Section 8-A was upheld on the view that it did not give any unlimited or unrestricted Wpc 2844/2007 & con.cases 24

power to the Commissioner and that it was subject to the condition that it must appear to him to be necessary to demand security for the proper realisation of tax. It was

observed that the power to levy tax included the power to impose reasonable safeguards for collecting it and, therefore, demanding security for the proper payment of tax was neither an arbitrary condition nor an unreasonable restriction. In our view, this judgment does not help the respondents for reasons more than one. Firstly, Section 8-A of that Act, as it stood at that time was upheld by the Constitution Bench as valid and secondly, in the instant case, the impugned provisions embody ample safeguards for a transporter of goods as also for an owner or lessee of a warehouse, enquiry is contemplated for determination of the amount in advance or security authorised to be demanded which, in any event, cannot be more than the amount of tax that could be levied in respect of the goods in question on such a person. It supports the case of the appellant.

20. In Balaji v. ITO (AIR 1962 SC 123) the petitioner challenged the provisions of Section 16(3)(a)(i) of the Income Tax Act, 1922 in this Court under Article 32 of the Constitution of India. The petitioner and his wife started a business in partnership and admitted their minor sons to it. While computing the total income of the petitioner for the purpose of assessment to income tax, the Income Tax Officer included the share of the income of the wife and the minor sons under the said provision. It was held that entries in the legislative lists were not powers but fields of legislation and that the widest-possible import and significance should be attached to them. So interpreting, it was observed that the relevant entry must cover such legislation as the impugned provision intended to prevent the evasion of tax; it is a settled proposition that in matters of taxation, the power to legislate includes the incidental power to legislate for evasion of tax for which the entry provides.

21. In Khyerbari Tea Co. Ltd. v. State of Assam (AIR 1964 SC 925) the question before the Constitution Bench was, Wpc 2844/2007 & con.cases 25

whether the Assam Taxation (on Goods Carried by Road or on Inland Waterways) Act (Assam Act 10 of 1961) was constitutionally valid. It was held that the entries in the three lists in the Seventh Schedule must be given the widest- possible interpretation and that the power conferred on the legislature to levy tax must be widely construed so as to include the power to select the taxable articles to fix the rates, to prescribe the machinery for recovery, to prevent evasion and to prescribe the procedure for determining the amount payable by any individual. It was added that Entry 56 of List II in giving the legislature the power to enact the impugned Act, required that the tax must be levied only against the owner of the goods that were carried or against persons who carried them. If the tax was really levied on goods carried, the legislature was free to prescribe the machinery for its recovery. In that view of the matter, it was held that sub-sections (1) and (2) of Section 3 of that impugned Act, which imposed the tax and made the producer liable to pay the same could not, therefore, be impugned on the ground of legislative incompetence.

22. In Tripura Goods Transport Assn. v. Commr of Taxes [(1999)2 SCC 253] Sections 29, 30, 32, 36-A, 38-B and 2(b) of the Tripura Sales Tax Act, 1976 (98 of 1976) were assailed on the ground of lack of legislative competence. Those provisions required the appellants therein to obtain a certificate of registration and to comply with various other formalities prescribed under the Act and the rules made thereunder. A learned Single Judge of the Gauhati High Court had dismissed the writ petition. That order was upheld by the Division Bench of the High Court in appeal. On further appeal to this Court, it was contended that being

transporters, they were not trading in sale or purchase of any goods and therefore, they could not be held to be 'dealers' within the meaning of the Act and as such the impugned provisions which laid certain obligation on them were beyond the legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution. Negativing the contention it was held that if the Wpc 2844/2007 & con.cases 26

legislature makes any ancillary or subsidiary provisions which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should not be read in a narrow or pedantic sense but must be given their fullest meaning, the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be comprehended. Thus, the provision incorporating mechanism to seal all loopholes of escape and casting obligation on someone to perform certain acts to achieve this objective was held to be a valid provision.

23. In State of Rajasthan v. D.P.Metals [(2002)1 SCC 279] the provisions of the Rajasthan Sales Tax Act, 1994 (22 of 1995) for levy of penalty on the person in charge of the goods for non-compliance with certain statutory provisions or for submission of false or forged documents or declaration were questioned as being beyond the legislative competence of the State. Rejecting the contention, it was laid down that Entry 54 of List II of the Seventh Schedule to the Constitution has to be construed liberally. It was been observed that the settled position in law is that provisions to check evasion of tax are within the legislative competence of the States under Entry 54 of List II, therefore provisions which made the imposition of tax efficacious or to prevent evasion of tax are within the legislative competence of the State.

24. From the above discussion it follows that the aforementioned impugned provisions which are intended to prevent the evasion of tax payable under the Act are within the legislative competence of the State and are intra vires Entry 54 of List II of the Seventh Schedule to the Constitution."

13. Going by the above decision, I feel that the challenge against the provision to collect tax in advance has to be repelled. Though the amount Wpc 2844/2007 & con.cases 27

demanded in this case is loosely described as advance tax, it is in effect a payment in advance towards the tax that may become payable in future. The Apex Court in the above decision upheld the provisions enabling demand of tax in advance while bringing the goods to West Bengal by casual traders. The learned counsel for the petitioners tried to distinguish this decision by contending that the decision relates to the liability of casual traders. The significance of the decision is that it upholds the power to demand advance payment towards tax when the goods are brought to the State, that is, before the taxable event, namely, the sale. The decision in State of Rajasthan v. Rajasthan Chemists Assn. [(2006)6 SCC 773] reiterates the well settled position that the taxable event is the sale of goods. It also further lays down that the actual sale price alone can be the basis for levying tax. In this case also, the taxable event is the sale. The actual tax will be assessed only after the sale takes place and that too, based on sale price. But, in the case of evasion-prone goods, it is difficult to trace the goods and in some cases, the dealer also, after they cross the border. So, the consignee dealer of the goods has to be tied down to them, to avoid tax evasion. Therefore, advance collection is made towards tax. To avoid evasion of tax, enactment of such provisions are constitutionally permissible, in view of

the decision of the Apex Court in State of West Wpc 2844/2007 & con.cases 28

Bengal v. E.I.T.A India Ltd. [(2003)5 SCC 239]. The decision in Rajasthan Chemist Association (2006) 6 SCC 773) does not stand in the way of collection of tax in advance. So, the interpretation given to sub- section (16A) of Section 47 that it is authorising collection of tax in advance will not make it unconstitutional. When the statute authorises issuance of such circulars, there is nothing illegal with Exts.P1 or P2.

14. The petitioners attack the impugned provision as vitiated by excessive delegation. According to them, it does not lay down any legislative policy properly. The legislative policy has also been delegated to the Commissioner, it is submitted. Every one familiar with collection of sales tax knows that certain goods are evasion-prone. The "notified" goods are admittedly evasion-prone. Experience may show that some other goods are also evasion-prone. The contention of the petitioners that the identification of the goods is left to the Commissioner without any guidelines, cannot be accepted. Going by the scheme of the Act and the Rules, goods which can be subjected to tax under the KVAT Act alone can be notified under sub-section (16A). The words "evasion-prone goods" cannot be said to convey a very vague concept without providing any guidelines. As stated earlier, all those associated with collection of tax knows what are evasion-prone goods. If any particular type of goods which Wpc 2844/2007 & con.cases 29

are not evasion-prone is also included in the notification, the affected persons can challenge the same. So, the contention that unfettered and unbridled power is conferred on the Commissioner, cannot be accepted. He can only include evasion-prone goods, which are well known in trade circles. The contention that the legislature has not laid down any

norms to guide the Commissioner and therefore, there is excessive delegation, also cannot be accepted. The words "evasion-prone goods" give sufficient guidelines to the Commissioner, while selecting the goods. The Apex Court had occasion to consider the challenge against a provision in the Madras Co-operative Societies Act, based on excessive delegation, in Registrar of Co-op. Societies v. K.Kunjabmu [(1980)1 SCC 340]. The relevant portion of the said judgment reads as follows:

"3. ..............The Parliament and the State Legislatures are not bodies of experts or specialists. They are skilled in the art of discovering the aspirations, the expectations and the needs, the limits to the patience and the acquiescence and the articulation of the views of the people whom they represent. They function best when they concern themselves with general principles, broad objectives and fundamental issues instead of technical and situational intricacies which are better left to better equipped full time expert executive bodies and specialist public servants. Parliament and the State Legislatures have neither the time nor the expertise to be involved in detail and circumstance. Nor can Parliament and the State Legislatures visualise and provide for new, strange, unforeseen and unpredictable situations arising from the complexity of modern life and the ingenuity of modern man. Wpc 2844/2007 & con.cases 30

That is the raison d'etre for delegated legislation That is what makes delegated legislation inevitable and indispensable. The Indian Parliament and the State Legislatures are endowed with plenary power to legislate upon any of the subjects entrusted to them by the Constitution, subject to the limitations imposed by the Constitution itself. The power to legislate carries with it the power to delegate. But excessive delegation may amount to abdication. Delegation unlimited may invite despotism

uninhibited. So, the theory has been evolved that the legislature cannot delegate its essential legislative function. Legislate it must by laying down policy and principle and delegate it may to fill in detail and carry out policy. The legislature may guide the delegate by speaking through the express provision empowering delegation or the other provisions of the statute, the preamble, the scheme or even the very subject-matter of the statute. If guidance there is, wherever it may be found, the delegation is valid. A good deal of latitude has been held to be permissible in the case of taxing statutes and on the same principle a generous degree of latitude must be permissible in the case of welfare legislation, particularly those statutes which are designed to further the Directive Principles of State Policy.

4. In Harishankar Bagla v. State of Madhya Pradesh (AIR 1954 SC 465), the question arose whether Section 3 of the Essential Supplies (Temporary Powers) Act, 1946, which empowered the Central Government to make orders providing for the regulation or prohibition of the production, supply and distribution of essential commodities and trade and commerce therein was void for excessive delegation. The Court said it was not and observed:

'........the legislature cannot delegate its function of laying down legislative policy in respect of a measure and its formulation as a rule of conduct. The Legislature must declare the policy of the law and the legal principles which are to control any given cases and must provide a standard to guide the officials or the body in power to execute the law. The essential legislative function consists in the determination Wpc 2844/2007 & con.cases 31

or choice of the legislative policy and of formally enacting that policy into a binding rule of conduct. In the present case the legislature has laid down such a principle and that

principle is the maintenance or increase in supply of essential commodities and of securing suitable distribution and availability at fair prices. The principle is clear and offers sufficient guidance to the Central Government in exercising its powers under Section 3'.

5. In Edward Mills Co. Ltd., Beawar v. State of Ajmer (AIR 1955 SC 25) this Court considered the question whether Section 27 of the Minimum Wages Act under which power was given to the Government to add to either part of the schedule any employment in respect of which it was its opinion that minimum wages should be fixed exceeded the limits of permissible delegation and was, therefore, unconstitutional. The Court held that the legislative policy was apparent on the face of the enactment which aimed at the statutory fixation of minimum wages with a view to obviate the chance of exploitation of labour. The intention of the legislature was not to apply the Act to all industries but only to those industries where by reason of unorganised labour or want of proper arrangements for effective regulation of wages or for other causes the wages of labourers in a particular industry were very low. In enacting Section 27 there was, therefore, no delegation of essential legislative power.

6. In Pandit Banarsi Das Bhanot v. State of Madhya Pradesh (AIR 1958 SC 909) this Court held that it was not unconstitutional for the Legislature to leave it to to the Executive to determine details relating to the working of taxation laws such as the selection of persons on whom the tax is to be laid, the rates at the which it is to be charged in respect of different classes of goods and the selection of goods in respect of which exemption from taxation might be granted, etc. etc.

7. In Sardar Inder Singh v. State of Rajasthan (AIR 1957 SC 510) the validity of Section 15 of the Rajsathan Wpc 2844/2007 & con.cases 32

(Protection of Tenants) Ordinance which authorised the government to exempt any person or class of persons from the operation of the Act was upheld and the argument that there was impermissible delegation of legislative power was repelled on the ground that the preamble to the Ordinance set out with sufficient clarity the policy of the Legislature.

8. In Vasantlal Maganbhai Sanjanwala v. State of Bombay (AIR 1961 SC 4), Section 6(2) of the Bombay Tenancy and Agricultural Lands Act was challenged as permitting excessive delegation of legislative power as it enabled the government to fix a lower rate of the minimum rent payable by the tenants of lands situate in any particular area or to fix such rate on any suitable cause as it thought fit. This Court noticed that the Act was undoubtedly a beneficient measure, as shown by the preamble which stated that the object of the Act was to improve the economic and social conditions of peasants and ensure the full and efficient use of land for agriculture. Bearing in mind the preamble and the material provisions of the Act, it was held that the power delegated was within permissible limits.

9. In Jyoti Pershad v. Administrator for the Union Territory of Delhi (AIR 1961 SC 1602), Rajagopala Ayyangar, J., made some useful observations which may be extracted here:

'In regard to this matter we desire to make two observations. In the context of modern conditions and the variety and complexity of the situations which present themselves for solution, it is not possible for the Legislature to envisage in detail every possibility and make provisions for them. The Legislature, therefore, is forced to leave the authorities

created by it an ample discretion limited, however, by the guidance afforded by the Act. This is the ratio of delegated legislation, and is a process which has come to stay, and which one may be permitted to observe is not without its advantages. So long therefore as the Legislature indicates, in the operative provisions of the statute with certainty, the Wpc 2844/2007 & con.cases 33

policy and purpose of the enactment, the mere fact that the legislation is skeletal, or the fact that a discretion is left to those entrusted with administering the law, affords no basis , either for the contention that there has been an excessive delegation of legislative power as to amount to an abdication of its functions, or that the discretion vested is uncanalised and unguided as to amount to a carte blanche to discriminate. The second is that if the power or discretion has been conferred in a manner which is legal and constitutional, the fact that Parliament could possibly have made more detailed provisions, could obviously not be a ground for invalidating the law'.

10. In Mohammad Hussain Gulam Mohammed v. State

of Bombay (AIR 1962 SC 97), the question was about the vires of Section 29 of the Bombay Agricultural Produce Markets Act. It gave power to the State Government to add to, or amend, or cancel any of the items of agricultural\ produce specified in the schedule in accordance with prevailing local conditions. The attack was on the ground that legislative power had been delegated to an extent not permissible. The Court while noticing that Section 29 itself did not provide for any criterion for determining which item of agricultural produce should be put into the schedule, nevertheless upheld its vires on the ground that guidance was writ large in the various provisions and the scheme of the Act. It was observed that in each case the State

Government had to consider whether the volume of trade in the produce was of such a nature as to give rise to wholesale trade so as to merit inclusion in the schedule.

11. Let us now turn to Section 60 of the Madras Co- operative Societies Act, 1932 whose vires is in question and which is as follows:

'60. The State Government may, by general or special order, exempt any registered society from any of the provisions of this Act or may direct that such provisions shall apply to such society with such modifications as may be Wpc 2844/2007 & con.cases 34

specified in the order'.

The provision is a near Henry VIII clause. But to give it a name is not to hang it. We must examine the preamble, the scheme and other available material to see if there are any discernible guidelines. Sure the Co-operative Societies Act is a welfare legislation. Its preamble proclaims:

'Whereas it is expedient further to facilitate the formation and working of co-operative societies for the promotion of thrift, self-help and mutual aid among agriculturists and other persons with common economic needs so as to bring about better living, better business and better methods of production and for that purpose to consolidate and amend the law relating to co-operative societies in the State of Madras'.

12. The policy of the Act is there and so are the guidelines. Why the legislation? 'To facilitate the formation and working of Co-operative Societies.' Co-operative Societies, for what purpose? 'For the promotion of thrift, self- help and mutual aid.' Amongst whom? 'Amongst agriculturists and other persons with common economic needs.' To what end? 'To

bring about better living, better business and better methods of production.' The objectives are clear, the guidelines are there. There are numerous provisions of the Act dealing with registration of societies, rights and liabilities of members , duties of registered societies, privileges of registered societies, property and funds of registered societies, inquiry and inspection, supersession of committee of societies, dissolution of societies, surcharge and attachment, arbitration, etc. We refrain from referring to the details of the provisions except to say that they are generally designed to further the objectives set out in the preamble. But, numerous as the provisions are, they are not capable of meeting the extensive demands of the complex situations which may arise in the course of the working of the Act and the formation and the functioning of the societies. In fact, the too rigorous applications of some of the provisions of the Act may itself Wpc 2844/2007 & con.cases 35

occasionally result in frustrating the very objects of the Act instead of advancing them. It is to provide for such situations that the Government is invested by Section 60 with a power to relax the occasional rigour of the provisions of the Act and to advance the objects of the Act. Section 60 empowers the State Government to exempt a registered society from any of the provisions of the Act or to direct that such provision shall apply to such society with specified modifications. The power given to the government under Section 60 of the Act is to be exercised so as to advance the policy and objects of the Act, according to the guidelines as may be gleaned from the preamble and other provisions which we have already pointed out, are clear.

13. We are, therefore, of the view that Section 60 is not void on the ground of excessive delegation of legislative power."

In the light of the above principles laid down by the Apex Court, it has to be held that the impugned provision is valid. The legislature cannot be blamed for not naming the evasion-prone goods. Their list may change from time to time. So, the Commissioner has been rightly authorised to specify them. The words 'evasion-prone goods' give sufficient guidelines to him. So, the challenge of excessive delegation is repelled.

15. Now what remains to be examined are the contentions of the petitioners with reference to other provisions of the Constitution. They submit, the impugned provision violates Articles 14 and 19(1)(g) of the Constitution. The classification, to demand tax in advance, of evasion- prone goods, on the ground that they come from outside the State, is made Wpc 2844/2007 & con.cases 36

on a rational basis. Unless tax in advance is demanded, there is likelihood of evasion of tax. So, the classification is made on a sound basis, to achieve the object of safeguarding the interest of revenue by preventing evasion of tax. It is unnecessary to impose advance tax on goods moving inside the State. So, the contentions made relying on Article 14 of the Constitution cannot be accepted. Further, it is well settled that the legislature enjoys a greater latitude for classification in the field of taxation (See the decision of the Apex Court in Steel Worth Ltd. v. State of Assam (AIR 1964 SC 370). Demanding tax in advance cannot be said to be an action, infringing the fundamental rights under Article 19(1)(g) of the Constitution of India. Demand and collection of tax may cause some inconvenience. But, the same cannot be described as violation of any fundamental right. Same is the case of attack, relying on Article 301 and also on the ground of lack of competence of the State to tax on inter-State movement of goods. By demanding tax in advance, the State does not impose or levy any tax, which it is not competent to

levy. It is only a measure to prevent evasion of tax, which the State is legitimately entitled to collect. It is not an attempt to tax on inter-State sale. The free flow of goods is also not prevented by demanding tax in advance. Some inconvenience caused at the check-posts cannot be described as violating the rights under Article 301 of the Wpc 2844/2007 & con.cases 37

Constitution of India. If such a contention is accepted, all the check-posts should be abolished, so as to provide unhindered movement of goods. Such a right cannot be claimed under Article 301.

16. Further, in the matter of taxation statutes, the courts should respect the legislative judgment and should not lightly interfere with them. See the decision of the Apex Court in R.K.Garg v. Union of India [(1981) 4 SCC 675 (CB)]. The relevant portion of the judgment reads as follows: "7. ..................................the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience and its discrimination are based on adequate grounds. The presumption of constitutionality is indeed so strong that in order to sustain it, the Court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation.

8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of

legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed Wpc 2844/2007 & con.cases 38

than in Morey v. Doud (354 US 457) where Frankfurter, J. said in his inimitable style:

'In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events --self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability.'

The Court must always remember that 'legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry' ; 'that exact wisdom and nice adaption of remedy are not always possible' and that 'judgment is largely a prophecy based on meagre and uninterpreted experience'. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or

anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Company [338 US 604 (1950)] be converted into tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on Wpc 2844/2007 & con.cases 39

its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues.

Xxxxxxx xxxxxxx xxxxx xxxxx

19. ...........................................The Court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn v. Illinois (94 US 13), namely, 'that courts do not substitute their social and economic beliefs for the judgment of the legislative bodies'. The Court must defer to legislative judgment in

matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Company v. City of Chicago [228 US 61 (1912)]:

'The problems of government are practical ones and may justify, if they do not require, rough accommodation, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review'."(Emphasis supplied)

In view of the above legal position and for other reasons set out hereinabove, the challenge against the constitutional validity of Section 47 (16A) of the KVAT Act is repelled. The validity of the impugned circulars Wpc 2844/2007 & con.cases 40

are upheld. The timing of the issuance of the circulars, that is immediately after the rendering of the judgment by this Court, in the "Entry Tax Cases" cannot be a ground to condemn the circulars, if they are otherwise valid. The individual grievance caused to certain dealers cannot be a ground for declaring the provision or the circulars unconstitutional. A dealer, whose entire sales are in the course of export may not be liable to pay tax. If advance tax is collected from him and he does not make any local sale and therefore, not liable to pay tax, he can claim refund of the same. In that event, the State shall refund the amount paid by him. Such individual inconveniences or grievances can never be pressed into service, to attack a legislation. I have not dealt with in this judgment, some of the decisions

cited by both sides, as they were not strictly relevant. In the result, the writ petition fails and it is dismissed.

W.P.(C) NOS.34390 & 34662/2006, 80, 134, 293, 411, 511, 606, 680, 851, 952, 991, 1189, 1191, 1361, 1372, 1431, 1442, 1449, 1454, 1456, 1464, 1465, 1478, 1482, 1492, 1493, 1494, 1503, 1529, 1532, 1539, 1609, 1639, 1685, 1692, 1698, 1715, 1716, 1717, 1718, 1945, 1949, 1970, 1976, 2095, 2146, 2148, 2194, 2278, 2281, 2288, 2292, 2318, 2336, 2377, 2381, 2382, 2396, 2512, 2531, 2536, 2537, 2538, 2539, 2606, 2667, 2689, 2768, 2772, 2773, 2789, 2796, 2828, 2840, 2878, 2903, 2904, 2907, 2911, 2922, 2923, 2924, 2980, 2983, 3009, 3036, 3062, 3069, 3076, 3079, 3081, 3082, 3087, 3090, 3092, 3093, 3094, 3095, 3099, 3188, 3199, 3203, 3204, 3220, 3221, 3227, 3281, 3345, 3461, 3465, 3471, 3472, 3473, 3474, 3500, 3543, 3566, 3619, 3620, 3621, 3622, 3623, 3632, , 3645, 3738, 3777, 3795, 3797, 3798, 3800, 3803, 3804, 3805, 3807, 3813, 3828, 3937, 3946, 3949, 3950, 3959, Wpc 2844/2007 & con.cases 41

3962, 4098, 4189, 4206, 4236, 4246, 4277, 4287, 4315, 4343, 4355, 4455, 4459, 4480, 4582, 4587, 4613, 4616, 4699, 4766, 4767, 5305, 5306, 5307, 5315, 5318, 5319, 5475, 5476, 5485, 5493, 5494, 5495, 5496, 5508, 5550, 5744, 5748, 5758, 5798, 5829, 5861, 5950, 5951, 6078, 6092, 6104, 6113, 6114, 6115, 6126, 6127, 6128, 6129, 6136, 6250, 6262, 6268, 6269, 6276, 6297, 6409, 6424, 6437, 6622, 6646, 6651, 6752, 6816, 6823, 6824, 6852, 6855, 6982, 6985, 6992, 6997, 7005, 7173, 7174, 7175, 7329, 7334, 7346, 7545, 7550, 7661, 7733 & 7738/2007:

17. In the light of the judgment in W.P.(C) No.2844/2007, these writ petitions are also dismissed.

8th March, 2007. K.BALAKRISHNAN NAIR, JUDGE. Nm/

Karnataka High Court

Harison And Company vs The Additional Commissioner Of ... on 15 December, 2004

Equivalent citations: ILR 2005 KAR 1078, 2006 146 STC 609 Kar

Author: H Dattu

Bench: H Dattu, M Chellur

JUDGMENT

H.L. Dattu, J.

1. Appellant, a dealer in cotton yarn was a partnership firm and was registered both under the Karnataka Sales Tax Act, 1957 ('KST Act' for

short) as well as the Central Sales Tax Act, 1956 ('CST Act' for short). During the period 1.11.1978 to 21.10.1979, the appellant firm was dealing in cotton yarn and according to the appellant firm, it had transferred cotton yarn worth Rs. 89,04,733.05 ps, to its branch office in Ponda-Goa. The appellant firm had filed its annual returns in Forum-4 both under the KST Act as well as CST Act and in so far as its CST turnover is concerned, it had declared that its taxable turnover is 'nil'. The assessing authority had passed an order under the provisions of CST Act, as 'nonassessable'. This order came to be reviewed by the Deputy Commissioner of Commercial Taxes (Admn.), Belgaum, who was of the view that the order passed by the assessing authority requires to be revised, since the same is improper, illegal and prejudicial to the interest of the revenue and therefore, had referred the matter to the revisional authority to initiate proceedings to revise the order passed by the assessing authority for the assessment period in question.

2. The revising authority after verifying the Forum 'F' declarations produced by the assessee before the assessing authority in support of its claim of stock transfer, being of the view that the assessing authority without verifying any of the transactions relating to the consignment transfer and the movement of goods thereon, has mechanically accepted the 'F'form declarations, had issued notice to the assessee under Section 22-A(1) of the KST Act, interalia directing him to show cause why the order passed by the assessing authority for the assessment year in dispute under CST Act should not be revised and a direction to the assessing authority to redo the assessment in so far as CST assessments should not be passed. The revising authority after considering the objections filed in response to the notice, had set aside the order passed by the assessing authority under CST Act and had remanded the matter to the assessing authority to pass a fresh order in accordance with law.

3. The assessee, being aggrieved by the remand order passed by the revisional authority, had questioned the same before the Karnataka Appellate Tribunal and the Tribunal while dismissing the appeal had only observed that the revising authority while remanding the matter had not issued any directions nor has made any observations which would be

binding on the assessing authority and therefore, the dealer cannot have any grievance with the order passed by the revising authority. This order of the Tribunal was challenged by the assessee before this Court in STRP No. 77/1991 and this Court by its order dated 3.7.1991, has rejected the petition, but had reserved liberty to the assessee to raise all such contentions which are available to it including certain issues raised in the petition before the appropriate forurn, in the event, the assessee has to question the order of assessment that may be passed pursuant to the remand order passed by the revisional authority.

4. After all these proceedings, the assessing authority had issued several notices calling upon the assessee to produce the books of accounts for the purpose of verification and to complete the assessment proceedings under CST Act. The assessee though had requested time to produce the books of accounts maintained in its regular course of business, failed to produce the same. However, had filed its written objection interalia contending that the form 'F' declaration produced at the time of concluding KST assessment for the relevant period would itself prove that there was movement of goods from one State to another not by way of interstate sales but by way of stock transfers or consignments to its agent at Ponda-Goa and the burden cast upon him under Section 6-A(1) of CST Act is sufficiently discharged and therefore, the assessing authority was not justified in proposing to treat the branch transfers as interstate sales merely because the assessee is unable to produce the books of accounts of the year 1978-1979.

5. The assessing authority after receipt of the written objections filed by the assessee and in order to give one more opportunity to the assessee to produce the books of accounts for verification of the transactions with reference to 'F' form declarations produced, had issued one more revised proposition notice, proposing to determine the total and taxable turnover for the period 1.11.1978 to 21.10.1979 at Rs. 89,04,733.50 ps. and Rs. 89,04,733.00 respectively, since it failed to produce the books of accounts and other relevant documents in support of its claim of stock transfer of cotton yarn amounting to Rs. 89,04,733.50 ps. to its branch office at Ponda-Goa made in Form-4 returns filed for the period ending on 20.10.1979. In the notice so issued, the dealer was called upon to produce the dispatch

particulars, sale bills of the branch for having sold the goods received by way of stock transfer to its customers that the goods received at its branch was not pursuant to any prior contract with the purchasers. It was also informed to the assessee that if the dealer fails to produce the required document in support of its claim of stock transfer of cotton yarn to its branch office at Ponda-Goa, the proposal made in the revised proposition notice would be confirmed. Though the notice was served on the assessee, since it did not respond to the notice, the assessing authority has concluded the best judgment assessment by confirming the proposal made in the revised proposition notice dated 8.10.1992, since the assessee failed to produce any documentary evidence to prove that there has been branch transfer of goods and that no interstate sales were effected.

6. The assessee aggrieved by the order of assessment passed by the assessing authority under Section 9(2) of the CST Act read with Section 12(3) of the KST Act dated 7.1.1992 had preferred the first appeal before the first appellate authority and the same came to be registered as appeal No.CST.42/92-93/B-2351. In the appeal it was contended that the burden of proving stock transfer is no-doubt on the assessee under Section 6-A of Act, but the said burden was discharged at the time of original assessment by producing Form 'F' declarations which is one of the modes or the method prescribed for discharging the burden, the assessing authority instead of rebutting the evidence so produced was not justified in giving a finding that the assessee has not properly discharged the burden cast upon him by producing corroborative evidence that the movement of goods from one State to another was occasioned otherwise than by way of sale. Secondly, it is stated, even assuming that the burden of proving that any movement of goods from one State to another was occasioned otherwise than by way of sale, even then to reject the exemption claimed and to treat the transactions as interstate sales, the burden lies on the assessing authority as held by the Supreme Court in the case of Commissioner of Sales Tax v. Suresh Chand Jain-{1988} 70 STC 845. Nextly, it is stated that even if the books of accounts are not produced or could not be produced for various reasons, still it is for the department to prove that the branch transfers effected by the assessee is interstate sales as provided under Section 3-A of the CST Act and there can be no presumption as to the interstate sales transactions.

It is further contended that the assessee had filed 'F' form declarations in respect of claim of branch transfers, which is one of the mode prescribed under Section 6-A of the CST Act, and since the same had been accepted while passing the order initially under KST Act, the assessing authority could not have disallowed the claim unless the particulars furnished in the form 'F' are proved to be false and it is further stated that the assessing authority having not pointed out any pre-existed order with the Goa Branch and at the same time, such pre-existing orders are wrongly presumed, the assumption of the assessing authority is contrary to the provisions of Section 3(a) of CST Act. Lastly, the assessing authority could not have drawn adverse inference merely because the assessee failed to produce the books of accounts in support of its claim of stock transfer of its branch office at Ponda-Goa, since under Rule 26(10) of the Karnataka Sales Tax Rules, the assessee is expected to keep the books of accounts only for a period of five years from the end of the assessment year.

7. The first appellate authority, while considering the appeal filed by the assessee has raised only one question for his consideration and decision i.e., whether the order of assessment passed by the assessing authority is in accordance with law? While answering this issue, the first appellate authority firstly notices that the assessing authority has drawn adverse inference against the assessee, since it failed to produce books of accounts and other evidence to prove the correctness of the contents of form 'F' declarations filed along with the return of turnover filed for the relevant assessment period and according to the first appellate authority, the same could not have been done in view of Section 6-A(2) of the CST Act and further the assessing authority while concluding the assessment under Section 12(3) of the KST Act, dated 21.3.1981, had given a clear finding that the sales of cotton yarn made by the assessee to its branch office at Ponda-Goa is in order and the said sales are supported with 'F' form declaration and the assessing authority has not made any attempt to disprove the same while making fresh assessment order, pursuant to the remand order passed by the revisional authority. The other reason assigned by the first appellate authority for allowing the appeal is, that, in view of the judgment of Bombay High Court, the assessee was not expected to retain and preserve the books of accounts after the assessment and appeal proceedings are complete and

since the SMR proceedings being supervisory and not continuation of assessment proceedings, a dealer under the Act need not preserve the books of accounts beyond the period prescribed under Rule 26 of the KST Rules and therefore, mere fact that the account books were not produced, is not sufficient to hold branch transfers as interstate sales unless each transactions covered under Forum 'F' are proved otherwise on its own merits and lastly, the transactions between the Head Office of the appellant with its branch office at Ponda-Goa does not satisfy the ingredients required under Section 3(a) of CST Act. In conclusion, the first appellate authority has come to the conclusion that the turnover of the assessee amounting to Rs. 89,04.733.50 ps represents the stock transfer and not liable to tax under CST Act.

8. The revising authority had issued a notice dated 11.12.1997 under Section 22-A(1) of the KST Act, proposing suo-motu to revise the order passed by the first appellate authority dated 21.12.1993 setting aside the order of assessment passed by the assessing authority dated 7.1.1993 for the period from 1.11.1978 to 21.10.1979 under Sec. 9(2) of CST Act on the ground that the order passed by the first appellate authority was erroneous and prejudicial to the interest of the revenue. The revisional authority in its notice proposed to set aside the order passed by the first appellate authority on the ground that the first appellate authority had wrongly granted exemption from payment of tax under CST Act without verifying anything including the books of accounts by treating the appellant's transaction with its branch office at Ponda-Goa as stock transfer and therefore, had directed the assessee to show cause why the order passed by the first appellate authority dated 21.12.1993 should not be set aside and restore the assessment order passed by the assessing authority under Section 9(2) of the CST Act dated 7.1.1993.

9. In response to the notice, the appellant had filed its reply by way of objections contending, among other grounds, that the order passed by the first appellate authority is neither erroneous not prejudicial to the interest of the revenue for the revisional authority to invoke revisional powers conferred under Section 22-A(1) of the Act.

10. The revisional authority by his order dated 2.3.1998 has confirmed the proposal made in the show cause notice dated 11.12.1997 and in that, has considered each one of the objections filed by the assessee to the show cause notice issued and served on the assessee. We will refer to the objections filed by the assessee to the show cause notice and the findings and conclusion reached by the revisional authority, while considering the submissions of the learned Counsels for the parties at the time of hearing of the appeal.

11. Sri B.P. Gandhi, learned Counsel for the appellant relying heavily on the observations made by a Larger Bench of the Apex Court in ASHOK LEYLAND v. STATE OF TAMILNADU, (2004) 134 STC 473 -would contend, that for the purpose of Section 6A of CST Act, the burden of proving that any movement of goods from one State to another was occasioned otherwise than by way of sale is no-doubt on the dealer claiming exemption from payment of tax under CST Act, but that burden gets discharged the moment the dealer produces 'F' form declarations in support of its claim and once this initial burden is discharged, the burden would shift on the revenue to prove that the transaction is an interstate sales exigible to tax under CST Act. Therefore, the assessing authority was not justified in rejecting the claim of the assessee that its transaction is a stock transfer or consignment sale to its branch office, solely on the ground that the assessee had failed to produce the books of accounts for the relevant assessment period.

12. The other contention canvassed by the learned Counsel for the appellant is that, a dealer is not expected to maintain the books of accounts beyond a period prescribed under the Rules and therefore, the assessing authority was not justified in drawing adverse inference against the assessee merely because the assessee failed to produce the books of accounts at the time of passing fresh assessment orders, pursuant to the remand order passed by the revising authority. In aid of this submission, a learned Counsel has placed reliance on the observations made by the Bombay High Court in the case of Commissioner Of Sales Tax v. Ramdas Laxmidas, 38 STC 354.

13. Before we advert to the various issues canvassed by learned Counsels for the parties, we intend to notice the law laid down by a Larger Bench of Apex Court in the case of Ashok Leyland v. State of Tamilnadu - (2004) 134 STC 473, since heavy reliance was placed by learned Counsel for the appellant on the said decision.

A Division Bench of the Apex Court in ASHOK LEYLAND v. UNION OF INDIA, (1997) 107 STC 152 had observed that an order passed by the assessing authority under this Section accepting form 'F' could be reopened by that authority at the time of final assessment or even in reassessment under Section 16 of Tamilnadu General Sales Tax Act. But a Larger Bench of the Apex Court, in ASHOK LEYLAND v. STATE OF TAMILNADU has overruled this decision only on this point and has held that the separate order accepting the correctness of form 'F' filed by an assessee is final and cannot be reopened at all unless that order was obtained by fraud, collusion, misrepresentation or suppression of material facts or giving or furnishing false particulars or when that order was illegal or void-ab-initio or otherwise voidable. Mere change of opinion of the assessing authority will not confer jurisdiction on that authority to reopen the proceedings but discovery of new materials giving rise to jurisdictional error may be a ground for reopening. In our opinion, the Supreme Court nowhere in the order has observed that once the form 'F' declaration is filed by the assessee, the assessing authority is bound to accept the same and give the benefit under the provisions of CST Act. Therefore, in our view, the learned Counsel Sri B.P. Gandhi is not justified in contending that once form 'F' declaration is filed by the assessee in support of its claim that its transaction with its branch office at Ponda-Goa was occasioned otherwise than by way of sale.

14. Section 6-A of the CST Act provides for burden of proof in case of transfer of goods claimed otherwise than by way of sale.

Section 6-A(1) of the CST Act is clearly in two parts. The first part throws the burden of proof on the dealer to prove that a particular movement of goods has been occasioned otherwise than as a result of sale. In order to prove this fact, the second part of the Section throws the burden on the

dealer. The dispatching dealer should obtain 'F' form declaration from the consignee and furnish the same to the assessing authority along with the evidence of despatch of the goods and satisfy the authority about the correctness of the particulars contained in the declarations. Failure to produce this declaration or otherwise to satisfy the assessing authority about the nature of the transaction or about the correctness of the particulars given in the form, the assessing authority will be well within his jurisdiction to treat the transaction as interstate sales under the CST Act. The burden of proof that movement of goods is only by way of branch transfer and not by way of interstate sales is always upon the assessee/dealer and never shifts on the revenue. Failure by the dealer to discharge this burden would lead to the irresistible inference that there have been sales under the CST Act.

15. In Government Of Andhra Pradesh v. Guntur Tobaccos, (1965) 16 STC 240, the Supreme Court has observed that normally under the Sales Tax Laws, the onus of proving that a transaction is a sale, is on the taxing authorities and it is not incumbent on the assessee to prove to the contrary. This view is reiterated by the Apex Court in the case of COMMISSIONER OF SALES TAX v. SURESH CHAND JAIN, (1988) 70 STC 45, wherein the Supreme Court has observed that the onus of proving the nature of sale whether it is interstate or intrastate is on the revenue. Section 6-A of the CST Act, reverses the principles and throws the burden on the assessee to prove that the transaction is not a sale prior to the date of coming into force of the amendment made to Sub-section (1) of Section 6-A of the CST Act, that is prior to 11th May 2002. The filing of form 'F' by a dealer who sent the goods to another State on consignment or stock transfer was optional and he could prove his claim for non-levy of tax under the Act by producing alternative evidence such as correspondence, delivery challans, etc. Submission of "F" form declarations is not conclusive evidence that the movement of goods is a branch transfer/stock transfer and not a sale. The sales tax authorities can investigate and make enquiries whether the declaration is genuine and true and reject the 'F' forms, if the transaction is found to be not genuine. Section 6-A of the CST Act lays down a particular mode of proof and it is implied that the production of such proof will dispense with the necessity of adducing any other or further evidence and

will suffice for the grant of the benefit. But Section 6-A(2) of the CST Act goes a little further and provides for the possibility of an enquiry being conducted by the assessing authority. It is open to the assessing authority to make further enquiry to satisfy himself that the particulars contained in form 'F' declarations are true. It is only then that the assessing authority is enjoined to pass an order in the matter. An order passed under Section 6-A(2) of the CST Act is nothing but a step in aid or process, which leads only to the ultimate computation of assessment of tax liability. In other words, Section 6-A(2) of the CST Act authorises the assessing Officer to make enquiry that particulars contained in the declaration furnished by the dealer are true and for this purpose, other evidence produced by the dealer is also requires to be considered. The assessing authority is also authorised under Section 6-A(2) of the CST Act to call for other information to verify the correctness of the particulars contained in the 'F' form declarations. It is for the dealer to prove that the details provided in form 'F' are correct and true. The Madras High Court in the case of D. Dhandapani v. State Of Tamilnadu, (1995) 96 STC 98, while interpreting the provisions of Section 6-A(2) of the CST Act has observed that even after submission of 'F' forms, the authority can make further enquiry to satisfy himself that particulars contained in the declaration in 'F' form are true and correct. If the dealer fails to satisfy the assessing authority about the genuineness and the correctness of the contents in 'F' form declarations, the transfer of goods can be taken as on account of interstate sales. Sub-section (2) of Section 6-A of the CST Act places a duty on the assessing authority to scrutinise the declarations furnished by the dealer and pass an order accepting the correctness thereof. On such an order being passed, the transfers made by the dealer to the out of State branches or agents will be deemed to have been made otherwise than as sales. The assessing authority has the power to make further enquiries to have an independent verification of the particulars furnished by the dealer in the declarations and other documents furnished by the dealer and in the course of enquiry, it is open to the assessing authority to call for any other information from the dealer in order to verify the truth or otherwise of the particulars contained in the declaration in 'F' form and the other information maintained by the dealer in its regular course of business. This appears to be settled legal position in law.

Therefore, reference to various decisions of this Court and other Courts may not be necessary.

16. In the present case, initially the assessing authority while concluding the assessment under CST provision had not verified any of the transactions relating to consignment sales and had accepted the form 'F' declarations and had declared that the CST turnover of the assessee as 'non-assessable'. This order came to be reviewed by the revisional authority and being of the view that the assessing authority without proper verification of 'F' form declarations could not have granted exemption from payment of tax under the CST Act, had remanded the matter to the assessing authority to pass a fresh order in accordance with law after verifying each one of the transaction declared in form 'F' declaration. The assessee had questioned the remand order unsuccessfully both before the Karnataka Appellate Tribunal and also before this Court.

17. In pursuance to the remand order passed, the assessing authority had directed the assessee to produce the books of accounts and other records, if any, to support its claim of branch transfers and to ascertain the genuineness of such stock transfers. Inspite of issuing several notices, the assessee had failed to produce any documentary evidence to show that there has been branch transfer of goods and no interstate sales were effected during the assessment period in question. As we have already noticed, the burden is on the assessee to prove that the transaction is not a sale but a branch transfer or a consignment sale, but though several opportunities were provided to the assessee to discharge its burden as prescribed under Section 6-A of the CST Act, it has failed to do so, and therefore, the assessing authority had no other option but to reject the form 'F' declarations filed by the assessee. The first appellate authority for allowing the appeal filed by the assessee against the fresh order of assessment made by the assessment authority points out that the assessing authority has not proved single instance of prior contract for movement of goods to the assessee's branch office at Ponda - Goa, forgetting for a moment, that though sufficient opportunity was provided by the assessing authority to produce books of accounts and other evidence to verify the genuineness of the contents of the 'F' form declaration. The first appellate

authority without keeping this aspect of the matter in view, has shifted the burden on the assessing authority to prove that the transaction is a interstate sales and not stock transfer as claimed by the assessee, without realizing that under Section 6-A of the CST Act, the burden to prove that the transaction is not a sale but stock transfer is on the assessee. Therefore, in our view, the revisional authority was justified in concluding that the order passed by the first appellate authority is erroneous and prejudicial to the interest of the revenue.

18. The other contention that was canvassed by Sri B.R Gandhi, learned Counsel for the appellant was that the assessee was not bound to maintain the records and produce after lapse of several years from the date of conclusion of assessment proceedings and therefore, the assessing authority was not justified in drawing adverse inference against the assessee because the assessee did not produce the books of accounts maintained by it at the time of passing fresh assessment order. In aid of this submission, the learned Counsel has relied on the observations made by the Bombay High Court in the case of COMMISSIONER OF SALES TAX v. RAMDAS LAXMIDAS (Supra) . In the said decision, the Bombay High Court was considering the provisions of Section 12-A(3) of the Bombay Sales Tax Act and Rule 41-A of Bombay Sales Tax Rules, 1946 and the issue before the Court was whether an assessee under the Act was obliged to present the books of accounts and documents even after completion of assessment proceedings? While answering this issue, the Court has noticed that 'the rule of prudence that even after the expiry of the statutory period, the dealer, though not under any statutory obligation to do so, should preserve his evidence until the proceedings are completed, would apply not only until the conclusion of the assessment proceedings but also till the disposal of any appeal, revision or reference therefrom but not thereafter',

19. Rule 26(10) of the Karnataka Sales Tax Rules, provides for the time limit to preserve the account books, declarations, etc,. by a dealer under the Act.

20. Rule 26(10) reads as under"

"The accounts maintained by dealers and licensees together with all vouchers, bills, declarations, way bills and delivery notes relating to stocks, deliveries, purchases output and sales shall be preserved by them for a period of five years after the close of the year to which they relate and shall be kept at the place of business mentioned in the registration certificate."

21. Rule 26(10) of the Rules came up for construction before this Court in the case of Sri KOTTURESWARA RICE AND OIL MILLS AND ANR. v. THE STATE OF KARNATAKA AND ORS., (1988) 71 STC 356 In the said decision, the Court has observed as under:

"Held, that as a rule of prudence, even after the expiry of statutory period, the dealer, though not under any statutory obligation to do so, should preserve his evidence until the proceedings were completed. Rule 26(10) of the Karnataka Sales Tax Rules as amended by Karnataka Sales Tax (Amendment) Rules 1986 was meant to achieve the same object and was therefore meant to be observed by the dealers. This rule was required to be applied to all pending assessments since, there was no time- limit to complete the assessments under Section 12(3) of the Karnataka Sales Tax Act and it was more procedural in nature and did not create or divest any right of the dealer."

We agree with the view taken by the learned Single Judge of this Court in the aforesaid decision.

22. In the present case, the assessing authority for the period from 1.11.1978 to 22.10.1979, had concluded the assessment proceedings by determining the total and the taxable turnover of the assessee both under the KST Act and the CST Act by his order dated 21.3.1981. The revising authority within the time limit prescribed under the Act, had initiated revisional proceedings being of the view that the order passed by the assessing authority under the provisions of Central Sales Tax Act is erroneous and prejudicial to the interest of the revenue and by his order dated 23.10.1989 had set aside the assessment order passed under the CST Act and had directed the assessing authority to pass a fresh assessment order. The assessee was fully aware of these proceedings and as a prudent

businessman, in order to support its claim from payment of tax under the CST Act, should have preserved the documents until all the proceedings are completed and therefore, it cannot plead that it was not obliged to preserve the documents beyond the time limit provided under Rule 26(10) of the Rules.

23. In view of the above discussion, in our opinion, there is no merit in any one of the contentions canvassed by the learned Counsel for the appellant. Accordingly, appeal fails and it is rejected. Ordered accordingly.

M/S.Procter &Amp; Gamble Hygiene ... vs State Of Kerala on 10 November, 2009

IN THE HIGH COURT OF KERALA AT ERNAKULAM

ST.Rev..No. 221 of 2009()

1. M/S.PROCTER & GAMBLE HYGIENE AND HEALTH ... Petitioner

Vs

1. STATE OF KERALA,

... Respondent

For Petitioner :SRI.ANIL D. NAIR

For Respondent : No Appearance

The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR The Hon'ble MR. Justice V.K.MOHANAN

Dated :10/11/2009

O R D E R

C.N.RAMACHANDRAN NAIR &

V.K.MOHANAN, JJ.

.................................................................... S.T. Rev. No.221 of 2009

.................................................................... Dated this the 10th day of November, 2009.

ORDER

Ramachandran Nair, J.

Revision is filed against the order of the Tribunal disposing of appeal against KGST assessment for the year 2002-2003. The only issue raised is whether the Tribunal was justified in confirming disallowance of stock transfer value of goods for the reason that petitioner has not produced Check Post sealed delivery notes or other documents towards proof of transport of goods outside the State. An alternate question raised is whether after disallowing exemption on stock transfer, the Assessing Officer was justified in making assessment as local sales as against assessee's claim that assessment should be under CST Act on the stock transfer value.

2. The contention of the counsel for the assessee is that exemption on stock transfer is disallowed only because the transport documents did not contain Check Post seals. He pointed out that the goods stock transferred from Kerala to branches in Tamil Nadu and Karnataka were assessed there under the local Sales Tax Act. Government Pleader on the other hand

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contended that without proof of physical movement of goods from Kerala to outside State, the stock transfer value cannot be granted exemption. The issue raised is settled by decision of this court in ESAB INDIA LTD. V. STATE OF KERALA reported in (2004) 12 KTR 34. In this decision this court held that in order to claim exemption, the best proof available will be the document used for transport of goods beyond the State which will contain seal of Sales Tax Boarder Check Post in Kerala. Under the Rules goods have to be transported under cover of prescribed documents mainly Delivery Note (Form 26) and in respect of interstate movement, Form 27B also is required. In fact, the goods reach the destination outside Kerala along with these documents, which would have been sealed by the Boarder Check Post wherefrom goods leave the State. Even though there may be omission to seal documents which may rarely happen, invariably every document used for transport of goods across the State would be sealed by the Check Post. Therefore, we do not find any justification to deviate from the view taken in the judgment abovereferred. However, even if full documents of transport with Check Post seal are not available, still the dealer will be able to prove stock transfer by producing available Check Post sealed transport documents and for the balance goods accounts of the branches towards receipts and sale of goods and also by producing proof of

3

payment of freight to local carriers for transport of such goods outside the State. If these documents are produced and the Assessing Officer is able to correlate the freight payments and goods movements and receipts outside the State, exemption can be granted. Since the assessment is for the year 2003-2004 only, we feel one more opportunity can be granted to the assessee to produce books of accounts from branches along with copies of monthly returns and copies of assessment orders issued in those States and L.R. copies and receipts for payment of freight for transport of goods. If documents are produced to prove physical movement of goods within a period of six weeks from date of receipt of copy of this judgment, the Assessing Officer will verify the same and if found genuine, grant exemption. However, if convincing evidence is not produced towards proof of transport of goods beyond the State, then the Tribunal's order will stand confirmed. There will be direction to the officer to consider the F Forms later obtained also along with corresponding proof of other documents, if the assessee produces such evidence.

3. The assessee's contention that even if exemption on stock transfer is disallowed, the turnover should be assessed under the CST Act, is unacceptable because in the absence of proof of physical movement of goods, the assessment could not be made under Section 3(a) of the CST Act.

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In the absence of proof of interstate movement, assessment under local Act is permissible based on presumption of local sale of goods. Therefore, we reject this alternate claim of the assessee. The S.T. Revision case is disposed of as above directing the Assessing Officer to reconsider the matter, if documents are produced as indicated above.

C.N.RAMACHANDRAN NAIR

Judge

V.K.MOHANAN

Judge

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