“Exemption from payment of tax at the time of sale is a pre-condition for attracting Sections 5A and 7A respectively” - SC
Emphasizing that levy of purchase tax is governed by the provisions and stipulations of Sections 5A of the Kerala General Sales Tax Act, 1963 or 7A of the Tamil Nadu General Sales Tax Act, 1959, and they are independent and constitute charging sections, the Supreme Court emphasized that purchase tax is leviable on and payable by the purchaser.
At the same time, the Apex Court also clarified that the legislations do not levy the purchase tax to tax the transaction of the sale and purchase twice, and instead, it levies purchase tax only where no sales tax was payable on the sale.
Facts of the Court:
The dispute arose over the taxability of the purchase of goods by the assessee from dealers who were exempted from payment of tax by virtue of notifications or exemptions issued under the Kerala Act or the TN Act. The Apex Court was seized with the issue as to whether such purchase would be taxable within the meaning of Section 5A of the Kerala Act or Section 7A of the TN Act. The dispute also involved the issue of determination as to whether the purchase tax, as imposed by Section 5A of the Kerala Act or Section 7A of the TN Act, is a tax in the nature of manufacture or consignment tax or an inter-State levy, and therefore ultra vires the Constitution and beyond the legislative powers of the State Legislature.
Observations of the Court:
The Three Judge Bench of Chief Justice of India (CJI) Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan rejected the argument on behalf of the assessee that Section 7A of the Tamil Nadu Act and Section 5A of the Kerala Act will have no application when tax is exempt at the hands of the seller, or for that matter, the tax under Section 3 or Section 5 of the aforesaid Act at the hands of the seller is payable at the point of first sale.
“Sections 5A or 7A, as the case may be, impose purchase tax specifically in situations where the seller is granted exemption from payment of tax. The legal position is that exemption from payment of tax at the time of sale is a pre-condition for attracting Sections 5A and 7A respectively”, added the Bench.
The Court observed that income generation in the form of taxes is an important source of revenue for both the State and the Central governments and some play in the joints should be given to the Legislature while dealing with laws relating to taxation and economic activities except in case of encroachment upon the power to tax that is not vested with them in terms of the Union or the State List, etc.
The Court further said that Section 7A is only attracted where the sales tax is not payable, which means there should be an exemption notification under Section 17 or an exemption under the Third Schedule, read with Section 8 of the TN Act.
The Court also explained that the purchase tax has not been made leviable in all situations, except in three situations, namely, (a) where the goods on which no tax is paid were used in manufacture; or (b) where the goods were despatched out of the State other than by way of inter State trade or commerce; or (c) where the goods are disposed of in a manner other than sale within the State.
However, the need to satisfy the conditions do not change the nature of the charge, which is, tax on purchase, added the Court.
The decision of the Court:
In view of the facts and circumstances, the Court upheld the constitutional validity of Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act and concluded that the purchase of goods by the assessee from dealers who were exempted from payment of tax by virtue of notifications or exemptions issued under the Kerala Act or the TN Act, is a purchase “which is liable to tax” within the meaning of Section 5A of the Kerala Act or Section 7A of the TN Act.
Case Title: C.T. Kochouseph vs State of Kerala
Case Number: Civil Appeal Nos. 941 – 945 of 2004
Coram: Hon’ble Chief Justice of India Sanjiv Khanna, Hon’ble Justice Sanjay Kumar and Hon’ble Justice R. Mahadevan
Counsel for Appellant: Senior Advocates C.N. Sreekumar, V Sridharan, AORs Prakash Ranjan Nayak, Rajan Narain, M. P. Vinod, Charanya Lakshmikumaran, Advocates Anupama Kumar, Debasis Jena, Rahul Kulhare, Ajay Aggarwal, Mallika Joshi, Sahil Parghi, Ayush Agarwal, Neha Choudhary, Nitum Jain, and Umang Motiyani
Counsel for Respondent: Senior Advocates V. Giri, Pallav Shishodia, K. Radhakrishnan, AORs G. Prakash, M. Yogesh Kanna, C. K. Sasi, Sabarish Subramanian, Advocates Meena K Poulose, Nihar Dharmadhikari, C. Kranthi Kumar, Vishnu Unnikrishnan, Sarathraj B, Danish Saifi, and Aswani Satheesh.
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