Local tax on declared goods - Part 2
In Peekay Re-rolling Mills (P) Ltd vs The Assistant Commissioner & Anr decided on 20th March 2007, the Supreme Court had to decide whether the assessing officer is justified in seeking to invoke Sec 5A of the Kerala General sales Tax Act, 1963 and levy tax on the dealer in cases where the goods had not suffered tax at the earlier point of sale on account of exemption enjoyed by the seller.
Sec 5A of the KGST Act, 1963 seeks to tax purchases in the hands of the purchaser where the goods have not suffered tax and such goods are consumed in manufacture of other goods by the purchasing dealer.
In Peekay Re-rolling Mills (P) Ltd vs The Assistant Commissioner & Anr, the dealer had purchased steel from another dealer who enjoyed exemption from payment of sales tax by virtue of notification issued u/s 10 of the KGST Act, 1963. The assessing officer sought to impose tax u/s 5A on such goods on the ground that the goods had not suffered tax earlier.
The dealer argued that Sec 14 of the Central Sales Tax Act, 1956 has declared iron and steel as declared goods and Sec 15 of the Act prohibited the state from levying tax on local sales at more than one stage. As the tax was payable at point of first sale, the dealer argued that tax cannot be collected from him, as he was not the first seller in the state.
The High Court of Kerala decided the matter in favour of revenue stating that as tax had not been paid at the point of first sale due to the exemption u/s 10 enjoyed by the seller, the goods could be subjected tax u/s 5A of the KGST Act, 1963.
In its judgment, the Supreme Court referred to the Pine Chemicals case [1992] 85 STC 432(SC) and quoted from that decision : “The exemption would not arise unless the goods
are taxable at the point of their sale. Thus the effect of exempting their sale is that the said goods manufactured by
them could not be taxed at the second or subsequent sales also as that would offend section 4(1) which provides for single point levy.”
The Supreme Court further observed that “A reading of the above judgments make it amply clear that exemption does negate a levy of tax altogether. Despite an exemption, the liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfill the liability is done away with.”
The Court also discussed the distinction between levy and collection and concluded that collection is not a part of levy and they are separate and distinct events. The court observed that “It is true that collection of a tax may some times be indicative of a lawful levy of tax, but in our opinion it does not logically follow that absence of collection means an absence of liability.”
The Concluded with the following words : “Thus, after an examination of the relevant case law, we find that the liability to tax or taxability under Section 5 of the State Act remains unaffected by an exemption under Section 10 of the State Act. Consequently, the respondent cannot validly shift the burden of tax to the purchaser under Section 5A of the State Act for the same would violate the condition of single-stage tax under Section 15 of the Central Act. “