PERIYAR LATEX LTD Vs. STATE OF KERALA

JUDGEMENT

(1.) THESE two tax revision cases filed by the assessee are for the assessment years 1992-93 (T. R. C. No. 474 of 2001) and 1994-95 (T. R. C. No. 484 of 2001 ). The assessee is engaged in trading and processing of rubber. The main activity of the assessee is purchase of field latex, conversion of the same into centrifuged latex, and sale of the product locally as well as inter-State. The assessee has also obtained certificate of exemption from the Industries Department stating that it is entitled to sales tax exemption as an SSI unit manufacturing centrifuged latex. The certificate produced as annexure I provides for exemption from October 3, 1991 to October 2, 1998. The assessee has claimed exemption on the purchase of field rubber latex and on sale of centrifuged latex. The assessee's main contention is that the field latex and centrifuged latex are different forms of one and the same commodity, namely, rubber, coming under entry No. 110 of the First Schedule to the Kerala General Sales Tax Act, 1963 taxable only once at the point of last purchase in the State. According to the assessee the certificate of exemption applied for and obtained and produced as annexure I is only an alternate claim, i. e. , only if its contention that field latex and centrifuged are one and the same commodity for sales tax levy is not accepted by the department. While completing the assessment the assessing officer granted exemption on the local sales of centrifuged latex against form No. 25 issued by the purchasers, as the same is also liable to tax at the point of last purchase in the State. Similarly exemption was granted on the purchase turnover of field latex on the ground that Circular No. C2-61512/97/tx dated May 28, 1998 of the Board of Revenue has clarified that the point of levy on rubber is only once in the State, and therefore the assessee has no liability to pay tax on the purchase turnover of field latex consumed in the manufacture of centrifuged latex. However, the assessing officer levied tax on rubber cess attributable to purchase turnover of field latex. The Deputy Commissioner (Appeals) also took the view that the assessee is not liable to pay purchase tax on field latex based on the circular issued by the Board of Revenue. When the matter went to the Tribunal, the Tribunal reversed the finding of the Deputy Commissioner (Appeals) holding that the circular cannot override the effect of the judgment of this Court in Padinjarekkara Agencies Ltd. v. Assistant Commissioner (1996) 2 KLT 641 and Commissioner of Income-tax v. Kanam Latex Industries P. Ltd. [1996] 221 ITR 1, wherein this Court has held that centrifuged latex is a manufactured product. Accordingly the Tribunal declined the exemption on purchase turnover of field latex claimed by the assessee. With regard to exemption claimed by the assessee under Notification Nos. 1003/91 and 1727/93 the Tribunal held that centrifuged latex has not been subjected to tax either under the KGST Act or under the CST Act, which is a condition under the notifications for granting the benefit to the assessee. In these tax revision cases, the assessee has challenged all the grounds found against them by the Tribunal.

(2.) WE have heard Sri C. K. Thanu Pillai, counsel for the assessee and Sri Georgekutty Mathew, Government Pleader for the department.

(3.) THE next point raised by the assessee is that the assessee is entitled to exemption from tax on purchase turnover of field latex under Notification S. R. O. No. 1003/91, which was later contained in S. R. O. No. 1727/93. THE notifications are the following : " S. R. O. No. 1003/91 : 3. Tax on the purchase of rubber by small-scale industrial units in the State for use in the manufacture of goods subject to the condition that tax under the said Act or under the Central Sales Tax Act, 1956 (Act 74 of 1956) is levied on the products manufactured by such rubber. Explanation.- For the above purpose 'small-scale industrial unit' means a unit registered as such with the Department of Industries and Commerce. " " S. R. O. No. 1727/93 : SCHEDULE IIi Dealers whose turnover of sale or purchase is exempt under sub-clause (2) of clause 1 ------------------------------------------------------------------------ Sl. Name of dealer Turnover which is Conditions and No. exempted restrictions ------------------------------------------------------------------------ (1) (2) (3) (4) ------------------------------------------------------------------------ 25. Small-scale industrial Turnover of purchase THE products are units which is registered of rubber for use in liable to tax with the Department of the manufacture of under the said Industries and Commerce. rubber goods within Act or under the the State. Central Sales Tax Act, 1956 (Central Act 74 of 1956 ).------------------------------------------------------------------------ THE assessee's counsel pointed out that in respect of inter-State sale of centrifuged latex, the assessee has collected and remitted Central sales tax. So far as local sales of centrifuged latex are concerned, the assessee has obtained form No. 25 from the purchasers who are registered dealers in Kerala and the assessee was also granted exemption on the basis of form No. 25 furnished by it. Consistent with the view taken by us above, we have to hold that the centrifuged latex is "rubber goods" manufactured out of field latex and the first condition of the notification is satisfied. So far as the inter-State sale of centrifuged latex is concerned, the assessee has collected Central sales tax and remitted the same, which is evident from the Central sales tax assessment orders produced in the tax revision cases. THErefore the assessee is entitled to exemption on the purchase turnover of field latex used in the manufacture of centrifuged latex sold inter-State. THE Tribunal's finding that the assessee has not established payment of tax is not correct, so far as inter-State sales turnover of centrifuged latex is concerned. However, with regard to local sales of centrifuged latex, the assessee has obtained form No. 25 from the purchasers who are registered dealers in Kerala. Form No. 25 is a declaration prescribed under rule 32 (14) of the Kerala General Sales Tax Rules, 1963, which is a mechanism to identify the last purchaser in the State to make him liable for tax. THErefore, we feel that the conditions in Notifications, S. R. O. Nos. 1003/91 and 1727/93, that the goods are liable to tax under the KGST Act is satisfied when manufacturer sells the goods to a local dealer after obtaining form No. 25. In that view of the matter, we feel that the assessee is entitled to exemption on the purchase turnover of field latex consumed in the manufacture of centrifuged latex sold locally against form No. 25. THErefore we find this issue in favour of the assessee and reverse the order of the Tribunal to this extent. It is for the assessing officer to correlate the field latex purchased which is used in the manufacture of centrifuged latex sold against form No. 25 and inter-State. THErefore the assessee succeeds on this point. With regard to the exemption claimed by the assessee on rubber cess, we feel that the rubber cess is only to be added to taxable turnover of field latex on the basis of the decision of the Supreme Court in State of Kerala v. Madras Rubber Factory Ltd. [1998] 108 STC 583, and it has no significance to the extent of the turnover of field latex exempt in the hands of the assessee. THErefore there is no scope for independent levy of tax on rubber cess, as the same is only a component of the taxable turnover. THE assessee has a case that it is entitled to sales tax exemption in terms of certificate of exemption obtained from the Industries Department and produced as annexure I in the tax revision cases. We feel that it has no relevance because the product, namely, centrifuged latex, is taxable at last purchase point and the assessee is granted exemption on the basis of form No. 25 obtained and produced by it from the purchasers. So far as the field latex is concerned, the assessee has claimed exemption under two notifications discussed above, and we have held that the assessee is entitled to the benefit of the said notifications. THErefore there is no scope to consider the claim of exemption on the basis of certificate produced by the assessee.