ASHRAF Vs. STATE OF KERALA

JUDGEMENT

(1.) THE facts of these cases are short and simple, and admit of no dispute. THE question is one of law, relating to the interpretation of the Explanation to S. 2 (xxvi) and S. 8 of the Kerala General Sales Tax Act, 1963 (the act ). We shall extract the provisions here for the purpose of convenience. "2 (xxvi ). "total turnover" means the aggregate turnover in all goods of a dealer at all places of business in the state, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale-in the course of inter-state trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India: Explanation-Notwithstanding anything contained in any other provision of this Act, but subject to the provisions of S. 8 in the case of goods which arc taxable at the point of last purchase in the State by a dealer liable to tax under S. 5 and which arc held as closing stock on the last day of any financial year, the amount for which such goods were purchased by the dealer shall be deemed also to be a part of his total turnover for the subsequent year or each of the subsequent years until such goods arc either sold by him in the State or such purchase acquires the character of last purchase in the State in the hands of such dealer and in case such purchase acquires the character of last purchase in the State in the hands of such dealer, the turnover in respect of such purchase shall be liable to tax in the year in which the purchase acquires the character of last purchase; 8. Stage of levy of taxes in respect of imported and exported goods:--Where in the case of any goods taxis leviable at one point in a series of sales or purchases, such series shall, (a) in the case of goods imported into the State either from outside the territory of India or from any other State in India, be deemed to commence at the stage of the sale or purchase effected immediately after the import of such goods; (b) in the case of goods exported out of the State to anyplace outside the territory of India or to any other State in India, be deemed to conclude at the stage of the sale or purchase effected immediately before the export of such goods. " We may at once mention that the words "but subject to the provisions of S. 8" were absent in the Explanation as originally enacted, and were inserted by the Amendment Act 6 of 1988 with effect from february 19,1988.

(2.) THE appellants in the writ appeals and the petitioners in the writ petition and the tax revision case (hereinafter referred to as the assessees ) arc dealers ii arecanuts and/or pepper, which are goods liable to tax under the Act at the point of the last purchase in the Slate. Part of these goods purchased by the assessee's arc despatched to their agents outside kerala, mostly in North India, for sale on consignment basis. Pan of these consignments which remains unsold at the end of the year is held in stock with the agents for and on behalf of the assessees, at the close of the assessment year, namely 31s March. THE question whether such closing stock was liable to be taxed at the hands of thi last purchaser before that date was considered by the Supreme Court in the decision in State of Madras v. Narayanaswami Naidu (1968) 21 STC page 1. THE court overruled the decision of this court in abdulsalam Rowther v. State of Kerala (196112 STC 98 and held that the stock in hand at the close of the assessment year could no be said to have acquired the quality of 1st purchase in that year because the assessee may in the ensuing year sell it or might himself consume it or the goods might get destroy THE purchase of the goods held in stock could not therefore be brought to lax.

(3.) WITH the express object of overcoming the effect of this decision, the State legislature passed Act 6 of 1988 which amended the explanation to S. 2 (xxvi) by introducing therein the words "but subject to the provisions of S. 8". In other words, the width of the non-obstacle clause with which the Explanation opened was narrowed down and it was made subject to the provisions of S. 8 of the Act. The Statement of Objects and reasons for Act 6 of 1988 slated inter alia as under: "in the case of goods taxable at the point of last purchase in the State there are chances that the dealers may open branches at different places in the State and effect direct purchases from producers to avoid turnover tax. Moreover the existing intermediary dealers may change themselves as agents of the last purchasers to avoid turnover tax. The commodities in respect of which this could happen are rubber, tea, pepper, arecanut and dried ginger. Government decided to amend the Act suitably so as to extend the liability to pay turnover tax to the taxable point also in respect of these items. According to clause (b) of S. 8 of the Kerala General sales Tax Act,1963 the point of levy of purchase tax will conclude where the goods are exported outside the State. The Kerala High Court in its decision reported in (1986) 63 STC 387 has held that the closing stock of goods held outside the State will nor acquire the character of last purchase till it is sold. Under the cover of this decision, many dealers claim that their stock of goods held outside the State will not acquire the character RIlast purchase until the goods are sold and as such they are not liable to pay tax on such goods. As a result, Government is losing huge amount of lax. To overcome this situation Government decided to amend the Act suitably. "