KOHINOOR FASHION JEWELLERY Vs. STATE OF KERALA

JUDGEMENT

(1.) THE question raised in the revision case is whether the Tribunal was justified in sustaining the assessment under section 5A of the Kerala General Sales Tax Act, 1963 on the value of old gold ornaments brought by the partners of the firm towards capital. We have heard counsel for the petitioner and the Special Government Pleader.

(2.) ON the facts it is clear that the old ornaments brought by the partners towards capital were accounted as trading stock after crediting the value in the capital accounts of the partners. The firm was free to sell old gold ornaments as such or after polishing or repair or after remaking. It is stated that the old ornaments were remade into new ornaments and sold the same by the firm as part of the stock -in -trade. Even though the assessing officer treated the transaction as purchase and assessed the purchase value in the hands of the firm under section 5A, the first appellate authority cancelled the assessment holding that items brought in the capital account cannot be treated as purchase by the firm. The Tribunal after being satisfied about the facts as stated above and by reference to Explanation (3D) to section 2(xxi) pertaining to definition of "sale" as contained in the KGST Act, reversed the order of the first appellate authority and sustained the assessment. The counsel for the petitioner relied on a single Bench decision of the court in C. M. Hamsa Haji v. Sales Tax Officer [1967] 20 STC 470 whereunder this court held that transfer of goods by a partner to the firm towards his capital does not amount to sale in the course of trade or business by a "dealer" to attract tax under the KGST Act. We find that this court was only considering the case of liability under section 5(1) of the KGST Act at the hands of the seller and not purchase tax liability at the hands of the partnership. We, therefore, hold that this decision relied on by the petitioner has no application on the facts of this case. Moreover, the scope of this decision is substantially neutralized by virtue of the introduction of Explanation (3D) to section 2(xxi) by Act 17 of 1984 with effect from April 1, 1984 which is as follows :