STATE OF KERALA Vs. KUNHIKANNAN JEWELLERY

JUDGEMENT

(1.) CONNECTED Revision cases are filed by the State against the order of the Sales Tax Appellate Tribunal holding that respondent has no liability to pay purchase tax under Section 5A on the turnover of bullion purchased from non -resident Indians. We have heard Government Pleader appearing for the petitioner and counsel appearing for the respondent.

(2.) NON -residents are granted exemption on sales turnover of bullion under entry 10 of Schedule II of SRO 1727 of 1993. However, in order to prove exemption purchaser has to issue declaration in Annexure I of the said notification. Respondent admittedly has not issued any declaration in Annexure I in terms of the notification. However since respondent did not produce any sale bills issued by non -resident Indians, the assessing officer levied tax under Section 5A treating the purchases as made in circumstances in which no tax is payable by the sellers. The Tribunal however held that since respondent has not issued any declaration, liability under Section 5A cannot be fastened on purchaser merely because sellers are not assessed to tax. Government Pleader submitted that since bullion purchased by respondent was consumed in the manufacture of ornaments, which were sold by the respondent, the purchases will attract tax under Section 5A because purchases were in circumstances in which no tax is payable by the seller. However, respondents counsel contended that bullion is an item taxable at sale point and the turnover is assessable at the sale point at the hands of the sellers. According to counsel for the respondent, respondent has furnished names and addresses of sellers from whom bullion was purchased.

(3.) THE contention of the Government Pleader that since sellers are entitled to exemption by virtue of the notification above referred, liability under Section 5A is automatic on the purchaser because purchaser is engaged in manufacture of gold ornaments from bullion is not acceptable as such. Similarly, the contention of the respondent that since declaration in Annexure I is not issued by them to the sellers, they cannot be assessed under Section 5A is equally unacceptable. If any nonresident Indian who has sold bullion to the respondent is engaged in the business of importing and selling of bullion and if the turnover of such non -resident Indian exceeds taxable limit, then sales tax should be assessed and recovered from such non -resident Indian as bullion is an item taxable at the sale point under Section 5(1) read with relevant entry of the First Schedule to the KGST Act. If a non -resident liable to pay tax on sales of bullion wants to claim exemption under the notification above referred then he ought to have obtained declaration from the respondent in Annexure I and claimed exemption. However, if the non -resident who made sales to the respondent escaped liability on account of lapses on the part of the department, the same will not justify assessment of turnover under Section 5A on the respondent. It is for the respondent to produce sale bills or purchase vouchers to prove that non -resident seller was engaged in the "business" of importing and selling of bullion and his turnover was above the limit that attracts liability under Section 5(1) for the purpose of escaping liability under Section 5A of the Act. In the normal course a non -resident Indian occasionally visits his home and he cannot be expected to be doing business in the import and sale of bullion. However, if any such non -resident Indian who sold bullion to the respondent was engaged in the business attracting liability then the turnover representing purchases from such non -resident cannot be assessed at the hands of the purchaser. The respondent has no case that sellers have charged sales tax from them which obviously means that sellers claim exemption on such sales. Since the item purchased is admittedly consumed in the manufacture of gold ornaments, respondent will be liable to pay tax under Section 5A if the purchase is in circumstances in which no tax is payable by the seller which is either by virtue of exemption available under notification SRO 1727/93 or on account of the fact that seller is not a dealer engaged in the business of sale of bullion. The Tribunals order cannot be sustained because the Tribunal declared exemption in favour of the respondent merely because they have not issued declaration in Annexure I. We have already held that even if declaration prescribed under the notification is not issued, a non -resident seller cannot be assessed unless it is proved that such non -resident who made sales to the respondent is engaged in the business which is to be proved with reference to periodicity, frequency and volume of sales. We therefore allow the Tax Revision Cases by setting aside the order of the Tribunal and remand the matter to the assessing officer for giving opportunity to the respondent to produce purchase vouchers or sale bills pertaining to purchase of bullion from non -residents containing the names and addresses and proof of sellers identity for the assessing officer to conduct enquiry and to exclude so much of the purchases from non -residents who were liable to pay tax under Section 5(1) of the Act. We make it clear that merely because sellers who are liable under Section 5(1) are not assessed or cannot be assessed on account of limitation is not a ground for fastening liability on the respondent under Section 5A. Respondent is given two months time from the date of receipt of a copy of this judgment for furnishing particulars, and records before the assessing officer. However, if no proof is produced within the period granted above, towards proof of purchase with names and addresses of the non -residents then the assessment made under Section 5A will stand confirmed.