1997 (10) TMI 341 - SC - VAT / Sales Tax

Fish oil purchases from unregistered sellers for export-linked penultimate sale held liable to purchase tax under s. 6

The dominant issue was whether a registered dealer purchasing fish oil from unregistered dealers was liable to purchase tax under s. 6 of the Karnataka ... Levy of purchase tax u/s 6 - purchasing the fish oil from unregistered dealers - Claimed exemption from payment of sales tax on sales made to Kalbhavi as the export sales of the goods referred to u/s 5(3) of the Central Sales Tax Act, 1956 - Whether respondent a registered dealer under the provisions of the Karnataka Sales Tax Act, 1957 is liable to pay purchase tax under the provisions of section 6 of the said Act? - Held that:- The words “sale in the State” occurring in section 6(i) of the Act would refer to “intra-State” sale in contradistinction to “sale in the course of inter-State trade or commerce” as referred to in clause (ii) of section 6. It has been accepted by the High Court and, it is not disputed, that the sale in the present case to Kalbhavi falls under section 5(3) of the Central Sales Tax Act. This, therefore, is a sale in the course of export and ipso facto cannot be regarded as intra-State sale. It is to be borne in mind that in the case of inter-State trade sale or sale in the course of export, the property in the goods may stand transferred within the State but merely because the passing of title or sale takes place in a State would not detract it from its character as an inter-State or export sale. Having come to the conclusion that the sale was not in the course of export within the meaning of section 5(1) of the Central Sales Tax Act and it was also not a local sale, it was concluded that the sale in question was inter-State sale and, therefore, would fall within the exemption contained under section 9(1) of the Haryana General Sales Tax Act. Such a question does not arise in the present case because whereas in Murli Manohar’s case [1990 (10) TMI 329 - SUPREME COURT], the goods had gone out of State of Haryana prior to its export from India, in the present case, according to the learned counsel for the appellant, Kalbhavi exported the goods from Mangalore, i.e., from within the State of Karnataka. There was thus no occasion of movement of goods from one State to another and as the sale in the course of export is not entitled to the exemption from payment of purchase tax under section 6 of Karnataka Sales Tax Act, the decision of the High Court [B.M. Ashraf & Co. v. State of Karnataka [1991 (6) TMI 234 - KARNATAKA HIGH COURT] regarding the sales in question as being sales in the State and, therefore, immune from levy of purchase tax, cannot be sustained. Thus, it follows that by virtue of section 5(3) of the Central Sales Tax Act, the sale effected by the respondent to Kalbhavi has to be regarded to be in the course of export by virtue of which fish oil was exported to a place outside the State and since this despatch was not pursuant to an intra-State sale or as a result of sale in the course of inter-State trade or commerce, the said sale falls directly within the ambit of section 6 of the Act. Accordingly, the Sales Tax Authorities were justified in levying purchase tax on the respondent and the High Court erred in coming to a contrary view. Appeal is allowed. Issues Involved:1. Liability to pay purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957.2. Interpretation of Section 6 of the Karnataka Sales Tax Act.3. Applicability of Section 5(3) of the Central Sales Tax Act, 1956.4. Distinction between intra-State sale, inter-State sale, and sale in the course of export.Detailed Analysis:1. Liability to pay purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957:The primary issue in this case was whether the respondent, a registered dealer, was liable to pay purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957, for purchasing fish oil from unregistered dealers and subsequently selling it to M/s. Kalbhavi Venkatarao & Bros. for export.2. Interpretation of Section 6 of the Karnataka Sales Tax Act:Section 6 of the Act stipulates that purchase tax is levied on taxable goods purchased by a dealer under circumstances where no tax is leviable on the sale price under Section 5, and the dealer either consumes, disposes of, or dispatches the goods outside the State, except as a direct result of inter-State trade or commerce. The High Court had interpreted this section to mean that since the respondent sold the fish oil within the State of Karnataka, the purchase did not attract purchase tax. However, the Supreme Court disagreed, stating that the High Court's interpretation was incorrect.3. Applicability of Section 5(3) of the Central Sales Tax Act, 1956:The Supreme Court emphasized that the sale by the respondent to Kalbhavi was the last sale preceding the export and thus fell under Section 5(3) of the Central Sales Tax Act, deeming it a sale in the course of export. This meant that no tax was levied under Section 5 of the Karnataka Sales Tax Act on this transaction. However, this did not exclude the applicability of purchase tax under Section 6 of the Karnataka Sales Tax Act.4. Distinction between intra-State sale, inter-State sale, and sale in the course of export:The Supreme Court clarified that the term 'sale in the State' in Section 6(i) of the Karnataka Sales Tax Act refers to an intra-State sale, as opposed to a sale in the course of inter-State trade or commerce or export. The sale by the respondent to Kalbhavi, being in the course of export, could not be regarded as an intra-State sale. Thus, the respondent's transaction did not qualify for exemption from purchase tax under Section 6(i).Conclusion:The Supreme Court concluded that the High Court erred in its interpretation and that the respondent's sale to Kalbhavi, being in the course of export, attracted purchase tax under Section 6 of the Karnataka Sales Tax Act. The appeal was allowed, the High Court's order was set aside, and the decision of the assessing authority was restored.Final Judgment:The Supreme Court allowed the appeal, set aside the High Court's order, and restored the decision of the assessing authority, concluding that the respondent was liable to pay purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957. There was no order as to costs.