Taxable liability and partial exemption: new industrial units kept concessional input tax relief despite limited finished-product exemption.

New industrial units remained liable to tax on sales or purchases under the Kerala General Sales Tax Act even though a Government notification granted only partial exemption on their finished products. The exemption affected the computation of tax payable, not the underlying taxable character of the sale, and did not convert a taxable transaction into a non-taxable one. Because the finished products continued to be liable to tax in law, the first proviso to section 5(3) was not attracted to deny the concessional rate on industrial raw materials, component parts, or packing materials used in manufacture for sale inside the State. The units were therefore entitled to the concessional rate.

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Issues: Whether new industrial units enjoying partial exemption under the Government notification were excluded from the concessional rate of tax on sales of industrial raw materials, component parts, or packing materials under section 5(3) of the Kerala General Sales Tax Act.

Analysis: The incidence of tax under the Act arises on the taxable event of sale or purchase, while exemption only affects the computation of tax payable. A unit may remain liable to tax even though, by reason of a notification, its finished products enjoy limited exemption. The distinction between liability to tax and actual payment of tax is material, and the exemption notification issued under section 10 does not convert a taxable sale into a non-taxable one. Since the finished products of the units continued to be liable to tax in law, the first proviso to section 5(3) was not attracted so as to deny the concessional rate.

Conclusion: The new industrial units were entitled to the concessional rate of tax on purchases of industrial raw materials, component parts, or packing materials for use in producing finished products for sale inside the State, and the contrary view was rejected.

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