Transfer of technical know-how as goods and rejection of defective manufacturing accounts upheld for turnover estimation.

Technical know-how transferred through deputed personnel for consideration was treated as goods capable of sale under the Kerala General Sales Tax Act, because intangible property in transferable form can amount to goods when it can be transmitted or used. The Kerala High Court therefore held the tax demand sustainable against the assessee. On the accounting issue, the assessee's failure to maintain mandatory daily manufacturing accounts with quantitative details justified rejection of the books and restoration of turnover estimation, so the Revenue's addition was upheld.

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Issues: (i) Whether transfer of technical know-how through deputing personnel for consideration constituted goods and sale exigible to tax under the Kerala General Sales Tax Act, 1963. (ii) Whether rejection of accounts and restoration of turnover estimation were justified for non-maintenance of manufacturing accounts.

Issue (i): Whether transfer of technical know-how through deputing personnel for consideration constituted goods and sale exigible to tax under the Kerala General Sales Tax Act, 1963.

Analysis: The agreement showed that technology required for production was to be provided, personnel were to be deputed, and consideration was payable as a percentage of turnover. The statutory definitions of goods and sale were construed broadly, and the Court applied the principle that intangible property capable of transfer, transmission, delivery, possession, or use may fall within goods. Relying on the settled position that intellectual property placed in a transferable form becomes goods, the Court held that transfer of technical know-how through personnel also amounted to a transfer of goods.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (ii): Whether rejection of accounts and restoration of turnover estimation were justified for non-maintenance of manufacturing accounts.

Analysis: The assessee had not produced manufacturing accounts before the assessing authority. The governing rule required a manufacturer to maintain daily production accounts with quantitative details of raw materials and goods manufactured. The Court held that non-maintenance of such accounts is a valid ground for rejection of accounts and estimation of turnover, and therefore the restoration of the addition made by the assessing authority was proper.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: The revisions were liable to fail, as both the royalty receipts were taxable and the turnover estimation based on defective account maintenance was sustainable.

Ratio Decidendi: Intangible technical know-how is taxable goods when it is transferred for consideration in a manner that allows transmission or use, and failure to maintain mandatory manufacturing accounts justifies rejection of accounts and estimation of turnover.

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