Section 5(3)(ii) not attracted where declared goods were used in manufacture and finished products were taxable in principle.

Section 5(3)(ii) of the Kerala General Sales Tax Act was not attracted where the assessee purchased goods on the strength of Form No. 18, used them in manufacture, and the finished products were in principle liable to tax. The declaration under rule 28 and Form No. 18 had to be read with the stated tax liability on the finished goods, and the fact that tax was ultimately adjusted against a small-scale industry exemption did not show failure to use the goods for the declared purpose. On the facts found, the statutory conditions for invoking section 5(3)(ii) were not satisfied, and the levy was unsustainable.

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Issues: Whether section 5(3)(ii) of the Kerala General Sales Tax Act, 1963 was attracted where the assessee purchased goods on the strength of form No. 18 declaration, used them in manufacture, and sold the finished products under a small-scale industry exemption.

Analysis: Section 5(3)(ii) applies when a dealer purchases goods by furnishing the prescribed declaration and then fails to use them for the purpose for which the declaration was furnished. The prescribed declaration under rule 28 of the Kerala General Sales Tax Rules, 1963 and form No. 18 contemplated use of the goods in the production of finished products liable to tax. The assessee did use the purchased goods in manufacture, but the declaration also had to be read with the liability stated in the form. The assessee's finished products were assessable to tax, even though tax was ultimately adjusted against the exemption available under the eligibility certificate. On that basis, the statutory conditions for invoking section 5(3)(ii) were not satisfied, and the Tribunal's ultimate conclusion was correct.

Conclusion: The revision was without merit and the levy under section 5(3)(ii) was not sustainable on the facts found.

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