Purchase tax on purchases from unregistered dealers remains payable despite later penultimate export sales under export exemption rules.

Purchase tax under section 5A of the Kerala General Sales Tax Act applies to local purchases from unregistered dealers where the later sale is only a penultimate export sale under section 5(3) of the Central Sales Tax Act; the exemption for export-linked sales does not extend backwards to exempt the earlier purchase. The same principle governs both sales to exporters within the State and inter-State sales to exporters outside the State. On turnover, a rejected account system may still support a residual addition where the material on record shows it is not arbitrary or unreasonable.

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Issues: (i) Whether purchase tax under section 5A of the Kerala General Sales Tax Act, 1963 was leviable on local purchases of cashew kernels from unregistered dealers when the goods were sold to exporters within and outside the State for export; (ii) Whether the addition of turnover sustained by the Tribunal was justified.

Issue (i): Whether purchase tax under section 5A of the Kerala General Sales Tax Act, 1963 was leviable on local purchases of cashew kernels from unregistered dealers when the goods were sold to exporters within and outside the State for export.

Analysis: Section 5A is a charging provision intended to tax purchases where tax is not otherwise payable under section 5. The exemption carved out by clauses (b) and (c) applies only where the subsequent sale or disposal is taxable in the ordinary course and does not extend to purchases followed by sales falling under section 5(3) of the Central Sales Tax Act, 1956. The exemption under section 5(3) is confined to the penultimate sale preceding export and does not enlarge the scope of section 5A so as to exempt the prior purchase from unregistered dealers. The binding principle applied from the Supreme Court decision on the pari materia provision equally governed both local sales to exporters and inter-State sales to exporters outside the State.

Conclusion: Purchase tax was rightly sustained, and the issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the addition of turnover sustained by the Tribunal was justified.

Analysis: The accounts had been rejected for valid reasons, and the addition made at the assessment stage had already been reduced at two appellate levels. In view of the volume of business and the material on record, the residual addition could not be regarded as arbitrary or unreasonable.

Conclusion: The addition of turnover was justified, and the issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The revision petitions failed, and the assessee remained liable on the disputed purchase tax as well as on the turnover addition sustained by the Tribunal.

Ratio Decidendi: The purchase-tax exemption for subsequent sales does not extend to purchases of taxable goods from unregistered dealers when the later sale is itself exempt as a penultimate export sale under section 5(3) of the Central Sales Tax Act, 1956.

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