Purchase tax on exempted branded goods and stock transfers outside Kerala was upheld under the state sales tax scheme.
Tax liability under the Kerala General Sales Tax Act arose on two separate statutory bases. Branded taxable goods purchased from an exempted manufacturing unit attracted purchase tax under section 5A(1)(c) because the goods were taxable, no tax was paid on the sale, and they were thereafter despatched outside the State. The Court also applied section 5(2B) to branded goods despatched outside Kerala otherwise than by inter-State sale, holding that stock transfer outside the State satisfied the statutory conditions even without a declaration. The appellant's challenge failed on both issues, and the statutory scheme fastened tax accordingly.
Issues: (i) Whether the appellant was liable to purchase tax under section 5A(1)(c) of the Kerala General Sales Tax Act, 1963 on branded goods purchased from an exempted unit and despatched outside the State. (ii) Whether the appellant was liable to tax under section 5(2B) of the Kerala General Sales Tax Act, 1963 on despatch of branded goods outside Kerala otherwise than by inter-State sale.
Issue (i): Whether the appellant was liable to purchase tax under section 5A(1)(c) of the Kerala General Sales Tax Act, 1963 on branded goods purchased from an exempted unit and despatched outside the State.
Analysis: The goods purchased by the appellant were taxable goods. The supplier did not pay tax because of a sales tax exemption available to the manufacturing unit. The provision governing purchase tax applies where taxable goods are purchased in circumstances in which no tax is payable on the sale and the goods are thereafter used, disposed of, or despatched outside the State in the manner contemplated by the section. The Court held that the situation fell within the statutory scheme of purchase tax, and that the case was closer to the principle applied in the decision treating exempted taxable goods as attracting purchase tax at the hands of the purchaser.
Conclusion: The appellant was liable to purchase tax under section 5A(1)(c), and the challenge failed on this issue.
Issue (ii): Whether the appellant was liable to tax under section 5(2B) of the Kerala General Sales Tax Act, 1963 on despatch of branded goods outside Kerala otherwise than by inter-State sale.
Analysis: Section 5(2) treats the brand-name holder as the first seller of branded goods, section 5(2A) provides the corresponding exemption mechanism, and section 5(2B) fastens liability where the brand-name holder consumes, uses, disposes of, or despatches the goods outside the State otherwise than by inter-State sale. The Court found that the appellant purchased branded goods that had not suffered tax, and then despatched them outside Kerala by stock transfer. The absence of a declaration did not defeat liability because the statutory conditions of section 5(2B) were satisfied independently.
Conclusion: The appellant was liable to tax under section 5(2B), and the challenge failed on this issue.
Final Conclusion: The statutory scheme fastened tax liability on the appellant both as purchaser of exempted taxable branded goods and as brand-name holder despatching those goods outside the State otherwise than by inter-State sale.
Ratio Decidendi: Where taxable branded goods are purchased from an exempted seller and are subsequently despatched outside the State otherwise than by inter-State sale, purchase tax or the corresponding branded-goods levy applies according to the statutory conditions, notwithstanding that the seller itself paid no tax because of exemption.
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