Purchase tax on partner-contributed stock-in-trade sustained where old gold ornaments were commercially dealt with by the firm.

Old gold ornaments contributed by partners as capital and entered into the firm's trading stock were held taxable as a purchase under section 5A of the Kerala General Sales Tax Act, 1963. Although the transfer by the partners to the firm was not itself a sale in the course of business and therefore did not attract tax under section 5(1), the firm's receipt of the goods as stock-in-trade and its commercial dealing with them, including remaking and sale of new ornaments, brought the transaction within purchase tax. The assessment under section 5A was therefore rightly sustained.

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Issues: Whether old gold ornaments contributed by partners to the firm as capital and brought into stock-in-trade attracted purchase tax under section 5A of the Kerala General Sales Tax Act, 1963.

Analysis: The ornaments were credited to the partners' capital accounts and treated by the firm as trading stock. The firm was free to sell the ornaments as such or after polishing, repair, or remaking, and in fact remade them into new ornaments and sold them in the course of business. The earlier decision dealing with liability under section 5(1) of the Act at the hands of the transferor did not govern purchase tax liability in the hands of the firm. After the introduction of Explanation (3D) to section 2(xxi), a transfer may be deemed to be a sale and purchase, but the transfer by a partner to the firm as capital contribution still did not attract tax under section 5(1) because it was not in the course of business. The transferee firm's purchase, however, was taxable under section 5A because the goods were taken as stock-in-trade and dealt with commercially.

Conclusion: The assessment under section 5A was rightly sustained and the challenge to it failed.

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