Concessional purchase tax on manufacturing inputs not denied merely because finished goods are stock transferred outside the State.

After deletion of the proviso to section 5(3)(i) of the Kerala General Sales Tax Act, concessional purchase of raw materials or packing materials continued to be available where the inputs were used in manufacturing or packing within the State for sale, and differential tax under section 5(3)(ii) could not be levied merely because the finished goods were stock transferred outside Kerala. The demand on that basis was therefore unsustainable. The separate claim for second sale exemption on old freezers purchased from SSI units was not finally determined, as the factual and documentary basis had not been examined; that issue was remanded for fresh consideration after hearing the assessee.

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Issues: (i) whether an industrial unit purchasing raw materials or packing materials at concessional rate under section 5(3)(i) of the Kerala General Sales Tax Act, 1963 became liable to differential tax under section 5(3)(ii) when the finished goods were stock transferred outside the State after the proviso to section 5(3)(i) was deleted; (ii) whether the claim for second sale exemption in respect of old freezers purchased from SSI units required reconsideration.

Issue (i): whether liability to differential tax arose on stock transfer of the finished goods.

Analysis: The amended provision was read as removing the earlier condition that the finished product must suffer tax within the State or under the Central Sales Tax regime. The deletion of the proviso was treated as deliberate legislative change to promote manufacturing activity and to make the concessional rate available so long as the raw materials or packing materials were used in manufacture or packing within the State for sale. The phrase "for sale" was understood as distinguishing goods meant for trade from goods for own consumption, and not as requiring sale only in or from Kerala.

Conclusion: The demand for differential tax under section 5(3)(ii) was held unsustainable for raw materials or packing materials used in goods that were stock transferred outside the State, and relief was granted in favour of the assessee.

Issue (ii): whether the assessee's claim of second sale exemption on old freezers purchased from SSI units was established.

Analysis: The scope of the exemption and its linkage with the documentary materials had not been examined by the authorities below. As the factual basis for the exemption claim required scrutiny, the matter was sent back for fresh consideration after giving the assessee an opportunity.

Conclusion: The issue was remanded for reconsideration and no final finding on entitlement to exemption was recorded.

Final Conclusion: The revisions succeeded on the principal tax-differential issue and the remaining exemption claim was reopened for fresh assessment.

Ratio Decidendi: After deletion of the proviso to section 5(3)(i), concessional purchase of raw materials or packing materials does not attract differential tax merely because the finished goods are stock transferred outside the State, provided the goods were manufactured or packed within the State for sale.

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