1988 (3) TMI 59 - SC - VAT and Sales Tax

Supreme Court Upholds High Court Decision on Taxability of Goods in Manufacturing Process

DEPUTY COMMISSIONER OF SALES TAX (LAW) BOARD OF REVENUE (TAXES) ERNAKULAM Versus THOMAS STEPHEN & CO. LTD.

The Supreme Court rejected the petition for leave to appeal, affirming the High Court's decision. The case involved the interpretation of Section 5A(1) of ... Whether there is any disposal of these goods in any manner otherwise than by way of sale within the State? Held that:- Disposal means transfer of title in the goods to any other person. The expression 'dispose' means to transfer or alienate. It was formerly an essential word in any conveyance of land. See Jowitt 'The Dictionary of English Law' and also Webster Comprehensive Dictionary (International Edn.) -Vol. 1, page 368. Clause (b) of the section requires that the goods in question should be transferred to some person otherwise than by way of sale. In this case, there was no evidence of any transfer at all, therefore, there was no 'disposal' of the goods as known to law. The High Court records that admittedly there was no transfer of the cashew shells, the lime shells or the consumed stores in this case. These were used by the assessee himself as fuel in the case of cashew shells for the maintenance of kiln. Sub-clause (b) of Section 5A(1) was, therefore, not applicable. In the background of the facts of this case, the High Court, in our opinion, was right. Appeal dismissed. Issues:1. Interpretation of Section 5A(1) of the Kerala General Sales Tax Act, 1963.2. Taxability of purchase turnover of cashew shells, lime shells, and consumed stores used in manufacturing.3. Application of clauses (a), (b), and (c) of Section 5A(1) of the Act.4. Disposal of goods otherwise than by way of sale within the State.5. Relevance of previous court judgments in interpreting the law.Detailed Analysis:The case involved a petition for leave to appeal under Article 136 of the Constitution of India from the Judgment and Order of the High Court of Kerala, which dismissed the revision cases brought by the revenue. The assessee, a manufacturer and dealer in tiles and ceramic products, was assessed to tax under Section 5A of the Act for the purchase turnover of cashew shells, lime shells, and consumed stores used in the manufacturing process. The assessee claimed exemption under Notification No. S.R.O. 732/73 for cashew shells used as fuel and contended that the purchases were not liable for tax under Section 5A(1) as the conditions were not satisfied (para 2).The assessing authority and the First Appellate Authority had overruled the assessee's contentions and brought the purchases to tax under Section 5A(1) of the Act (para 3). However, the Tribunal held that the cashew shells were used only as fuel and not consumed in the manufacture of other goods, thus not falling under clause (a) of Section 5A(1). The Tribunal also found no disposal of lime shells or consumed stores, leading to the conclusion that these items were not taxable under Section 5A of the Act (para 5).The High Court upheld the Tribunal's decision, emphasizing that goods used for ancillary purposes like fuel do not fall under Section 5A(1)(a) of the Act. The court referred to previous judgments to interpret the section, highlighting the requirement for consumption of goods in the manufacturing process to attract tax liability (para 9). The court also analyzed the disposal of goods under clause (b) of Section 5A(1), concluding that there was no evidence of transfer, and hence, the disposal provision was not applicable in this case (para 12).In conclusion, the Supreme Court rejected the petition for leave, affirming the High Court's decision. The judgment emphasized the specific requirements of Section 5A(1) for tax liability on purchase turnover and clarified the interpretation of clauses (a) and (b) in the context of the case (para 13).