2026 (1) TMI 1223 - HC - VAT / Sales Tax

Sale in course of import: exemption claim upheld where contractual link and bona fide disclosure negate penalty, relief granted.

Sale in the course of import was treated as linked to the purchase order and import, establishing privity of contract and supporting an exemption claim; ... Sale in the course of import - inextricable link between contract and import - privity of contract - Penalty for suppression and bona fide disclosure - reliance on precedent - HELD THAT:- As noticed, there is a link between the purchase order placed by the 4th respondent, import effected by the petitioner, and the ultimate sale effected by it. This Court also notices the Judgment of another Division Bench of this Court in BPL Telecom Ltd. v. State of Kerala [2008 (10) TMI 613 - KERALA HIGH COURT] wherein also an almost similar circumstance has been considered and the claim of exemption under Section 5(2) of the CST Act extended, even in a situation where the importer had filed the Bill of Entry with the customs. As rightly pointed out by the learned counsel for the petitioner, the assessment of the petitioner has already been completed by the order dated 15.03.2021 extending the benefit of exemption, even on the face of the penalty order impugned in this writ petition. True, the afore order has not been placed on record. However, a copy of this order has been circulated, on the basis of which this Court notices that the contention raised has been accepted with reference to the Division Bench Judgment in Seimens Ltd. [2015 (6) TMI 1154 - KERALA HIGH COURT] The penalty under Section 67 of the KVAT Act cannot be imposed for an additional reason. Admittedly, as noticed earlier, in the return filed at Ext.P18, the transaction has been declared; however, an exemption is claimed. In other words, there was no suppression whatsoever from the side of the petitioner. It is on the bona fide belief that it was entitled to exemption that such a return was filed. When that be so, with reference to the principles laid down by a Division Bench of this Court in M/s. U.K. Monu Timbers v. State of Kerala. [2012 (6) TMI 795 - KERALA HIGH COURT] the imposition of penalty cannot be sustained. Writ petition would stand allowed, setting aside Ext. P27 order passed by the 1st respondent. Issues: Whether the penalty imposed under Section 67 of the Kerala Value Added Tax Act, 2003 on the petitioner for the assessment year 2016-17 is sustainable where the petitioner claimed exemption under Section 5(2) of the Central Sales Tax Act, 1956 as a 'sale in the course of import' and where the goods were imported from a foreign supplier pursuant to a purchase order specifying import for the ultimate purchaser in India.Analysis: The factual matrix shows a purchase order from the ultimate purchaser in India directing procurement from the foreign supplier, a corresponding order placed by the petitioner on the foreign supplier, confirmation and invoice from the foreign supplier referencing the ultimate purchaser, and importation of the goods which were thereafter sold to the purchaser without charging KVAT. Prior decisions on substantially similar facts accepted the applicability of Section 5(2) CST where the importation and sale were inextricably linked and where there was privity of contract between the Indian purchaser and the foreign supplier. The assessment authority subsequently accepted the exemption claim for the year in question. Additionally, the transaction was disclosed in the return with a claimed exemption, indicating absence of suppression and a bona fide belief in entitlement to exemption; on such facts imposition of penalty is not maintainable.Conclusion: The penalty imposed under Section 67 of the Kerala Value Added Tax Act, 2003 is set aside and the writ petition is allowed, holding in favour of the assessee that the transaction qualifies as a sale in the course of import under Section 5(2) of the Central Sales Tax Act, 1956 and that penalty cannot be sustained.