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PETITIONER: K.V.ABDUL KADER, PROPERIETOR, KEVEE SUPARI TRADERS

       Vs.

RESPONDENT: STATE OF KERALA & ORS.

DATE OF JUDGMENT:       29/01/1998

BENCH: S.P. BHARUCHA, V.N. KHARE

ACT:

HEADNOTE:

JUDGMENT:                THE 29TH DAY OF JANUARY, 1998 Present:                Hon’ble Mr. Justice S.P.Bharucha                Hon’ble Mr. Justice V.N.Khare Ms. C.N.Sreekumar, Adv. for the Respondents                       J U D G M E N T      The following Judgment of the Court was delivered: V.N.KHARE. J      This Civil  Appeal is  directed  against  the  judgment dated 26th June, 1992 passed by the High Court of Kerala.      According to  t he  appellant, it  purchases  arecanuts locally and  after processing  them dispatches  the same  to agents in  the North  Indian States  for sale on consignment who effect  sales according  to the market trends and render accounts, sales  statements  to  the  appellant.  Drafts  or cheques for  sale proceeds  less expenses and commission are also sent  simultaneously and  the appellant has been paying sales tax  for each  month by working out the purchase value involved in  the sales effected by the agents monthly. It is also stated  that at  t he  close  of  each  financial  year sometimes certain stocks of goods remain with the agents and the appellant  pays sales  tax on the purchase value of such stock in  subsequent year  as and when the stock is sold and the accounts  of sales  in respect thereof are received from the agents  as  the  stock  acquires  the  quality  of  last purchases only when the goods are sold.      The final sales tax assessment of the appellant for the year 1987-88  was completed  by an  order dated November 30, 1989. While  passing the  assessment  order  the  sales  Tax Officer disallowed  the contention  of  the  appellant  that closing stock  valued at  Rs. 30,91,289, 52 pending with the agents  outside   the  State   is  liable  to  be  excluded. Consequently, the  appellant  was  sent  a  demand  for  Rs. 1,79,400.00 and  surcharge at  Rs. 11,963.00. Aggrieved, the appellant challenged  the said  order of assessment by means of a  Writ Petition  before the High Court of Kerala, bu the same was  dismissed and  a  Writ  Appeal  against  the  said decision at  the Learned  Single Judge  preferred before the Division Bench  of the  High Court also came to be dismissed by the judgment under appeal.

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    In  this   appeal  the   question   that   arises   for consideration is,  whether the  purchases  the closing stock of goods as on 31st March, held by agents outside the State, could be  brought to  tax as  having attained the quality of last purchases before that date under explanation to Section 2 (XXVI) and Section B(b) of the Act.      Before we deal with the argument of learned counsel for the appellant,  it is necessary to notice the legal position prior to  introduction of  Explanation to Section 2(XXVI) of the Act  in respect  of tax  liability of an assessee on the purchases of  closing stock  of goods on 31st March, held by the agents  outside the  State. In  The State of Madras  vs. 1. Narayanaswami  Naidu and  another (21  STC,1), this Court was of  the view that, under Section 4 of the Madras General Sales Tax  Act, a dealer was not liable to pay sales tax. Al Purchases of  goods until the purchases acquired the quality of being  the last  purchases inside  the  State.  In  other words, when  the assessee  field a  return and  declared the stock in  hand, the  stock in hand could not be said to have been acquired  by last  purchase, because the assessee might still during  the next  assessment year  sell it or he might himself consume  it or  the goods  might be  destroyed. This Court was  Further at  the view  that the  assessee would be entitled to  claim before the assessing authorities that the character  of   acquisition  of   the  stock   in  hand  was undetermined: in  the light of subsequent events it might or might not  become the  last purchase  inside the State, and, therefore, the  assessee was  entitled to claim deduction in respect of  the value  of the stock as being purchases other than last purchases of goods. It is  clear that,  in order to give effect to the aforesaid judgment, and  further to ensure that the revenue due to the State does  not escape  assessment,  the  State  Legislature inserted an  Explanation  to  Section  2(xxvi)  of  the  Act defining "total  turnover". The  Explanation to  Section  to Section stated  t hat, in the case of every dealer liable to tax under Section 5 regarding the goods which are taxable at the point  of last  purchase in the State and which are held as a  closing stock on the last day of a financial year, the amount for such goods were purchased by the dealer shall b e deemed also  to be  part of  his turnover for the subsequent year or  each of  the subsequent  years until such goods are either sold  by him  in the State or such purchases acquires the character  of last purchase in the State in the hands of such  dealers   and  in  case  such  purchase  acquires  the character of last purchase in the State in the hands of such dealer, the  turnover in  respect of such purchases shall be liable to tax in the year in which the purchase acquires the character of  last purchase.  This indicates  that the goods which are  liable to  tax as a last purchases point and form the closing  stock of  a  year,  shall  b  e  shown  in  the subsequent year  as a  part of total turnover until they are sold and  the goods  acquire the  quality of  last purchase, exigible to  tax. This explanation came to be interpreted by a Division  Bench of Kerala High Court in the case of Deputy Commissioner of  Sales Tax  (Law). Board or Revenue (Taxes), Trivandrum vs. Keveyam & Co. AND OTHERS (1986(63) STC, 387). The High  Court of Kerala interpreting the Explanation held, "that there  should  not  be  any  distinction  between  the closing stock  of the  goods held  by an assessee inaide the State and outside the State as the goods sent to this agents outside the State on consignment basis still continued to be the goods  of the  assessee and  as the assessee had got the power of  disposal, even  over such  goods sent  outside the State, it  was open  to the  assessee to recall the goods at

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any time  and deal  with it  in any  manner. Therefore,  the goods which moved outside the State to be held by the agents of  the  assessee  for  consignment  sales  did  not  become exigible to tax".      After the  aforesaid decision,  it was  felt  that  the existing legislation was not sufficient to keep track of the goods sent outside the State resulting in loss of revenue to the State.  Consequently the  Governor or Kerala promulgated an ordinance which was subsequently replaced by Act No. 6 of 1980 and  came into  effect from February 19, 1980. This Act amended the  Explanation to  Section  2(xxvi)  by  inserting therein the  words "but  subject to the provision of Section B". Since  we are  here concerned with the interpretation of amended Explanation  to Section 2(xxvi) and Section B of the Act, it is necessary to set out these provisions here.      "2(xxvi) "total turnover" means the      aggregate turnover  in all goods of      a dealer  at all places of business      in the State, whether or is not the      whole  or   any  portion   of  such      turnover   is    liable   to   tax,      including the  turnover of purchase      or sale  in  the  course  of  inter      state trade  or commerce  or in the      course of  export of  the goods out      of the territory of India or in the      course of  import of the goods into      the territory of India:      Explanation    :    Notwithstanding      anything  contained  in  any  other      provision of  this Act, but subject      to the  provisions of section  B in      t  he   case  of  goods  which  are      taxable  at   the  point   of  last      purchase in  the State  by a dealer      liable to  tax under  section 5 and      which are  held as closing stock on      the  last  day.  At  any  financial      year, the  amount  for  which  such      goods were  purchased by the dealer      shall b  e deemed  also to b e part      of  his   total  turnover  for  the      subsequent  year  or  each  of  the      subsequent years  until such  goods      are wither sold by him in the State      or  such   purchase  acquires   the      character of  last purchases in the      State in  the hands  of such dealer      and in case such purchases acquires      the character  of last purchases in      the State  in  the  hands  of  such      dealer, the  turnover in respect of      such purchases  shall be  liable to      tax  in   the  year  in  which  the      purchase acquires  the character of      last purchase;      8.   Stage  of  levy  of  taxes  in      respect of  imported  and  exported      goods :   Where  in the case of any      goods tax  is leviable at one point      in a  series of sales or purchases,      such series shall,      (a)   In the case of goods imported      into the  State either from outside      the territory  of India or from any

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    other State  of India, be deemed to      commence at  the State  of the sale      or  purchase  effected  immediately      after the import of such goods;      (b)   In the case of goods exported      out  of  the  state  to  any  place      outside the  territory of  India or      to any  other State  in  India,  be      deemed to  conclude at the stage of      the  sale   or  purchase   effected      immediately before  the  export  of      such goods".      Learned  counsel  for  the  appellant  urged  that  the purchases could  not be brought to tax despite the amendment in Explanation.  In other  words, the  argument is  that the amendment by  Act no. 6 of 1988 has not achieved the desired result of  bringing to  tax the  closing stock of goods held outside t  he state  as an last March. It is also urged that though the amendment made to Explanation to Section 2 (xxvi) is subject  to t he provisions of Section B, that Section on its language  is  not  sufficient  to  impute  the  time  of attaining of  quality of  last purchases  on the purchase of goods held  as a  closing stock  outside the  State  by  the assessee or  hiss agents,  and, therefore,  the amendment to Explanation to  Section 2(xxvi)  making  itself  subject  to Section B, has not achieved the intended object.      It does  not appear  to us that there is any difference between  the  two  arguments  or  learned  counsel  for  the appellant.  We,   therefore,  proceed   to  deal  both  this arguments  together.   We  have  already  noticed  that  the unamended Explanation to Section B(xxvi) was introduced with a view  to give  affect to  the decision  of this  Court  in Narayanaswamy  Naidu  (supra)  and  further  to  secure  the interest of revenue by making closing stock within the reach and knowledge  of  the  department  by  treating  the  goods exported outside the State as part of the total turn over in subsequent year,  till the  goods attain the quality of last purchases of  goods. The  non-obstante clause  used  in  the unamended Explanation  to Section  2(xxvi) whittled down the provisions of  Section B  of the  Act, and,  therefore,  the provisions of Section B could not be applied for the purpose of levy  of tax on the goods exported outside the State till they  attained  the  quality  of  last  purchase  of  goods. Subsequently, it  was felt  that the  existing provisions of Explanation to  Section 2(xxvi)  by introducing  therein the words" but  subject to  the provisions  of Section B" by Act Bio. 6  of 1988. The Statement of objects and Reasons of Act No. 6 of 1988 are these :      "In the  case of  goods taxable  at      the point  of last  purchase in the      State there  are chances  that  the      dealers may open branches at direct      purchases from  producers to  avoid      turnover tax. Moreover the existing      intermediary  dealers   may  change      themselves as  agents of  the  last      purchasers to  avoid turnover  tax.      The commodities in respect of which      this could  happen are rubber, tea,      pepper, arecaunut and dried ginger.      Government decided to amend the Act      suitable  so   as  to   extend  the      liability to  pay turnover tax to t      he taxable point also in respect or      these items.

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    According to  clause (b) of section      B of  the Kerala  General Sales Tax      Act, 1969  the  point  of  levy  of      purchase tax  will conclude  State.      The  Kerala   High  Court   in  its      decision reported  in (1986) 63 STC      387 has held that the closing stock      of goods  held  outside  the  State      will not  acquire the  Character of      last this  decision,  many  dealers      claim that  their  stock  of  goods      held outside  the  State  will  not      acquire  the   character  of   last      purchases until  the goods are sold      and as  such they are not liable to      pay  tax   on  such   goods.  As  a      result, Government  is losing  huge      amount to  tax.  to  overcome  this      situation  Government   decided  to      amend the Act suitable."      Having regard to the phraseology and the objects of the amending Act  extracted above,,  it is fairly clear that the amendment in  Explanation to Section B(xxvi) was made with a view to  alter the  legal position  that closing  stock held outside the  State will  not acquire  the character  of last purchase till  it is sold. Prior to passing of the amendment Act, non-obstante  clause accurring  in the  Explanation  to section 2(xvvi)  did not permit the application of Section B (b) of  the Act,  where the  goods were exported outside the State, but  after the  amendment the  width of  non-obstante clause  in   the  Explanation   was  narrowed  down  as  the Explanation to Section 2(xvvi) has become subject to Section B. What Section 8(b) lays down is that, in the case of goods on which  tax is  leviable only  at one point in a series of sales or  purchases, and  such goods are exported out of the State to  any place outside the territory of India or to any other State in India, the series of purchase shall be deemed to conclude  at the  stage of the sale or purchases effected immediately before  the export  of such  goods. The  faction created in  Section 8(b) is that, purchase of goods exported out of  the State  id deemed  to have been effected when the sale or  purchase immediately preceding the export was made. The question  whether a  particular  purchase  is  the  last purchase or  not has  to be decided in terms of Section 8(b) of the Act. On this interpretation, as soon as the goods are exported it attains the stage of last purchase and is liable to tax  irrespective of  the fact  that such goods are still held by  agents outside  the State. Thus, the legal position that emerged  after the amendment is that, all the purchases of the closing stock of goods experted outside the State and held by  agents are  deemed to  attain the  quality of  last purchase and  exigibile to tax. We have, therefore, no doubt in our  mind that,  by the amendment in the Explanation, the Legislature  has   altered  the   legal  position  prior  to amendment that  purchases of  closing stock or goods on 31st March, held  by agents  outside  the  State,  would  not  be brought to  tax having  not attained  the  quality  of  last purchase before  that date.  We, therefore,  do not find any merit  in   the  contentions  of  learned  counsel  for  the appellant.      For the  foregoing reasons,  the appeal  fails  and  is hereby dismissed with costs.