TMI Blog2007 (3) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... kash, Advocates with him for the respondents. -------------------------------------------------- The judgment of the court was delivered by ASHOK BHAN J. -Civil Appeal Nos. 2653 and 2654 of 2006 are directed against the impugned final judgment dated April 7, 2006 See [2007] 5 VST 241 (Ker). of the Kerala High Court at Ernakulam in Writ Appeal No. 434 of 2000 and Writ Appeal No. 433 of 2000 by which the division Bench dismissed the writ appeals thereby upholding the order of the single Judge, rejected the challenge to the two show cause notices issued to the appellant. Civil Appeal No. 4406 is arising out of judgment dated July 7, 2006 of the Kerala High Court in Sales Tax Revision No. 9 of 2006 by which the division Bench dismissed the revision relying upon the judgment of the division Bench in Writ Appeal No. 434 of 2000 of the same High Court. We propose to dispose of these appeals by a common order, as the point involved in all these appeals is the same. Facts are taken from Civil Appeal No. 2653 of 2006. FACTS: The appellant is a company registered under the Companies Act, 1956 having its registered office at Kozhikode. It is a registered de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased ingots, scraps, mosrolls, etc., from units within the State claiming tax exemption and consumed the same in the manufacture of bars and rods during this period. It was further stated that since the goods had not suffered tax under section 5 of the State Act, they were liable to pay purchase tax under section 5A and called upon the appellant to remit tax with interest under section 22(3) within 10 days of the receipt of notice failing which an action would be taken to recover the tax. The appellant being aggrieved filed the two separate writ petitions challenging the two show cause notices issued to him. Learned single Judge dismissed the writ petitions in limine by observing that the case involved disputed questions of fact which could not be decided in a writ petition under article 226 of the Constitution and relegated the petitioner to avail of the remedies provided under the State Act. It was held that the writ petition was not the appropriate remedy and the appellant was accordingly directed to avail of the remedies provided under the State Act. Learned single Judge directed the appellant to file objections to the notices before the assessing officer who shall consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not be levied at more than one stage. It follows that if, iron and steel are subjected to a single point levy of tax at the first point of sale, then there is no question of a second levy or charge at any subsequent point of sale or purchase. According to him, iron and steel which are the goods in question were made liable to sales tax at the stage of first sale at four per cent under section 5(1) read with the Second Schedule of the State Act. That in view of section 5(1) read with the Second Schedule of the State Act, the burden of tax could not be shifted to the purchaser as the State Government had already notified that the tax would be at the point of first sale and the rate of tax would be four per cent. That the High Court erred in assuming that the word levied in section 15(a) of the Central Act is used in the sense of imposed and collection. According to him, the word levy could cover both imposition and non-collection of tax imposed will not cease to be a levy of tax. It was further contended that the High Court erred in distinguishing the judgment of this court in Shanmuga Traders. v. State of Tamil Nadu [1998] 5 SCC 349 See [1999] 114 STC 1 (SC). and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorisation of levy. Counsel for the parties have been heard at length. Section 5 and Second Schedule of section 5 of the State Act, as it stood at the relevant time, read as under: Section 5. Levy of tax on sale or purchase of goods. - (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than (two lakh rupees) and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year, - (i) in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedules; (ii) to (iv) . . . Second Schedule of section 5 of the State Act, as it stood at the relevant time, reads as under: SECOND SCHEDULE Declared goods in respect of which a single point tax only is leviable under sub-section (1) or sub-section (2) of section 5 Sl. No. Description of goods Point of levy Rate of tax per cent (1) (2) (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... places restrictions on the power of every State to impose or authorise the imposition of tax on sale or purchase of declared goods. Article 286 and section 14/15 of the Central Act are solely concerned with the declared commodities. We are concerned with the taxation of goods which under section 14 of the Central Act have been declared to be of special importance in inter-State trade or commerce. In case turnover of such goods is subjected to tax under the sales tax laws, section 15 prescribes the maximum rate at which such tax shall be levied and the same could not be levied at more than one stage. The two conditions have been imposed in order to ensure that inter-State trade or commerce in such goods is not subjected to heavy taxation within the State occasioned by excessive rate of tax or by multi-point taxation. If either of the two conditions is not satisfied, the imposition of sales tax will not be valid. Section 5 of the State Act provides that in the case of goods specified in the First and Second Schedules, the tax could be at the rates and points specified against such goods in the said Schedules which in the present case is at the point of first sale in the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC).. This case involved the interpretation and validity of section 7A of the Madras General Sales Tax Act, 1959 which is in pari materia to section 5A of the Kerala General Sales Tax Act, 1963. Although this case did not deal with declared goods under section 14 of the Central Act and the resulting applicability of the condition of single- stage levy under section 15 of the Central Act, it did make certain observations relevant to the present discussion. The court observed that: In our opinion, the Kerala High Court has correctly construed section 5A of the Kerala Act which is in pari materia with the impugned section 7A of the Madras Act. 'Goods, the sale or purchase of which is liable to tax under this Act' in section 7A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that section 7A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of State and upheld the validity of the circular. This court, however, did not accept the reasoning of the Madras High Court and set aside the judgment. Overturning the judgment, it was held that the circular was bad in law because if there was a condition of a single- stage levy, and there was an exemption, then, no subsequent sales could be taxed. The court observed as follows: Para 12 . . . The goods with which we are concerned being declared goods, they can only be taxed at a single point; that is, only one sale in the State can be subjected to tax. It is for the State to determine whether the single point should be the point of first sale in the State or the last sale in the State or any intermediate sale in the State. If the single point is fixed by the State at, say, the point of first sale and the State exempts the first sale from payment of tax, either by a general provision or a specific provision applicable to a class of seller, a particular seller or the goods sold may not be subjected to tax at either that point of first sale or any subsequent sale in the State. Para 13 The Second Schedule of the State Act specifies the single point; it is 'the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resently discuss, continues regardless. The only other difference is that in Shanmuga's case [1998] 5 SCC 349, it was a circular which clarified that the subsequent sale would be taxed, whereas the present case does not involve any such clarification by way of a circular, but a direct claim for tax under section 5A of the State Act. In our opinion, this difference is insignificant as well. Shanmuga's case [1998] 5 SCC 349 See [1999] 114 STC 1 (SC). has made it clear that exemption at the point of first sale does not affect the liability to tax and any subsequent levy on the goods would fall foul of the conditions of the Central Act. This position is equally true whether the subsequent levy is by way of a circular or directly under section 5A of the State Act-since both are required to comply with the conditions of the Central Act. With this view of the matter, we find that the reasoning of this court in the Shanmuga's case [1998] 5 SCC 349 is equally applicable to the present facts. It might be pertinent to mention here that the decision taken by the division Bench in the impugned judgment is in conformity with the minority decision in the Bhawani Cotton Mills case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1999] 114 STC 1 (SC). as well as the majority decision in Bhawani Cotton Mills case [1967] 3 SCR 577 See [1967] 20 STC 290 (SC). is reiterated in a number of other cases, which make it clear that exemption operates after the levy and does not negate the liability to tax. The arguments raised by the respondent before us have two aspects. They contend that since the goods in question were exempt from tax at the first sale, no liability to tax attached on the seller. Additionally, they also argue that since there was no collection of tax, there could be no levy of tax. In both cases, the obvious implication that the respondent seeks to establish is that at the point of first sale, the seller was not liable to tax and therefore if a subsequent tax were to be levied on these goods, as section 5A of the State Act seeks to do, there is no violation of section 15 of the Central Act. IMPACT OF EXEMPTION ON THE LIABILITY TO TAX: The first aspect of the argument of the respondent is with respect to the impact of exemption upon the liability to tax. In our opinion, exemption can only operate when there has been a valid levy, for if there was no levy at all, there would be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct . . . The question of exemption arises only when there is a liability. Exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the statute and the latter on computation in accordance with the provisions of the statute and Rules framed thereunder if any. It is to be noted that liability to pay tax chargeable under section 3 of the Act is different from quantification of tax payable on assessment. Liability to pay tax and actual payment of tax are conceptually different. But for the exemption the dealer would be required to pay tax in terms of section 3. In other words, exemption pre-supposes a liability. Unless there is liability question of exemption does not arise. Liability arises in terms of section 3 and tax become payable at the rate as provided in section 12. Section 11 deals with the point of levy and rate and concessional rate. (emphasis supplied) A reading of the above judgments makes it amply clear that exemption does not negate a levy of tax altogether. Despite an exemption, the liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfil the liability is done away with. DISTINC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r imposing tax, 'collect' in article 265 would mean the physical realisation of the tax which is levied or imposed. Collection of tax is normally a stage subsequent to the levy of the same . . . The distinction between levy and collection has also been emphasised in Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Company Limited [1996] 3 SCC 434. The crux of this case involved the levy of a special excise duty, the liability for which did not exist on the date of manufacture and only on the date of removal of goods. The excise duty however was normally collected on the date of removal, and it was contended that since the liability to pay the special duty existed on the date of collection of duty, the same must be paid as well. Rejecting this argument, the court held that the stage of removal was identified for collection of duty only for administrative convenience, and that this did not affect the nature of the levy, which was on the manufacture of goods. In this context, the court distinguished levy and collection. It observed: . . . Once the levy is not there at the time when the goods are manufactured or produced in India, it cannot be levied at th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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