TMI Blog2002 (12) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Kerala General Sales Tax Rules, 1963, the claim of exemption towards second sales cannot be allowed. The assessing authority accordingly issued a notice proposing to assess the estimated sales turnover of carpets purchased through auction sales. The assessee raised the contention that the bank is a casual trader as defined in the Act and therefore it is liable to pay tax on its sales under section 5 of the Act. An alternate contention was also taken to the effect that the sale proceeds have to be treated as the turnover of Home Makers, Thiruvananthapuram, and as it exceeds the taxable limit it is the Home Makers who is liable to pay tax on the sale of carpets. The assessing authority took the view that in the absence of production of declaration as provided under rule 32(13) of the KGST Rules, the claim cannot be allowed. This order of the assessing authority was confirmed by both the appellate authorities for the very same reason that in order to get exemption as second sales the assessee had to establish the same by producing the declaration as contemplated under rule 32(13) of the Rules. This tax revision case was admitted on the following questions of law: "(i) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asional transactions of business nature involving the buying, selling, supply or distribution of goods in the State, whether for cash or deferred payment or for commission, remuneration or other valuable consideration. From a reading of the provisions of section 5(1)(i) read with section 2(vi), (vii), (viii), 2(xxiv), 2(xxv) and entry 142 of the First Schedule as it stood at the relevant time it is evident that in order to claim exemption on the ground of second sales the assessee has to establish that the first sale in the State was made by a dealer who is liable to pay tax under section 5 of the Act. The liability to pay tax under section 5 of the Act will depend on various factors: (1) that the person who had effected the first sale must be a dealer as defined in section 2(viii) of the Act. A "dealer" must be a person who carries on the business of buying, selling, supplying or distributing goods directly or otherwise. Business of course includes any transaction in connection with or incidental or ancillary to the main trade, commerce, manufacture, etc., (2) the turnover of the business so far as persons other than a casual trader must exceed Rs. 1,00,000 and (3) the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder. Under section 5(2)(a)(ii) the appellant, in order to claim exemption thereunder, had to furnish declaration forms duly filled in and signed by registered dealers to whom the goods were sold. Under rule 27A of the Rules, a dealer who wishes to claim the said exemption shall on demand produce such a declaration in writing signed by the purchasing dealer. It was contended that the substantive part of section 5(2)(a)(ii) provides for exemption in respect of certain sales to a dealer if the sales are made to a registered dealer for the purposes mentioned thereunder and that the proviso to the said sub-clause prescribes in effect that the declaration form in the manner prescribed is the best evidence to prove that the sales were for the said purposes and that the proviso cannot be construed as laying down a condition for giving the exemption but only as directory provisions to subserve the substantive provision in a reasonable way. The respondent contended that a dealer can claim exemption under the said sub-clause but if he seeks exemption he must comply strictly with the conditions under which the exemption can be granted. The Supreme Court observed that a provision prescribing e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1988] 71 STC 4 (All.) occurring as appendix at pages 4 to 9 of 71 STC after elaborate consideration of the matter and in the light of the decisions of the Supreme Court held that the aforesaid provision is mandatory in nature and unless proof is given as required therein, it cannot be said that onus has been discharged and the assessee would not be entitled to exemption by examining other documents. The Supreme Court in Prabhudayal Prem Narain's case [1988] 71 STC 1, the division Bench decision discussed above must prevail since the same follows logically from the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. case [1965] 16 STC 607, mentioned above. 7.. In Phool Chand Gupta v. State of A.P. [1997] 104 STC 601; (1997) 5 KTR 335 the Supreme Court considered the validity of rule 12(3)(ii) of the Central Sales Tax (Andhra Pradesh) Rules, 1957 where the contention was that the said rule was directory and not mandatory. The said rule reads as follows: "Rule 12(3)(ii).-For the purpose of claiming exemption from tax on his subsequent sale under sub-section (2) of section 6, the purchasing dealer who effects a subsequent sale to another registered dealer by transfer of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avail of the concession granted under section 8(1)(b) of the Act, the dealer has to prove the fact that the goods are of the description mentioned under section 8(3) by furnishing the declaration in form 'C' and in no other manner. So also, in order to claim the benefit under section 6(2), the very same fact has to be proved and if the State Government adopts the same mode of proof, it is impossible to say that the mode of proof adopted is inconsistent with the provisions of the Act and/or the Central Rules. All that the State Government has done is to fill the gap left by section 6(2) in regard to the mode of proof that the goods are of the description of section 8(3) of the Act. It was open to the State Government to select the mode of proof accepted by the Central Government as the exclusive mode of proof to avoid uncertainty and avoidable litigation. If the provision is held to be directory, substantial compliance would suffice. That would permit the dealer to adopt any other mode of proof. It would be for the authorities to accept it as sufficient or to reject it. If the authorities reject it as insufficient, it would lead to avoidable litigation. It was, therefore, open to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that in order to claim the benefit of exemption under section 5(3) of the CST Act production of declaration in form 18A prescribed under rule 28A is mandatory. 11.. A division Bench of this Court considered the mandatory nature of rule 32(13) of the KGST Rules in the judgment dated June 12, 1990 in T.R.C. No. 4 of 1990. In that case the assessee who claimed exemption on the ground of second sales did not produce the certificate contemplated under rule 32(13) of the Rules. The division Bench in that context observed as follows: ".....In any case, the requirement of the rule was necessarily to be satisfied by the production of a certificate. If the law stipulates that a thing should be done in a particular manner to have any particular result, that is necessarily to be done in that manner. No reason had been mentioned for the omission to produce the certificate. The rule has been framed to ensure that there is no evasion of tax. An assessee is therefore necessarily bound by such a rule." 12.. However, we notice that another division Bench of this Court in Sales Tax Officer, Special Circle, Ernakulam v. Phipson Co. Ltd. [1969] 24 STC 542 incidently considered a conten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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