A.K. Veneers (Pvt) Ltd. vs State of Kerala and Another

C.N. Ramachandran Naik, J.—Connected sales tax appeals are filed against the common order of the Commissioner of Commercial Taxes confirming demand of tax and penalty levied u/s 30B(3) of the Kerala General Sales Tax Act, 1963. The appellant transported several consignments of timer from Tuticorin to Karnataka through Kerala after obtaining transit pass in form 27C from the entry check-post in Kerala. However goods were presumably sold to dealers in Kerala because several form 27C issued at the entry check-post were not surrendered at the exit check-post of the State. The Department issued notice to the appellant proposing to levy tax and penalty in terms of section 30B(3) of the Act for the goods so transported. The appellant then put forward a case that during the course of movements of goods through Kerala the same were sold after contracting sales with parties in Kerala. According to the appellant since such sales were in the course of movement of goods from one State to another, such sales are inter-State sales accounted in Karnataka. However the Sales Tax Officer rejected the contention of the appellant and passed orders demanding tax and penalty u/s 30B(3) of the KGST Act. Even though the Deputy Commissioner allowed the revisions filed by the appellant the Commissioner suo motu issued proceedings u/s 37 cancelling the said orders and restored the demand of tax and penalty against which these appeals are filed u/s 40 of the KGST Act. We heard counsel appearing for the appellant and the Government Pleader appearing for the respondents. The first contention to be considered is whether the transaction is inter-State sale from Karnataka to Kerala. The contention of the counsel for the appellant is that since goods were already in the course of inter-State movement, subsequent sale is a sale covered by either 3(a) or 3(b) of the CST Act. The Government Pleader on the other hand contended that the sale was obviously not in the course of inter-State movement and it is a local sale because if the appellant had any intention to sell the goods when the goods entered in the State, then the appellant should not have obtained transit pass in form 27C which is for onward transport to another State. We find force in the contention of the Government Pleader because sale occasioning movement of goods from one State to another or sale in the course of inter-State movement by endorsement of title to goods only will attract tax u/s 3 and (b) of the CST Act. This is a case where the sale happened when the goods were already in Kerala and the movement of the goods from Tamil Nadu to Kerala was obviously not under contract of sale and the appellant has no such case because in such a case the appellant would not have obtained form No. 27 by declaring at the check-post that the goods are on movement to Karnataka through Kerala. Therefore besides the deeming provision contained in section 30B(3) of the Act, since the appellant has admitted sales in Kerala, the only question to be considered is whether sales are local sales or inter-State sales from Karnataka. The movement of the goods from Tuticorin in Tamil Nadu to Kerala was not under contract of sale and since movement of the goods from Tamil Nadu and the subsequent sales in Kerala are not connected or relatable, the transactions are not inter-State sales covered by section 3(a) of the CST Act. Section 3(b) also has no application because goods were not sold by endorsement of title to goods in favour of the purchasers. But on the other hand after effecting sales the appellant instructed carriers to deliver goods to the buyers in Kerala. Therefore the transactions are not covered by section 3(b) of the CST Act also.

The next contention that the appellant has paid tax under Central Sales Tax Act for the transactions in Karnataka is also not acceptable because section 9(1) of the Central Sales Tax Act provides that tax payable under the Central Sales Tax Act should be paid in the State wherefrom the movement of the goods commenced. In this case goods started its movement from Tuticorin to Karnataka through Kerala and it never reached Karnataka. Therefore the appellant cannot treat the local sale of timber in Kerala during its movement as an inter-State sale from Karnataka. The Central sales tax if any paid in Karnataka is a clear violation of section 9(1) of the Central Sales Tax Act. Therefore all the contentions of the appellant fail. However we feel even now that the appellant can be exonerated from penalty provided the entire tax with interest up to date payable u/s 30B(3) read with section 23(3A) is paid within one month from receipt of this judgment. If the appellant settles the tax liability with interest payable u/s 23A as above before the officer concerned, he will revoke the penalty. On the other hand if the appellant fails to do so the penalty will also stand confirmed and the respondents will proceed for recovery of the tax with interest and penalty. The appeals are disposed of as above.