State Of Kerala vs Cochin Shipyard Ltd. on 30 June, 2006

    State Of Kerala vs Cochin Shipyard Ltd. on 30/6/2006

JUDGMENT

   K.S. Radhakrishnan, J.

   1. This Tax Revision Case arises out of the order passed by the Sales tax
Appellate Tribunal, Additional Bench, Ernakulam in T.A. No 651 of 1992. The
assessee is a public sector undertaking, Cochin Shipyard Limited, engaged in the
design, construction and supply of ocean going vessels. The company is
registered as a dealer under the Kerala General Sales Tax Act, 1963. For the
assessment year 1981-82 the assessee declared a total and taxable turnover of
Rs. 41,95,586.36 which consists mainly of sale of waste materials like steel
scrap and other scrap items and used as unserviceable articles. On examination
of the books of accounts it was noticed by the assessing authority that the
assessee had paid water charges amounting to Rs. 3,92,111.53 during 1981-82, the
water was consumed by the assessee otherwise than by way of sale and that the
return filed by the assessee had not shown the amount under taxable item though
the same is liable to tax under Section 5A of the Act.

   2. Aggrieved by the order of the assessing authority, assessee took up the
matter in appeal before the Deputy Commissioner (Appeals). Appeal was dismissed.
Assessee then took up the matter in appeal before the Tribunal. The appeal was
partly allowed by the Tribunal. Tribunal based on the decision of this Court in
Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd. 1987 (1) KLT 161 :
(1987) 66 S.T.C. 34) took the view that the water consumed in the manufacture of
goods did not go into the making of the end product, but it was used for
auxiliary purposes like washing vessel etc. and there was no transfer or
disposal of the goods as known to law. Following the decision in Thomas
Stephen's case, supra (1987) 66 STC 34 the Tribunal held that the water charges
amounting to Rs. 3,92,112/- paid by the assessee is not exigible to tax under
Section 5A of the Act. Assessing authority was therefore directed to exclude the
amount from levy of tax under Section 5A of the Act. Aggrieved by the same State
has come up in this revision.

   3. Sri Georgekutty Mathew, learned Government Pleader submitted that the
order of the Tribunal cannot be sustained since the decision in Thomas Stephen's
case has subsequently been overruled by the apex court in Deputy Commissioner of
Sales Tax v. Thomas Stephen & Co. Ltd. 1988 (1) KLT 568 : (1988) 69 STC 320.
Further the learned Government Pleader submitted that going by the decision in
Assistant Commissioner (Intelligence) v. Nandanam Construction Company (1999) 7
KTR 651 even if water is used not for manufacturing process it is exigible to
purchase tax under Section5A of the Act.

   4. Sri Anil D. Nair counsel for the assessee, on the other hand, contended
that only if water is used for the manufacture of end product with the same be
exigible to tax and would fall under Section 5A. We may extract Section 5A for
easy reference.

   5 A. Levy of purchase tax:--(1) Every dealer who, in the course of his
business, purchase from a registered dealer or from any other person any goods,
the sale or purchase of which is liable to tax under this Act, in circumstances
in which no tax is payable under Sub-sections (1), (3), (4) or (5) of Section 5
and either,--

     (a) consumes such goods in the manufacture of other goods for sale or
otherwise; or

     (b) uses or disposes of such goods in any manner other than by way of sale
in the State, or

     (c) despatches them to any place outside the State except as a direct
result of sale or purchase in the course of inter-State or commerce; shall,
whatever be the quantum of the turnover relating to such purchase for a year,
pay tax on the taxable turnover relating to such purchase for the year sat the
rates mentioned in Section 5.

     (2) Notwithstanding anything contained in Sub-section (1), a dealer (other
than a casual trader or agent of a non-resident dealer) purchasing goods, the
sale of which is liable to tax under Section5, shall not be liable to pay tax
under Sub-section (1) if his total turnover for a year is less than two lakh
rupees.

   Apex Court had occasion to consider the scope of Section 6A(ii)(a) of the
Kerala General Sales Tax Act 1963 in Nandanam Construction Company's case,
supra. Overruling the decision of this Court in Deputy Commissioner of Sales Tax
v. Pio Food Packers 1980 KLT 624 : (1980) 46 STC 63 the Apex Court held as
follows:

     We are concerned in this case only with Clause (a) of Sub-section (ii) of
Section 6-A, that is, either consumption of such goods in the manufacture of
other goods for sale or otherwise. Clause (ii) of Section 6-A of the Act
postulates levy of tax on purchase of goods from a person other than a
registered dealer for consumption or disposal or despatch of goods outside the
State. So the scheme of Clause (ii) of Section 6-A of the Act is that when the
goods cease to exist in the original form or cease to be available in the Slate
for sale or purchase, the purchasing dealer of such goods is liable to tax if
the seller is not or cannot be taxed. To our mind, it appears that the object of
Section 6-A(ii) (a) of the Act is to levy purchase tax on goods consumed either
for the purpose of manufacture of other goods for sale or consumed otherwise. If
the view in Pio Food Packers (supra) is accepted the result would be that the
expression "otherwise" will qualify the expression "sale" and not the expression
"manufacture", which appears to us to be erroneous on a plain construction of
the provision. The intention of the Legislature, it appears to us, is to bring
to purchase tax in either event of consumption of goods in the manufacture of
goods for sale or consumption of goods in any other manner. Once the goods are
utilised in the construction of buildings the goods cease to exist or cease to
be available in that form for sale or purchase so as to attract the tax and,
therefore, the correct meaning to be attributed to the said provision would be
that tax will be attracted when such goods are consumed in the manufacture of
other goods or are consumed otherwise. Therefore, while agreeing with the view
in Ganesh Prasad Dixit (supra) on this aspect, we overrule to this extent the
view expressed in Pio Food Packers (supra).

   The principle laid down by the Apex Court in Nandanam Construction Company's
case is to be applied for interpreting Section 5-A(1)(ii). It has been clearly
stated by the apex court that the intention of the legislature is to bring to
purchase tax in either event of consumption of goods in the manufacture of goods
for sale or consumption of goods in any other manner. The court held that once
goods are utilised in the construction of buildings the goods cease to exist or
cease to be available in that form for sale or purchase so as to attract the tax
and therefore the correct meaning to be attributed to the said provision would
be that tax will be attracted when such goods are consumed in the manufacture of
other goods or are consumed otherwise. Even if water is consumed otherwise
Section 5-A of the Act would apply. That being the legal position, we are of the
view that water charges paid by the petitioner is exigible to purchase tax under
Section5A of the Act even if not consumed for making of the end product since he
has consumed it otherwise. Revision is allowed and the order passed by the
Tribunal would stand set aside. Consequently the order passed by the assessing
authority is restored.