C.T. Kochouseph v. State of Kerala and Another Etc.

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Some play in the joints should be given to the Legislature while dealing with laws relating to taxation and economic activities except in case of encroachment upon the power to tax that is not vested with them in terms of the Union or the State List, etc.37

34. Realising the above legal position, a different set of arguments was raised in Civil Appeal Nos. 3024-3025 of 2012 filed by M/s Britannia Industries Limited. According to us, the arguments do not have any merit and must be rejected. We would briefly refer to the said arguments and our reasons for rejecting them.

35. It is submitted that in terms of Section 17 of the Tamil Nadu Act, sales of vegetable oil by the dealers up to a particular turnover was granted exemption from payment of tax.38 This, in our opinion, supports the case of the Revenue for what is granted is exemption from payment of sales tax and not the purchase tax. Thereafter, reference is made to sub-sections (1), (2) and (2A) of Section 8 of the Central Act. In particular, with reference to explanation to Section 8(2A) of the Central Act, it is submitted that the benefit of the said sub-section is not available as the Government Order39 granting exemption had specified circumstances or conditions for grant of exemption. This, it is submitted, is to ensure that the exemption is available only to intra-State sales and not inter-State sales. This argument also supports the case of Revenue. The contention that purchase tax payable under Section 7A at the rates mentioned under Sections 3 and 4 should be treated as exempt in view of the GO issued under Section 17, as stated above, is untenable. The GO refers to the tax payable at the time of sale, that is, the sales tax. The GO does not grant exemption from payment of purchase tax. The grant of exemption being for the purpose of payment of sales tax, it does not follow that purchase tax would not be payable when conditions of Section 7A are satisfied. Further, it would be contradictory or rather nugatory to argue that the rate of tax specified in the Schedule should be taken as nil as no payment is to be made

37 See Chief Commissioner of Central Goods and Service Tax and Others v. Safari Retreats (P) Ltd. and Others, (2025) 2 SCC 523; Elel Hotels and Investments Limited and Others v. Union of India, (1989) 3 SCC 698; Federation of Hotel and Restaurant Association of India, Etc. v. Union of India and Others, (1989) 3 SCC 634. 38 As per Government Order dated 27.03.1998, as amended by Government Order dated 02.06.2000. 39 For short, “G.O.”

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on the sale amount as sales tax. If we accept this argument, it would defeat the very purpose and objective of enacting Section 7A of the Tamil Nadu Act. Section 7A is only attracted where the sales tax is not payable, which means there should be an exemption notification under Section 17 or exemption under the Third Schedule, read with Section 8 of the Tamil Nadu Act.

36. In view of the aforesaid reasoning, the judgments of this Court in Kailash Nath and Another v. State of Uttar Pradesh and Others40 and Collector of Central Excise, Bombay-I and Another v. Parle Exports Pvt. Ltd.41 will have no application. The reason as noted above is simple: the exemption notification pertains solely to tax on sales and does not extend to purchase tax, which becomes payable only when sales tax is exempt.

37. In view of the above, we also reject the argument that the applicable rate of tax on purchase would be nil as the tax payable on the sale in view of the exemption from payment of sales tax is nil. Reliance placed on Casio India Company Private Limited v. State of Haryana42 is misplaced and liable to be rejected as Casio India (supra) deals with the issue of payment of tax under the Central Act and not with the provisions we are concerned. The ratio of the said case cannot be applied in view of the direct judgments of this Court in Kandaswami (supra), Hotel Balaji (supra) and Devi Dass (supra).

38. The argument that the rate applicable under Section 7A would be the effective rate and not the rate mentioned in the Schedule must be rejected for the reasons set out above. The exemption in the present case relates only to payment of sales tax and not purchase tax. For the same reason, we would reject the argument relying upon the judgment in the case of Rajputana Agencies Ltd. v. CIT43 and Thermax Private Limited v. Collector of Customs (Bombay).44 These decisions again are directly not applicable to the legislations in question but relate to the rate of tax applicable in case of dividend tax or the levy of additional duty under the Central Excise Rules,

40 AIR 1957 SC 790. 41 AIR 1989 SC 644. 42 (2016) 6 SCC 209. 43 (1959) 35 ITR 168. 44 (1992) 4 SCC 440.

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1944 with reference to the provisions of the relevant enactments and the rules thereunder. It must be remembered that excise duty and customs duty are payable by the importer or the manufacturer. There is no reverse levy in the case of customs duty or the excise duty in terms of the two enactments. Purchase tax can be levied and payable, even the sales tax is not payable.

39. Accordingly, question nos. I and II are answered in affirmative, that is, in favour of the Revenue and against the appellant-assessees in terms of the aforesaid reasoning and decision. Question No. III is answered in negative in favour of the State and against the appellant- assessees by upholding the constitutional validity of Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act. The reference is answered accordingly. All the appeals preferred by the appellant- assessees are dismissed and the judgments/orders of the High Court of Kerala and the High Court of Judicature at Madras are upheld.

40. The stay order(s) shall stand vacated.

41. Pending applications, if any, shall stand disposed of.

42. There shall be no order as to costs.

Result of the case: Appeals dismissed.