The Kerala High Court dismissed tax revision petitions. It denied tax exemption on edible oil sales under Section 5(3) of the CST Act. The Court held no inextricable link existed between the raw oil sold and the finished bakery products exported.
Tribunal order upheld; exemption claim rejected; revision petitions dismissed under Section 63 KVAT Act.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
TUESDAY, THE 8TH DAY OF NOVEMBER 2022 / 17TH KARTHIKA, 1944
OT.REV NO. 15 OF 2018
TAVAT 252/2017 OF VALUE ADDED TAX APPELLATE
TRIBUNAL,ADDITIONAL BENCH,PKD
REVISION PETITIONER/S:
M/S. SURABHI ENTERPRISES MAIN ROAD, PONNANI, REPRESENTED BY C.J.SHAJI,MANAGING PARTNER.
BY ADVS. SRI.HARISANKAR V. MENON SMT.K.KRISHNA SMT.MEERA V.MENON
RESPONDENT/S:
STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT,GOVT. SECRETARIAT, THIRUVANANTHAPURAM - 695001.
BY ADVS.SR GP. V.K. SHAMSUDHEEN
THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 08.11.2022 ALONG WITH OTR 16/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR.JUSTICE BASANT BALAJI
TUESDAY, THE 8TH DAY OF NOVEMBER 2022 / 17TH KARTHIKA, 1944
OT.REV NO. 16 OF 2018
TAVAT 253/2017 OF VALUE ADDED TAX APPELLATE
TRIBUNAL,ADDITIONAL BENCH,PKD
REVISION PETITIONER/S:
M/S. SURABHI ENTERPRISES MAIN ROAD, PONNANI, REPRESENTED BY C.J.SHAJI, MANAGING PARTNER.
BY ADVS. SRI.HARISANKAR V. MENON SMT.K.KRISHNA SMT.MEERA V.MENON
RESPONDENT/S:
STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM695001.
BY ADVS.SR.GOVERNMENT PLEADER, SHRI V K SHAMSUD
THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 08.11.2022 ALONG WITH OTR 15/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
OTR Nos.15 and 16/2018
S.V.BHATTI
& BASANT BALAJI, JJ.
ORDER (Dated this the 8th day of November 2022)
Basant Balaji J.,
These two revisions are taken together for hearing, since the issue revolves around the entitlement of exemption under Section 5(3) of the Central Sales Tax Act, 1956 (for short 'the CST Act'). The revision petitioner purchased edible oil and paid tax at 1% and claimed exemption on the turnover by producing 'H form' from M/s.Sona Exporters who exported bakery products. The Commercial Tax Officer, Commercial Tax Office, Ponnani by order dated 31.12.2016 held that the tax exemption claimed by the dealer under the strength of 'Form H' cannot be allowed and therefore, a demand notice was issued.
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Officer, appeals were filed before the Assistant Commissioner (Appeals) who, dismissed the same holding that the appellant's claim of exemption as penultimate sale in the course of export is irregular. The petitioner therefore, filed second appeal before the Kerala Value Added Tax Appellate Tribunal as T.A. (VAT) Nos.252 and 253 of 2017. The Tribunal, after elaborately considering the question posed before it and interpreting section 5(3) of the CST Act and also taking note of the judgment of the Apex Court in State of Karnataka v. Azad Coach Builders Pvt. Ltd and another [(2010) 36 VST 1(SC) , dismissed the appeals. Aggrieved by the order of the Tribunal, these revisions are filed on the following questions of law:
“A). Whether on the facts and circumstances of the case, has not the appellate tribunal erred in rejecting the appeal filed by the petitioner herein?
B) Is not the findings rendered by the appellate tribunal, perverse and against the provisions of the KVAT / CST Acts and the Constitution of India?
C) Whether on the facts and in the circumstances of the case, has not appellate tribunal erred in confirming the assessment on a ground which was never put to the appellant
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at the stage of assessment or the first appeal?
D) Ought not the tribunal have noticed that the petitioner's sales were covered by Form H declarations issued by the exporter and hence eligible for exemption?”
that the goods preceding the sale or purchased on occasion of goods of those goods out of territory of India shall be deemed to be in the course of such export if the last sale or purchase was for the purpose of compliance with the agreement or order for or in relation to such export.
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V. Menon submits that in the case on hand, the edible oil supplied by the petitioner to M/s.Sona Exporters was used for manufacturing bakery products. The edible oil sold is for the purpose of export used for manufacturing of bakery products therefore, the edible oil is part and parcel of the bakery product which cannot be separated. So, the sale becomes penultimate sale which is liable to be exempted under section 5(4) of the Act. She relies on the judgment of the Apex Court in Azad Coach Builders (supra) to contend that when the transaction between the petitioner and the exporter are inextricably connected with each other, they are entitled to exemption under the CST Act. She further submits that without the edible oil, the bakery products cannot be manufactured by the exporter and
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therefore, the edible oil sold by the petitioner is part and parcel of the bakery products which was exported.
Therefore, the Commercial Tax Officer, the Assistant Commissioner of Appeals and the Tribunal were wrong in not granting exemption to the petitioner for the sale of the edible oil to the exporter.
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Section 5(4) of the CST Act. The Senior Government Pleader also relies on a decision of this court in Super Packaging Industries v. Sales Tax Officer, II Circle, Ernakulam and others reported in [(2015) 86 VST 392 (Ker) to contend that there must be a bond between the contract of sale and the actual exportation and there should be an intention on the part of the both buyer and seller to export goods. He argues that such a link is absent in this case as the goods sold by the petitioner is edible oil whereas the goods exported are bakery items. The question which arose in Super Packaging Industries (supra) is whether sale of packing materials for exporting cashew kernels could be exempted under Section 5(3) of the CST Act. A Division Bench of this court by dismissing the Writ Appeal held that “there must be a bond between the
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contract of sale and the actual exportation”. Such a link was absent as far as the sale of packing cartons by the appellant
to the exporters was concerned. There should be an intention on the part of the both buyer and seller to export. It cannot be said that packing materials as such were meant for export, but they were used only for wrapping the goods which were exported. It could not be said that the packing materials sold by the petitioner and the goods exported were the same. As far as packing materials were concerned, it cannot be said that the cartons supplied by the supplier would get a character of “goods exported”, the intention on the part of both buyer and seller to export, being absent. Therefore the provision of the Section 5(3) of the CST Act would not come to the aid of the petitioner
for claiming exemption.
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Section 5 of the the CST Act is extracted below:
“5. When is a sale or purchase of goods said to take place in the course of import or export .- (1) A Sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
[(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export].
[(4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the
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prescribed manner a declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority.
(5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase shall be deemed to take place in the course of the export of goods out of the territory of India.”
an agreement was executed for building bus bodies in the state of Karnataka. On receipt of the order for the bus, the exporter placed orders for bus bodies to be fitted on the chassis, the buses were then exported by the exporter. The claim of the respondent was that the sales were penultimate
sales in the course of export. The assessing authority rejected the claim but the High Court held that supply of
bus bodies was in the course of export. The Apex Court
held that the transaction between the transporter and the
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exporter was inextricably connected with the exporter to outside India. The bus bodies constructed and manufactured by the respondent could not be of any use in the local market and therefore, the respondent was succeeded in satisfying the debt and was eligible for exemption under Section 5(3) of the CST Act.
after analysing a series of decisions of the Apex Court and the Statement of objects and reasons of the Amendment Act 103 of 1976 and settled the following principles
“23. When we analyse all these decisions in the light of the Statement of Objects and Reasons of the Amending Act 103 of 1976 and on the interpretation placed on section 5(3) of the CST Act, the following principles emerge :
-To constitute a sale in the course of export there must be an intention on the part of both the buyer
OTR Nos.15 and 16/2018
and the seller to export;
-There must be obligation to export, and there must be an actual export.
-The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export.
-To occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India.
24 The phrase "sale in the course of export" comprises in itself three essentials: (1) that there must be a sale; (ii) that goods must actually be exported; and (iii) that the sale must be a part and parcel of the export. The word "occasion" is used as a verb and means "to cause" or "to be the immediate cause of". Therefore, the words "occasioning the export" mean the factors, which were immediate cause of export. The words "to comply with the agreement or order" mean all transactions which are inextricably linked with the agreement or order occasioning that export. The expression "in relation
OTR Nos.15 and 16/2018
to" is words of comprehensiveness, which might both have a direct significance as well as an indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed.
in Azad Coach Builders (supra), it can be seen that the petitioner had sold edible oil to M/s.Sona Exporters and claimed exemption. M/s.Sona Exporters exported bakery products. So there is no inextricable link between the goods
sold and the goods exported. At best, it can be said that the
edible oil purchased by the exporter from the petitioner was
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used for manufacturing of bakery products. Going by the intention of the Legislature, it cannot be said that the goods
sold if used fully for preparation of any other goods will come under penultimate sale liable for exemption under
Section 5(4) of the CST Act. The Legislature has not intended the exemption for the penultimate sale where the penultimate seller has not intended and sold the goods for exporting. The goods supplied by the petitioner cannot be sold in the course of export. Going by sub section 3 of Section 5 of the CST Act, it can be said that the goods preceding the sale is not the goods exported out of the territory of India and in such a situation the petitioner cannot claim exemption under Section 5(3) of the CST Act.
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Court in Azad Coach Builders (supra) as well as Super Packing Industries(supra) and we are of the considered opinion that applying the test the petitioner cannot contend that the goods sold can be termed as penultimate sale and there is inextricable link throughout the transaction right from the sale of edible oil till the export of bakery products. Therefore there is no illegality or impropriety in the order passed by the Tribunal and it is not a fit case under Section 63 of the Kerala Value Added Tax Act to interfere with. Therefore, the Revision Petitions fail and accordingly, dismissed.
Sd/- S.V.BHATTI, JUDGE
sd/BASANT BALAJI, JUDGE
dl/
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APPENDIX OF OT.REV 15/2018
PETITIONER ANNEXURES
| ANNEXURE | A1 COPY OF INVOICE NO.12 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM DATED 31-05-2013. |
|---|---|
| ANNEXURE | A2 COPY OF INVOICE NO.21 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM DATED 25-07-2013. |
| ANNEXURE | A3 COPY OF INVOICE NO.81 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM DATED 24-03-2014. |
| ANNEXURE | B1 COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS DATED 27.08.2014. |
| ANNEXURE | B2 COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS DATED 27.08.2014. |
| ANNEXURE | B3 COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS DATED 22.04.2015. |
| ANNEXURE | B4 COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS DATED 14.05.2015. |
| ANNEXURE | C1 COPY OF PURCHASE ORDER ISSUED BY M/S. SONA ROASTERY, U.A.E.DATED 18.08.2013. |
| ANNEXURE | C2 COPY OF PURCHASE ORDER ISSUED BY M/S. SONA ROASTERY, U.A.E.DATED 13.11.2013 |
| ANNEXURE | C3 COPY OF PURCHASE ORDER ISSUED BY M/S. DIAMONDS SWEETS, KUWAIT DATED 27.11.2013. |
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| -18- | |
|---|---|
| ANNEXURE C4 | COPY OF PURCHASE ORDER ISSUED BY M/S. A- ONE RICE GARDENS TRADING, RIYADH DATED 23.03.2014. |
| ANNEXURE D | COPY OF INVOICE NO.048/2014-15-03 ISSUED BY M/S. SONA EXPORTERS, MALAPPURAM DATED 06.03.2015. |
| ANNEXURE E | COPY OF BILL OF LADING OF M/S. EVERGREEN LINE PVT LTD TAIWAN DATED 10.03.2015. |
| ANNEXURE F | COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, PONNANI DATED 31.12.2016. |
| ANNEXURE G | COPY OF APPELLATE ORDER ISSUED BY THE ASST. COMMISSIONER(APPEALS), MALAPPURAM DATED 31.05.2017. |
| ANNEXURE H | COPY OF SECOND APPEAL FILED BY THE REVISION PETITIONER DATED 25.07.2017. |
| ANNEXURE I | COPY OF APPELLATE ORDER IN TA(VAT) NO.252/17 AND 253/17 ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE |
| TRIBUNAL, PALAKKAD. DATED 18.12.2017. |
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APPENDIX OF OT.REV 16/2018
PETITIONER ANNEXURES
| ANNEXURE - A1 | COPY OF INVOICE NO. 4 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM |
|---|---|
| ANNEXURE - A2 | COPY OF INVOICE NO. 15 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM |
| ANNEXURE - A3 | COPY OF INVOICE NO.20 ISSUED BY THE REVN. PETITIONER TO M/S. SONA EXPORTERS, CHANGARAMKULAM |
| ANNEXURE-B1 | COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS |
| ANNEXURE - B2 | COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS |
| ANNEXURE -B3 | COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS |
| ANNEXURE -B4 | COPY OF FORM H DECLARATION ISSUED BY M/S. SONA EXPORTERS |
| ANNEXURE -C1 | COPY OF PURCHASE ORDER ISSUED BY M/S. SONA ROASTERY, U.A.E. |
| ANNEXURE -C2 | COPY OF PURCHASE ORDER ISSUED BY M/S. DIAMONDS SWEETS, KUWAIT |
| ANNEXURE - C3 | COPY OF PURCHASE ORDER ISSUED BY M/S.SONA ROASTERY, U.A.E. |
| ANNEXURE -C4 | COPY OF PURCHASE ORDER ISSUED BY M/S.SONA ROASTERY, U.A.E. |
OTR Nos.15 and 16/2018
-20ANNEXURE - D COPY OF ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, PONNANI ANNEXURE -E COPY OF APPELLATE ORDER ISSUED BY THE ASST. COMMISSIONER (APPEALS), MALAPPURAM ANNEXURE -F COPY OF APPELLATE ORDER IN TA(VAT) NO. 252/17 & 253/17 ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, PALAKKAD
2 issues framed by the court
Whether goods sold as ingredients for exported finished products constitute penultimate sale under Section 5(4) of the CST Act eligible for tax exemption.
Whether there is an inextricable link between the goods sold and the goods actually exported for exemption under Section 5(3) of the CST Act.
Colour shows how this judgement treated each authority
State of Karnataka v. Azad Coach Builders Pvt. Ltd and anotherFollowed¶87
[(2010) 36 VST 1(SC)]
Super Packaging Industries v. Sales Tax Officer, II Circle, Ernakulam and othersDistinguished¶66
[(2015) 86 VST 392 (Ker)]
4 provisions across 2 enactments
M/S. Surabhi Enterprises
State of Kerala
S.V.Bhatti
Basant Balaji
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
