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PETITIONER:

DEPUTY COMMISSIONER OF SALES TAX ETC. ETC.

Vs.

RESPONDENT:

AYSHA HOSIERY FACTORY (P) LTD. ETC. ETC.

DATE OF JUDGMENT16/01/1992

BENCH:

RAMASWAMI, V. (J) II

BENCH:

RAMASWAMI, V. (J) II

RANGNATHAN, S.

OJHA, N.D. (J)

CITATION:

1992 AIR 874 1992 SCR (1) 140

1992 SCC Supl. (2) 178 JT 1992 (1) 379

1992 SCALE (1)207

ACT:

: Central Sales Tax Act, 1956.

: Sections 6(1-A), 8,9: Tax on sale of goods in

inter-state trade-Liability of dealer-Rate of tax-Whether

applicable under the local Act at the particular point of

time.

Kerala General Sales Tax Act, 1963 [1] Kerala

Additional Sales Tax Act, 1978 :

Additional levy imposed under the 1978 Act-Whether

amounts to amending the Sales tax Act-Such levy-Whether

could be applied to interstate sales.

HEADNOTE:

The Kerala Additional Sales Tax Act, 1978 sought to

impose an additional sales tax at 10% of the rate of tax

already imposed under the Kerala General Sales Tax Act,

1963, on all taxable sales and purchases in the State.

The assesses challenged before the High Court, the levy

of additional sales tax in respect of their inter-state

sales on the ground that the said levy could not be

considered as a levy under the sales tax law of the

appropriate State within the meaning of Section 8(2-A) of

the Central Sales Tax Act, and for the purpose of levying

Central Sales Tax only the rate of tax as per the original

Kerala General Sales Tax Act, 1963 shall be taken into

account. It was also contended that the rate of tax on

interstate sales payable under Section 8 of the Central

Sales Tax Act cannot be increased by any amendment or

legislation by the State.

The High Court having upheld the challenge, the State

has preferred the present appeals by special leave.

On the question whether the additional tax levied could

also be considered as sales tax under the Sale tax law of

the State, for the purpose of Central Sales Tax levy.

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Allowing the appeals, this Court,

HELD :1.1 The definition provided by Section 2(i) of the

Central sales Tax Act does not say that the sales tax law or

the general sales tax law which levies taxes on sale or

purchase of goods shall be under a single enactment. What

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is relevant is whether the tax partakes the character of

sales tax or purchase tax. Any other construction would

restrict the applicability of Section 8(2-A) of the Central

Sales Tax Act to the sales tax law that was in force in 1956

when the Central Sales Tax Act came into force and any

amendment to the local law would not have any effect on the

applicability of that provision. If a particular intra-state

sale transaction in a particular assessment year is

subjected to a particular rate of tax that automatically

gets reflected in and had to be taken into consideration for

finding the rate and the applicability of Section 8(2-A) or

section 8(2) (b) of Central Sales Tax Act. [146F-G; 147-A]

1.2 Instead of an additional Sales Tax Act, if the

legislature has simply amended the Kerala General sales tax

Act by varying the rate, automatically that will come in for

consideration and application of the provision of Section

8(2) (b) and 8 (2-A) of the Central Sales Tax Act. For this

purpose amendment of the State Act is not considered as an

amendment of the Central Sales Tax Act. But since the rate

applicable to the intra-state sales at a particular point of

time is a relevant consideration for finding out the rate of

tax on inter-state sale the amendment of the State Act

automatically has the effect of changing the rate provided

under Section 8 of the Central Sales Tax Act. That is not to

say that the Central Act is amended by the State

Legislature. The rates of tax in certain cases under the

Central Act are linked to the rates fixed under the local

Acts and that is how the amendment of the local Act affects

the rates under the Central Act. It is still the Central Act

that is applied but only for purposes of fixing the rate of

tax leviable under the Central Sales Tax Act, the provisions

of the local Act are looked into. So construed there is not

doubt that in all cases where the rate of tax under the

local law is less than four per cent that will be the rate

applicable to the inter-state sales of the same commodity if

the provisions of Section 8(2-A) of the Central Sales Tax

Act are applicable. The dealer undoubtedly would be paying

at the rate as enhanced by the Additional Sales Tax Act and

therefore that will be the rate that is including the

additional tax, that is to be taken into consideration for

finding out the applicability of Section 8(2-A) of the

Central Sales Tax Act and the rate of tax in respect of his

inter-state sales turnover. Therefore the respondents are

liable to pay sales tax at the rate including the additional

sales tax in respect of their inter-state sale under the

Central Sales Tax assessment orders.

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1.3 For the purpose of applicability of Section 8(2-A)

of the CST Act one has to look to the rate of tax applicable

for the time being under the local Act and not a rate of

tax which was applicable under the local Act at the time

when the CST Act was enacted. Any amendment in the local

Act ultimately will have a reflection in the assessment of

the inter-state sales. [147A-F]

1.4 However, where a notification has been issued under

Section 8(5) of the Central Sales Tax Act, the amendment to

the State Act will not have any affect on the notification.

Janta Expeller Company & Ors. v. Assistant Commissioner

(Assessment) Sales Tax, Special Circle, Trichur, 49 STC 216,

referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4042 of

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1987 etc. etc.

From the Judgment and Order dated 11.7.1986 of the

Kerala High Court in T.R.C. No. 9 of 1985.

P.S. Poti and K.R. Nambiar for the Appellants.

A.S. Nambiar, G. Vishwanatha Iyer, G.B. Pai, P.H.

Parekh, P.K. Manohar, Smt. Shanta Vasudevan, Ms. Malini

Poduval, S. Sukumaran and N. Sudhakaran for the Respondents.

The Judgment of the Court was delivered by

V. RAMASWAMI, J. Leave granted in Special Leave

Petition Nos. 8417 and 8492-93 of 1987.

In this batch of appeals the appellants are the State

of Kerala. The respondents are registered dealers under the

Kerala General Sales Tax Act, 1963, hereinafter called the

State Act as well as under the Central Sales Tax Act, 1956

hereinafter called the Central Act. Some of the assesses

carry on the business of sales and purchase of Coir products

which is taxable under the State Act at 2%, some of the

dealers carry on business of Hosiery which is taxable at 3%.

The respondents-assessee in Civil Appeal Nos. 1426-27 of

1988 deal in automobile spares which is taxable at 15% and

the assessee in Civil Appeal No. 1015 of 1988 deals in

transformer which is taxable at 10%. The respondent in

Civil Appeal No. 4386 of 1988 is a dealer in titanium

dioxide, Cement, and Paints products which are taxable at

10% and the

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respondent in Civil Appeal No. 189 of 1990 is a dealer of

Sewing Thread which is taxable at 3%. The assessee in Civil

Appeal No. 5557 of 1990 is a dealer in rice taxable at 2%.

Under the Kerala Additional Sales Tax Act (20 of 1978) all

taxable sales and purchases in the State including the local

sales of Coir, Hosiery, Rice, Automobile parts, titanium

dioxide, Cement, Paints and transformers etc. With which we

are concerned, were subjected to an additional sales tax

calculated at 10% of the rate of tax already imposed under

the Kerala General Sales Tax Act, 1963. The result of it

was where the rate of tax was 2% the tax payable became 2.2%

where it was 3% it was 3.3%, 10% became 11%, 15%. In all

these cases the assessments in question were under the

Central Sales Tax Act. The Kerala Additional Sales Tax Act

came into force with effect from 1st April, 1978. In the

present appeals the assessment year in question were either

1978-79 or subsequent thereto. The assessing officers

sought to levy tax in respect of the inter-state sales of

the assesses by including the additional sales tax. The

assesses questioned the inclusion of the additional sales

tax levy in respect of their inter-state sale on ground that

the levy under the Kerala Additional Sales Tax Act is not

and could not be considered as a levy "under the sales tax

law of the appropriate State" within the meaning of section

8(2-A) of the Central Act and for the purpose of levying

Central Sales Tax in view of the provision of section 8(2-A)

of the CST Act only the rate of tax as per the original

Kerala General Sales Tax Act, 1963 shall be taken into

account. They also contended that the rate of tax on inter-

state sales payable under section 8 of the Central Act

cannot be increased by an amendment of the State Act or any

legislation by the State. All the revision petitions filed

by the assesses were allowed by the High Court of Kerala

accepting their contention following the judgment of the

Division Bench of the same Court reported in Assistant

Commissioner (Assessment) Sales Tax v. Janata Expeller

Company and Ors., 64 STC 435 which confirmed a Single Judge

judgment in Janata Expeller Company & Ors. v. Assistant

Commissioner (Assessment) Sales Tax, Special Circle,

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Trichur, 49 STC 216.

Before we deal with the decision relied on by them it

is better we set out the relevant provisions and understand

the scope and implications of the same.

"8. Rates of tax on sales in the course of inter-

state trade or commerce-(1) Every dealer, who in

the course of inter-State trade or commerce-

(a) sells on the Government any goods; or

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(b) sells to a registered dealer other than the

Government goods of the description referred

to in sub-section (3); shall be liable to pay

tax under this Act, which shall be four

percent of the turnover.

(2) The tax payable by any dealer on his turnover

in so far as the turnover or any part thereof

relates to the sale of goods in the course of

inter-State trade or commerce not falling within

sub-section (1)-

(a) in the case of declared goods shall be

calculated at twice the rate applicable to the

sale or purchase of such goods inside the

appropriate State; and

(b) in the case of goods other than declared

goods, shall be calculated at the rate of ten

per cent or at the rate applicable to the sale

or purchase of such goods inside the

appropriate State whichever is higher;

and for the purpose of making any such calculation

any such dealer shall be deemed to be a dealer

liable to pay tax under the sales tax law of the

appropriate State, notwithstanding that he, in

fact, may not be so liable under that law.

(2A) Notwithstanding anything contained in sub-

section (1A) of section 6 or sub-section (1) or

clause (b) of sub-section (2) of this section, the

tax payable under this Act by a dealer on his

turnover in so far as the turnover or any part

thereof relates to the sale of any goods, the sale

or, as the case may be, the purchase of which is,

under the sales tax law of the appropriate State,

exempt from tax four percent (whether called a tax

or fee or by any other name), shall be nil or, as

the case may be, shall be calculated at the lower

rate.

Explanation- For the purposes of this sub-section a

sale or purchase of any goods shall not be deemed

to be exempt from tax generally under the sales tax

law of the appropriate State if under that law the

sale or purchase of such goods is exempt only in

specified circumstances or under specified

conditions or the tax is levied on the sale or

purchase of such goods at specified stages or

otherwise than with reference to the turnover of

the goods.

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(3)....................

(4)....................

(5) Notwithstanding anything contained in this

section, the State Government may, if it is

satisfied that it is necessary so to do in the

public interest, by notification in the official

Gazette, and subject to such conditions as may be

specified therein, direct-

(a) that no tax under this Act shall be payable by

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any dealer having his place of business in the

State in respect of the sales by him, in the

course of inter-state trade or commerce, from

any such place of business of any such goods

or classes of goods as may be specified in the

notification, or that the tax on such sale

shall be calculated at such lower rates than

those specified in sub-section (1) or sub-

section (2) as may be mentioned in the

notification ;

that in respect of all sales of goods or sales

of such classes of goods as may be specified

in the notification, which are made in the

course of inter-State trade or commerce, by

any class of such dealers as may be specified

in the notification, to any person or to such

class of persons as may be specified in the

notification, no tax under this Act shall be

payable or the tax on such sales shall be

calculated at such lower rates than those

specified in sub-section (1) or sub-section

(2) as may be mentioned in the notification."

In all these appeals the inter-State sales in question

which are sought to be taxed admittedly do not fall under

sub-section (1) or clause (a) of sub-section (2) of section

8 of the CST Act. The sales were of goods other than the

declared goods, therefore, under clause (b) of sub-section

(2) of section 8 the tax payable by the dealer on his

turnover shall be calculated at the rate of 10% or at the

rate applicable to the sale or purchase of such goods inside

the State whichever is higher. However, sub-section (2-A)

of this section states that notwithstanding anything

contained in clause (b) of sub-section (2) the tax payable

under the Central Sales Tax Act by the dealer where the

intra-state sale of the same under the `sale tax law' of the

State is "exempt from tax generally or subject to tax

generally at a rate which is lower than four per cent shall

be nil or as the case may be shall be calculated at the

lower rate." Thus if an intra-state sale by the dealer is

exempt then his inter-State

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sale also will be exempt. If the intra-State sale is taxed

at a rate which is lower than four percent, then his inter-

State sale of the same commodity shall also have to be taxed

at the lower rate applicable in the State. But where the

rate of tax applicable to intra-State sale was more than

four percent then the rate applicable for inter-State sale

will be nil or the rate applicable for the local sale

whichever is higher. The question for consideration is as

to whether the additional tax levied under Kerala Additional

Sales Tax Act is also to be considered as sales tax under

the `sales tax law' of the State. The question could not

have arisen but for the fact that this additional levy came

to be imposed under a separate Act. Had the additional Sales

Tax been imposed by simply amending the rates in the

original Act the question would not have arisen. But we are

of the view that this makes no difference and it is merely a

matter of style of legislation. The additional sales tax

levied under the Sales Tax Act is also a sales tax of the

same category as in the original Act. The Kerala Additional

Sales Tax Act provides that "The tax payable under Kerala

General Sales Tax Act, 1963 (15 of 1963) (hereinafter

referred to as the State Act) for every financial year

commencing from the financial year 1978-79 shall be

increased by 10 per cent of such tax" instead of increasing

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the rate of tax for each of the commodities which are

covered by the Kerala General Sales Tax Act by one

comprehensive provision the tax is increased by 10% over the

rate provided under the original Act in respect of all the

commodities the sale or purchase of which are taxable. Both

take the form of sales tax and in the case of assessment of

local sales it makes no difference whether it is called tax

and additional tax or one higher percentage of tax. In

truth and effect it is a levy of tax on the sales or

purchase of the dealers. However, it was contended on

behalf of the assesses that the words "under the sale tax

law of the appropriate State" in Section 8 (2-A) of the CST

refers to only the General Sales Tax Act provisions and not

the additional Sales Tax Act provisions. Section 2(i) of

the Central sales Tax Act defines `sale tax law' as meaning

"any law for the time being in force in any State or part

thereof which provides for the levy of taxes on the sale or

purchase of goods generally or on any specified goods

expressly mentioned in that behalf and `general sales tax

law' means the law for the time being in force in any State

or part thereof which provides for the levy of tax on the

sale or purchase of goods generally." The definition does

not say that the sale tax law or the general sales tax law

which levies taxes on sale or purchase of goods shall be

under a single enactment. What is relevant is whether the

tax partakes the character of sales tax or purchase tax.

Any other construction would restrict the applicability of

section 8 (2-A) of the CST Act to the sales tax law was in

force in 1956 when the Central Sales Tax Act came into force

and any amendment to the local law would not have any affect

on the applicability of that provisions. We do not see any

logic or reason for such a

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construction. What is relevant is if a particular intra-

state sale transaction in a particular assessment year is

subjected to a particular rate of tax that automatically

gets reflected in and had to be taken into consideration for

finding the rate and the applicability of section 8 (2-A) or

Section 8(2)(b) of Central Sales Tax Act. As already stated

if instead of an additional sales tax Act the legislature

has simply amended the Kerala General Sales Tax Act by

varying the rate automatically that will come in for

consideration and application of the provisions of Section

8(2)(b) and 8(2-A) of the CST Act. For this purpose

amendment of the State Act is not considered as an amendment

of the Central Sales Tax Act. But since the rate applicable

to the intra-state sales at a particular point of time is a

relevant consideration for finding out the rate of tax on

inter-State sale the amendment of the State Act

automatically has the effect of changing the rate provided

under Section 8 of the Central Sales Tax Act. That is not

to say that the Central Act is amended by the State

Legislature. The rates of tax in certain cases under the

Central Act are linked to the rates fixed under the local

Act and that is how the amendment of the local acts affects

the rates under the Central Act. It is still the Central

Act that is applied but only for purposes of fixing the rate

of tax leviable under the Central Sales Tax Act the

provisions of the Local Act are looked into. So construed

we have no doubt that in all cases where the rate of tax

under the local law is less than four per cent that will be

the rate applicable to the inter-state sale of the same

commodity if the provisions of Section 8(2-A) of the CST Act

are applicable. The dealer undoubtedly would be paying at

the rate as enhanced by the Additional Sales Tax Act and

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therefore that will be the rate that is including the

additional tax, that is to be taken into consideration for

finding out the applicability of section 8(2-A) of the CST

Act and the rate of tax in respect of his inter-State sales

turnover. There could be therefore no doubt that the

assessees-respondents in all these cases are liable to pay

sales tax at the rate including the additional sales tax in

respect of their inter-State sales under the Central Sales

Tax assessment orders.

The High Court has reversed the order of the assessment

in all these cases relying on the decision of a learned

Single Judge in Janata Expeller Co. case 49 STC 216 which

was affirmed on appeal by the Division Bench of the same

High Court in 64 STC 435. That case related to the

assessment of a dealer in relation to his inter-State sales

turnover of coconut oil and cake. Under the Kerala General

Sales Tax Act, 1963 the local sales of coconut oil and cake

were taxable at 2%. By reason of the Kerala Additional

Sales Tax Act, 1978 the rate of tax had increased to 2.2%.

In exercise of the power under section 8(5) of the Central

Sales Tax Act the State Government on 1.4.1966 notified that

the Government "being satisfied that it is necessary so

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to do in the public interest, hereby direct that in respect

of coconut oil and its cake the tax payable under the said

Act by an oil miller having his place of business in the

State of Kerala in respect of the sale by him from such

place of business of the said goods in the course of inter-

State trade or commerce shall be calculated at 1 percent on

the sale price of the goods so sold subject to the condition

that the turnover of coconut or copra, from which the said

goods were produced by him in his mill within the State, is

assessed to tax or is liable to tax at his hands under the

Kerala General Sales Tax Act. This notification came into

force with effect from 1.4.1966. When the assessing

authorities sought to levy the additional tax imposed under

the additional Sales Tax Act, 1978 in respect of the inter-

state sale and called upon the assessees to pay at 1.1%, the

dealers questioned the assessment orders on the ground that

when once a notification has been made under Section 8(5) of

the Central Sales Tax Act fixing the rate for purposes of

C.S.T. any change in the rate of tax under the local act

will have no impact on the notification itself unless the

notification also is modified or amended giving effect to

the amendment. This contention was accepted by Kochu

Thommen. as he then was, in the judgment in the Janatha

Expeller Co. & Ors. case (supra). No exception could be

taken to this view of the learned Judge. Because section

8(5) of the Central Sales Tax Act is a provision which

enable the State Government if it was of the view that it

was necessary to do so in the public interest to completely

exempt the inter-state sales from payment of tax or reduce

the tax payable under the Central Act in respect of inter-

state sales. The section itself states the notification

will have effect "Notwithstanding anything contained in

section 8". Therefore when once a notification is made it

will have effect propio vigor and even any amendment of the

rate applicable to inter-state sale will not affect the

notification under section 8(5) of the Central Sales Tax Act

as such unless the notification also is amended along with

the amendment of the other provisions in the Section or the

amended statute in law the effect of superseding the

notification itself. In the case dealt with in Janatha

Expeller Co. & Ors. (supra) the levy of additional sales tax

could not affect the notification because the notification,

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though issued by the State Government, was made in exercise

of the powers under section 8(5) of the Central Act enacted

by the Parliament, and the Kerala Additional Sales Tax Act

was made by the State Legislature and that could have the

effect of superseding the notification. We may also point

out that the learned Judge also had confined his decision

to the notification and its effect though he had dealt with

the scope of section 8(2-A) of the Central Sales Tax Act

also in order to give better understanding of the provisions

of section 8(5) of the Central Sales Tax Act. We are unable

to see anything in this judgment to support the contention

of the respondents-assessees that even in a case which is

not covered by any notification under section 8(5) of

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the CST Act increase in the rate of tax under the local act

will not have any effect on the applicability of Section

8(2)(b) and 8(2-A) of the CST Act. Further, for enhancing

the rate notified under section 8(5) of the Central Sales

Tax Act no reliance can be placed on section 8(2-A) of the

CST Act. However, while agreeing with the view of the

learned single Judge the Division Bench on appeal in the

case of Assistant Commissioner (Assessment) Sales Tax

(supra) made certain further observation which in a way

supported the contention of the assessees. That passage

reads as follows:

"We are also of the view, that even in cases where

tax is exigible under section 8(2A) of the Central

Sales Tax for the inter-State sales, the Kerala

Additional Sales Tax Act, 1978 (Act 20 of 1978),

has no application.

As stated already, in cases where the tax is

payable under section 8(2A) of the Central Sales

Tax Act, what is crucial or relevant is to

ascertain, the appropriate sales tax law of the

State, under which the tax is levied for the sale

or purchase of the goods or the commodity, in

question. Looked at from the angle, we have no

doubt, that the appropriate sales tax law of the

State, of which tax is levied, is the Kerala

General Sales Tax Act, 1963. The Kerala Additional

Sales Tax Act, 1978(Act 20 of 1978), does not levy

sales tax on the sale or purchase of the goods or

commodity, in question. We hold that the

provisions of Act 20 of 1978 are inapplicable to a

situation, where inter-State sales are to be taxed

under section 8 or section 8(2A) or section 8(5) of

the Central Sales Tax Act.

In the first place these observations are in the nature

of obiter in view of the fact that the learned Judges have

accepted the interpretation placed by the learned single

Judge that in respect of a case where a notification has

been issued under Section 8(5) of the CST Act the amendment

to the State Act will not have any effect on the

notification. That should have been enough to dispose of

the case but they have given an alternative reasoning which

in our view is not correct and is against the provisions of

Section 8(2-A) of the CST Act itself. For the purpose of

applicability of Section 8(2-A) of the CST Act we have to

look to the rate of tax applicable for the time being under

the local Act at the time when the CST Act was enacted. Any

amendment in the local Act ultimately will have a reflection

in the assessment of the inter-state sales. We have already

discussed the scope of Section 8 (2-A) of the CST Act and in

the light of those reasonings the passage extracted above in

the judgment of the Division Bench is contrary to law and

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could not be accepted.

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As we have stated already in all the appeals under

consideration there were no notifications under section 8(5)

of the CST Act and simply the applicability of section 8(2-

A) of the CST Act alone is involved. The appeals are

accordingly allowed. The orders of the High Court are set

aside and the respective assessment orders are restored.

However, there will be no order as to costs.

G.N. Appeals allowed.

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