M/S. L.G Electronics India (P) Limited v. Assistant Commissioner (Assessment), Department of Commercial Taxes, Special Circle 1, Ernakulam; Deputy Commissioner, Department of Commercial Taxes, Ernakulam; State of Kerala represented by its Secretary to Government, Taxes Department; Inspecting Assistant Commissioner, Department of Commercial Taxes, Kakkanad

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** ## **MONDAY, THE 3RD DAY OF JULY 2017/12TH ASHADHA, 1939** **WP(C).No. 7727 of 2017 (M) ---------------------------** ## **PETITIONER:** ## **-----------** **M/S. L.G ELECTRONICS INDIA,** **(P) LIMITED, 34/565B, N H BYPASS, PADIVATTOM, EDAPALLY, KOCHI 24, REPRESENTED BY SHANMUGHADAS B, BRANCH ACCOUNTS MANAGER.** **BY ADV. SRI.HARISANKAR V. MENON** ## **RESPONDENT(S):** ## **-------------** **1. THE ASSISTANT COMMISSIONER (ASSESSMENT), DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE 1, ERNAKULAM, KOCHI-15** **2. THE DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, ERNAKULAM, 682015,** **3. STATE OF KERALA REPRESENTED BY ITS SECRETARY TO GOVERNMENT, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM 695001.** **4. INSPECTING ASSISTANT COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, KAKKANAD, KOCHI-682030.** **BY SPL GOVERNMENT PLEADER SRI C.E.UNNIKRISHNAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 03-07-2017, ALONG WITH WPC. 7743/2017,AND CONNECTED CASES THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **K.V.** ## **WP(C).No. 7727 of 2017 (M) ---------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS** **-----------------------** **EXHIBIT P1 COPY OF PRE-ASSESSMENT NOTICE ISSUED BY THE IST RESPONDENT DTD 5/12/2016 EXHIBIT P2 COPY OF REPLY FILED BY THE PETITIONER DTD 28/12/2016 EXHIBIT 2(A) COPY OF REPLY FILED BY THE PETITIONER DTD 12/1/2017 EXHIBIT P2(B) COPY OF REPLY FILED BY THE PETITIONER DTD 31/1/2017 EXHIBIT P3 COPY OF ORDER ISSUED BY THE IST RESPONDENT DTD 31/1/2017 EXHIBIT P4 COPY OF ORDER ISSUED BY THE IST RESPONDENT FOR THE YEAR 2007-08 DTD 26/11/2012 EXHIBIT P4(A) COPY OF ORDER ISSUED BY THE IST RESPONDENT FOR THE YEAR 2008-09 DTD 24/8/2013 RESPONDENT(S)' EXHIBITS NIL -----------------------** **/TRUE COPY/** **P.S.TO JUDGE** **K.V.** ## **A.K.JAYASANKARAN NAMBIAR, J.** - - - - - - - - - - - - - - - - - - - - - - - - - - ## **W.P.(C) Nos.7727, 7743, 8892, 8931, 17209, 17214 and 20135 of 2017** - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 3[rd] day of July, 2017 ## **JUDGMENT** As the issue involved in all these writ petitions is the same, they are taken up together for consideration, and disposed by this Common judgment. 2. The petitioners in all these writ petitions are assessees under the Kerala Value Added Tax Act. The challenge in these writ petitions is against assessment orders passed by the assessing authorities, for the assessment years 2011-12 to 2014-15, denying the benefit of concessional rate of tax to the petitioners, in respect of the supplies effected by them, of their products, to canteens run by units of the Military, Navy and Air force. It is the stand of the petitioners in the writ petition that, as per the statutory provisions, the benefit of concessional rate of tax is applicable, not only in respect of supplies effected to the Canteens Stores Department, but also in respect of supplies effected to the Unit run canteens of the Military, Navy and Air Force. In the assessment orders that are impugned in these writ petitions, the claim for concessional rate of tax was denied on the ground that the concessional rate of tax would be applicable only to supplies effected directly to the W.P.(c).No.7727 of 2017 and connected cases : 2 : Canteen Stores Department or to supplies by Unit run canteens, of goods that were procured from the Canteen Stores Department. In other words, the assessing Officer found that, the benefit of concessional rate of tax was not available in respect of the supplies effected **to** the Unit run canteens. 3. I have heard Sri.Harisankar V. Menon and Smt.K. Latha, the learned counsel for the petitioners in all these writ petitions and Sri.C.E.Unnikrishnan, the learned Government Pleader for the respondents in all these writ petitions. 4.On a consideration of the facts and circumstances of the case and the submissions made across the bar, I find that the statutory provisions with regard to the grant of concessional rate of tax, as it stood during the relevant period, under Section 6(1), 5[th] Proviso, read as follows: (for the period up to, and including assessment years 2013-14) “Section 6 (1) Every dealer whose total turnover for a year is [not less than ten lakhs] rupees and every importer or casual trader or agent of a non- W.P.(c).No.7727 of 2017 and connected cases : 3 : resident dealer, [or dealer in jewellery of gold, silver and platinum group metals or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or any local authority or any autonomous body] whatever be his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be [on the taxable turnover] Provided also that, where- (a) the sale is to or by Military, Naval, Air Force or National Cadet Corps Canteen, Indian Naval Canteen Service [Canteen Stores Department, Central Police Canteen and one subsidiary canteen each that may be established by the Kerala Police in each District of the State and affiliated to the Central Police Canteen.” For the assessment years 2014-15 and 2015-16, the said provision was amended, to read as follows: W.P.(c).No.7727 of 2017 and connected cases : 4 : ## Section 6 (1) Every dealer whose total turnover for a year is [not less than ten lakhs] rupees and every importer or casual trader or agent of a nonresident dealer, [or dealer in jewellery of gold, silver and platinum group metals or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or any local authority or any autonomous body] whatever be his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be [on the taxable turnover] Section 6(1) “provided also that (a) the sale is to or by Canteen Stores Department, Central Police Canteen, Indian Naval Canteen Service and National Cadet Corps Canteen; or (b) the sale is by Military, Naval, Air force or by the one subsidiary canteen each that may be established by the Kerala Police in each W.P.(c).No.7727 of 2017 and connected cases : 5 : District of the State and affiliated to the Central Police Canteen, of the goods purchased from Canteen Stores Department, Central Police Canteen or from direct suppliers authorised by them, as the case may be;” 5. It will be seen from a perusal of the statutory provisions extracted above that, while for the assessment year up to and inclusive of assessment year 2013-14, the benefit of concessional rate of tax was applicable, where the sale of goods was **to or by** Military, Naval, Air Force or NCC Canteen, Indian Naval Canteen Service, Canteen Stores Department, Central Police Canteen and one subsidiary canteen each that may be established by the Kerala Police in each District of the State and affiliated to the Central Police Canteen, the said benefit of concessional rate of tax, was subsequently taken away by the amendment with effect from 01.04.2014, and the benefit of concessional rate of tax was confined only to sales effected to Canteen Stores Department, Central Police canteen, Indian Naval Canteen Service and National Cadet Corps Canteen. The amendment appears to have been the result of a realisation by the State Government, of the difference in the functioning of Canteen Stores Department and the Unit run Canteens. The distinction between the Canteen Stores Department and unit-run W.P.(c).No.7727 of 2017 and connected cases : 6 : canteens was taken note of by the Supreme Court in the decision reported in **Union of India and Others v. M.Aslam And Others** **[(2001) 1 SCC 720],** although in the context of examining the service conditions of personnel appointed under the Unit-run canteens, where the Supreme Court observed as follows: “In the defence services there are two types of canteens; (1) Canteen Stores Department, and (2) Unit-run Canteens. The Canteen Stores Department was in existence in this country even during pre-independence days and it has its in Head Office and Base Depot in Bombay with 33 Area Depots all over the country. These Area Depots are the wholesale outlets, which serve Unit-run Canteens in their respective zones. The Canteen Stores Department, after independence from 1948 onwards, function as a department under the Ministry of Defence initially for 3 years on an experimental basis and later from 1950 has been working on a permanent basis. We are concerned in the present case with the Unitrun Canteens and the status of the employees serving therein. As has been stated earlier, these Unit-run Canteens under their respective Commanding Officers in the three W.P.(c).No.7727 of 2017 and connected cases : 7 : services - army, navy and air force get their articles from the wholesale outlets in the area depot of the Canteen Stores Department and it present there exist 3400 Unit-run Canteens. Prior to the World War II the retail trade in the defence services was in the hands of the contractors. During World War II a regular cadre under Indian Canteen Code came to be formed called the Canteen Services (India) to handle retail trade in operational areas where contractors were not expected to go. After 1947, the organisation split into two: Canteen Stores Department (India) and Canteen Stores Department (Pakistan). The retail trade, however, was reverted to the contractors. But by the early fifties it was realised that the margin of profit between the wholesale price and the retail rate could be a welcome source of funds available to the commanding officers for welfare purposes. Thus, the concept of Unit-run Canteens was born, and contractors were driven out. When Major Gen. K.S. Thimmaya took over as Quarter Master General, he gave detailed thought to providing canteen facilities to the troops at the unit level. He found that retail outlets being in the hands of the unit canteen contractors, the margin between the wholesale price and retail W.P.(c).No.7727 of 2017 and connected cases : 8 : price of goods went to the contractors whereas the amount in the hands of individual commanding officers of units in the army, navy and air force could be utilised for the welfare of the troops. The case was therefore, made out jointly for taking over of contractorrun canteens by units or formations, as the case may be, so that the profits from the sale of canteen stores could be retained within the unit. Contractors, no doubt, put up considerable objection to the aforesaid proposal but the Government agreed to the proposal of General Thimmaya and orders were issued. The concept of Unit-run Canteens, therefore, became an accepted doctrine though it took considerable period for implementing the change over. It goes without saying that from 1948 onwards the Canteen Stores Department (for short “CSD”) functioned as a department under the Ministry of Defence, initially for three years on an experimental basis, and later from 1950 on a permanent basis and yet right up to 1977 the legal status of the same remained nebulous. For functional purposes, it was a commercial undertaking, but for actual practice it was treated as a department of the Ministry of Defence. “ W.P.(c).No.7727 of 2017 and connected cases : 9 : 6. It is apparent therefore that, taking note of the distinction between a sale effected directly to the Canteen Stores Department and sales effected directly to Unit-run canteens of the Military, Navy, Air force etc., the State Government decided to depart from the earlier practice of granting concessional rate of tax even in respect of supplies effected **to** Unit-run canteens and confined the benefit of concessional rate of tax only to supplies effected to the Canteen Stores Department. The amendment, however, was to take effect only from the assessment year 2014-15, and for the prior period, it was felt not necessary to interfere with the benefit of concessional rate of tax, that was already extended to unit run canteens. 7. In the impugned assessment orders, I find that, the assessing Authority has not taken note of this amendment, which came into effect only from the assessment year 2014-15, and appears to have applied the rationale of the amended provision to even the earlier assessment years up to, but not inclusive of the assessment year 2014-15. I am, therefore of the view that, the assessment orders impugned in all these writ petitions, except W.P.(C).No.17209/2017, inasmuch as they pertain to assessment years 2011-12, 2012-13 and W.P.(c).No.7727 of 2017 and connected cases : 10 : 2013-14, must necessarily be quashed, and I do so. The respective assessing authorities are directed to pass fresh orders of assessment in relation to the assessees for the respective assessment years, after taking note of the observations in this judgment and after affording the petitioners/assessees, a fresh opportunity of being heard in the matter. The respective assessing authorities shall pass fresh orders as directed, within a period of six weeks from the date of receipt of a copy of this judgment. 8. As regards 17209/2017, I find that, Ext.P3 assessment order, that is impugned in the said writ petition, pertains to the assessment year 2014-15, and the interpretation to be placed on the provisions of the 5[th] proviso to Section 6(1), is as indicated in this judgment. It is made clear that, in the said case, the petitioner will not be entitled to the benefit of the concessional rate of tax in respect of supplies effected to Unit-run canteens. Since the petitioner also impugns Ext.P3 assessment order on other grounds, I quash Ext.P3 assessment order and direct the assessing officer in the said case, to pass a fresh order of assessment, after hearing the petitioner, within a period of six weeks from the date of receipt of a copy of this judgment, taking note of the observations in this judgment, while doing so. I make it W.P.(c).No.7727 of 2017 and connected cases : 11 : clear that, I have not expressed any opinion on the other issues that have been dealt with in the assessment orders that are impugned in the various writ petitions and the assessee will be free to raise all contentions with regard to the said issues before the assessing officer, at the time of fresh assessment as directed. These writ petitions are disposed as above. Sd/- **A.K.JAYASANKARAN NAMBIAR JUDGE** sm/