State of Kerala v. Sree Venkiteshwara Heavy Equipments

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** **THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS** **THURSDAY, THE 18TH DAY OF MARCH 2021 / 27TH PHALGUNA, 1942** **OT.Rev.No.96 OF 2016** **AGAINST THE ORDER IN TAVAT 52/2014 DATED 04-12-2015 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM** ## **REVISION PETITIONER/APPELLANT/Respondent/Revenue:** **STATE OF KERALA REPRESENTED BY THE DEPUTY COMMISSIONER (LAW), COMMERCIAL TAXES, ERNAKULAM.** ## **BY SR.GOVERNMENT PLEADER SHAMSUDHEEN V.K.** ## **RESPONDENT/Respondent/Appellant/Assessee:** **M/S SREE VENKITESWARA HEAVY EQUIPMENTS HILL PALACE ROAD, THRIPUNITHURA, KOCHI-682 301.** **R1 BY ADV. SRI.HARISANKAR V. MENON R1 BY ADV. SMT.MEERA V.MENON R1 BY ADV. SRI.MAHESH V.MENON SR GP SHAMSUDHEEN V.K.** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 18.03.2021,** **THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** O.T.REV No.96 of 2016. -2- ## **O R D E R** Dated this 18[th] day of March, 2021 ## S.V.BHATTI,J. Revenue is the petitioner. The petitioner assails the order of Kerala Value Added Tax Appellate Tribunal, Ernakulam in T.A(VAT) No.52/2014 dated 04.12.2015. The issue arises pursuant to the order of Intelligence Officer No.OR-I-550/10-11 Dated 17.12.2010. The Intelligence Officer, Ernakulam through the order in Annexure-A rejected the claim of assessee/respondent for exemption under Sec.6(2) of the Central Sales Tax Act, 1956 (for short, the CST Act) and imposed penalty of Rs.15,27,625/- on O.T.REV No.96 of 2016. -3- the respondent. The respondent questioned the order of penalty in Annexure-A before the Assistant Commissioner(Appeals), Ernakulam, the decision thereon resulted in order in Annexure B, setting aside the penalty and allowing the appeal filed by the respondent. The revenue filed T.A(VAT)No.52/2014 and through Annexure-C, the appeal filed by the revenue was dismissed. Hence, the O.T. Revision. 2. The circumstances leading to the imposition of fine in Annexure-A, are considered in sufficient detail by all the three authorities. By choice and also to avoid burdening the judgment, the detailed narrative of circumstances leading to the issue of order in Annexure-A is not undertaken, but the following few circumstances are stated to understand the controversy that has arisen under Sec.6(2) of CST Act. 3. The respondent is a registered dealer and an assessee O.T.REV No.96 of 2016. -4- under the Kerala Value Added Tax Act, 2003 (for short, the KVAT Act). The Intelligence Officer, Kollam, on 18.04.2010, intercepted a vehicle bearing No.KL7 BK 2525 and on verification of documents, the Intelligence Officer found that the consignment in transit consists of hydraulic excavator and hydraulic rock breaker purchased by M/s.Sree Venkiteshwara Heavy Equipments, Tripunithura, Kochi/assessee from the manufacturer i.e., M/s. Hyundai Constructions Equipments, Pune, Maharashtra against the C Form as per invoice No.1110100386 dated 12.06.2010 and 90006602 dated 11.08.2010. The sale invoice No.361 dated 14.08.2010 in Form No.8A prescribed under Rule 58(10) of the KVAT Rules 2005, issued by the assessee shows that the subject consignment was sold to M/s.Charuvila Metal Crusher, Kuttikkad P.O, Kadakkal, Kollam. 4. The case of Department is that the sale by O.T.REV No.96 of 2016. -5- assessee/respondent in favour of M/s.Charuvila Metal Crusher is an intra-State sale and liable to tax under KVAT Act. The case of respondent is that the consignment was despatched from the factory premises on 12.08.2010. The invoice dated 12.08.2010 shows that the respondent is the purchaser. The subject consignment was meant for M/s.Charuvila Metal Crusher and the assessee transferred goods in transit under an endorsement in favour of M/s.Charuvila Metal Crusher. Therefore, the transfer endorsement is covered by Sec.6(2) of CST Act and the transfer cannot be treated as occasioning sale or transfer falling under KVAT Act, 2003. The subject matter of enquiry included change of vehicle for transportation from No.KL 7 BK 2525 to TN-28 AB1344. 5. The case of respondent/assessee is that the place where M/s. Charuvila Metal Crusher is located in a remote hilly area O.T.REV No.96 of 2016. -6- and commensurate to the road conditions, the equipment had been shifted/changed from Vehicle No.KL 7 BK 2525 to vehicle No.TN-28 AB-1344. The Intelligence Officer rejected the case of assessee and levied penalty of Rs.15,27,625/-. The First Appellate Authority and the Tribunal are consistent in their view that imposition of penalty, in the facts and circumstances of the case, is unsustainable, incorrect and illegal. Hence the revision. 6. Senior Government Pleader, Mr.Shamshudeen argues that from the explanation given by the assessee, it is evident that the purchase of subject equipment by the respondent/assessee is pursuant to a per-purchase order or arrangement between the assessee and M/s. Charuvila Metal Crusher. In such cases, Sec.6(2) of the CST Act is unavailable and need to pay tax. According to him, it is an essential element that the concerned sale must be a subsequent interstate sale effected, by the transfer O.T.REV No.96 of 2016. -7- of documents of title to the goods, particularly, during the movement of goods from one State to another. To the case on hand, Sec. 6(2) of CST Act is not attracted, for, the second sale in the case on hand, had admittedly taken place at Ernakulam, within the state of Kerala and such sale shall have to be treated as inter-State sale liable to tax. For the sale was effected and consignment moved without payment of tax, the imposition of penalty is legal and valid. He places reliance on the reported judgment of this Court in **Cinzac Technical Services Vs. State of Kerala[1]** He further argues that in **Madras Credit & Investments Ltd v. State of Kerala[2]** , for the principle that endorsement on invoice as a result of pre-purchase equipment. The difference between Secs.3(a) and 3(b) of CST Act is stated, the Tribunal has not properly appreciated the difference and the order of penalty > 1 (2009) 3 KLT 764 2 (2004) 134 STC 264 O.T.REV No.96 of 2016. -8- was interfered with illegally. He prays for allowing the Revision. 7. Adv. Harishankar Menon argues that the imposition of penalty is on account of omitting to read the documents seized from the custody of the driver of vehicle in the right perspective, or omitting to take into consideration the legal effect of each one of the transactions evidenced by the documents relied on by the assessee. According to him, the assessee/a dealer selling Machines/Equipments purchased equipment from the manufacturer i.e. Hyundai Constructions Equipments, Pune, Maharashtra, in a few cases, the assessee accepts delivery and sells the equipment by paying VAT and in a few cases, equipment purchased on a specific pre-purchase arrangement, after completely satisfying the requirement of Sec.6(2) of CST Act, under an endorsement transfer of equipment in the transit, in favour of purchaser i.e. in the case on hand in favour of M/s. O.T.REV No.96 of 2016. -9- Charuvila Metal Crusher. He refers to sequential preparation of documents evidencing transfer in transit, admittedly, received by the Intelligence Officer, while the vehicle was intercepted also a few documents filed during the course of enquiry and that from these documents the assessee has complied with the requirements of Sec.6(2) of CST Act. According to him, there is no complicated issue at all, for examination except that the Intelligence Officer understood the transfer, endorsement as occasioning a sale under KVAT Act. According to him, time limit for delivery stipulated by the circulars is found to be incorrect and illegal, in the judgment reported in **Commercial Taxes . Officer v. Bombay Machinery Store[3]** The findings of fact recorded by the First Appellate Authority and the Tribunal are rendered the for upon establishing parameters required 3 [2020] 77 GSTR 304 (SC) -10- O.T.REV No.96 of 2016. extending the benefit under Sec.6(2) of CST Act. Therefore, the levy of penalty for a transaction which does not attract the provisions of KVAT Act is completely illegal and without jurisdiction. He further contended that the judgments relied on by the revenue are distinguishable and the assessee is not under legal obligation to answer penalty under KVAT Act. He prays for dismissing the revision. 8. The questions framed by the Department are excerpted hereunder: “1.The Tribunal failed to take note that, the transport of the goods is in consequence of a local sale. The Tribunal failed to appreciate the conditions for a sale in transit so as to consider the above sale as a transit sale. It is also to be noted that, the above equipments were purchased by the assessee from the Hyundai Company and invoice was also issued to them. 2. The Tribunal failed to appreciate the position that, the O.T.REV No.96 of 2016. -11- original lorry receipt is in respect of vehicle No. TN-28AB1344 and at the time of interception the goods were in vehicle No. KL7-BK-2525. Therefore the alleged transaction could not be considered as a sale in transit because the assessee has taken possession of the goods and thereafter sell it to M/s Charuvila Metal Crusher Unit. 3. The Tribunal failed to take note of the fact that, the purchase order was issued by M/s Charuvila Metal Crusher as early as on 09.07.2010 to the assessee. Thereafter the goods were purchased by the assessee from Hyundai Company at Punai and transported to State of Kerala and issued their own invoice taking profit to M/s Charuvila Metal Crusher. Therefore it is to be noted that, there were two independent transactions and the end customer seems to be purchased the said goods within the State of Kerala and therefore the goods are subjected to tax within the State of Kerala. 4. Whether the assessee is eligible for getting the benefit of Section 6(2) of the CST Act in the above case as decided by the Tribunal. 5. Is the order of the Tribunal is in accordance with law.” O.T.REV No.96 of 2016. -12- 9. The argument of the Department is substantially based on the view taken by this Court in **Cinzac Technical Services** _supra._ This Court was dealing with a situation, where the LR contained the name of ultimate consumer of the product and that the equipment i.e., the boiler was manufactured against the orders, further the manufacturer was informed the requirements of the customer. In the said case, it was found that the dealer could not establish that he is an agent of the manufacturer and once the LR stands in the name of ultimate consumer, transfer of equipment in transit under an endorsement is unavailable. Next judgment relied on by the revenue deals with the case of an assessee engaged in the purchase and delivery of goods under hire purchase agreement with third parties. It is noted in **Madras Credit & Investments Ltd** case that the ownership of the goods given under hire purchase by the assessee remains O.T.REV No.96 of 2016. -13- with the assessee till the last installment is paid by the third party. The Hire Purchase process, transfer of ownership, timing etc., are considered in **Madras Credit & Investments Ltd** case. The applicable definition in Sec.3 (a) and 3(b) of CST Act were considered and findings, with reference to the circumstances considered therein, have been recorded. On very basic circumstances, the case on hand is distinguishable and the ratio could not be applied to the case on hand. In our considered view, the view expressed by the Division Bench, for any purpose, is not applicable to the case on hand. 10. For appreciating the argument of revenue, let us excerpt Sec.6(1) and (2) of CST Act: 6. **Liability to tax on inter-State sales** -(1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not O.T.REV No.96 of 2016. -14- being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales [of goods other than electrical energy] effected by him in the course of inter-State trade or commerce during any year on and from the date so notified: [Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5 is a sale in the course of export of those goods out of the territory of India.] [(1-A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.] (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of any goods in the - course of inter State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement O.T.REV No.96 of 2016. -15- from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act: Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit,— (Emphasis added) 11. Sec.6(1) deals with liability to tax on inter-State sales and obligates every dealer to pay tax under CST on every sale of goods in the course of inter-State trade or commerce during any year, other than electrical energy effected by the assessee. Sec.6(1) covers all the cases of sales involved in inter-State movement of goods and only exemption from CST is sale of electrical energy effected from one State to another State. O.T.REV No.96 of 2016. -16- Sec.6(2) stipulates that notwithstanding the obligation arising under sub-section (1) or sub-section (1A) of Sec.6, where the sale of any goods, in the course of inter-State trade or commerce has occasioned the movement of such goods from one state to another, **or has been effected by a transfer of documents of title to such good during their movement from one state to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods shall be exempt from tax under this Act.** Stated briefly, the requirements are that, at the first instance, the movement of goods must be occasioning from one State to another and on account of sale from one State to another, CST is payable. When the goods are in transit and under an endorsement, the goods are transferred to a third party, there is no obligation to pay tax under sub section (2) of the Act. For the sale in transit is also O.T.REV No.96 of 2016. -17- treated as continuation of inter-State sale. The assessee in this case established all the requirements to merit the benefit under Sec.6(2) of the Act. 12. Let us now revert to the findings of fact recorded by the Appellate Authority, which read thus: “Here the purchaser Sudhakaran K. M/s. Charuvila Metal Crusher placed purchaser order dated 9-7-2010 for Hyundai Excavator & one Hyundai Hydraulic rock breakers @ 2% against C form. The appellant placed orders with Hyundai Construction Equipments India (P) Ltd., Pune with an intention to sell the same in transit to the purchaser and the seller Hyundai Construction Equipments India (P) Ltd., sold the items and the appellant endorsed the LR in favour of M/s.Charuvila Metal Crusher and raised sale bill. The endorsement of LR made without taking delivery of goods. The vehicles changed due to the difficulties in transportation due to hilly areas. Hence the goods loaded with low loaded trailer. The E1 forms issued by the seller and the O.T.REV No.96 of 2016. -18- appellant issued C forms to the seller and the purchaser issued C forms to the appellant. So essential conditions of sale in transit is proved with a documentary evidence. As such the order of penalty is unsustainable. In result the appeal is allowed setting aside the penalty order.” 13. The findings of fact recorded by the Tribunal, which ## read thus: “11. On a perusal of the grounds relied on by the appellant State for assailing the order of the Asst. Commissioner (Appeals) they had a plea that the buyer M/s. Charuvila Metal Crusher has already placed a purchase order to the respondent/dealer on 09.07.10 whereas the movement of the goods has commenced only on 12.08.2010 therefore they cannot enjoy the benefit u/s.6(2) of the Act. But on a careful consideration of the arguments advanced by the learned counsel for the respondent/dealer and the documents brought by them during the time of hearing of the appeal it can be seen that the appellant have placed the purchase orders for the supply of substantial numbers of excavators and rock breakers to M/s. Hyundai Construction Equipment O.T.REV No.96 of 2016. -19- India (P) Ltd, Pune, and the company has sold various machineries to them during the month of July and August 2010 also. During that time the respondent had no intention to satisfy the purchase order given by M/s. Charuvila Metal Crusher as a pre determined sale. But in fact the machineries were invoiced on 12.08.2010 and 11.08.2010 respectively. They would contend that on a careful reading of Section 6(2) of the CST Act, it can be said that they have complied with the requirements for a sale in transit of a goods in this particular case, because the Hyundai company has raised the invoices in favour of the respondent only on 11.08.10 and 12.08.10 and the movement of the heavy equipments has commenced on 12.08.10 and the respondent /dealer has raised the invoices in favour of Charuvila Metal Crusher on 14.08.10 and they handed over the invoices along with the endorsement to the end customer M/s. Charuvila Metal Crusher 12. When on an anxious reading of Section 6(2) of the CST Act no doubt it can be said that the respondent/dealer has complied with the requirements for availing the benefit u/s. 6(2) of the Act. In such a O.T.REV No.96 of 2016. -20- circumstance we are of the considered view that in the instant case the first sale of the heavy equipment was effected by Hyundai company from Pune and the documents produced by the respondent /dealer will undoubtedly go to show that the respondent has not taken delivery of the goods in question. But the delivery was ultimately effected to M/s. Charuvila Metal Crusher. It is relevant to see that in support of the plea of the respondent/dealer that he is entitled to the benefit of Section 6(2) of the CST Act. He placed reliance on the dictum held in S.A. Galiakotwala Vs. State of Madras (1976) 37 STC 536 and WPC. No.18726/14 dtd. 23.07.2014 of the Hon'ble High Court of Kerala. When on a close reading of the ratio held in the decisions referred to as above, that will make it clear that if the assesee is claiming benefit u/s.6(2) of the CST Act on the basis of a pre existing order that is not at all a reason for denying the benefit of transit sale and in such case what has to be looked into is as to whether the transaction has actually resulted in the movement of goods from one State to another and subsequent to sale is effected during the movement of goods without taking delivery. O.T.REV No.96 of 2016. -21- 13. When we are importing the principles held in the decisions referred to as above in to the case on hand, no doubt it can be said that it is in paramateria with the facts of the instant case, as such it can be said that the respondent/dealer is entitled to claim the benefit u/s. 6(2) of the Act, and there is no basis for denial of the benefit u/s. 6(2) of the Act in favour of the respondent. In such a circumstance we find no much force in the arguments of the appellant State that the respondent /dealer is not entitled to claim the benefit u/s. 6(2) of the CST Act. Whereas this particular aspect was seen erroneously decided by the first appellate authority. So we are inclined to brush aside the said contention of the appellant State.” 14. Now we advert to the judgment in **Commercial Taxes Officer v. Store[4]** with the **Bombay Machinery** dealing stipulation of time limit for transit etc., by the Department through circulars to control the effect of Sec.6(2) of CST Act . The relevant paras in the judgment are: > 4 [2020] 77 GSTR 304 (SC) O.T.REV No.96 of 2016. -22- “As per the aforesaid circulars, retention of goods by the transporter beyond the time stipulated therein (being 30 days as per the later circular) would imply that constructive delivery of the goods has been made by the transporter to the consignee. In such a situation, the transit status of the goods would stand terminated and the deeming provision in first _explanation_ to section 3 of the 1956 Act conceiving the time-point of delivery as termination of movement shall cease to operate. In this set of appeals we have already indicated that transfer of documents of title were effected subsequent to the goods reaching the location within destination state. But when the goods are delivered to a carrier for transmission, first _Explanation_ to section 3 of the 1956 Act specifies that movement of the goods would be deemed to commence at the time when goods are delivered to a carrier and shall terminate at the time when delivery is taken from such carrier. The said provision does not qualify the term “delivery” with any time-frame within which such delivery shall have to take place. In such circumstances fixing of time-frame by order of the Tax Administration of the State in our opinion would be impermissible.” 15. Yet another objection of the Department is that the vehicle intercepted while carrying the equipment is different from the vehicle in which the inter-State sale had occasioned. The movement of equipment from one vehicle to another speaks O.T.REV No.96 of 2016. **==> picture [21 x 8] intentionally omitted <==** of acceptance of delivery by the assessee, sale in favour of M/s Charuvila Metal Crusher and subsequent delivery of equipment. Therefore, there is sale within the State of Kerala. This argument of the Department has been independently examined by the Tribunal and cogent reasons are recorded for rejecting the contention. Secondly, there is no restriction under Section 6(2) to carry the goods upon transfer in transit in another vehicle to the destination. The above observation is not to be understood as laying a law whether in all cases carriage of goods could be effected by independent vehicles or not. This is dependent on case to case basis, particularly, in the case on hand, the reply of the assessee is that because of the difficult terrain condition under an endorsement sale occasioned and in another vehicle equipment taken and carried. The Department is not doubting the reason for changing or shifting the O.T.REV No.96 of 2016. -24- equipment from one vehicle to another vehicle. The very change of vehicle is now put as a reason for granting benefit under Section 6(2) of CST Act. We are convinced that the said objection is untenable and liable to be rejected. 16. For the above reasons, we are of the view that the assessee has established the requirements for attracting Sec.6(2) of CST Act, as rightly held in favour of assessee both by the Tribunal and Appellate Authority that the transfer in equipment/goods has occasioned in transit and particularly, by endorsing the documents in favour of M/s.Charuvila Metal Crusher. The judgments relied on by the revenue are clearly distinguishable. The assessee established the inter-State sale, movement of goods, transfer of goods in transit under an endorsement and upon such goods is entitled to exemption O.T.REV No.96 of 2016. -25- under Sec.6(2) of CST Act. The questions made out are answered in favour of assessee and against the Department. Revision fails and accordingly dismissed. No order as to costs. **Sd/S.V.BHATTI JUDGE Sd/BECHU KURIAN THOMAS JUDGE** JS O.T.REV No.96 of 2016. -26- ## **APPENDIX** **PETITIONER'S EXHIBITS:** **ANNEXURE A A TRUE COPY OF THE PENALTY ORDER DATED 17.12.2010. ANNEXURE B A TRUE COPY OF THE ORDER IN KVATA NO. 201/11 DATED 25.11.2013. ANNEXURE C A CERTIFIED COPY OF THE ORDER OF THE TRIBUNAL IN T.A.(VAT) NO. 52/14. ANNEXURE C (a) A TRUE COPY OF ANNEXURE C**