Surabhi Enterprises v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** **THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 8[TH] 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: **OTR Nos.15 and 16/2018** -2- # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI** **&** **THE HONOURABLE MR.JUSTICE BASANT BALAJI TUESDAY, THE 8[TH] 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. SR.GP, SHRI V K SHAMSUDHEEN 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** -3- ## **S.V.BHATTI & BASANT BALAJI, JJ.** - - - - - - - - - - - - - - -- - - -- - - - - - - - - - -- - - - - - - - - ## O.T.R Nos.15 and 16 of 2018 - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - ## ORDER (Dated this the 8[th] 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. 2. Aggrieved by proceedings of the Commercial Tax ## **OTR Nos.15 and 16/2018** -4- 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 **OTR Nos.15 and 16/2018** -5- 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?” 3. The questions involved in this case are whether the petitioner is entitled to claim exemption under section 5(4) of the CST Act treating the sale effected by the petitioner ” as “penultimate sale . It is an admitted fact that the petitioner had sold edible oil to Sona Exporters treating it as penultimate sale in the course of export. The exporter M/s.Sona Exporters exported bakery products manufacturing it using the oil sold by the petitioners. 4. Sub section 3 of Section 5 of the Act makes it clear 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. ## **OTR Nos.15 and 16/2018** -6- 5. The counsel for the revision petitioner Smt Meera 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 ## **OTR Nos.15 and 16/2018** -7- 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. 6. Sri.V K Shamsudheen, Senior Government Pleader submits that exemption can be granted only if there is inextricable link throughout the transaction and the sale effected should be the penultimate sale. The petitioner has sold the edible oil to the exporter and the exporter has not exported the oil sold to him, but bakery products were exported. Therefore, there is no inextricable link between the products sold as well as the products exported. Thus, the petitioner is not entitled to claim exemption under ## **OTR Nos.15 and 16/2018** -8- 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 **OTR Nos.15 and 16/2018** -9- 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. **OTR Nos.15 and 16/2018** -10- ## 7. For a proper appreciation of the facts of the case ## 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 **OTR Nos.15 and 16/2018** -11- 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.” 8. **Azad Coach Builders** (supra) was a case in which 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 **OTR Nos.15 and 16/2018** 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. 9. The Apex Court in **Azad Coach Builders (supra)** , 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** -13- 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** -14- 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. 25. Therefore, the test to be applied is, whether there is an inseverable link between the local sale or purchase on export and if it is clear that the local sale or purchase between the parties is inextricably linked with the export of the goods, then a claim under section 5(3) for exemption from State sales tax is justified, in which case, the same goods theory has no application.” 10. Applying the test as laid down by the Apex Court 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 **OTR Nos.15 and 16/2018** -15- 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. 11. We have gone through the judgment of the Apex **OTR Nos.15 and 16/2018** -16- 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/_ ## **OTR Nos.15 and 16/2018** -17- ## **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. ## **OTR Nos.15 and 16/2018** -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. ## **OTR Nos.15 and 16/2018** -19- ## **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** -20- ANNEXURE - 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