The India Cements Ltd. v. State of Kerala

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **MONDAY, THE 19TH DAY OF OCTOBER 2020 / 27TH ASWINA, 1942** **OT.Rev.No.131 OF 2019** **AGAINST THE ORDER/JUDGMENT IN TAVAT 7/2015 DATED 25-02-2019 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM** ## **REVISION PETITIONER/S:** **THE INDIA CEMENTS LTD KRISHNASWAMY ROAD, ERNAKULAM, REPRESENTED BY ITS CHIEF MANAGER (ACCOUNTS), SRI.JAYAMON.** **BY ADVS. SRI.K.SRIKUMAR (SR.) SRI.K.MANOJ CHANDRAN SRI.P.R.AJITHKUMAR** ## **RESPONDENT/S:** **STATE OF KERALA, REPRESENTED BY THE SECRETARY TO FINANCE, SECRETARIAT, THIRUVANANTHAPURAM-695001.** ## **OTHER PRESENT:** ## **SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 19-10-2020, ALONG WITH OT.Rev.136/2019, THE COURT ON 19-10-2020 PASSED THE FOLLOWING:** **OTRev. Nos.131/2019 & 136/2019** **::2::** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE T.R.RAVI** **MONDAY, THE 19TH DAY OF OCTOBER 2020 / 27TH ASWINA, 1942** **OT.Rev.No.136 OF 2019** **AGAINST THE ORDER/JUDGMENT IN TAVAT 8/2015 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM** ## **REVISION PETITIONER/S:** **THE INDIA CEMENTS LTD KRISHNASWAMI ROAD, ERNAKULAM , REPRESENTED BY ITS CHIEF MANAGER ACCOUNTS, SRI.JAYAMON** **BY ADVS. SRI.K.SRIKUMAR (SR.) SRI.K.MANOJ CHANDRAN** **RESPONDENT/S:** **STATE OF KERALA REPRESENTED BY THE SECRETARY TO FINANCE , GOVT. SECRETARIAT, THIRUVANANTHAPURAM- 695 001** ## **OTHER PRESENT:** ## **SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 19-10-2020, ALONG WITH OT.Rev.131/2019, THE COURT ON 19-10-2020 PASSED THE FOLLOWING:** **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** **K. VINOD CHANDRAN & T.R. RAVI, JJ. ---------------------------------------O.T.Revision Nos. 131 of 2019 and 136 of 2019 ---------------------------------------Dated this the 19[th] day of October, 2020** **O R D E R** ## **Vinod Chandran, J** **The two revisions arise from the assessment years 2007-08 and 2008-09. The questions raised are with respect to the concessional rate of tax on sale of goods effected to the Lakshadweep Islands through a dealer authorized by the Lakshadweep Administration and the deduction permissible on damaged goods. The questions of law as available in the memorandum of revision are re-framed as follows.** ## **1. Whether the Tribunal was** **justified in conforming the rejection of the claim of concessional rate of tax on turnover of interstate sales when the assessee had substantially complied with the requirements under the first proviso** **OTRev. Nos.131/2019 & 136/2019** ## **::4::** **of Section 6(1) of the KVAT Act and Rule 12C of the KVAT Rules?** ## **2. Whether addition of sales** **turnover on assumption of sale of damaged goods is justifiable, particularly when there is no allegation of unaccounted sale or stock difference?** ## **2. We have head learned Senior Counsel** **K.Srikumar appearing for the revision petitioner/assessee and learned Senior Government Pleader Shamsudeen appearing for the respondent State. The learned Senior Counsel would take us through the proviso and Rule 12C to contend that there is substantial compliance. Form No.42 was produced and in lieu of shipping bills, Application to Export as made by the purchaser before the Port authorities, has also been produced; as required under Rule 12C.** _**2010(4) KHC 239 [Essar Oil Ltd. v. Intelligence Officer(Investigation Branch), Palarivattom]**_ **and that of a learned Single Judge in** _**W.P(C) No.8022/2011 [Al Mahamood vs. Commercial Tax Officer]**_ **are relied upon.** **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** **It is also argued that the damage claim is only by reason of hardening of cement which occurs naturally by exposure to elements and that claim is very marginal, for both years less than 0.1% of the total sales effected. On behalf of the State it is argued that there is nothing proved as to the movement of goods to the Islands for use there. On the question of deduction on damaged goods it is pointed out that there is nothing produced before any of the authorities to prove the same.** **3. We first extract the first proviso of Section 6(1) and Rule 12C.** Provided that where the sale is to the Administrator, Union Territory of Lakshadweep, Laccadive Co-operative Marketing Federation, Kozhikode or the Lakshadweep Harbour Works and registered dealers certified by the Administrator, Union Territory of Lakshadweep, the tax payable under clause (d) shall be at the rate of five per cent, subject to such conditions as may be prescribed: 12C. Procedure for claiming exemption or reduction in rates of tax _._ - (1) Every dealer who makes any sale to the Administrator, Union Territory of Lakshadweep, Laccadive Cooperative marketing Federation, Kozhikode or the Lakshadweep ## **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** Harbour Works or any registered dealer certified by the Administrator, Union Territory of Lakshadweep under the proviso to sub-section (1) of section 6 shall obtain a declaration in Form No.42, duly signed and sealed by the buyer along with the copy of the shipping Bill, or similar document duly attested by the Port Authorities and file a copy each of the same along with the return filed under Rule 22. The originals shall be retained by the dealer and shall be provided on demand by any authority under the Act. **Read together the concession is for a sale made to the** **Administrator, UT of Lakshadweep, the Laccadive Co-operative Marketing Federation, the Lakshadweep Harbour Works and registered dealers certified by the Administrator, on such conditions as may be prescribed. Rule 12C prescribes the conditions to be production of declaration in Form No.42 duly signed and sealed by the buyer along with copy of the shipping bill or similar document duly attested by the Port authorities.The Rule permits production of copies of the said documents with the originals produced only if demanded by the Department.** **4. Before we go into the facts, we look at the law as declared in the decisions upon which** ## **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** **reliance is placed. In** _**Al Mahamood**_ **, the assessee/petitioner sold goods to the Lakshadweep Administration and produced Form 42. Neither a shipping bill or something similar to that was relied upon or produced before the authority. The contention raised was that the selling dealer is not involved in the transportation of goods to the Islands, which is carried on by the Administration of Lakshadweep. It was also argued that even the Administration after purchase of goods, stocks it at its Stores Sub Divisions at Kochi and Beypore and transports it to the Islands as and when an intend is raised from there; again subject to availability of space in ships or cargo vessels. The learned Single Judge found that Rule 12C, a code in itself, has to be construed in a manner giving effect to the object of the first proviso to Section 6(1). It was found that the dealer has to satisfy the twin requirements of furnishing a declaration in Form No.42 duly signed by the buyer and producing a copy of the shipping bill or other similar document, evidencing the transportation of the goods** **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** **to the Islands. It was the specific finding that since the dealer effects supplies to the Lakshadweep Administration itself that too in the main land, the requirement of production of a copy of a shipping bill duly attested by the Port authorities is not necessary. Especially since it cannot be fulfilled by the supplying dealer, who is not involved in the transportation of the goods to the Islands.** **5. We are unable to agree with the said proposition even if the sale is directly to the Lakshadweep Administration; which herein is not the case. The sale invites the concessional rate as per the proviso only if it is made to the Administrator, the Marketing Federation, Harbour Works or registered dealers certified by the Administrator, on conditions prescribed in Rule 12C. Rule 12C provides for Form No.42, a declaration from the buyer and a copy of the shipping bill or similar document, attested by the Port authorities to be produced. The prescription made does not permit the different category of purchasers to be treated differently; even if it is the** **OTRev. Nos.131/2019 & 136/2019** **==> picture [43 x 10] intentionally omitted <==** **Administration itself. The intention as discernible from the statutory provision as also the Rule is that a concession be granted for the goods which will eventually be utilised in the Islands. It is to ensure the utilisation that the shipping bill, or a similar document is directed to be produced along with the declaration as per Rule 12C. The prescription is also to ensure that the goods purchased by availing the concessional rate are then, not sold within the State of Kerala; thus defeating the very purpose of the concession granted. We perfectly agree that there need not be a suppressed sale assumed by the Administration if the purchase is made directly by that Administration. But that was a benefit which could have been extended when the prescription is made, by the Executive Government in the Rules, to effectuate the first proviso to Section 6(1). The Rules having not prescribed such a benefit insofar as the sales made directly to the Administration, we do not think that there can be such a benefit conferred judicially. We hence do not subscribe to the view expressed and** **OTRev. Nos.131/2019 & 136/2019** ## **::10::** ## **the dictum laid down in** _**Al Mahamood.**_ **6. The other decision relied upon is that of a Division Bench almost on similar facts, but, however, the concession being granted under a notification, the terms of which are slightly different. Therein the Schedule to the notification provided for sale to the very same entities as available in the first proviso to Section 6(1), being entitled to the concession** _**“subject to the condition that such dealer shall utilise the concession only for such goods intended for the use in the UT of Lakshadweep”(sic)**_ **. The Division Bench found that the declaration by the purchaser and the utilisation of goods in the Islands were the two conditions to be satisfied. But there was no means provided by which the seller could control the use by the purchaser. The utilisation was a mandate on the purchasing dealer, which clearly absolves the selling dealer from any obligation to deliver the goods in the Islands or monitor the movement of such goods or ensure it having reached the professed destination, to justify the** ## **OTRev. Nos.131/2019 & 136/2019** **==> picture [52 x 10] intentionally omitted <==** **concessional rate of tax collected at the time of sale. The terms of the proviso to Section 6(1) and Rule 12C are quite distinct and different. Rule 12C obliges the selling dealer to produce not only a declaration but also shipping bill or similar document; which is for ensuring the goods having been transported to the Islands and not sold within the State of Kerala.** **7. Applying the law as interpreted by us to the facts of the instant case, we find the contention of the assessee to be untenable. The declaration in Form No.42 is produced as is seen from O.T (Rev) 131/2019 at Annexure 4. What is produced along with it is an Application to Export made by the dealer to the Port Officer at Calicut. The Application to Export is not a document similar to a shipping bill. It does not evidence the movement of goods from the Port at Calicut to Lakshadweep. It is at best a desire expressed by the purchasing dealer, the fulfillment of which is the essence of the concession granted. Further, it has to be noticed that though there is a** **OTRev. Nos.131/2019 & 136/2019** **==> picture [52 x 10] intentionally omitted <==** **recital in Form No.42 that the purchasing dealer is recognized by the Administrator, UT of Lakshadweep, there is nothing produced to evidence the same. We do not think there can be any concessional rate claimed by the revision petitioner on the facts of these years since there is no document produced which could prove the movement of goods to the Islands, as would a shipping bill. The first question raised by the assessee is answered against the assessee and in favour of the revenue.** **8. The next question is with respect to the allowance claimed on the damaged goods. Despite the stock details having been tabulated in the Annexures produced before us, as the learned Government Pleader alertly points out, the claim was not substantiated with records, ledgers or books of accounts before the fact finding authorities. We see that the fact finding authorities, including the Tribunal has recorded that nothing is produced to substantiate the claim. Even then, 50% of what was claimed was allowed presumably on realisation of the basis of such damage occasioned** **OTRev. Nos.131/2019 & 136/2019** **==> picture [52 x 10] intentionally omitted <==** **for reason of lumping of cement due to exposure to natural elements. We do not find any reason to grant anything more than that already allowed. We refuse to answer the question, for it being not a question of law.** **Ordered accordingly, parties to suffer their respective costs.** _Sd/-_ **K. Vinod Chandran,Judge** _Sd/-_ **T.R Ravi, Judge** jma **OTRev. Nos.131/2019 & 136/2019** **::14::** ## **APPENDIX OF OT.Rev 131/2019** **PETITIONER'S/S EXHIBITS:** ## **ANNEXURE 1** **TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2007-2008 DATED 31.10.2012.** - **ANNEXURE 2 TRUE COPY OF THE 1ST APPELLATE ORDER DATED 9.6.2014.** - **ANNEXURE 3 TRUE COPY OF THE ABOVE TRIBUNAL ORDER DATED 25.2.2019.** **ANNEXURE 4 TRUE COPY OF FORM 42 DECLARATIONS AND PERMIT TO EXPORT COUNTERSIGNED BY THE PORT OFFICER.** - **ANNEXURE 5 TRUE COPY OF RECONCILIATION STATEMENT FOR 2006-07.** - **ANNEXURE 5(A) TRUE COPY OF RECONCILIATION STATEMENT FOR 2007-08.** - **ANNEXURE 5(B) TRUE COPY OF RECONCILIATION STATEMENT FOR 2008-09.** - **ANNEXURE 5(C) TRUE COPY OF RECONCILIATION STATEMENT FOR 2009-10.** - **ANNEXURE 5(D) TRUE COPY OF RECONCILIATION STATEMENT FOR 2010-11.** - **ANNEXURE 5(E) TRUE COPY OF RECONCILIATION STATEMENT FOR 2011-12.** - **ANNEXURE 6 TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2006-07.** - **ANNEXURE 6(A) TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2007-08.** - **ANNEXURE 6(B) TRUE COPY OF RELEVANT PORTION OF ANNUAL** **OTRev. Nos.131/2019 & 136/2019** **::15::** **RETURN FOR THE YEAR 2008-09.** **ANNEXURE 6(C) TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2009-10. ANNEXURE 7 TRUE COPY OF ASSESSMENT ORDER FOR THE YEAR 2006-07 DATED 9.8.2012. ANNEXURE 7(A) TRUE COPY OF ASSESSMENT ORDER FOR THE YEAR 2011-12 DATED 21.7.2017.** **OTRev. Nos.131/2019 & 136/2019** **::16::** ## **APPENDIX OF OT.Rev 136/2019** ## **PETITIONER'S/S EXHIBITS:** - **ANNEXURE 1 TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2008-09 DATED 31.10.2012.** - **ANNEXURE 2 TRUE COPY OF THE 1ST APPELLATE ORDER DATED 09.06.2014.** - **ANNEXURE 3 TRUE COPY OF THE ABOVE TRIBUNAL ORDER DATED 25.02.2019.** - **ANNEXURE 4 TRUE COPY OF FORM 42 DECLARATIONS AND PERMIT TO EXPORT COUNTERSIGNED BY THE PORT OFFICER.** - **ANNEXURE 5 TRUE COPY OF RECONCILIATION STATEMENT FOR 2006-07.** - **ANNEXURE 5 (a) TRUE COPY OF RECONCILIATION STATEMENT FOR 2007-08.** - **ANNEXURE 5 (b) TRUE COPY OF RECONCILIATION STATEMENT FOR 2008-09.** - **ANNEXURE 5 (c) TRUE COPY OF RECONCILIATION STATEMENT FOR 2009-10.** - **ANNEXURE 5 (d) TRUE COPY OF RECONCILIATION STATEMENT FOR 2010-11.** - **ANNEXURE 5(e) TRUE COPY OF RECONCILIATION STATEMENT FOR 2001-02.** - **ANNEXURE 6 TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2006-07.** - **ANNEXURE 6(a) TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2007-08.** **OTRev. Nos.131/2019 & 136/2019** **::17::** **ANNEXURE 6 (b) TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2008-09.** **ANNEXURE 6 (c) TRUE COPY OF RELEVANT PORTION OF ANNUAL RETURN FOR THE YEAR 2009-10.** **ANNEXURE 7 TRUE COPY OF ASSESSMENT ORDER FOR THE YEAR 2006-2007 DATED 09.08.2012. ANNEXURE 7(a) TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2011-2012 DATED 21.07.2017.**