TOM THOMAS v. STATE OF KERALA

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON** **TUESDAY, THE 6TH DAY OF MARCH 2018 / 15TH PHALGUNA, 1939** **ST.Rev..No. 14 of 2017** **TA.NO.87/2014 OF KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, ERNAKULAM** **----------** ## **PETITIONER/APPELLANT/APPELLANT/ASSESSE:** **TOM THOMAS, 12/435, OLASSAYIL HOUSE, M.K.RAGHAVAN ROAD, KOOVAPADAM, COCHIN.** **BY ADVS.SRI.P.SANJAY SRI.JINU JOSEPH** ## **RESPONDENT/RESPONDENT/RESPONDENT/REVENUE:** **STATE OF KERALA, REPRESENTED BY SECRETARY, COMMERCIAL TAXES DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **BY SR GOVERNMENT PLEADER SRI.MOHAMMED RAFEEQ** **THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 06-03-2018, ALONG WITH ST.REV.NO.16/2017 AND ST.REV.NO.17/2017, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **sts 23/3/2018** **ST.Rev..No. 14 of 2017** ## **APPENDIX** ## **PETITIONER'S ANNEXURES:** - **ANNEXURE A1 COPY OF THE ASSESSMENT ORDER DATED 15/1/1994 ANNEXURE A2 COPY OF THE ORDER OF THE APPELLATE ASSISTANT COMMISSIONER, ERNAKULAM DATED 17/04/2002** - **ANNEXURE A3 COPY OF THE ORDER OF THE HON'BLE HIGH COURT OF KERALA IN WP(C) NO.26027/2008, DATED 23/10/2008** - **ANNEXURE A4 COPY OF THE MODIFIED ASSESSMENT ORDER OF THE ADDL.SALES TAX OFFICER, IIND CIRCLE, MATTANCHERRY, ERNAKULAM DATED 04/12/2008** - **ANNEXURE A5 COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS) ERNAKULAM, DATED 24/04/2013** - **ANNEXURE A6 COPY OF THE I.A.NO.8/2016, DATED 15/02/2016 ANNEXURE A7 COPY OF THE I.A.NO.61/2016, DATED 21/11/2016 ANNEXURE A8 ORIGINAL ORDER OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ERNAKULAM DATED 30/01/2017** ## **RESPONDENT'S ANNEXURES: NIL** **/TRUE COPY/** ## **P.A.TO JUDGE** **sts 23/3/2018** ## **K. VINOD CHANDRAN & ASHOK MENON, JJ.** ## **------------------------------------S.T.[Rev] Nos.14, 16 & 17 of 2017 ------------------------------------Dated this the 6[th] day of March, 2018** ## **JUDGMENT** ## K. Vinod Chandran, J. The petitioner is the assessee, who is now in appeal from the assessment orders of 1986-1987, 1989-1990 and 1991-1992. The questions of law raised from the order of the Tribunal, which affirm the order of the Assessing Officer as also the First Appellate Authority are as follows: _“1. Whether Section 5(3) of the CST Act can be disallowed on technical grounds when exemption has its source in the constitutional provision contained in Article 286(1)(a) of the Constitution of India?_ _2. Whether the Tribunal was right in refusing exemption under Section 5(3) of the CST Act when available documents produced were sufficient to prove that the goods were exported through export houses?_ _3. Whether the Tribunal was right in_ _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **2** _sustaining the levy of tax on the exports when there was clear provision under Section 5(3) of the CST Act for exemption of tax on exports?_ _4. Whether the Tribunal was right in not at all considering the undisputed photocopies in the custody of the assessing authority obtained under the RTI Act and accepted in the files of the appeal vide orders in I.A. Nos.8/2016 and I.A. No.61/2016 for claim of exemptions under Section 5(3) of the CST Act?_ _5. Whether the appellate authorities were right in pressuring for only the original agreements with export houses after lapse of more than 2 decades, when other documents prove export?”_ 2. The questions raised are common to all the appeals and for convenience we refer to the figures as seen from ST[Rev] No.14 of 2017. The issue in nutshell is the purchase tax levied under Section 5A of the Kerala General Sales Tax Act, 1963 [for brevity, the KGST Act] on the purchase made by the petitioner from unregistered dealers. That there is levy of tax under Section 5A, for purchases made from unregistered dealers is undisputed. The claim is of exemption for reason of such purchase being the penultimate transaction of an export sale, eligible for exemption under Section 5(3) of the CST Act. 3. The assessments of 1986-1987, 1989-1990 and 1991-1992 _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **3** were completed respectively by orders dated 15.01.1994, 18.02.1994 and 26.10.1995 produced as Annexure-I in the respective revisions. The assessee deals in sea foods and carries on export of its products. The figures as available from the assessment order of 1986-1987 would put the issue in the proper prospective. Annexure A1 in ST [Rev] No.14 of 2017 indicates the purchase turnover of prawns to be Rs.1,24,39,609.21. The commission on purchase was added along with the turnover incentive premium as also sale of fixed assets to determine the total turnover at Rs.1,28,29,459.89. Out of this, the purchase turnover on marine products exported directly of Rs.44,41,729.33 and closing stock of marine products coming to Rs.12,85,156/- were deducted. The taxable total turnover fixed was Rs.73,04,647.93, out of which the purchase turnover was levied tax @5%. The Assessing Officer hence allowed the exemption on the purchase turnover from unregistered dealers with respect to the export sales directly made by the assessee. However, with respect to the claim of export carried out through the export houses, it was found that the assessee had contract with the export houses and the _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **4** purchases were effected as per the directions of the export houses **.** Finding that the assessee had no contract with the foreign buyer, the claim for exemption of tax on penultimate purchase under Section 5A was declined. The Assessing Officer found that the purchase effected by the export houses are sales of the assesses to the export houses and then sales of the export houses to the foreign buyers, independent of each other. The purchase of the assessee was not for export and had no nexus with the subsequent export; hence disentitled to be treated as penultimate, to export. 4. An appeal was filed, which was disposed of by Annexure-II dated 17.04,2002 produced in all the revisions. The common order for all the years indicates that a remand was made directing the Assessing Officer to examine the documents with respect to the export sales; the purchases against which were declined exemption under Section 5(3). On remand the Assessing Officer again, after examining the documents, found that the bills of lading in the assessment records were photocopies, which could not be relied on. The assessee failed to produce the originals and hence the _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **5** assessment was completed, again levying purchase tax on those purchases against which the assessee claimed to have carried out export through the export houses. A further appeal before the First Appellate Authority was rejected and then the assessee was before the Tribunal. The Tribunal too rejected the appeal, against which the present revisions are filed. 5. In the course of the proceedings there was a writ petition filed by the petitioner before this Court, in which on an application being moved by the Department, there was an order passed as available under Annexure A-III. The learned Single Judge recorded the submission of the petitioner-assessee that the Assessing Officer is insisting on production of documents, while the petitioner’s assertion was that he has produced the documents available with him and that the same is available in the records. Hence a direction was issued that the assessment has to be completed with the available records. 6. The learned counsel for the petitioner submits that there was inordinate delay in disposing of the appeal at Annexure A-II. The _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **6** assessee had produced the original documents before the Assessing Officer, which was lost from the files of the Assessing Officer. For one particular assessment year, which is not the subject matter of the present revisions, the file itself is missing. There was available photocopies of the documents in the files of the Assessing Officer; based on which the exemptions could have been granted. The assessee, by the time assessment was taken up on remand, had sold the establishment and hence was unable to produce any of the original documents. There was also a dispute between the assessee and the purchaser of the establishment. It is also contended that the petitioner did not have any notice, for the disposal of the appeal before the First Appellate Authority by order dated 17.04.2002 produced as Annexure II. It is submitted that hence he was not able to appear before the Assessing Officer when the remand order was made. The assessee relies on _**Anilkumar P.A. v. State of Kerala [2008 (4) KHC 802]**_ to contend that even purchase from unregistered dealers are entitled to exemption and mere technical reasons cannot be projected to deny such exemption. _**C.T. Ltd. & Another v.**_ _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **7** _**Commercial Tax Officer & Others [1997 (104) STC 94]**_ is relied on to urge that even if export is made through the export house, there could be instances when there is a contract existing between the assessee and the exporter, in which the penultimate transaction is entitled to exemption. _**State of Karnataka v. Azad Coach Builders (P) Ltd. [(2010) 9 SCC 524]**_ is also relied on to buttress the above contentions. 7. Section 5(3) was brought into the CST Act by reason of the decision of the Hon’ble Supreme Court in _**Mohammed Serajuddin & Others v. State of Orissa [(1975) 2 SCC 47]**_ . Therein the exporters were obliged to carry out the sale through the State Trading Corporation (STC). The agreement with the STC also incorporated the terms entered into with the exporter and the foreign buyer, indicating that STC was a mere intermediary. The majority held; as Section 5 stood at that point of time, that the transaction between the exporter and the STC was independent of the export and was not entitled to the exemption, which was confined to export. The dissenting opinion was as follows: _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **8** _“_ _**57.** The facts of the case, in my opinion, go to show that the export of the chrome concentrates was occasioned by one transaction. The parties to that transaction were the appellant, STC and the foreign buyer. STC was brought into the picture as an intermediary because of the legal requirement, according to which the export of chrome concentrates was to be canalised through STC. Although the above requirement necessitated the execution of two agreements, one between the appellant and STC and the other between STC and the foreign buyer, there can, in my opinion, be no doubt that the agreements were part of one integrated transaction which resulted in the export of the goods. The interconnection between the two agreements was so intimate that one agreement could not stand without the other. It was accordingly provided that the cancellation of one agreement would automatically result in the cancellation of the other agreement.”_ 8. This benefit was brought in by way of amendment to the CST Act granting exemption to the penultimate transaction, but provided it has a direct nexus with the export. Hence the introduction of a canalising agency between the exporter and the foreign buyer would not be a reasonable cause for declining exemption under the amended Section 5(3). When the contract is between the assessee and the foreign buyer the mere fact that an export house or the STC acted as a canalising agency would not result in the exemption being _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **9** declined. In the present case the difficulty arise in so far as there being no evidence that the export house was an agent of the assessee. 9. The learned Government Pleader seeks to sustain the order of the Tribunal on the ground that the principles as laid down in the afore cited judgments would not be applicable in so far as the absence of documents substantiating the export by the assessee on the basis of an agreement with the foreign buyer. It is pointed out that the direct exports made by the assesse were granted exemption from Section 5A; which purchases were also made from unregistered dealers. As far as the instant purchases, which were taxed, the assessee could not prove that the export was direct or that the export house was only an agency. There could be no reliance placed on the photocopies of the documents and it is also submitted that the documents available in the records, all of which are photocopies, would indicate that the invoice was issued by the export house showing the assessee as the manufacturer. The learned Government Pleader also relies on the judgments of this Court reported in _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **10** _**Ganapathy Iyer v. State of Kerala [2005 (3) KLT 122]**_ and _**State of Karnataka v. B.M. Ashraf & Co. [(1997) 8 SCC 468]**_ to advance the contention of purchase tax being leviable in so far as purchases from unregistered dealers. 10. The learned counsel for the petitioner would rely on the photocopies of the bill of lading to show that the assessee was shown as the shipper and the foreign buyer as the purchaser.The petitioner has also produced a Certificate of the Bank indicating that the foreign exchange has come directly into its account from the buyer as is available at Annexure H produced before the Tribunal. 11. We are unable to countenance the contention of the assessee that the originals were produced before the Assessing Officer. The records were produced by the learned Government Pleader on specific directions issued by this Court. The learned counsel for the assessee has also examined the records. It is seen that the photocopies alone are available in the records. The assessee’s contention is that the other transactions, being the direct exports, were also allowed on the basis of the photocopies. We are _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **11** unable to assume that the assessment made on 15.01.1994, allowing the exemption on direct exports, is based on photocopies. Though only photocopies of the documents are available in the files definitely they would have been cross checked with the originals at the time of assessment. As a practice, from experience, the photocopies alone are filed along with the objections and at the time of hearing, the originals are produced for cross verification. Hence Annexure-I in so far as the exemption granted, would have been after verifying the originals. 12. The next contention of the assessee is that Annexure-II has been passed after a decade and by that time the establishment itself was sold and there were disputes with the purchaser and hence the documents were not accessible to the assessee. We cannot countenance such a contention especially since the appeal filed before the First Appellate Authority was that of the assessee. Further the second paragraph of Annexure-II indicates that though the appeals were posted several times neither the appellant nor the authorized representative appeared. The appeals, after being kept _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **12** pending for long and on the continued absence of the assessee, without finding any other alternative, were disposed of on merits. Hence it is very evident that the assessee failed to prosecute the appeal properly. The assessee cannot raise a contention that the appellate order came after a decade especially since it is seen from the order that the Appellate Authority had waited for the appearance of the assessee or his authroised representative. 13. The further contention that the delay occurred in disposing of the appeal prevented the assessee from producing the documents also cannot be countenanced. When the assessee had filed an appeal specifically from the orders of assessment raising the ground of exemption under Section 5(3) it was the duty of the assessee to keep the documents in safe custody. The contention that the establishment was sold is inconsequential. The further contention that the assessee did not have access to the documents also cannot be believed, since the subject assessment years are the liability of the assessee and a subsequent sale would not have required the assessee to surrender the documents required to establish the _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **13** exemption for the subject years in which the assessee alone had the liability. 14. The reliance placed on Annexure-III to contend that the Assessing Officer ought to have completed the assessment on the basis of the photocopies, also cannot be accepted. The Tribunal too had addressed the specific argument raised and found that there is no mandate that the photocopies should be accepted. What was directed in Annexure-III was that the Assessing Officer has to complete the assessment on the basis of the records available in the file. The records having only contained photocopies, the Assessing Officer was not obliged to give it any credence without production of the originals for cross verification. Annexure-III cannot be understood as having mandated the photocopies to be accepted, without the production of originals. 15. On remand, the assessee had appeared before the Assessing Officer and Annexure-IV was passed. The assessee before the Assessing Officer contended that the documents were produced before the Assessing Officer at the earlier instance, but the _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **14** Assessing Officer found only photocopies in the records, on verification. The genuineness of the transactions could not be verified on the basis of the photocopies was the finding of the Assessing Officer. The assessment earlier made was reiterated, which was confirmed in Annexure-V and Annexure-VIII by the First Appellate Authority and the Tribunal. 16. The Tribunal looked into the facts and rejected the case of the petitioner. As to the production of the original records, the Tribunal noticed the contrary contentions taken by the assessee before the various authorities. At one stage it was contended that the originals were available in the assessment records. Then the assesee argued that the delay prevented him from producing the original documents. Before this Court it was argued that the sale of the establishment and the disputes with the purchaser prevented him access to the original documents. It was also alleged that the originals were lost from the records, the maintenance of which is the responsibility of the Assessing Officer. This contention, obviously, was an after thought especially noticing the other explanations _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **15** offered for non-production of the original documents. The absence of the original documents stands against the petitioner-assessee. 17. The learned counsel for the petitioner had taken us through _**CT Ltd.**_ [supra], the relevant portions of which, highlighted, are extracted hereunder: _“Learned counsel for the respondents pointed out that in the contract between the appellants and STC, the appellants were referred to as the shipper not as the seller, whereas the Iranian buyer was referred to as the buyer. Exmphasis was laid upon the fact that all documents were required to be prepared by the appellants marked “A/c. STC” in all relevant places and these were to be forwarded to the STC for negotiation. It was pointed out that the contract contemplated disputes between the Iranian buyers and STC and not between the Iranian buyer and the appellants. Learned counsel for the respondents referred to the bill of lading and submitted that it had been endorsed in favour of STC and that, by reason thereof, the property in the tea had passed to the STC. The endorsement was by the typing of the words “A/c. The State Trading Corporation of India Ltd.”, after the name and address of the appellants in the column “shipper” upon the bill of lading._ _In our view, no term in the contract between the appellants and STC clearly contemplates a sale, that is, the transfer of property in the tea from the appellants to STC. Such indication as there is to the contrary, particularly the requirement that_ _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **16** _the appellants should prepare all documents required for negotiation and the “seller's official invoice.... should be in 5 copies”. The requirement that the words “A/c.STC” be used was only to enable the Iranian buyer to identify the tea as being sent in fulfilment of the obligation under the contract between STC and itself.”_ 18. Therein there was a contract produced before the Assessing Officer, which clearly indicated that the STC was the canalising agency and that the assessee was the exporter, who had direct dealings with the foreign buyer. Though the contention taken by the assessee in the present case is also similar it could not be substantiated for reason of the absence of original documents. 19. _**Anilkumar P.A.**_ was in a totally different situation. A dealer manufactured jute products and sold to an exporter, who exported the same to foreign buyers. The dealer was not registered and on verification of accounts, the Department noticed sales and purchase in excess of the turnover limit, which requires registration. The assessee compounded the offence. Later when assessment proceedings were taken, the dealer claimed exemption, which was declined for two reasons. One that the dealer was not registered and _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **17** the other that Form 18A did not contain the details of sale invoices. A Division Bench of this Court found that if a dealer carries on business without registration, he would be disabled from collecting tax, transporting goods within and outside the State and would also be liable for penal consequences. However that would not dis-entitle him from an exemption, especially when it has its source in the constitutional provisions contained in Article 286(1)(a) of the Constitution of India. As to the absence of details of sale invoice it was found that the purchase invoices would be more than sufficient to enable exemption. This has no application to the facts of the instant case. 20. In _**Azad Coach Builders**_ the Supreme Court was concerned with the transaction in which the foreign buyer required the Indian exporter to supply buses with body manufactured by the assessee in accordance with the stipulation of the foreign buyer. The test to determine whether there was an inextricable link between the local sale or purchase, with the export was found to have been satisfied. That test laid down is as follows: _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **18** “ _**2**_ ~~_**7**_~~ _[*]_ ~~_**.**_~~ _The phrase “sale in the course of export” comprises in itself three essentials: (i) 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 the 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 to” are 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. Therefore, the test to be applied is, whether there is an inseverable link between the local sale or purchase and 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.”_ The burden was held to be that of the assessee, which in the present case the assessee failed to discharge. 21. _**B.M. Ashraf**_ and _**Ganapathy Iyer,**_ both related to an exemption claimed from purchase tax insofar as the purchases from unregistered dealers of goods, which were sold locally and interstate _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **19** to exporters; who eventually exported the products to the foreign buyer. It was held that exemption under Section 5 (3) of the CST Act applies only to the penultimate transaction and it cannot be made available to all transactions with respect to the goods exported. Applicable to the facts of this case would be _**Azad Coach Builders Private Limited**_ and the test applied for determining whether the exemption is applicable or not; which applied herein would result in the assessee failing, for reason of there being no substantiating evidence as to an inextricable link of the purchase made by the assessee, with the export carried out by the export house. There could be established no nexus between the transaction of the assesee, with the export made of the export houses. 22. The learned counsel also has a contention that two documents at Annexures-VI & VII were produced before the Tribunal being Certificates issued by the Bank and the photocopies of the export document received under the Right to Information Act, 2005 [for brevity, the RTI Act] from the Department. Obviously the documents received under the RTI Act were from the photocopies _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **20** available in the records. No reliance could be placed on that. The Certificate issued by the Bank only shows the export bills having been negotiated by the Bank on behalf of the assessee and the credits having been made to the assessee’s account. The assessee admittedly had direct exports and there is nothing from Annexure-H produced along with Annexure-VI, I.A., to show that the transactions referred to are of the export carried out through the export house. 23. Regarding the first question the denial of exemption under Section 5(3) is not on technical grounds and is for reason of there being no documents to prove that the purchase made from the unregistered dealers had an inextricable link with the export made by the export house. The lower authorities were quite right in having declined the claim for exemption since there was no substantiating documents, in original, produced before the authorities. The Tribunal did not levy any tax on the exports and merely declined the claim of exemption made by the assessee under Section 5(3) of the CST Act, to the purchases made from the unregistered dealers, which were not proved to have been in the course of export. The Tribunal cannot _S.T.[Rev] Nos.14, 16 & 17 of 2017_ **21** be found to have erred in not having accepted the photocopies of the documents nor were the documents produced before the Tribunal worthy of proving the claim of exemption raised by the assessee. The authorities were perfectly justified in insisting for the original documents to allow the claim for exemption made under Section 5(3) of the CST Act. No reliance can be placed on photocopies and the assessee had to discharge his burden of proof by producing the original documents. The questions of law as framed by the assessee are answered against the assessee and in favour of the revenue. The tax revision cases have to be rejected. The parties shall suffer their respective costs. Sd/- **K. VINOD CHANDRAN, JUDGE.** Sd/- **ASHOK MENON, JUDGE.** //True Copy// P.A. To Judge sp/01/03/18