Whirlpool of India Ltd v. State of Kerala (ST.Rev. Nos. 27/2014 & 28/2014)

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **FRIDAY, THE 08TH DAY OF NOVEMBER 2019 / 17TH KARTHIKA, 1941** **ST.Rev..No.27 OF 2014** **AGAINST THE ORDER/JUDGMENT IN TA 466/2009 OF S.T.A.TRIBUNAL,ERNAKULAM** ## **PETITIONER/S:** **M/S.WHIRLPOOL OF INDIA LTD RAVIPURAM, ERNAKULAM.** **BY ADV. SMT.LATHA .K** **RESPONDENT/S:** **THE STATE OF KERALA** **R1 BY GOVERNMENT PLEADER** ## **OTHER PRESENT:** **SR.GP-SRI. V.K.SHAMSUDHEEN** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 08.11.2019, ALONG WITH ST.Rev..28/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **ST.Rev..No.27 and 28 OF 2014** **2** **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **FRIDAY, THE 08TH DAY OF NOVEMBER 2019 / 17TH KARTHIKA, 1941** **ST.Rev..No.28 OF 2014** **AGAINST THE ORDER/JUDGMENT IN TA 467/2009 OF S.T.A.TRIBUNAL,ERNAKULAM** ## **PETITIONER/S:** **M/S. WHIRLPOOL OF INDIA LTD. RAVIPURAM,ERNAKULAM** **BY ADV. SRI. LATHA.K.** ## **RESPONDENT/S:** **THE STATE OF KERALA** **R1 BY GOVERNMENT PLEADER** **THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 08.11.2019, ALONG WITH ST.Rev..27/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **ST.Rev..No.27 and 28 OF 2014 3** **C.K.ABDUL REHIM & ANU SIVARAMAN, JJ. -------------------------------ST.Rev. Nos.27 and 28 OF 2014** **---------------------------------** **Dated this the 8[th] day of November, 2019** ## **JUDGMENT** ## **C.K.ABDUL REHIM, J** Common petitioner in these two Sales Tax Revision Cases is challenging a common order passed by the Kerala Sales Tax Appellate Tribunal, Additional Bench, Ernakulam in T.A Nos. 466 and 467 of 2009, dated 28.2.2014. The State Government is the respondent in both the Appeals. 2. Assessments with respect to the years 2002-2003 and 2003-2004 were finalized against the petitioner. The claim raised for payment of sales tax at the concessional rate with respect to goods supplied to Indian Naval Canteen Service (INCS) based on provisions contained in SRO No. 1091/1999, was declined, despite the certificates issued by INCS in compliance with the said exemption notification. In the first appeal filed, the Deputy Commissioner (Appeals), **ST.Rev..No.27 and 28 OF 2014 4** Commercial Taxes, Ernakulam had reversed the findings of the assessing authority, by holding that the petitioner is eligible for the concessional rate of tax, subject to condition of the assessee producing declarations obtained from the purchaser. Therefore, the assessing authority was directed to allow concessional rate of tax with respect to the turnover relating to both the assessment years. 3. State had taken up the matter in second appeal before the Tribunal. The Tribunal had reversed the finding of the first Appellate Authority by observing that, INCS is not included in Entry 6 of Schedule III of SRO No.1091/1999, and hence the concessional rate of tax cannot be allowed. It was observed that, it is well settled principle that the exemption notifications granting concessional rate of tax are to be strictly interpreted. The Tribunal had taken note of the fact that, when the Kerala Value Added Tax Act was introduced, INCS was specifically included for the purpose of levy of tax at the reduced rate. Therefore it was found that, the view taken by the first Appellate Authority cannot be accepted. It is aggrieved by the order of the Tribunal, the **ST.Rev..No.27 and 28 OF 2014** **5** above revision petitions are filed. 4. Heard Adv.Latha.K appearing for the revision petitioner and learned Government Pleader appearing for the respondent/State. 5. Contention on behalf of the revision petitioner is that, the goods in question were supplied for sale in the Naval Canteen, which is run by INCS and that the INCS had given the requisite declaration with respect to the transactions in question. Therefore it is contented that, going by the notification, SRO No.1091/1999, the relevant turnover is liable to be assessed only at the concessional rate of 4% tax. On the other hand, the learned Government Pleader contended that, INCS is a separate entity, which cannot be considered as part of the Indian Navy or Naval Department. Therefore going by provisions of the notification mentioned above, concessional rate cannot be allowed for transaction effected by the dealer to INCS. 6. SRO No.1091/1999 is a Government Notification issued in exercise of powers vested under Section 10 of the Kerala General Sales Tax Act, 1963 ('KGST Act' for short). The **ST.Rev..No.27 and 28 OF 2014 6** said notification was issued in supersession of various earlier notifications. It is intended to grant exemptions and reductions to goods/persons/institutions with respect to payment of tax, as contemplated under Section 10 of the KGST Act. It makes a reduction in the rate of tax payable under the KGST Act on the turnover of sale or purchase of goods. Clause 1(3) of SRO No.1091/1999 provides that, with respect to sale made to persons or organizations mentioned in column (2) of Schedule III of goods specified in column (3) thereof, tax shall be levied at the reduced rate mentioned in column (4) of that Schedule, on the seller producing a certificate in duplicate in the form appended in Annexure I to the Schedule, obtained from the purchaser. The relevant entry in Schedule III is Entry No.6, which is extracted here under. 6. Military, Naval, Any goods Half of the Air force [NCC rate of tax Canteens and applicable to Canteens Stores such goods Department] We take note of the fact that SRO No.203/2002 about which mention is made in the orders of the first Appellate Authority has no relevance on the issue, because the said ## **ST.Rev..No.27 and 28 OF 2014 7** notification is intended to bring amendments to Schedule II alone of S.R.O No.1091/1999. 7. From the above mentioned provisions of SRO No.1091/1999, it is clear that, the concessional rate of tax is provided only with respect to the turnover of sale made to persons or organizations specified in Schedule III of the notification. From Entry No.6 in Schedule III, it is clear that Military, Navel, Air force, NCC canteens and canteens Stores Department alone are included. Therefore, the claim for concessional rate of tax will be sustainable only if the sale is made to those organizations mentioned in the Schedule, subject to obtainment of necessary certificates as contemplated under the notification. 8. In the case on hand, admittedly the sale is made to INCS and the requisite certificates were issued by the INCS. The revision petitioner placed reliance on a certificate issued by the Regional Manager of the INCS, produced as Annexure A6 along with ST(REV)No.27 of 2014. It is seen that the Regional Manager of INCS had certified that the INCS is coming under Naval Canteen and that INCS is eligible for **ST.Rev..No.27 and 28 OF 2014 8** availing half the rate of tax exemption from the Kerala Government. But the learned Government Pleader, per contra, contended that any certificate of the organization will not entail the petitioner for claiming concessional rate of tax, unless the statute or the notification issued under the statute creates such an eligibility. Based on the rival contentions, we are of the considered opinion that the eligibility for concessional rate of tax would arise only in a case where the goods are sold to those organizations mentioned in Clause (6) of Schedule III in SRO 1091/1999. Consequently, question arises as to whether INCS can be considered as Naval Canteen. In a writ petition filed before this Court, in W.P.(C) No.32100/2011, a learned Judge had considered the question as to whether INCS is an organization which can be considered as a Naval establishment and as to whether the employees of INCS are Government employees or not. In the said judgment, dated 12.10.2013, it was held that, INCS is an organization formed by the Government of India in consultation with the Navy through Navy instruction No.14/1975 and is controlled through specific Regulations **ST.Rev..No.27 and 28 OF 2014 9** framed for the general control of INCS, those Regulation would indicate that INCS is directly controlled by Navy Head quarters and is functioning under the control of the Indian Naval Canteen Control Board (INCCB). Section 3(12A) of the Navy Act 1957, defines Naval establishment as meaning an establishment belonging to or under the control of the Indian Navy, whereas INCS Regulations specifically stipulates that the Canteen shall be operated as a business concern subject to such instructions as may be issued by the Chief of Naval staff from time to time. 9. On the basis of materials considered as mentioned above, it was held that, INCS is not a Naval establishment. It is also noted in the judgment that the stores in the INCS is supplied by the Canteen Store Department (CSD). Observation is to the effect that, the Central Government is exercising deep and pervasive control over INCS. However it is held that, the employees of INCS are not entitled to the service benefits in par with the employees of the Naval establishment. 10. The above decision was taken up in appeal before ## **ST.Rev..No.27 and 28 OF 2014 10** the Division Bench in W.A No.1759/2013 and through the judgment dated 19.10.2015, the Division Bench held that, the findings of the learned Single Judge that INCCB does not answer to the definition of 'State' under Article 12 of the constitution of India, cannot be sustained. Consequently, it was found that INCS answers the definition of 'State' or other Authority under Article 12 of the Constitution of India. But the finding that the service conditions of the employees of INCS is regulated separately and that they are not in par with the service conditions of the employees of Naval establishment, was upheld. 11. Question as to whether the concession provided with respect to sale made to 'Naval Canteen' can be availed with respect to sale made to 'INCS', for the purpose of use of the goods at the Naval Canteen, is the precise question muooted for decision. The Hon'ble Supreme Court in the decision in **Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and Others [(2018) 9 SCC]** had considered the issue relating to interpretation of an exemption provision. Referring to its previous decisions in **Mangalore** **ST.Rev..No.27 and 28 OF 2014 11** **Chemicals and Fertilisers Ltd. v. CCT [1992 Supp (1) SCC 21] and in Novopan India Ltd., Hyderabad v. Collector of Central Excise and Customs, Hyderabad** **[1994 Supp (3) SCC 606]** it was analyzed as to whether any ambiguity in a taxing statute should be construed in favour of the assessee or not was consdiered. It is assuming that the said principle is good and sound, it does not apply to the construction of an exempting provision, which have to be construed strictly, is the finding. It is held that, exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. It is found that, when there is ambiguity in the exemption notification, which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the assessee as it must be interpreted in favour of the revenue. 12. Taking note of the dictum remaining settled as mentioned above, we have to hold that INCS is not an organization covered under clause 6 in Schedule III of SRO **ST.Rev..No.27 and 28 OF 2014 12** No. 1091/1999. But the contention that the goods are sold for the use in Naval Canteen needs consideration. Whether the net usage of the goods sold can be taken as a criteria to hold that the sale is eligible for concessional rate of tax, is a matter which requires examination. We notice that such a contention was not agitated either before the assessing authority or before the appellate authorities. It is the burden of the assessee to establish that the usage of the goods sold to INCS was for the purpose of using it in the Naval Canteen and also to establish that such usage of the goods in Naval Canteen will entail the assessee for a concessional rate of tax. Since these aspects were not considered by the authorities, we think it is not appropriate for this court to decide the issue in these revision petitions. On the other hand, a remittance of the matter to the Tribunal for fresh consideration on the limited aspects mentioned as above, would suffice to meet the ends of justice. Under the above mentioned circumstances, the Revision Petitions are hereby allowed. The impugned common order of the Tribunal is hereby set aside. The appeals before the **ST.Rev..No.27 and 28 OF 2014 13** Tribunal are hereby restored for fresh consideration and disposal by the Sales Tax Appellate Tribunal Additional Bench, Ernakulam on the limited aspect as mentioned above, after affording reasonable opportunity of hearing to all parties concerned. Taking note of the fact that the appeals are of the year 2009, the Tribunal is directed to dispose of the appeals at the earliest possible, at any rate, within a period of three months from the date of receipt of a certified copy of this judgment. **Sd/-** **C.K.ABDUL REHIM** **JUDGE** **Sd/-** sab **ANU SIVARAMAN JUDGE** **ST.Rev..No.27 and 28 OF 2014** **14** ## **APPENDIX OF ST.Rev. 27/2014** ## **PETITIONER'S/S EXHIBITS:** ## **ANNEXURE P1** **THE TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2002-2003 DATED 30.03.2007 ISSUED BY ASSISTANT COMMISSIONER (ASSMNT), SPECIAL CIRCLE-II, ERNAKULAM TO THE APPELLANT** ## **ANNEXURE P2** **THE TRUE COPY OF THE FIRST APPELLATE ORDER DATED 20-1.2009 ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), ERNAKULAM** ## **ANNEXURE P3** **THE TRUE COPY OF THE APPEAL MEMORANDUM FILED BY THE STATE OF KERALA BEFORE THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM** ## **ANNEXURE P4** **THE TRUE COPY OF THE CROSS OBJECTION FILED BY THE APPELLANT BEFORE THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM IN THE ANNEXURE A3 APPEAL** ## **ANNEXURE P5** **THE TRUE COPY OF THE APPELLATE ORDER OF THE KERALA SALES TAX APPELLATE TRIBUNAL ERNAKULAM DATED 28.2.2014 IN TRIBUNAL APPEAL NO.466/2009 AND 467/2009** ## **ANNEXURE P6** **THE TRUE COPY OF THE CERTIFICATE DATED 8TH AUGUST 2014 ISSUED BY THE NAVAL CANTEEN SERVICE.** **ST.Rev..No.27 and 28 OF 2014 15** ## **APPENDIX OF ST.Rev. 28/2014** ## **PETITIONER'S/S EXHIBITS:** **ANNEXURE P1 THE TRUE COPY OF THE ASSESSMENT ORDER FOR THE YEAR 2003-2004 DATED 28.12.2007 ISSUED BY ASSISTANT COMMISSIONER (ASSMNT), SPECIAL CIRCLE-II, ERNAKULAM TO THE APPELLANT ANNEXURE P2 THE TRUE COPY OF THE FIRST APPELLATE ORDER DATED 29.01.2009 ISSUED BY THE DEPUTY COMMISSIONER (APPEALS) ERNAKULAM ANNEXURE P3 THE TRUE COPY OF THE APPEAL MEMORANDUM FILED BY THE STATE OF KERALA BEFORE THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM ANNEXURE P4 THE TRUE COPY OF THE CROSS OBJECTION FILED BY THE APPELLANT BEFORE THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM IN THE ANNEXURE A3 APPEAL ANNEXURE P5 THE TRUE COPY OF THE APPELLATE ORDER OF THE KERALA SALES TAX APPELLATE TRIBUNAL ERNAKULAM DATED 28.02.2014 IN TRIBUNAL APPEAL NO.466/2009 AND 467/2009 ANNEXURE P6 THE TRUE COPY OF THE CERTIFICATE DATED 8TH AUGUST 2014 ISSUED BY THE NAVAL CANTEEN SERVICE.**