(2012) 266 KLR 300

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN 

FRIDAY, THE 17TH DAY OF AUGUST 2012/26TH SRAVANA 1934 

S.T.Rev.No.353 of 2006 

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[AGAINST THE COMMON ORDER IN T.A.NO.89 OF 2004 DATED 3.6.2005 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH-I, ERNAKULAM - ASSESSMENT YEAR 1998-99] 

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REVISION PETITIONER/RESPONDENT/REVENUE:- 

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STATE OF KERALA, REP. BY JOINT COMMISSIONER (LAW) IN-CHARGE, COMMERCIAL TAXES, ERNAKULAM. 

BY GOVERNMENT PLEADER SRI.BOBBY JOHN. 

RESPONDENT/APPELLANT/ASSESSEE:- 

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M/S.BALSARA HYGIENE PRODUCTS, ARANGATH ROAD, COCHIN-18. 

BY ADV.SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE). 

K.Vinod Chandran,J. 

The State is in revision, challenging the orders of the Tribunal for the assessment years 1998-1999 and 1999-2000. Two issues, one of classification and the other of the exigibility of the second sale conducted by the assessee within the State under Section 5(2) of the Kerala General Sales Tax Act, 1963, hereinafter referred to as "the Act", arises in the above revisions. The question with respect to classification is raised in S.T.Rev.Nos.353 of 2006 and 358 of 2006, while the other question emerges in S.T.Rev.Nos.367 of 2006 and 373 of 2006.

2. The assessee, a Company registered under the Companies Act, is engaged in the sale of consumer products, like toothpaste, moth repellents, etc. within the State. For the subject assessment years, the assessee classified its product "Odonil" as a moth repellent and claimed liability to tax at the rate of 8% being covered under Entry 85 of the First Schedule to the Act. With regard to the sale of its products "Promise", "Meswak", "Odomos", etc., it claimed non-liability to tax being second sales conducted within the State.

3. The Assessing Officer issued notice alleging that the product "Odonil" is not covered under Entry 85 of the First Schedule, but is exigible to tax at the rate of 20% as the same is an "air freshener" and would be classified as a "perfumery" coming within Entry 127 of the First Schedule to the Act. The claim of second sale was also objected to on the ground that the assessee being a trade/brand name owner, its sale is liable to be taxed under Section 5 (2) of the Act. The assessee contended that the products, the second sale of which was attempted to be levied tax, were all manufactured by another entity, by name "Besta Cosmetics Ltd.", under an agreement executed between the assessee and the said manufacturer. It was the contention that by the said agreement the said manufacturer was granted a licence to manufacture the said goods under the brand name and the sale by such brand name holder to the assessee should be considered as the first sale liable to tax and also the sale under Section 5(2) of the Act. The classification attempted by the Assessing Officer with respect to the product "Odonil" was also objected to on the ground that essentially the product is a moth repellent and, hence, cannot be treated as a perfume. The assessing authority rejected both these contentions and held the sale by the assessee of products manufactured by another under the brand name owned by the assessee would be taxable under Section 5(2); on its sale and though a second sale, the shifting of liability is sanctioned by the specific words employed in Section 5(2). With respect to classification, it was noticed that the assessee itself had conceded considerable turnover on sale of Odonil at a higher rate being covered under Entry 127 and, hence, would be taxable at the rate of 20% as is applicable under the relevant assessment years.

4. The assessee was before the first appellate authority, who found the issue of classification in favour of the Revenue, but reversed the issue under Section 5(2) allowing the claim of second sale set up by the assessee. In such circumstance, both the assessee and the State were before the Tribunal against the findings of the first appellate authority on the respective issues. The Tribunal dismissed the appeals of the State under Section 5(2), confirming the orders of the first appellate authority and allowed the appeals of the assessee reversing the findings of the first appellate authority on the issue of classification of the product Odonil and held the same to be exigible to tax at the rate of 8% under Entry 85 of the First Schedule to the Act.

5. The State has filed the above appeals raising the following questions of law. The question of law regarding classification raised in S.T.Rev.Nos.353 and 358 of 2006 is extracted hereunder:

"Whether the Tribunal is justified in classifying 'Odonil' sold by the assessee as an item falling under Entry 85 of the 1st Schedule as against the stand of the Department that the commodity would fall only under entry 127 of the 1st Schedule, KGST Act?" 

The issue of exigibility of second sale under Section 5(2) has been raised in S.T.Rev.Nos.368 and 373 of 2006 by the following questions of law:

"(i). Is not the Tribunal as well as the lower appellate authority in error in holding that in view of the agreements entered into by the assessee with the manufacturers of the products, permitting non-exclusive use of the trademark/brand name by the manufacturer, the assessee ceases to be the brand name/trademark holder of trademark/brand names Promise, Meswak, Odomos etc? 

(ii). Is not the Tribunal as well as the lower appellate authority in error in holding that the sales of products under trademark/brand name by the assessee who is the registered trademark holder/brand name holder of the same, after purchase of the products from manufacturers who are permitted users of the aforesaid trademark/ brand name, does not amount to sale under a brand name and consequently is inexigible to tax under Section 5(2) of the KGST Act?" 

6. We have heard the learned Government Pleader appearing for the State and Senior Counsel Sri.A.K.Jayasankar Nambiar appearing for the assessee/respondent.

7. The learned Government Pleader would contend that going by the use to which the product Odonil is put to and also the test of common parlance; the product is obviously an air freshener, providing pleasant odour and hence definitely would be classified as a perfumery under Entry 127. The learned Government Pleader would also take us through a photo copy of the package of the product to demonstrate that even the assessee has understood the product as an air freshener.

8. Per contra, the learned Senior Counsel for the assessee would submit that the active ingredient of the product is Para-dicholoro benzene, which is an aromatic hydrocarbon having the properties of an insecticide. The said chemical, according to the learned Senior Counsel, is listed as an "insecticide" under the Schedule to the Insecticides Act, 1968. The aroma or good odour of the product does not take it away from its essential qualities of repelling insects. We would endeavour to answer this question before we step on to the next.

9. We extract hereunder the respective entries under the KGST Act as was available in the relevant assessment years:

"FIRST SCHEDULE 

Goods in respect of which single point tax is leviable under sub-section (1) or sub-section (2) of Section 5 

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Sl. Description of Goods Point of Levy Rate of No. tax (per cent) 

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(1) (2) (3) (4) 

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xx xx xx 

85. Mosquito repellants At the point of 8 including electric or first sale in the or electronic mosquito State by a dealer repellants, gadgets and who is liable to tax and insects repellants. under Section 5. 

xx xx xx 

127. Shampoo, Talcum powder do. 20 including medicated talcum powder, sandal wood oil, ramachom oil, cinnamon oil, other perfumaries and cosmetics not falling under any other entry in this schedule. 

xx xx xx". 

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10. Looking at Entry 127 of Schedule I, we notice that it refers to specific cosmetics, like shampoo, talcum powder, then widely accepted perfumes like sandalwood oil, ramachom oil, cinnamon oil and expands to include other perfumeries and cosmetics not falling under any of the schedules. By including the specific items as mentioned above, the expansion to include other perfumeries and cosmetics should also be restricted to such items which would answer the description of the specific items mentioned in the Entry. The principle of 'ejusdem generis' would compel us to understand the meaning of a word from the meaning of the words employed together with it. One takes the colour from others. It is contended that Entry 127 contains sandalwood oil and the same has been held to be not a perfumery by the High Court of Bombay in Commissioner of Sales Tax v. Gordhandas Tokersey, (1983) 52 STC 381; and hence the particular Entry is to be given a broader meaning. In the said case the decision was rendered on the context of the entry therein containing 'Perfumes, depilatories and cosmetics'. True, Entry 127 herein, is wider but still the expanded definition including certain base oils can only be taken as including active ingredients in the preparation of composite perfumes. However the extension of the definition should be restricted by the normal connotation given to perfumes and cosmetics.

11. What we understand is that the items so specifically mentioned are all relating to items which are used on the human body for beautification, grooming and having cosmetic qualities or properties. The product Odonil which is admittedly a room/cup-board freshener, cannot be brought under the description of perfumery in Entry 127. Obviously, the product will not answer the description of any of the items listed in the Entry; nor can it be said to be perfumery or cosmetic, more so when it is not an item used on the human body. Just as words take colour from each other, when used in conjunction; they should be understood in the common analogous sense and not in a general sense. Construing Entry 127 and the words employed therein, we are unable to agree with the assessing officer; applying the rules of 'ejusdem generis' and 'noscitur a sociis'. The contention of the State that the product would fall under the said Entry hence, according to us, cannot be sustained.

12. Now, we come to the contention of the assessee claiming liability at the rate of 8% under Section 85 of Schedule I. Entry 85 of Schedule I specifically refers to mosquito repellents and insect repellents. The expansive definition is not relevant, since this product is not an electric or electronic gadget. The contention of the assessee is that the vital component being Para-dicholoro benzene, the composition of which in the product, is more than 99%, the same is an insecticide. True, the chemical Para-dicholoro benzene is an insecticide under the Insecticides Act. However, a query regarding licence obtained under the Insecticides Act was answered in the negative by the assessee. The learned Senior Counsel would urge, in that context; to distinguish an "insecticide" from a "repellent". On going through the records, we find that the product "Odonil" has been consistently put forth as a moth repellent and the sweet fragrance is said to be an additional quality to mask the bad odour of the chemical. The wrapper of the product indicates that it is an air freshener and also a moth repellent. The predominant function is not discernible from the records. There is also no warrant for assumption that the product is only used for its repellent qualities. The assessee too has understood it as an air freshener and also a moth repellent. The fragrance provided is projected as masking the bad odour of the chemical and also for avoiding bad odour in rooms/covered space. In such circumstances, it cannot be said that the dominant use of the product is that of a moth repellent and the same would fall under Entry 85 of Schedule I. In that view of the matter, we hold that the product "Odonil" is liable to tax under the residuary entry, at the rates specified for the residuary entry under the First Schedule to the Act.

13. We have noticed above that the assessee had conceded considerable turnover of the product under Entry 127. If the assessee has so returned its product under Entry 127, necessarily tax also would have been collected at the higher rate. A mistake committed by the assessee in classifying its product under an entry will not conclude the issue for all time and for all purposes. But, however, having collected the tax at a higher rate, the assessee cannot make a claim for refund. Hence, as per the provisions of the Act, the collected tax, even if done on a wrong premise, would remain with the State.

14. Now we have to consider the issue raised in the other two revisions with respect to the exigibility under Section 5(2). We extract Section 5(2) hereunder:

"(2) Notwithstanding anything contained in this Act, in respect of goods, other than tea sold in auction in the State, which are sold under a trade mark or brand name, the sale by the brand name holder or the trademark holder within the State shall be the first sale for the purposes of this Act". 

In the instant case, the assessee is trade/brand name holder of certain products, more specifically tooth paste and tooth brush sold in the trade name "Promise" and "Meswak". The Assessing Officer found that the claim of second sale was not admissible by virtue of Section 5(2) of the KGST Act, since the sale by the assessee would be deemed to be the first sale exigible to tax under the Act. The Assessing Officer, however, granted deduction for the tax paid on the purchase of the said products from the manufacturer. The Assessing Officer rejected the contention of the assessee that the manufacture was by another entity, by name M/s.Besta Cosmetics Limited, with which the assessee had an agreement and the said manufacturer was also granted licence to manufacture products under the trade name. The first appellate authority, however, found favour with the contentions advanced by the assessee. The first appellate authority found that M/s.Besta Cosmetics Limited is the user of the brand name or trade name during the relevant period and that it had the right to manufacture such products under trade name and effect sales of such branded items to prospective buyers other than the appellant company. The right over the trademark or brand name being temporarily transferred for a specific period and for a licence fee; it was found that M/s.Besta Cosmetics Limited, the manufacturer, would be the trade/brand name holder and under Section 5(2) the sale by such manufacturer to the assessee would be the sale liable to tax. The sale effected by the assessee then being the second sale, could not be brought to tax and assessed under the KGST Act. The Tribunal upheld the said findings of the first appellate authority.

15. Before us, the learned Government Pleader would contend that the assessee being the registered trademark/brand name holder; the sale by the assessee would be deemed to be the first sale by virtue of Section 5(2). The price at which the assessee sells the product in the market is the real price of the product exigible to tax and Section 5(2) has been brought in specifically to ensure collection of tax on such actual price and to prevent evasion of tax by ingenious methods. The learned Government Pleader would, based on a letter issued by the assessee to the Assistant Commissioner of Commercial Taxes available in the records, contend that the gross profit earned by the assessee by the sale of the products is at the rate of 43% as against the gross profit at the rate of 35% earned by the manufacturer. The fact finding authorities also, it is submitted, has noticed this huge gross profit variation; but has failed to understand the real purport of Section 5(2). The learned Government Pleader also relies on a number of decisions of this Court to contend that this Court has upheld the assessing authority's action in bringing to tax the ultimate sale in the market under the brand name to assessment of tax. The learned Government Pleader relied on the Division Bench decisions in Bechu & Co. v. Assistant commissioner (Asst.) [(2003) 132 STC 68], Cryptom Confectioneries v. State of Kerala [(2007) 8 VST 21 (Ker)], State of Kerala v. Maaks Cream Holdings P. Ltd. [(2009) 26 VST 443 (Ker)], State of Kerala v. Nilkamal Plastics Ltd. [(2010) 30 VAST 510 (Ker)], State of Kerala v. Kitchen Appliances India Ltd. [(2011) 40 VST 191 (Ker)], Elite Foods P. Ltd. v. State of Kerala [(2012) 52 VST 241 (Ker)] and KAIL Ltd. v. State of Kerala [(2012) 52 VST 245 (Ker)]. He also relied on a decision of the Hon'ble Supreme Court reported in Whirlpool of India Ltd. v. DY.CCT [(2006) 13 SCC 537].

16. Per contra, learned Senior Counsel appearing for the assessee would contend that there cannot be any intendment in interpretation of taxing statutes and what is understood from the plain words have to be adopted. The Court cannot supplement, supplant, substitute, modify or ignore the plain words employed by the legislature. It is trite that when a particular goods or transaction comes within the net of taxation, the same has to be applied irrespective of the hardship caused to the assessee. However, when such liability is not clear from the plain words employed in the provision, Courts cannot import words and meanings on assumptions or presumptions about the intention of the legislature. The decisions of the various Division Benches relied on by the State, according to the learned Senior Counsel, is clouded by such exercise. Neither equity nor considerations of revenue can be given a fair-play in interpreting taxing statutes. The learned Senior Counsel also relied on a decision of the Supreme Court reported in Commissioner of Central Excise v. ACER India Limited [(2004) 8 SCC 173].

17. The provision which came up for interpretation in Whirlpool of India Limited case (supra) before the Supreme Court was clear and unambiguous as is the present provision arising in the above case. However, the clear words employed in the Karnataka General Sales Tax Act, 1957 provided that in the case of any goods liable to tax under the Act being produced or manufactured by a dealer with the brand name or trademark of another dealer, then the subsequent sale by purchasing dealer would be deemed to be the first sale liable to tax. Section 5(2), on the other hand, clearly states that the sale by the trademark holder would be the first sale, liable to tax. It has also been held that such trade/brand name holder need not be the owner or the registered owner of such trademark. In the instant case, the manufacturer has, by agreement, obtained the licence to use the trade/brand name and manufacture goods under such trade/brand name, making the first sale of the manufacturer to the assessee; the first sale liable to tax under Section 5(1) and Section 5(2), so proceeds the arguments for the assessee.

18. In the teeth of the various Division Bench judgments of this Court, we are of the opinion that the issue is no longer res integra. The Constitutional validity of Section 5(2) has also been upheld by a Division Bench of this Court in Bechu & Co. (supra).This Court held that sub-section (2) of Section 5 is not a separate charging section, but only deems a subsequent sale to be the first point sale in respect of goods specified therein. In a case where a dealer/manufacturer sells the product to a trademark holder, then the subsequent sale will be taxable under Section 5(2) and the first seller, who is liable to tax under sub-section (1) of Section 5, can be exonerated from the liability if he produces before the assessing authority a declaration in the prescribed form from the trademark/brand name holder under sub-section (2A) of Section 5.

19. However, in the case of a dealer who purchases the manufactured goods after paying tax at the first point sale and sells the same to a brand name/trademark holder for sale under a brand name/trademark, then it was held that there was no requirement for the second seller to produce the declaration as contemplated under Section 5(2A). In such an event, this Court found the third point sale effected by the trade mark/brand name holder not liable to tax. It was held that the effect of Section 5(2) is to shift the taxable point from the first taxable point to the immediate next taxable point and not to any further point. We have our reservations about the said view expressed in Bechu & Co. case (supra); but the same does not arise here since in the instant case there are only two points of sale.

20. It was also held that where the person liable under sub-section (2) of Section 5 pays tax on his purchases, he is entitled to get deduction of the tax paid by him on his purchase turnover from the tax due on the sale of the said goods by virtue of the provisions of Rule 32(13B) of the KGST Rules. We find from the assessment order in the instant case that such deduction has also been granted by the Assessing Officer. The very object of sub-section (2) of Section 5 in shifting the levy was found to be a measure of augmenting the revenue by bringing to tax the value addition of the subsequent sale by the trademark owner, under the trademark.

21. In Cryptom Confectioneries case (supra), the assessee, engaged in the marketing of confectioneries, under the brand name "Cryptom", entered into an agreement with another company to manufacture goods under the said brand name. The agreement provided for a royalty payable by the manufacturer to the assessee. By the agreement, this Court found that, the assessee retained the exclusive right to sell the branded product in the Kerala market and the permission granted to the manufacturer was only to manufacture goods under its brand-name. In such circumstance, the sale by the assessee was held to be covered under Section 5(2).

22. Maaks Cream Holdings case (supra) was a case in which the assessee entered into an agreement with the brand name owner to manufacture ice creams under the brand-name "Joy Ice Creams. Pursuant to the said agreement, the assessee arranged for the manufacture of ice creams by a SSI Unit entitled to sale tax exemption of its manufactured product. The Tribunal held that since the assessee was not the owner of the brand name, Section 5(2) could not be applied in the case. This Court reversed the findings of the Tribunal and held that the legislature was well aware of the practice of franchisee agreements and that brand name or trademark is an assignable right and hence the word "holder" cannot mean "owner" and the same would defeat the purpose of the legislation.

23. In Nilkamal Plastics case (supra), Nilkamal Plastics Limited was an assessee who got manufactured from a SSI Unit in Kerala, under an agreement, plastic moulded chairs and purchased and sold the same under the brand name "Nilkamal". This Court again reiterated the purpose for enacting Section 5(2) being to ensure that tax is paid on the real price of the goods which gets collected only when the product is sold by the brand name holder in its brand name. In the said case, a manufacturer, by the terms of the agreement, could not have sold the plastic moulded chairs to anyone else under the brand name "Nilkamal". The sale by the manufacturer, in such circumstances, was held to be not as a brand name holder, but as the producer of goods under agreement with the brand name holder, who alone is entitled to sell the same in the brand name.

24. Kitchen Appliances India Ltd. (supra) dealt with a 100% subsidiary company marketing T.V. Sets, washing machines, etc. under the brand name "Sansui"; which were manufactured under the brand name by the holding company. This Court held that brand name has no relevance when the products are manufactured and sold by Videocon, a holding company, to its subsidiary company for marketing. The brand name, it was held, assumes significance when goods are marketed with publicity in the market. Since the subsidiary company also had a right to use the brand name, the issue was remanded to the Assessing Officer to examine whether the sale between the holding company and the subsidiary company, both having the right to use the brand name, was at a realistic price. The assessee in the said case though filed a Special Leave Petition before the Hon'ble Supreme Court, the same was withdrawn and a review was filed before this Court, which was dismissed by the decision in KAIL Limited case (supra). On the direction of the Court, the assessee filed an affidavit, which revealed that the holding company and the subsidiary were the part of a group company and the sale made between the two group companies was only to avoid sales tax payable under Section 5(2) of the Act. The review, in fact, was dismissed with costs of Rs.25,000/-.

25. Elite Foods Private Limited (supra) was concerned with the brand name "Elite", under which cakes and breads were manufactured and sold. The brand name was owned by seven individuals, one of whom was a Director and another a share holder of the assessee company. The assessee gave rights to sister companies for manufacture of products under the brand name and purchased such products and sold it in the markets. The manufacturer and the assessee being owned and controlled by the same group of persons, having ownership in the brand name; the sale by the assessee, being the marketing company, was held to be taxable under Section 5(2).

26. The contention of the learned Senior Counsel for the assessee is that the reasoning adopted in the said cases is wrong, in so much as the specific words employed in the section does not at all contemplate levy at a subsequent point of sale, wherein the Court has assumed that the real price is reflected. There is no warrant for such assumption from the clear words employed in the section, is the contention. We are unable to agree with the said proposition. We find that in almost all the cases which reached this Court, the respective assessees had consistently maintained that the manufacturer was manufacturing the goods under a brand name by licence or otherwise granted by the brand name owner. Such manufacture being under the brand name and the specific terms of the agreement under which assessee having conferred the manufacturer the specific rights to use the trade/brand name, the sale by the manufacturer to any person including even the trade/brand name owner would be a sale by a trade/brand name holder liable to tax under Section 5(2); was the consistent stand. The misconception would be in that the section merely postulates the levy to be when the sale is by a trade/brand name holder.

27. In Cryptom Confectioneries case (supra) another Division Bench of this Court had held:

"In order to attract section 5(2) the following conditions are to be satisfied:  

(i) sale of manufactured goods other than tea; 

(ii) sale of the said goods is under a trade mark/brand name; and 

(iii) the sale is by the brand name holder or the trade mark holder within the State". 

This postulates the liability to be at that point where these three conditions arise by a deeming provision; i.e., sub-section (2) of Section 5. The first condition is that the sale should be of manufactured goods other than tea, which is not disputed in any of the above cases, nor in the instant case. The second condition is that the sale should be under a trademark/brand name, and the third being that such sale is by the brand name or trademark holder within the State. The sale should be under a trademark/brand name. The manufacturer having conferred the right to manufacture a product under a brand name/trademark, it cannot be gainsaid that sale of such products to a trademark owner or a trademark holder is a sale under a trademark/brand name. The trade/brand name has no significance in such a sale, since it is between two entities, both of whom are trademark/brand name holders. Trade mark/brand name depicts and holds forth an assurance of quality. It distinguishes the product and makes it stand out or stand apart from other similar products. The discerning customer is attracted to it despite a higher cost. That essentially is a sale under trade mark/brand name. It is in this context that various Division Benches of this Court has held that Section 5(2), by the clear words employed, intended that the "real price" should be subjected to tax. Nilkamal Plastics case (supra), held that the purpose for enacting Section 5(2) is to ensure that tax is paid on the real price of the goods which gets collected only when the product is sold by the brand name holder in its brand name. Kitchen Appliances India Ltd. (supra) held that brand name has no relevance when the sale is between two brand name holders.

28. We notice that the Tribunal has extracted the findings of the first appellate authority that the right of M/s.Besta Cosmetics Limited to effect sale of the manufactured branded items is also to other buyers other than the assessee company. We are unable to find any such material on record or any discussion of the relevant facts to support such a finding. It is clear that the gross profit of the assessee in the sale of the products sold under trade / brand name is 43%. We, in this context refer to the letter of the assessee, addressed to the Assistant Commissioner of Commercial Taxes, Special Circle-III, Department of Commercial Taxes, Ernakulam dated 1.7.2002, which is part of the records of the above case and specifically referred to by the learned Government Pleader. We extract the letter herein below:

"Sir, 

Sub: KGST Assmt. - 1998-99 

Ref : 23050271/98-99 dtd.07.06.02. 

This has reference to the above. We have been asked to explain the reasons for the abnormal gross profit on the sale of goods purchased from Besta Cosmetics Ltd., (BCL). 

In this connection we wish to submit as follows: 

The gross profit of Balsara Hygiene Products Ltd. (BHPL) on the sale of goods purchased from BCL is worked out as under:  

SALES                                       1,64,18,424

   Less:- Cost of goods sold

     Opening Stock              72,00,390

     Purchases                  27,18,895

                               99,19,285

     Less: Closing stock        5,41,549        93,77,736 70,40,688 = 43%

It is submitted that all the receipts of BCL, Cochin are by way of stock transfer from its head office. The stock transfer price need not be necessarily be the cost price of the goods. As such analysis of result on the basis of stock transfer price will not disclose the true position. As such the analysis should be made on the basis of the audited profit and loss account of the company. The trading profit of BCL for the year 1998-99 is as under: 

SALES                                        28,97,20,047

 Less Cost of Materials                20,37,35,014

          (-) Increase in WIP &

              Finished goods            - 1,55,98,347

                                     -----------------  18,81,36,667

                                                        -----------------

          GROSS PROFIT                                  10,15,83,380

                                                        ==========

          % of GP to Sales                                  35 %

It is submitted that we have been in this line of business for last 21 years are engaged in the manufacture and sale of various other home products like Odonil freshener, Odomos mosquito cream, Sanifresh toilet cleaner, Ace Hair Cream, etc. Further, in addition to the own manufacturer and also purchase from BCL, we also make purchases from certain other companies. It is submitted that the customers for the goods manufactured and traded by the company (i.e. BHPL) and the goods of BCL are the same (i.e. Home products). As such we have a well knitted marketing network and the necessary infrastructure to make an effective marketing and distribution of various home products. Sales and distribution through our network will also reduce the distribution and related costs considerably. However the direct expenditure related to distribution and marketing are Advertisement & Business Promotion, C&F Agents Commission, Freight and Bad debts. Since we incur these expenses they are not incurred by BCI. It is submitted that these expenses are incurred in every branches and more or less same for similar products. The scrutiny of our profit and loss account (Schedule - 2.6) will reveal the following figures: 

Advertisement and Business Promotion             13,11,08,388

     C&F Agents Commission                              1,30,51,309

     Freight                                            5,82,23,679

     Bad Debts Written Off                              2,19,84,670

                                                      -----------------

                Total                                 22,43,68,046

                                                      ==========

     Sales turnover of BHPL                        127,76,41,421

     % of the above expenses to sales              18%

It is submitted that the above expenditures being direct expenses in connection with marketing expenses, are necessarily to be deducted to arrive at the actual gross profit of a marketing firm. The gross profit earned by BHPL after reducing the above expenditure is only 25% (43% - 18%). As such it can be seen that the gross margin earned by BHPL is actually less than that earned by BCL. We may also be granted a personal hearing on this matter. 

Thanking you, 

Yours faithfully, 

For BALSARA HYGIENE PRODUCTS LTD. Kochi. 

Sd/- 

01.07.2002 

Authorised signatory". 

The assessee in unequivocal terms admits the gross profit at 43% for the assessment year 1998-99. The assessee also volunteers the figures in the said assessment year of its sister company, which is the manufacturer. It is not disputed that Besta Cosmetics Limited and the assessee Balsara Hygiene Products are fellow subsidiaries of the holding company, Dabur India Limited. In the above extracted letter, the assessee would contend that the actual profit earned by the assessee is only 25% after giving deductions to expenditure incurred on business. This is a concept familiar in the assessment of income tax under the Income Tax Act and is totally alien to assessment of sales tax, which is to be done at the price or value for which the goods are sold.

29. The Hon'ble Supreme Court in CEE v. AKAY Cosmetics (P) Ltd. [(2005) 3 SCC 764] considered the question as to how and when the assessable value of the manufactured product is to be determined under the Central Excise Act, specifically Section 4 which dealt with "Valuation of excisable goods for the purpose of charging duty of excise". While clause (a) of Section 4(1) spoke of the "value" being the normal price, i.e., the price at which such goods were ordinarily sold by the assessee to a buyer in the course of wholesale trade; clause (b) of Section 4(1) provided that the nearest ascertainable equivalent shall be the "value" of the excisable product for the purpose of charging excise duty. Three circumstances were mentioned in the three provisos to Section 4(1)(a) under which "value could vary". Proviso (i) recognises that in the normal practice the same class of goods could be sold by the assessee at different prices to different classes of buyers; in that event each such price was deemed to be the "normal price" of such goods in relation to such buyers. Proviso (ii) provided that where the goods were sold in wholesale at a price statutorily fixed, then such price was deemed to be the "normal price". Under proviso (iii), where the goods were sold through a "related person" as defined under Section 4(4)(c), the "normal price" was the price at which the goods were sold by the related person in the course of wholesale trade at the time of removal to the dealer. Drawing a distinction between "nature of duty" and "measure of duty", it was held that while the nature of excise duty was indicated by the fact that it was imposed in respect of the manufacture, the point at which it was collected was when the article left the factory gate of the related person. Therefore, it was held that "the article became an object of assessment when it was sold by the manufacturer" (sic); here the related person. It was held that under Section 4(1)(a) it was clear that the Parliament opted for "price as the measure of tax without altering the nature of the levy". The implication of such a transaction where the manufacturer and the buyer were related to each other was found to be that price charged to the related person was presumed to be understated and to dissuade such sales, the legislature introduced such proviso as an anti-evasion measure.

30. Section 5(2) is also an anti-evasion measure and it contemplates the liability to be at that point of sale in the case of sale of manufactured goods other than tea, within the State, (i) made under a trademark/brand name (ii) by a trademark/brand name holder. The sale, hence, should be not only by a trademark/brand name holder, but it should also be under trade/brand name. In the instant case, the sale between the manufacturer and the assessee being between two trade/brand name holders, it cannot be said to be a sale under a trade/brand name. Section 5(2) applies with its full force in such a transaction and deems liability to be, to that sale made by the assessee. The first sale by the manufacturer to the assessee, latter of whom is also a trade / brand name holder is ofcourse sale by a trade/brand name holder, but not a sale under trade / brand name. Hence, the second sale effected by the assessee being again a sale by a trademark/brand name holder and also a sale under trade/brand name, is liable to tax under Section 5(2). We respectfully follow the Division Bench judgments cited above with the additional reasons enumerated in the above discussion. We are unable to sustain the order of the Tribunal confirming the order of the first appellate authority. We answer the questions of law raised by the State with respect to the liability of the assessee under Section 5(2) of the KGST Act in favour of the Revenue and against the assessee. 

In view of the question regarding the classification also being answered holding the product to be classified under the residuary entry; negativing the contention of both the State and the assessee, we partly allow S.T.Rev.Nos.353 of 2006 and 358 of 2006 and allow S.T.Rev.Nos.367 of 2006 and 373 of 2006. 

Sd/- Thottathil B.Radhakrishnan, Judge 

Sd/- K.Vinod Chandran, Judge. 

Vku/- - true copy -   

(2012) 246 KLR 549

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH 

MONDAY, THE 12TH DAY OF MARCH 2012/22ND PHALGUNA 1933 

ST.Rev..No. 157 of 2009 ( ) 

--------------------------- 

AGAINST ORDER IN TA.71/2007 DATED 12/02/2009 of S.T.A.TRIBUNAL,ERNAKULAM 

PETITIONER(S)/APPELLANT/ASSESSEE: 

------------------------------------------------ 

M/S.MGF MOTORS LTD.,ERNAKULAM. 

BY ADVS.SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.ANIL D. NAIR 

RESPONDENT(S)/RESPONDENT/REVENUE: 

-------------------------------- 

STATE OF KERALA. BY MR.BOBBY JOHN, SR. GOVERNMENT PLEADER 

THIS SALES TAX REVISION HAVING COME UP FOR ADMISSION ON 12- 03-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: S.T.REV.NO.157/2009 

APPENDIX 

REVISION PETITIONER'S EXHIBITS 

• ANNEXURE-A : COPY OF ASSESSMENT ORDER FOR 2003-04-GST ISSUED BY THE ASST.COMMISSIONER (ASSMT), CIRCLE-II, ERNAKULAM TO THE PETITIONER DATED 20/04/2005. 
• ANNEXURE-B : COPY OF APPELLATE ORDER ISSUED BY THE DY.COMMISSIONER (APPEALS)-II COMMERCIAL TAXES, ERNAKULAM TO THE PETITIONER DATED 08/12/2006. 
• ANNEXURE-C : COPY OF ORDER ISSUED BY THE SALES TAX TRIBUNAL, ERNAKULAM TO THE PETITIONER DATED 12/02/2009. 

//TRUE COPY// PA TO JUDGE. jg 

C.R. 

C.N.RAMACHANDRAN NAIR & BABU MATHEW P. JOSEPH, JJ. 

.................................................................... 

S.T.Rev.No.157 of 2009 

.................................................................... 

Dated this the 12th day of March, 2012. 

Head Note:-

Kerala General Sales Tax Act, 1963 - Section 2(xxi) and 5 - Whether the replacement of parts of automobile during warranty period without collecting any price for the same from the vehicle owner amounts to sale that attracts sales tax? 

Held:- As a dealer, the petitioner replaces the automobile parts by utilising the stock held by them, either purchased from vehicle manufacturer or from other sources, and then forward the warranty claim to the manufacturer, who issues credit note for the sale price along with the tax, if claimed by the petitioner. So far as the petitioner is concerned, the position is that the transaction is purchase and resale, and even though price of the replaced part is not collected from the vehicle owner, the petitioner gets reimbursement of the value from the manufacturer. So much so, in our view, it is the purchase and sale of spare parts by the petitioner as authorised dealer of the manufacturer and the replacement therefore is resale effected by the petitioner for which payment is received through credit note issued by the manufacturer. So much so, we feel the distinction brought by the petitioner does not justify deviation from the decision of the Supreme Court holding that free replacement of parts during warranty period amounts to sale of such parts. 

J U D G M E N T 

Ramachandran Nair, J. 

The question raised in the revision filed by the assessee is whether the replacement of parts of automobile during warranty period without collecting any price for the same from the vehicle owner amounts to sale that attracts sales tax. 

2. We have heard learned counsel for the petitioner and also learned Senior Government Pleader for the respondent. 

3. The issue stands covered against the petitioner by the decision of the Supreme Court in Mohd. Ekram Khan & Sons v. Commissioner of Trade Tax, U.P., reported in 136 STC 515. However, the learned counsel for the petitioner relied on the Single Bench decision of the Rajasthan High Court in Commercial Tax Officer (Anti-Evasion), Jodhpur v. Marudhara Motors, reported in 2010 (29) VST 114, wherein the Rajasthan High Court after distinguishing the decision of the Honourable Supreme Court held that free replacement of parts of vehicle sourced from the manufacturer of the vehicle does not involve any sale. Learned counsel brought to our notice the distinction in this case also by stating that in the case decided by the Supreme Court the automobile parts replaced were out sourced from other parties and not from the manufacturer of the vehicle; and in that context only the Supreme Court held the transaction as sale attracting tax. According to the learned counsel for the petitioner, manufacturers are bound to replace parts of vehicle free of cost during warranty period, and so much so, the cost of the parts replaced during warranty period should be taken to have been covered by the original value of the vehicle on which tax is paid. 

4. Learned Government Pleader resisted the claim of the petitioner by stating that, on facts, the transaction is a pure sale because manufacturer is not sending parts free of cost for replacement. On the other hand, the system is for the petitioner to purchase spare parts in bulk from the manufacturers and others and stock the same. As a dealer, the petitioner replaces the automobile parts by utilising the stock held by them, either purchased from vehicle manufacturer or from other sources, and then forward the warranty claim to the manufacturer, who issues credit note for the sale price along with the tax, if claimed by the petitioner. So far as the petitioner is concerned, the position is that the transaction is purchase and resale, and even though price of the replaced part is not collected from the vehicle owner, the petitioner gets reimbursement of the value from the manufacturer. So much so, in our view, it is the purchase and sale of spare parts by the petitioner as authorised dealer of the manufacturer and the replacement therefore is resale effected by the petitioner for which payment is received through credit note issued by the manufacturer. So much so, we feel the distinction brought by the petitioner does not justify deviation from the decision of the Supreme Court holding that free replacement of parts during warranty period amounts to sale of such parts. 

Consequently, we dismiss the S.T.Revision case. 

(C.N.RAMACHANDRAN NAIR, JUDGE) (BABU MATHEW P. JOSEPH, JUDGE) jg 

(2012) 255 KLR 200 

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN 

WEDNESDAY, THE 13TH DAY OF JUNE 2012/23RD JYAISHTA 1934 

ST.Rev.No.69 of 2008 

--------------------------------------- 

[AGAINST THE ORDER OF THE KERALA SALES TAX APPELLATE TRIBUNAL, THIRUVANANTHAPURAM IN T.A.NO.336 OF 2005 DATED 28.09.2007 ASSESSMENT YEAR 1998-99 CST] 

--------------------- 

PETITIONER/APPELLANT IN TA:- 

----------------------------------------------- 

SOUTHERN REFINERIES LIMITED, KAWDIAR P.O., THIRUVANANTHAPURAM, REPRESENTED BY ITS MANAGER (FINANCE & MIS), MR.SREEKUMAR. 

BY ADVS.SRI.E.K.NANDAKUMAR (SENIOR ADVOCATE) SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.ANIL D. NAIR 

RESPONDENT/RESPONDENT IN TA:- 

----------------------------------------------------- 

STATE OF KERALA, REPRESENTED BY THE SECRETARY, TAXES DEPARTMENT, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADERSRI.BOBBY JOHN. THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 31/05/2012, THE COURT ON 13/06/2012 PASSED THE FOLLOWING:- 

"C.R." 

Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. 

------------------------------------ 

S.T.Rev.No.69 of 2008 

------------------------------------ 

Dated this, the 13th day of June, 2012 

Head Note:-

Kerala General Sales Act, 1963 - SRO. 1729/1993 read with SRO. 654/1989 - Period of exemption - New Industrial Unit - The power of the authority to grant exemption under the KGST Act for a new industrial unit which was set up prior to 1.4.1993, but after 1.4.1989 was only for a period of five years. The grant of exemption for seven years; to the extent of the additional two years, is definitely in excess of the jurisdiction and again cannot be considered as one of irregular assumption of jurisdiction or an error of law committed within the jurisdictional competence. To the extent of the exemption granted beyond the specific period of five years prescribed under the relevant notification, the same was definitely vitiated by lack of jurisdiction or want of jurisdiction. The authority clearly exceeded the jurisdictional mandate of SRO. 1729/1993 read with SRO. 654/1989. In the circumstances, the assessing officer was perfectly right in confining the exemption to 5 years; since Annexure-A to the extent it granted exemption for the additional two years was a nullity. Therefore, the assessing authority was justified in passing the assessment order under the CST Act rejecting the claim of exemption beyond five years and finding the assessee's claim for concessional rate under the CST Act to be governed under SRO.1731/1993.

O R D E R 

K.Vinod Chandran,J: 

The petitioner is an assessee under the Kerala General Sales Act (for short 'KGST Act') and is aggrieved by the reduction of the period of exemption, by the assessing officer, as confirmed by the first appellate authority and the Tribunal. 

2. The petitioner/assessee is a medium scale industrial unit, which commenced commercial production on 1.9.1993. The petitioner claims to have been granted exemption under SRO.1729/1993 for an amount of Rs.3,66,44,000/- for a period of seven years from 1.9.1993 to 31.08.2000. The petitioner has produced Annexure-A order of exemption dated 24.11.1995 which, along with Annexure-B, shows the eligibility to exemption, the period, quantum and the goods in respect of which exemption is granted. The bone of contention is only with respect to the period of exemption granted as per Annexure-A order. The petitioner claims that Annexure-A exemption order under SRO.1729/1993 prescribes exemption for a period of seven years with respect to the petitioner's liability under the KGST Act, subject however, to the quantum of tax exemption which is also specified in Annexure-A. The present revision is with respect to the CST assessment of the petitioner completed for the year 1998-99. The petitioner claimed on the strength of Annexure- A order that in continuation of SRO.1729/1993 issued under Section 10 of the KGST Act, the Government has issued SRO.1730/1993 under the CST Act granting reduced rate of 2% for inter-State transaction, again for a period of seven years. Admittedly no separate exemption order is required to be passed under the CST Act or the notification issued thereunder. 

3. The assessing officer rejected the claim of the petitioner for grant of exemption under the CST Act for the assessment year 1998-99 on the ground that exemption available to the petitioner as an industrial unit is not under SRO.1730/1993, but is under SRO.1731/1993. SRO.1731/1993 grants the reduction in the rate of tax for industrial units only for a period of five years. 

4. Annexure-E order of assessment, finding the petitioner covered under SRO.1731/1993, was challenged unsuccessfully by the petitioner before the first appellate authority as well as the Tribunal. The petitioner has produced SRO.Nos.1729/1993, 1730/1993 and 1731/1993 respectively as Annexures-C, D and F. The counsel for the petitioner would contend that the definition of a "New Industrial Unit" under medium and large scale industries in SRO.1730/1993 has adopted the definition in SRO.1729/1993. Hence, the exemption granted to the petitioner, Annexure-A, under SRO.1729/1993 for the liability under KGST Act necessarily has to govern the petitioner's liability under the CST Act too; which is intended by the Government under SRO.1730/1993. On the above premise, the petitioner has raised three questions of law, all boiling down to the eligibility of the petitioner under SRO.1730/1993 for concessional rate of 2% on the inter-State transactions for a period of seven years as against the prescription of five years under SRO.1731/1993. 

5. The learned Government Pleader would support the impugned orders and urge before us that the petitioner is only entitled to exemption for a period of five years, being covered under SRO.1731/1993. 

6. Exemption notifications, as is trite, have to be construed strictly. The claim of the petitioner has to be considered with reference to the specific words and concessions/exemptions provided by the notifications. SRO.1729/1993 defines "New Industrial Unit" under clause 11(i) as Small Scale, Medium or Large Scale Industrial Unit set up on or after 1.4.1993 and certified as such by the appropriate authority. It is to be noticed that the specific case of the petitioner in the revision as well as before the lower authorities was that the petitioner's unit had commenced production after 1.4.1993, i.e. on 1.9.1993. Petitioner does not raise a claim as an industry set up on or after 1.4.1993. This distinction would necessarily raise a question as to the eligibility of the petitioner under SRO.1729/1993 and would definitely invite a scrutiny of Annexure-A, exemption order. Annexure-A cites the subject as - "New Medium and large Scale Industrial Units - set up on or after 01/-4-89 - Sales tax Exemption orders issued - regarding". Hence, the petitioner's claim was not considered as a unit set up on or after 1.4.1993, since the petitioner's unit is obviously one set up on or after 1.4.1989, i.e., prior to 1.4.1993, but commenced commercial production on 1.9.1993. Though SRO.1729/1993 is read as item-6 in Annexure-A order, we read as item No-1 SRO.654/1989, which is an earlier notification in 1989 issued to grant exemption in respect of tax payable under the KGST Act on the turnover of the sale of goods produced and sold by New Industrial Units for a period of five years from the date of commencement of sale of such goods. The said notification, though not produced, was perused by us and "New Industrial Unit" as per the said notification was explained as meaning "large and medium undertakings set up on or after 1.4.1989 and registered with the Department of Industries as an industrial unit". The question which perturbed is, as to how a unit which was deemed to have been set up on or after 1.4.1989, i.e., prior to 1.4.1993, was granted exemption under SRO.1729/1993 which specifically granted exemption to industries set up on or after 1.4.1993. 

7. A careful reading of Annexure-C revealed the note under clause 11(i) of SRO.1729/1993, which is extracted below: 

"Medium or Large Scale Industrial Units set up prior to the 1st day of April 1993 and governed by notification GO(P). 94/89/TD dt.27th April 1989 published as SRO No.654/89 in the Kerala Gazette Extraordinary No.396 dated 27th April 1989 and those set up after the 1st day of April, 1993 and governed by notification GO(P) No.155/93/TD dated 3rd November, 1993 published as SRO No.1729/93 in the Kerala Gazette Extraordinary No.1122 dated 4th November, 1993 which were not able to avail of a concession contemplated there in for the reason that they were not registered with the Director of Industries and Commerce, the exemption shall be available for a period of 5 or 7 years as the case may be, with reference to the notification under which concession was/is to be granted, from the date of actual availment of the exemption, subject to the monetary limit applicable. The revised certificate in such cases shall be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram, on application by the units. N.B.: Note added by SRO 178/96 dt.12.2.96 w.e.f. 1.1.94". 

(emphasis supplied)

The note indicates that new industrial units set up prior to 1.4.1993 and governed by SRO.654/1989 and those set up after 1.4.1993 governed by SRO.1729/1993, which were not able to avail of concession/exemption for the reason of their not being registered with the Director of Industries and Commerce, the exemption was specifically made applicable; however, only with reference to the period for which the exemption was granted as contained in the respective notifications. Hence, an industry governed by SRO.654./1989 set up prior to 1.4.1993, having not been able to avail the exemption provided therein (SRO.654/1989) would be entitled to avail the exemption after the publication of SRO.1729/1993, but, however, only for the period stipulated in SRO.654/1989. Annexure-A, as noticed above, would specifically show that SRO.1729/1993 was not as such applicable to the petitioner. It was by virtue of the note extracted above contained in S.R.O.1729/1993 that the petitioner was entitled to seek the exemption under SRO.654/1989. However, the exemption could be only for a period of five years as provided under SRO.654/1989. 

8. This interpretation is in consonance with the concession granted under the CST Act by SRO.1730/1993 and SRO.1731/1993. SRO.1730/1993, as rightly contended by the petitioner, defines "New Industrial Unit" as those defined under SRO.1729/1993. That is to say, those units set up on or after 1.4.1993. It is to the units which are set up on or after 1.4.1993 and entitled to exemption under the KGST Act as per SRO.1729/1993 that SRO.1730/1993 was issued granting concessional rates under the CST Act for a period of seven years. Obviously as found above, the petitioner is not a unit set up on or after 1.4.1993 and is thus not covered by the terms contained in SRO.1729/1993 or by SRO.1730/1993. This brings us to the issue of the entitlement of the petitioner under SRO.1731/1993. At the risk of repetition, we notice that SRO.654/1989 was intended to grant exemption to units set up on or after 1.4.1989, i.e., prior to 1.4.1993. By virtue of SRO.1729/1993, the benefit conferred under SRO.654/1989 was resurrected by virtue of the note in SRO.1729/1993 for those who failed to avail of the concessions earlier for want of registration. Hence, necessarily the Government thought it fit that the benefit under the KGST Act should be extended to the CST Act also by way of concessional rate. While SRO.1730/1993 extended such concessional rate under the CST for those "units set up on or after 1.4.1993", SRO.1731/1993 extended benefit available under SRO.654/1989 and resurrected by the note referred to above by issuance of SRO.1731/1993. This interpretation is amply supported by item-6 in Schedule IV of SRO.1731/1993, which specifically refers to the concessional rate being applicable for a period of five years for "New Large and Medium Scale Industrial Units which started Commercial Production on or after 1.4.1993". The distinction, hence, is with respect to "the units that were set up on or after 1.4.1993", and those "which started commercial production on or after 1.4.1993". The petitioner's unit having been set up prior to 1.4.1993 as is evident from Annexure-A, the benefit of exemption can be conferred only for the period specified under SRO.654/1989 under the KGST Act and the notification which governs the petitioner's claim for concessional rate under the CST Act is SRO.1731/1993. Hence, all the questions of law raised by the petitioner have to be answered against the petitioner and in favour of the Revenue. 

9. Though the petitioner has not raised such a question of law, what troubles us is the fact that Annexure-A has granted exemption for a period of seven years under the KGST Act. No separate exemption order has been contemplated under the CST Act. Could the assessing officer go behind the exemption order and take away the exemption/concession granted or rather reduce the period of exemption/concession granted in Annexure-A and disentitle the petitioner to avail of concessional rates for two years? The position that an assessing officer cannot sit in judgment over the proceeding of an authority granting exemption has been laid down in Deputy Commissioner of Sales Tax, Ernakulam v. Surya Refineries (P) Ltd. [1991 KLJ (Tax Cases) 513]. Necessarily when a competent authority passes an order by virtue of the jurisdiction conferred on it by the statute, the same is valid and applicable, unless set aside, varied or modified in accordance with law. The only caveat would be when the order passed is without jurisdiction. The concept of jurisdiction has two aspects - 

(i) going to the root; in so much as the competence of the authority itself is questioned and 

(ii) when an authority competent to consider the issue exceeds the jurisdiction in the course of the enquiry. 

10. On the question of judicial review with reference to jurisdiction or lack of it a significant break-through in English law was achieved with Anisminic Ltd. v. Foreign Compensation Commission (1969 2 AC 147). The House of Lords for the first time rejected the idea that jurisdiction of a Tribunal or authority could only be questioned in the first instance as to the competence to embark upon an enquiry. It was held that the jurisdictional aspect could be questioned on the competence to conduct an enquiry and also with respect to excesses of jurisdiction committed in the course of such enquiry. The position that an authority conferred with a jurisdiction could make a right determination or a wrong determination was accepted. But that was not to depart from the position that an order in excess of jurisdiction could be deemed to be a nullity. Lord Reid in leading the majority held:- 

"It has sometimes been said that it is only where a tribunal acts without jurisdiction that its decision is a nullity. But in such cases the word "jurisdiction" has been used in a very wide sense, and I have come to the conclusion that it is better not to use the term except in the narrow and original sense of the tribunal being entitled to enter on the inquiry in question. But there are many cases where, although the tribunal had jurisdiction to enter on the inquiry, it has done or failed to do something in the course of the inquiry which is of such a nature that its decision is a nullity. It may have given its decision in bad faith. It may have made a decision which it had no power to make. It may have failed in the course of the inquiry to comply with the requirements of natural justice. It may in perfect good faith have misconstrued the provisions giving it power to act so that it failed to deal with the question remitted to it and decided some question which was not remitted to it. It may have refused to take into account something which it was required to take into account. Or it may have based its decision on some matter which, under the provisions setting it up, it had no right to take into account. I do not intend this list to be exhaustive. But if it decides a question remitted to it for decision without committing any of these errors it is as much entitled to decide that question wrongly as it is to decide it rightly. I understand that some confusion has been caused by my having said in Reg. v. Governor of Brixton Prison, Ex parte Armah [1968] A.C. 192, 234 that if a tribunal has jurisdiction to go right it has jurisdiction to go wrong. So it has, if one uses "jurisdiction" in the narrow original sense. If it is entitled to enter on the inquiry and does not do any of those things which I have mentioned in the course of the proceedings, then its decision is equally valid whether it is right or wrong subject only to the power of the court in certain circumstances to correct an error of law". 

In the said decision the ouster of jurisdiction of courts provided in a statute was considered by the appellate court which reiterated the established principle that a provision ousting the ordinary jurisdiction of the court though must be construed strictly; it should be understood that nevertheless it reserves the ordinary jurisdiction of the court to exercise judicial review where the order passed under the statute was a 'nullity'. A fine distinction was drawn in the errors of law that was committed within the jurisdiction and those errors of law which were beyond or in excess of the jurisdiction. While the former would necessarily have to be corrected by a superior authority or court, Anisminic Ltd., clearly laid down that any error of law committed, which touches upon the very jurisdiction of the authority/tribunal could be considered a nullity.

11. We keep in mind the fine line distinguishing the jurisdictional and non-jurisdictional error. We are also conscious of the contours of our jurisdiction in the above revision. We remind ourselves that we are not sitting in appeal of Annexure-A. We are also not called upon to examine the validity of Annexure-A. The above revision is from the assessment order as confirmed by two appellate authorities and we are examining the question of law whether the assessing officer was right in going behind or ignoring Annexure-A and holding that the exemption is valid for only a period of five years. 

12. Annexure-A order has been passed by the Board of Revenue (Taxes), Thiruvananthapuram, which is the authority conferred with the power to pass an exemption order under SRO.1739/1993. There cannot be any dispute with respect to the competence of the authority and the jurisdiction has been so conferred by the notification. However, looking at the aspect of the authority having exceeded the jurisdiction, it is pertinent that by the specific words employed in SRO.1729/1993 read with SRO.654/1989, the power of the authority to grant exemption under the KGST Act for a new industrial unit which was set up prior to 1.4.1993, but after 1.4.1989 was only for a period of five years. Would that make the order a nullity in so far as the grant for an additional two years? Has not the authority in granting two additional years exceeded its jurisdiction as conferred by the relevant notifications? 

13. A Division Bench of this Court had considered a similar issue arising out of the very same notification, but however, with factual variations in K.Premarajan v. State of Kerala [(2008) 14 VST 202 (Ker)]. The facts relevant to the said decision in brief is that the assessee was granted an exemption order under SRO.1729/1993 by the District Level Committee, effective for the period from 5.7.1997 to 4.7.2002. The assessing officer having alertly detected that the goods dealt with by the assessee falls in the negative list, however, after the period was over, took up the matter with the District Level Committee and also completed the assessment rejecting the claim of exemption. The District Level Committee having reviewed the matter, amended its earlier order and refused exemption to the assessee on the ground that the goods dealt with come within the negative list. The assessee was before the Court challenging the assessment on grounds that the assessing officer was not competent to go behind the order of exemption and that the review of the exemption order by the District Level Committee was incompetent inter alia for the reason that the same was passed after the period of exemption was over, thus disentitling the assessee from passing on the liability to its consumers.  On the strength of precedents, the Division Bench first rejected the contention of the assessee about being disabled to pass on the tax liability and held that the disability of the assessee to pass on the tax burden to its customers cannot be of any consequence. (vide J.K.Jute Mills Co. Ltd. case [(1961) 12 STC 429 (SC)], American Remedies Pvt. Ltd. v. Government of Andhra Pradesh [(1999) 113 STC 400] and State of Rajasthan v. J.K.Udaipur Udyog Ltd. [(2004) 137 STC 438]. 

14. The next contention dealt with by the Division Bench was with respect to the assessing officer going behind the orders of exemption granted by the competent authorities. The Division Bench examined the concepts of "jurisdiction" and "nullity" and found that the instant case was one in which there was a want of jurisdiction and not one of irregular assumption of jurisdiction. Under the notification, in the said case, the District Level committee was authorised to determine whether a particular assessee is eligible or not for the grant of exemption under the notification. However, the goods being dealt with by the assessee, falling specifically under the negative list, it was held, the District Level committee did not have jurisdiction to entertain such an application. The jurisdiction conferred on the District Level Committee did not extend to the goods in the negative list and excluded the same and an order granting it would be in excess of the jurisdiction conferred. The Division Bench judgment in Premarajan's case (supra) is clearly distinguishable from Surya Refineries case (supra) in so far as the finding in the exemption certificate in the latter case was one within the jurisdiction of the authority. 

15. We are of the opinion that the same reasoning in Premarajan's case (supra), however in a different context can be adopted for the present revision. In the matter of industries set up on or after 1.4.1989 and prior to 1.4.1993, the competent authority was conferred jurisdiction as per the notifications on a combined reading of SRO.1729/1993 and SRO.654/1989. But the said jurisdiction extended to grant of exemption only for a period of five years. The grant of exemption for seven years; to the extent of the additional two years, is definitely in excess of the jurisdiction and again cannot be considered as one of irregular assumption of jurisdiction or an error of law committed within the jurisdictional competence. To the extent of the exemption granted beyond the specific period of five years prescribed under the relevant notification, the same was definitely vitiated by lack of jurisdiction or want of jurisdiction. The authority clearly exceeded the jurisdictional mandate of SRO. 1729/1993 read with SRO. 654/1989. In the circumstances, the assessing officer was perfectly right in confining the exemption to 5 years; since Annexure-A to the extent it granted exemption for the additional two years was a nullity. Therefore, the assessing authority was justified in passing the assessment order under the CST Act rejecting the claim of exemption beyond five years and finding the assessee's claim for concessional rate under the CST Act to be governed under SRO.1731/1993. The question of law suo motu raised by us is also answered in favour of the Revenue and against the assessee. 

All the questions of law, hence, are answered against the assessee and in favour of the Revenue and the Sales Tax Revision is dismissed. 

Sd/- Thottathil B.Radhakrishnan Judge 

Sd/- K.Vinod Chandran Judge. 

vku/ - true copy - 

M/S. T O C DISINFECTANT LTD.,(NOW KNOWN AS HINDUSTAN UNILEVER LTD),WILLINGDON ISLAND KOCHI-3,REPRESENTED BY ITS ASISTANT LEGEL MANAGER MR.G.S.SRINIVASA RAO. 

BY ADVS.SRI.P.RADHAKRISHNAN (1) SRI.MADHU RADHAKRISHNAN SRI.NELSON JOSEPH 

STATE OF KERALA REPRESENTED BY THE SECRETARY TAXES DEPARTMENT, THIRUVANANTHAPURAM. 

BY SR. GOVERNMENT PLEADER, MR.BOBBY JOHN 

• ANNEXURE-A : COPY OF ASSESSMENT ORDER FOR 2004-05 KGST ISSUED BY THE ASSISTANT COMMISSIONER (ASSMT), SPECIAL CIRCLE, MATTANCHERRY TO THE PETITIONER DATED 30/11/2005. 
• ANNEXURE-B : COPY OF ORDER ISSUED BY THE DY.COMMISSIONER OF COMMERCIAL TAXES (APPEALS), ERNAKULAM TO THE PETITIONER DATED 15/09/2008. 
• ANNEXURE-C : COPY OF ORDER ISSUED BY THE SALES TAX APPELLATE TRIBUNAL, ERNAKULAM TO THE PETITIONER DATED 15/12/2009. 

"Entry 51, First Schedule :- Detergent powder, flakes and liquids and all kinds of cleaning powder and liquids and laundry brightners."