No

No. J4. 10164/93/TX Office of the Board of Revenue

(Taxes), Thiruvananthapuram,

Dt. 2.3.1995

Ciruclar No. 4/95

Sub: K.G.S.T. Act 1963 – Section 5 (2A) levy of Turnover tax on tax collection –Impact of the decision of the Kerala High Court in Deputy Commissioner
(Law) Vs. Canara Work shop Limited – Instructions issued-

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The Hon’ble High Court of Kerala in Deputy Commissioner (Law) V. Canara Work Shop Limited reported in (1994) 2 KTR. 359 (Ker), (1994) 95 STC 507 and (1994) KLJ (Tax cases) 499, interpreting the language of Clause (1) of the Proviso to Section 5 (2A), as it stood prior to 19.2.1988, which read:

“Provided that no tax under this Sub Section shall be payable on that part of such turnover.

(1) on which tax is leviable on such dealer under Sub-Section (1) or Sub Section (2)”, held :

“The language of the proviso to section 5 (2A) is very clear. It makes a clear difference between tax which is leviable and tax which is payable. What is excluded is the turnover on which ta is leviable under Sub-section (1) and (2) of Section 5. Such tax is clearly leviable under Section 5(1) and 5(2) on the turnover of goods forming part of Schedules I and V consisting of first sales or last purchases. On such turnover, which would necessarily include the Sales Tax collected on it, no turnover tax is payable. Therefore, what is excluded is the entire turnover which is subjected to sales tax under Section 5 (1) and 5(2) and not only a part of it which is taxable.”

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“What is subjected to turnover tax is the entire turnover. Ordinarily such turnover would have included Sales Tax also. But, by virtue of proviso (1) those turnover which are subject to sales tax are exempted from turnover tax. Therefore, it is in respect of those sales or purchases which are not subjected to Sales Tax that a turnover tax is levied. In these circumstances, there can be no need at all for expressly excluding Sales Tax from turnover for the purpose of turnover tax, because by the very Scheme of Section 5 (2A), when sales forms part of the turnover, that turnover is not subjected to turnover for the purpose of turnover tax, because by the very Scheme of Section 5(2A), when sales tax forms part of the turnover, that turnover is not subjected to turnover tax.”

2. But the Hon’ be High Court categorically held, relying on the Supreme Court decisions in M/s. George Oakes (Pvt) Ltd., Vs. State of Madras (12 STC. 476 SC.), State of Kerala Vs. N. Ramaswamy Iyer and Sons (18 STC 1 S.C.), Anand Swarup Maheshkumar Vs. Commissioner of Income Tax (46.STC. 477 S.C.) and in Central Wines Vs. Spl. Commercial Tax Officer (65 STC. 48) that turnover for the purpose of levy of turnover tax would include sales tax which may have been collected by a dealer from his customer along with the price of the goods sold (para 14 of the decision). The following observation of the Court is relevant:

“In fact the definition of “turnover” under section 2 (xxvii) clearly provides that turnover means the aggregate amount for which goods are either bought or sold. The aggregate amount would clearly include the Sales Tax also. Section 5 (2A) which levies turnover tax forms part of the same section which levies Sales Tax and there is no reason for us to hold that the term “turnover” has a different meaning for the purpose of turnover tax. Undoubtedly, for the purposes of levy of Sales Tax under Sections 5 (1) and 5 (2) the Sales Tax collected is excluded from the taxable turnover by virtue of rule 9 set out therein. Rule 9, however, does not come into operation as far as Section 5 (2A) is concerned. In fact, the concept of taxable turnover is absent from Section 5 (2A). What Section 5 (2A) provides is that a turnover tax is to be paid by every dealer on the turnover of goods specified in that Sub-Section.”

3. In the light of the above decision, turnover tax would be payable on Sales Tax collection also wherever turnover tax is charged on the turnover on which tax under Section 5 (1) or (2) is levied.

4. The Proviso to Sub-Section (2A) of Section 5 has undergone the following changes since 1987:

(i) By the K.G.S.T. Act 1988 (Act 6 of 88), the clause was substituted as follows:

(ii) On which tax is leviable on such dealer under Sub-section (1) or Sub-Section (2), except in the case of rubber excluding synthetic rubber, tea, pepper, arecanut and dried ginger”.

(iii) By the Kerala Finance Act, 1989, the clause was again substituted as follows.

“(i) on which tax is leviable under Subsection (i) or Subsection (2), on such dealer other than Oil Company, referred to have, except in the case of rubber, excluding synthetic rubber, tea, pepper, arecanut and dried ginger.”

(iv) By the Kerala Finance Act, 1991, the clause was further Substituted as follows (with effect from 1.8.91): “(1) on which tax is leviable under Sub-Section (1) or Sub Section (2) on such dealer other than an Oil Company and a dealer in foreign liquor and liquor other than arrack and toddy referred to above or a dealer in rubber, excluding synthetic rubber, tea, pepper, arecanut and dried ginger.”

(v) By the Kerala Finance Act, 1992, clause (1) was omitted.

5. On account of the above amendments and in the light of the decision in Canara Work Shop’s case, the liability or otherwise to pay turnover tax on tax collection will be as follows:

(a) From 1-7-87 to 19-2-88, no turnover tax is payable on tax collection.

The State has however filed SLP in the Supreme Court against the said decision. Pending decision in the S.L.P. all assessing authorities will complete the assessments on the basis of the present decision. In cases where first appeals are pending and the amount involved is substantial, the first appellate authorities may keep the appeal pending. In cases where the amount involved is not substantial, the first appellate authorities may dispose of the appeals on the basis of the decision in Canara Work Shop’s case and the assessing authority may prefer 2^nd appeals. In all cases where 2^nd appeals are pending the Law Officers may seek deferment of the case under the proviso to Section 39 (4) of the Act.

(b) From 19-2-88 to 31-3-1989, the following commodities Viz. rubber excluding synthetic rubber, tea, pepper, arecanut and dried ginger have been specifically excluded from the operation of clause (1) of the proviso to Subsection (2A) of Section 5. Of these except tea, all the other commodities are taxable at the purchase point. As such there will not be any tax collection. In the case of tea, as per notification SRO. 714/88 dt. 16-6-88, an exemption has been granted in respect of turnover tax, payable on the turnover of tea at all points other than the point of 2^nd sale in the State with effect from 1-7-1987. As such the position of law with regard to Sales Tax collection at the point of first sale will be the same as given in (a) above.

(c) From 1-4-1989, turnover tax is payable by oil companies irrespective of whether the sale is taxable under Section. 5(1) or (2) of the Act or not. As such turnover tax is payable only by oil companies on Sales Tax collection.

(d) From 1-8-1991 onwards turnover tax has been made applicable to a dealer in foreign liquor and liquor other than arrack and toddy at all points of sales. So turnover tax will be payable on tax collected on liquor by such dealers also.

(e) From 1-4-1992 onwards, since clause (i) to the proviso to Sub Section (2A) of Section 5 has been omitted, wherever turnover tax is payable on the turnover subject to tax either under Section. 5(1) or 5(2) of the Act, turnover tax will be payable on tax collection as well.

(f) From 1-4-1993 onwards, turnover tax is payable only by oil companies and dealers in foreign liquor and liquor other than arrack and toddy turnover tax as payable on tax collection also. All the Officers shall bear in mind the above position of law and act accordingly.

The Deputy Commissioners shall acknowledge the receipt of this circular and obtain acknowledgement from their subordinate.

Sd/-

Secretary (Taxes) – II