P.C. Balakrishna Menon, J.
1. This batch of tax revision cases by the State of Kerala is against the common order of the Kerala Sales Tax Appellate Tribunal, Ernakulam, in sales tax appeals by the assessee, the Indian Oil Corporation Ltd., Ernakulam, relating to its assessment for the assessment years 1970-71 to 1973-74. The main point urged by the Senior Government Pleader Shri T. Karunakaran Nambiar is against the finding of the Tribunal that the purchase turnover of petroleum products is not exigible to tax under Section 5A. of the Kerala General Sales Tax Act, 1963, for short the Act.
2. The original assessment orders for the assessment years 1970-71 and 1971-72 brought to tax the purchase turnover of petroleum products purchased by the assessee from the Cochin Refineries Ltd. and despatched to depots outside the State for the purpose of sale. The assessee had no complaint against the inclusion of the purchase turnover and the tax assessed was duly paid. The assessing authority, after issue of notice of reopening, passed orders of reassessment under Section 19 of the Act on 24th January, 1975, bringing to tax the purchase turnover of petroleum products exported to countries outside India omitted to be included in the original orders of assessment. The appellate authority confirmed the orders of reassessment. The assessee appealed against these orders of the appellate authority to the Tribunal as T. A. Nos. 1190 and 1191 of 1975.
3. For the year 1972-73 also the assessing authority had brought to tax the purchase turnover of petroleum products despatched to depots outside the State. The assessee had no dispute about the exigibility to tax on the purchase turnover. It had, however, disputed the taxability of the turnover relating to asphalt exported to countries outside India. There was also dispute relating to the rate of tax on the turnover of naphtha sold by the assessee to the F. A.C.T. and also about the taxability of the purchase turnover of petrol consumed for own use. The assessing authority overruling the objections of the assessee brought to tax not merely the purchase turnover of petroleum products despatched to depots outside the State, but also the purchase turnover relating to petrol used for own consumption. The claim for concessional rate of tax on naphtha sold by the assessee to the F.A.C.T. was not allowed. The purchase turnover of asphalt was also brought to tax. In appeal at the instance of the assessee the appellate authority found that the assessee is entitled to the concessional rate of tax with respect to the sales turnover of naphtha sold to the F.A.C.T. The contention that the purchase turnover of asphalt exported outside India and of petrol used for own consumption is not exigible to tax was negatived. The assessee took up the matter in appeal to the Tribunal as T. A. No. 1093 of 1978.
4. There was no dispute relating to the exigibility to tax on the purchase turnover of petroleum products despatched to depots outside the State during the year 1973-74 also. The points raised in the assessment proceedings for the year 1973-74 related to (1) the rate of tax on the sales turnover of naphtha sold to the F.A.C.T., (2) the taxability of the sales turnover of crude oil imported by the assessee and sold to the Cochin Refineries Ltd. and (3) the exigibility to tax on the purchase turnover of petrol used for own consumption. The assessing authority did not accept any of the contentions of the assessee and an order of assessment was passed on 17th October, 1977. In appeal the appellate authority allowed the concessional rate of tax with respect to sales turnover of naphtha and also held that the sales turnover of crude oil imported and sold to Cochin Refineries Ltd. is not exigible to tax. The assessee was, however, held liable to tax on the purchase turnover of petrol used for own consumption. The assessee appealed to the Tribunal as T.A. No. 396 of 1978.
5. The assessing authority after issue of notice to the assessee passed an order of reassessment under Section 19 of the Act for the period 1973-74 bringing to tax the purchase turnover of petroleum products exported outside India overruling the objection of the assessee that the purchase turnover is not exigible to tax under the Act. The decision of the assessing authority was confirmed in appeal at the instance of the assessee and the assessee took up the matter in further appeal to the Tribunal as T.A. No. 1094 of 1978. T.R.C. No. 14 of 1986 is against T.A. No. 1190 of 1975, T.R.C. No. 17 of 1986 is against T.A. No. 1191 of 1976, T.R.C. No. 19 of 1986 is against T.A. No. 1093 of 1976, T.R.C. No. 18 of 1986 is against T.A. No. 396 of 1978 and T.R.C. No. 20 of 1986 is against T.A. No. 1094 of 1978.
6. The Tribunal by a common order dated 10th July, 1985, held, that the purchase turnover of petroleum products sold by the Cochin Refineries to the assessee is not exigible to tax under Section 5A of the Act for the reason of the exclusion of tax on sales of petroleum products by one oil company to another as contained in Schedule I of the Act. In the view that it took relating to the exigibility to tax of the purchase turnover, the Tribunal held it unnecessary to consider whether the purchase turnover relating to petroleum products exported by the assessee to countries outside India is exigible to purchase tax. The Tribunal found that asphalt is a commodity exempted from taxation as per notification issued by the Government and the sales turnover relating to the same is not exigible to tax. It is also found that the purchase turnover of petrol used for own consumption by the assessee is not liable to tax for the reason that such use of petrol cannot be said to be in the course of business within the meaning of Section 5A of the Act.
7. We are in agreement with the finding of the Tribunal that the purchase turnover of petrol used for own consumption by the assessee cannot be brought to tax under Section 5A of the Act for the reason that such purchase for use by the company and its officers cannot be said to be in the course of 'business' as defined in Section 2(vi) of the Act as it stood at the relevant time. We have also perused the notification S.R.O. No. 11/68 dated 28th December, 1967, published in the Kerala Gazette dated 9th January, 1968. The notification is under Section 10 of the Act exempting the sale of asphalt or bitumen by the Cochin Refineries Ltd. to the Indian Oil Corporation Ltd. and by the latter to any other oil company as defined in the explanation to entries 57A to 57G of the schedule I of the Act. Counsel for the assessee Shri T.L. Viswanatha Iyer submits that the notification affords a total exemption for the sale of asphalt and where the exemption is total, there is no question of the purchase turnover being brought to tax. The learned Senior Government Pleader Shri T. Karunakaran Nambiar urges that the exemption under the notification cannot be held to be total. If it is a total exemption, there can be no doubt that the purchase turnover cannot be brought to tax in view of the decision of this Court in T.S. Govindarajulu Naidu v. State of Kerala [1979] 43 STC 233. It is also brought to our notice that the purchase turnover relating to asphalt relates only to one year and it is of a comparatively small amount. We are satisfied that the exemption under the notification is total with respect to asphalt and the Tribunal is perfectly right in holding that the purchase turnover relating to the same is not exigible to tax.
8. The principal question, as earlier stated, is as to whether the purchase turnover of petroleum products purchased by the assessee, the Indian Oil Corporation Ltd. from the Cochin Oil Refineries Ltd. is exigible to tax under Section 5A of the Act. Section 5A was introduced by Section 3 of the Amending Act 14 of 1970 with effect from 1st April, 1970, with the object of bringing to tax transactions of purchase where no tax is payable under Section 5 of the Act provided that one or the other of the conditions mentioned in Clauses (a) to (c) is satisfied. The tax payable under Section 5A is on the purchase turnover at the rates mentioned in Section 5. The rates and the points at which tax under Section 5 is to be levied are as provided for in Schedules I and II of the Act and at a flat rate at every point in respect of goods not specified in either of the Schedules. Section 9 of the Act exempts the sale or purchase of the goods mentioned in the Schedule III from liability to tax under the Act. Section 10 empowers the Government in the public interest by notification in the Gazette to make exemptions or reduction in rate of tax payable under the Act. Items 57A to 57G in Schedule I of the Act as it stood at the relevant period relate to petroleum products. The schedule gives the rate of taxation of these items and the point at which tax is leviable under Section 5 of the Act. The relevant entry in column 3 of the Schedule is extracted below :-
At the point of sale in the State by any oil company liable to tax under Section 5, except where the sale is by any oil company to another oil company
An explanation to the above entry reads as follows:-
For the purposes of serial numbers 57A, 57B, 57C, 57D, 57E, 57F and 57G, 'oil company' means Cochin Refineries Limited, Indian Oil Corporation Limited, Burmah-Shell Oil Storage and Distributing Company of India Limited, Caltex (India) Limited, Esso Standard Eastern Incorporated, Indo-Burmah Petroleum Company Limited and includes such other company as the Government may from time to time, by notification in the Gazette, specify in this behalf
The contention of counsel for the assessee Shri Viswanatha Iyer is that since the purchase turnover of petroleum products involved in these cases relates to the goods of the description mentioned in entries 57A to 57G sold by the Cochin Refineries Ltd. to the assessee-company, namely, the Indian Oil Corporation Ltd., the purchase turnover is totally excluded from taxation under the Act and such exclusion is on a par with the exclusion of the items in Schedule III under Section 9 of the Act. Counsel relies on the following observations of the Supreme Court in A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SC) at page 574 to bring out the distinction between an exclusion from taxation and an exemption by notification issued under the Act:
There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether
We find it however difficult to accept the proposition that the entry in column 3 against items 57A to 57G of the First Schedule quoted above is an exclusion from taxation under the Act. Schedule I is geared to Section 5 and the points at which tax is to be levied under Section 5 are provided for in the said schedule. Section 5A intended to bring to tax transactions not falling under Section 5 to the tax net adopts only the rates mentioned in the schedule and not the points at which tax is payable. Since Section 5A brings the purchase turnover to tax, there is also no need to mention any other point of taxation as the section itself imposes the tax at the purchase point. What is exempted as per the entry in column 3 of the First Schedule quoted above is the taxation at the point of sale where the sale is by one oil company to another. In considering the question of liability to tax under Section 5A, there is no question of any tax at the point of sale, the liability is at the purchase point and the tax is on the purchase turnover in respect of goods falling under categories (a), (b) or (c) mentioned therein. The exemption of sale from one oil company to another from taxation cannot, therefore, apply to the levy of tax on the purchase turnover under Section 5A of the Act. Construing Section 5A of the Act Subramonian Poti, J., as he then was, stated at page 554 in Malabar Fruit Products Co. v. Sales Tax Officer [1972] 30 STC 537 (Ker.).
Though normally a sale by a registered dealer or by a dealer attracts tax, there may be circumstances under which the seller may not be liable as, for example, when his turnover is below the specified minimum. In such cases the 'goods' are liable to be taxed, but the sales take place in circumstances in which no tax is payable at the point at which tax is levied under the Act. If the goods are not available in the State for subsequent taxation by reason of one or other of the circumstances mentioned in Clauses (a), (b) and (c) of Section 5A(1) of the Act, then the purchaser is sought to be made liable under Section 5A. Yet another instance is where, in the hands of the seller, whether he be a registered dealer or non-registered dealer, the tax is not due on the sales. This may be the case where some particular classes of sellers are exempted in regard to the sale of certain goods though persons of other class may not be entitled to the same exemption on the sales of the same commodity. As an example may be cited, the case of a turnover relating to sale of goods other than those specified in the First or Second Schedule to the Act by wholesale co-operative societies in the State to the primary co-operative societies who are members of the wholesale co-operative societies. The goods sold may be taxable at multipoint of sales, the turnover of the seller may exceed the minimum but the sales by the wholesale co-operative societies are exempted under the notification made under Section 10. This is a case where the goods are taxable, but in the hands of the seller A it is not taxable and, therefore, in the hands of B it could be taxed at the point of purchase provided other conditions to attract Section 5A(1) are present
In Yusuf Shabeer v. State of Kerala [1973] 32 STC 359 a Division Bench of this Court held that Section 5A is itself a charging section quite apart from Section 5 and the charges under both the sections cannot be said to be one and the same. It is stated at page 363 :
It is not possible to accept the argument that Section 5A is subject to Section 5. So what has to be ascertained is whether the sales of the particular goods are generally taxable under the Act and not whether the particular sales of those goods are taxable. The question to be posed is whether the Act imposes a tax on the sale or purchase of the goods which have been purchased by a dealer. If the Act purported to tax the sale or purchase of such goods, the further question may arise whether in given circumstances such sales could or could not be taxed. Our attention was drawn to the decision of the Madras High Court in M. K. Kandaswami v. State of Tamil Nadu [1971] 28 STC 227. With very great respect to the learned Judges we have to say that the decision has failed to give due weight to the words of the section 'goods, the sale or purchase of which is liable to tax under the Act, in circumstances in which no tax is payable under the Act'. Though the sale of the particular kind of goods are taxable, when the sale of the same goods is effected by a particular dealer, that particular sale by him may not be taxable. It is in those circumstances that Section 5A would be attracted
The decision in Kandaswami's case [1971] 28 STC 227 (Mad.) referred to in the above passage was reversed by the Supreme Court in the decision reported in State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC). The Supreme Court construes the expression 'goods, the sale or purchase of which is liable to tax under the Act' occurring in Section 7-A of the Madras Act corresponding to Section 5A of the Kerala Act as-relating to the character and class of goods in relation to their exigibility and a charge under the section is held to be independent of the charge under Section 3 of the Madras Act. Referring to the decision of this Court in Malabar Fruit Products Co's case [1972] 30 STC 537 and Yusuf case [1973] 32 STC 359 the Supreme Court states at page 201 :
In our opinion, the Kerala High Court has correctly construed Section 5A of the Kerala Act which is in pari materia with the impugned Section 7-A of the Madras Act. 'Goods, the sale or purchase of which is liable to tax under this Act' in Section 7-A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that Section 7-A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act have not, due to the circumstances of particular sales, suffered tax under Section 3, 4 or 5 and which after the purchase, have been dealt by him in any of the modes indicated in Clauses (a), (b) and (c) of Section 7-A(1)
Applying the same principle a Division Bench of this Court in Deputy Commissioner of Sales Tax v. International Fisheries Ltd. [1981] 48 STC 409 held that even though the turnover in respect of water sold'by a municipal corporation is not liable to tax under Section 5 by virtue of a notification issued by the Government under Section 10(1) of the Act, the purchase turnover is liable to tax in the hands of the assessee under Section 5A of the Act. An earlier decision of a Division Bench of this Court in T. S. Govindarajulu Naidu v. State of Kerala [1979] 43 STC 233 was distinguished as relating to a total exemption of synthetic gems dealt with therein as per notification issued by the Government under Section 10 of the Act. The purchase turnover of water is held exigible to tax under Section 5A for the reason stated at page 411:
Water is taxable and continues to be taxable notwithstanding the exemption. That is because water sold by any one other than those who fall within the exempted class would be liable to be taxed under the Act
9. We have already found that the exemption or the exclusion contained in the entry in Schedule I related only to the point of taxation under Section 5 when the sale is by one oil company to another. It does not relate either to the point of taxation under Section 5A or the exigibility of the purchase turnover to tax in the hands of the purchasing dealer. We, therefore, hold that the purchase turnover of petroleum products is taxable at the hands of the assessee if any of the conditions in Clauses (a), (b) or (c) of Section 5A(1) is satisfied.
10. The learned Senior Government Pleader Shri Karunakaran Nambiar submits that the despatch of petroleum products purchased by the assessee to its depots outside the State for the purpose of sale outside the State would squarely fall under Clauses (b) and (c) of Section 5A(1). The assessee had not questioned its liability to tax under Section 5A(1) on the purchase turnover of the goods despatched to places outside the State. In fact, the assessee had all these years suffered the tax and had not appealed against the imposition of tax on such purchase turnover. The learned Government Pleader rightly points out that for the reason of the decision of the Tribunal that the purchase turnover in respect of all sales by the Cochin Refineries Ltd. to the assessee are totally exempt from taxation, the State stands the risk of losing large amounts of revenue running to several crores by way of tax on the purchase turnover of petroleum products despatched by the assessee to its own depots outside the State for the purpose of sale outside the State. We see great force in this submission. The Tribunal was not really concerned in the appeals before it with the question of exigibility to tax of the purchase turnover of goods despatched to places outside the State. It was concerned only with the question as to whether the purchase turnover of petroleum products purchased by the assessee from the Cochin Refineries Ltd. and exported to countries outs ide India is exigible to tax under Section 5A of the Act. In the view that the Tribunal took that the purchase turnover is not taxable at all, it has not considered the question with particular reference to the goods exported to countries outside India. The Tribunal was, however, right in its view that the exigibility to tax of the purchase turnover of exported goods is similar to the purchase turnover of goods despatched to places outside the State.
11. Counsel for the assessee submits that in regard to the purchase turnover of petroleum products exported to countries outside India, Section 5A is not attracted for the reason that the sale is within the State. The argument is based on explanation (4) to Section 2(xxi) of the Act. Section 2(xxi) defines the expression 'sale' to mean every transfer'of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge. Clause (a) of explanation (4) reads :
The sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State, wherever the contract of sale or purchase might have been made, if the goods are within the State,--
(i) in the case of specific or ascertained goods at the time the contract of sale or purchase is made ; and
(ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of- 'sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation.
Counsel submits that even though the goods exported cannot be said to be specific or ascertained goods, it will nevertheless fall under Sub-clause (ii) and the sale for the purpose of the Act is complete when the goods are ascertained and appropriated to the contract of sale by export by the seller even though the assent of the purchasing party is subsequent to such appropriation. Counsel relies on two decisions of the Madras High Court reported in Thangiah Nadar v. State of Tamil Nadu [1980] 46 STC 67 and Sankaralinga Nadar v. Commissioner for Commercial Taxes [1982] 49 STC 302 in support of this proposition. After quoting the relevant explanation to Section 2(n) of the Madras Act defining the expression 'sale' a Division Bench of the Madras High Court in Thangiah Nadar's case [1980] 46 STC 67 stated at page 70:
This explanation deals with two kinds of cases. The first category is of specific or ascertained goods which were within the State at the time the contract of sale was entered into. The contract of sale is the one which is relevant in the case of a dealer who is sought to be assessed. In the present case, the contract of sale would thus be the export sale. In such a case, if the specific or ascertained goods were within the State, at the time of the contract, then they would be deemed to be local sales. Even in the case of unascertained or future goods, if at the time of the appropriation to the contract, by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation, the goods were in this State, the sale would be a local sale. It cannot be in dispute that in the present case, the goods were in the State either at the time when the contract was made or at any rate at the time when the appropriation was effected, namely, at the time of the consignment to the foreign country. So, the explanation deems it to be a local sale. This explanation would have to be applied even for construing the words 'sale in the State' in Section 7-A. So read, it would be clear that in the present case there was a sale within the State. It may be that due to the constitutional prohibition against taxing an export sale the State Government would not be in a position to tax the sale. But so long as the definition provision read with Section 7-A showed that it was only a local sale, it would follow that for the purpose of Clause (b) of Sub-section (1) of Section 7-A also, it would be a local sale. In other words, as there was a local sale in the State under the provisions of the Act, then Section 7-A would not be attracted. The fact that it occasioned the export would be irrelevant in this context.
The decision in SonkaralingaNodor's case [1982] 49 STC 302 (Mad.) follows the earlier decision of the same Bench in Thangiah Nadar's case [1980] 46 STC 67 (Mad.) and holds that for'the reason of the exclusion of Clause (b), the entire Section 7-A is excluded. It is stated at page 303 :
We considered a more or less identical case in P.P.M. Thangiah Nadar y. State of Tamil Nadu (T. C. No. 220 of 1977) [1980] 46 STC 67 (Mad.) and the arguments addressed in that case cover the contentions taken in the present appeal also. Except for the difference in the figures, there is no difference in the facts. For the reasons stated in our judgment in the said T. C. No. 220 of 1977 (P. P. M. Thangiah Nadar v. State of Tamil Nadu) [1980] 46 STC 67 (Mad.), we hold that the provisions Of Section 7-A do not apply to the facts here, because these transactions do not satisfy one of the two tests or conditions prescribed in Section 7-A. The transactions in the present case, though they are export sales, are 'inside sales' within the meaning of the Act. In these circumstances, Section 7-A(1)(b) of the Act was not satisfied and therefore the transactions are not liable to be brought within the scope of Section 7-A.
In Thangiah Nadar's case [1980] 46 STC 67 (Mad.) it is stated at page 69 that there was no dispute that Clauses (a) and (c) do not apply to the facts of that case. The only question that the Division Bench of the Madras High Court was concerned with in Thangiah Nadar's case [1980] 46 STC 67 was whether for the reason of the explanation to Section 2(n) an export sale can be considered to be a sale within the meaning of Clause (b) of Section 7-A of the Madras Act. In the subsequent decision in Sankaralinga Nadar's case [1982] 49 STC 302 (Mad.) even though the Bench was concerned only with Clause (b) of Section 7-A(1), it went further and said that for the reason of exclusion of Clause (b), the entire Section 7-A is excluded. We find it difficult to agree with the conclusion of the Madras High Court that for the reason of the exclusion of Clause (b), Clauses (a) and (c) are also excluded. It is not necessary for us for the purpose of this case to consider whether the export sales concerned can be deemed to be sales inside the State within the meaning of the expression 'sale' read along with explanation (4). The export sales in the present case would clearly fall under Clause (c) of Section 5A(1) as the goods purchased were despatched to places outside the State and such despatch was not as a direct result of sale or purchase in the course of inter-State trade or commerce. On satisfaction of any one of the conditions in Clauses (a), (b) or (c) Section 5A is attracted and the purchase turnover is exigible to tax at the rates specified in Section 5. The incidence of tax is at the point of purchase under Section 5A. The incidence under Section 5 is at different points mentioned in Schedules I and II. Even if, therefore, it is to be deemed that there is a sale within the State for the reason of explanation (4) to Section 2(xxi), Clause (c) of Section 5A(1) will be attracted if the goods purchased are despatched to places outside the State otherwise than in the course of inter-State trade or commerce. We are, therefore, clearly of the view that Section 5A is attracted to bring the purchase turnover relating to export sales to tax in the present case. The same Bench of the Madras High Court in Ponnu Saw Mills v. State of Tamil Nadu [1980] 45 STC 291 rejected the argument that Clause (c) of Section 7-A(1) of the Madras Act cannot apply to export sales. It is stated at page 293 :
Clause (c) of Sub-section (1) of Section 7-A of the Act contemplates despatches of the goods to a place outside the State. So long as the goods leave the boundaries of the State, then whatever be their destination, they will fall within Clause (c). Where the sale or purchase takes place in the course of inter-State trade or commerce, then there could be no purchase tax. That is a specific category excluded from purchase tax levy. The export sales as here have not been so excluded.
We have in a recent decision in T. R. C. Nos. 76 and 77 of 1981 [Jamnadas Ramkissan Das and Co. v. State of Kerala [1987] 64 STC 155 (Ker.)] held that export of goods to countries outside India would fall under Clause (c) of Section 5A(1).of the Act. We are, therefore, clearly of the view that the purchase turnover relating to petroleum products despatched by way of export to countries outside India would squarely fall under Section 5A and is exigible to tax under the Act.
12. We, therefore, allow T. R. C. Nos. 14 and 17 of 1986 and restore the orders of the Deputy Commissioner (Appeals). T. R. C. No. 20 of 1986 is also allowed and setting aside the order of the Tribunal to the extent it relates to the purchase turnover of petroleum products exported to countries outside India, we sustain the levy of tax on the said purchase turnover. T. R. C. Nos. 18 and 19 of 1986 are dismissed. There will be no order as to costs.
Counsel for the assessee prays for leave to appeal to the Supreme Court against the judgment in T. R. C. Nos. 14, 17 and 20 of 1986. We see no substantial question of law of general importance that needs to be decided by the Supreme Court. The prayer for leave is accordingly rejected.