Judgment:
G. Sivarajan, J.
1. Revenue is the revision-petitioner. The asses-see, a small-scale industrial unit, engaged in the manufacture and sale of plastic film capacitors, is the respondent. The assessment year concerned is 1995-96. During the relevant assessment year, the respondent assessee was entitled to the benefit of tax exemption provided under Notification S.R.O. No. 1729/93. The assessee purchased certain electronic goods for use in the manufacture of plastic film capacitors by issuing declaration in form No. 18 provided under Section 5(3) of the Kerala General Sales Tax Act, 1963. The assessee, in fact, used the electronic goods so purchased for manufacture of plastic film capacitors and the end-product, namely, plastic film capacitors were sold inside the State to various customers. However, the assessee did not collect any sales tax from the said customers since it was entitled to tax concession as per the eligibility certificate issued by the competent authority under the notification.
2. In the assessment year 1995-96, the assessing authority, while completing the assessment, sought to collect the differential rate of tax from the assessee by resorting to Section 5(3)(ii) of the Act which was introduced with effect from July 29, 1993 on the ground that the assessee failed to make use of the electronic goods purchased by issuing form No. 18 declaration for the purpose for which the declaration was furnished. The assessee, inter alia, had challenged the said levy in appeal before the Additional Appellate Assistant Commissioner, A.I.T. and S.T., Thrissur. The appellate authority, relying on the decision in 'Vattukalam Chemicals Industries v. State of Kerala' [2001] 124 STC 234 (Ker) : 1997 KLJ Tax Cases 11, upheld the levy, but granted relief by directing the assessing authority to adjust the said tax against the amount of exemption provided under the eligibility certificate obtained by the assessee. Both the assessee and the department filed appeals before the Tribunal. The Tribunal observed that there is no provision in the K.G.S.T. Act empowering the assessing authority to assess the differential rate of tax in the facts and circumstances of the assessee's case. It accordingly directed the deletion of the differential rate of seven per cent assessed by the assessing authority and confirmed by the first appellate authority. Consequently, the State appeal on this issue was dismissed as infructuous.
3. The learned Government Pleader appearing for the revision-petitioner submits that small-scale industrial units are entitled to tax exemption under the Notification S.R.O. No. 1729/93. He also submits that the assessee had purchased electronic goods by issuing form No. 18 declaration and the plastic film capacitors were manufactured and sold by the assessee and since no tax was payable in respect of the sale of plastic film capacitors manufactured by the assessee, there is a violation of the provisions of Section 5(3) particularly, the first proviso thereto and the declaration in form No. 18 furnished by it to the selling dealer. The Government Pleader further submits that the first appellate authority, in fact, had relied on the decision of this Court in Vattukalam Chemicals Industries v. State of Kerala [2001] 124 STC 234 (Ker) : 1997 KLJ Tax Cases 11 which has since been reversed by the honourable Supreme Court in State of Kerala v. Vattukalam Chemicals Industries [2001] 124 STC 233 : (2002) 10 KTR 69. He also submits that though the first proviso to Section 5(3) initially provided that the provisions of the K.G.S.T. Act shall not apply where the sale of such finished product is not liable to tax either under the said Act or under the C.S.T. Act, the said provision was amended by the Kerala Finance Act, 1994 as per which the expressions 'not liable to tax under this Act or under the C.S.T. Act' was changed to 'where no tax is payable by the said industrial unit on such finished products either under this Act or under the C.S.T. Act'. The Government Pleader, on that basis, submits that since no tax is payable on the sales turnover of plastic film capacitors, there is violation of the provisions of form No. 18 declaration and consequently, the provisions of Section 5(3)(ii) are attracted. The submission of the Government Pleader is that the assessing authority has rightly made the assessment under Section 5(3)(ii) of the Act in respect of the turnover covered by form No. 18 declaration issued by the assessee.
4. The following facts are not in dispute. The assessee is a small-scale industrial unit entitled to exemption from payment of sales tax under the Act, in view of the notification S.R.O. No. 1729/ 93 and the eligibility certificate issued by the competent authority under the said notification. The assessee had purchased electronic goods by issuing form No. 18 declaration and that it has used the electronic goods for manufacture of the end-product, the plastic film capacitors. The assessee had also sold the same to various customers inside the State. However, the assessee has not collected or paid any tax on such turnover for the assessment year 1995-96. According to the assessee, the provisions of Section 5(3)(ii) of the Act introduced by the Kerala Finance Act, 1993 published on July 29, 1993 do not apply to the facts of its case. On the other hand, the case of the respondent-department is that the said provision squarely applies to the assessee's case.
5. In order to test the correctness of the rival submissions, it is necessary to refer to the said provision which reads as follows :
Where any dealer, after purchasing any goods by furnishing a declaration as mentioned in the second proviso to Clause (i), fails to make use of the same for the purpose for which the declaration was furnished, he shall be liable to pay the tax that would have been payable by him, had the declaration not been furnished, less the tax, if any, paid by him and the same shall be levied and collected as if it is a tax due from him.
It is also necessary to refer to the relevant rule under which form No. 18 declaration is issued. Rule 28 of the Kerala General Sales Tax Rules, 1963 provides that the declaration referred to in the proviso to Sub-section (3) of Section 5 shall be furnished in form No. 18 declaration. Sub-rule (2) further provides that a dealer who wishes to purchase the goods from another dealer on payment of tax at the rate specified in Sub-section (3) of Section 5 shall obtain from the assessing authority, a blank declaration form prescribed under Sub-rule (1) on payment of a fee at the rate of Re. 1 per book of 50 forms and shall furnish to the selling dealer, the original and duplicate portions of the declaration in form No. 18 duly filled in and signed by him. Sub-rules (2) to (4) of Rule 28 read as follows :
(2) A dealer who wishes to purchase goods from another dealer on payment of tax at the rate specified in Sub-section (3) of Section 5, shall obtain from the assessing authority a blank declaration form prescribed under Sub-rule (1), on payment of a fee at the rate of one rupee per book of 50 forms and shall furnish to the selling dealer the original and duplicate portions of the declaration in form 18 duly filled in and signed by him or by any responsible person authorised by him in this behalf and shall retain the counterfoil.
(3) No purchasing dealer shall give a declaration except in the form obtained by him on application from the assessing authority and not declared obsolete and invalid under this rule.
(4) No selling dealer shall accept any declaration except in a form obtained by the purchasing dealer on application from the assessing authority as aforesaid and not declared obsolete or invalid.
The relevant portion of form No. 18 declaration reads as follows :. are for use by me/us as component part, raw materials/ packing materials/containers covered by Section 5(3) in the production of finished products inside the State for sale/for packing of such finished products inside the State for sale liable to tax under Kerala General Sales Tax Act, 1963 or Central Sales Tax Act, 1956.
It is also necessary to refer to the two provisos to Section 5(3) which reads as follows :
Provided that this clause shall not apply where no tax is payable by the said industrial units on such finished products either under this Act or under the Central Sales Tax Act, 1956 (Central Act 74 of 1956) or when such finished products are exported out of the territory of India.
6. What Section 5(3)(ii) provides is that where a dealer purchases any goods by furnishing a declaration as mentioned in the second proviso to Clause (i), fails to make use of the same for the purpose for which the declaration was furnished, he shall be liable to pay the tax that would have been payable by him, had the declaration not been furnished, less the tax, if any, paid by him and the same shall be levied and collected as if it is a tax due from him. Thus, the conditions precedent for invoking the said clause are :
1. that the dealer should have purchased goods by furnishing form No. 18 declaration, and
2. that the dealer fails to make use of the same for the purpose for which the declaration was furnished.
We have already noted the provisions of Rule 28 which prescribes the form as form No. 18 and the source from which it can be obtained. The dealer, in order to avail the concessional rate provided under Sub-section (3) of Section 5, has to obtain form No. 18 declaration in the prescribed form from the assessing authority on payment of the requisite fee and to furnish the said form duly filled in as and when the dealer purchases the goods by availing the concessional rate provided under Sub-section (3) of Section 5 of the Act. We have also noted the contents of form No. 18 declaration which also provides that the goods so purchased are for use as raw materials covered by Section 5(3) in the production of finished products inside the State for sale/for packing of such finished products inside the State for sale liable to tax under the K.G.S.T. Act or the C.S.T. Act. Thus, the question as to whether the dealer had satisfied the second limb of Section 5(3)(ii) has to be considered in the light of the contents of form No. 18 declaration, that too with reference to the provisions of Sub-rules (2) to (4) of Rule 28 also. As already noted, the blank form No. 18 declaration is issued to the assessee by the assessing authority and it is that form which is produced by the assessee to the selling dealer for availing the concessional rate of tax provided under Section 5(3) of the Act. We have already seen that the assessee had used the electronic goods purchased by it by issuing form No. 18 declaration in the manufacture of the finished product, namely, plastic film capacitors and the said product was sold inside the State. It can also be seen that even a small-scale industrial unit which is entitled to exemption from payment of sales tax under the Notification S.R.O. No. 1729/93 is liable to tax in respect of its finished product. In fact, the assessing authority is obliged to complete the assessment under the provisions of the Act, on the taxable turnover of the dealer and in the case of the assessee also, the assessment is completed by levying the tax on the finished product manufactured by the assessee. The benefit of exemption granted under the notification as per the eligibility certificate is available only to the extent of the amount sanctioned in the eligibility certificate and for the period specified in the said notification. Thus, the assessing authority, on computation of the tax liability of the assessee, has only to adjust the liability so determined towards the exemption granted under the eligibility certificate. In that view of the matter, it cannot be said that the assessee is not liable to tax on its finished products under the Act. It can only be said that it is not liable to pay the said liability only to the extent of the amount specified in the eligibility certificate. Hence, we are of the view that the assessee has satisfied all the requirements of form No. 18 declaration and consequently, there is no scope for application of the provisions of Section 5(3)(ii) of the Act to the present case. In fact, the very question has come up for consideration before another division Bench of this Court in T.R.C. No. 182 of 2002 and this Court, by judgment dated August 27, 2002, has held on similar facts that the provisions of Section 5(3)(ii) are not attracted. On a perusal of the said judgment, we find that the division Bench has extracted Section 5(3)(ii) of the Act and held that the only requirement of the said sub-section is that the goods purchased by issuing the form No. 18 declaration must be used in the manufacture of the finished product and there is no further requirement of the liability to pay tax. As we have already noted, there are two pre-conditions for the application of Section 5(3)(ii) and if there is any violation of any one of them, non-compliance of any one of the conditions would attract Section 5(3)(ii) of the Act. Though the division Bench in the above mentioned Judgment did not consider the second limb of form No. 18 declaration, we find from the judgment that the division Bench had borne in mind, the said requirement also when they observed as follows :
Actually the petitioner is liable to pay the tax assessed, but for the SSI exemption it was not paid.
Thus, we are in agreement with the conclusion of the division Bench in the judgment in T.R.C. No. 182 of 2002. In the above circumstances, though we do not fully agree with the reasoning of the Tribunal, we are of the view that the conclusion arrived at by the Tribunal is right. Though the matter ends there, since the Government Pleader has raised a submission based on the first proviso to Section 5(3) of the Act, we will only say that the provisions of the first proviso refer to the payability of tax. The declaration form clearly mentions about the liability to tax and in such a situation, in view of the specific provision in Section 5(3)(ii) which only refers to the declaration furnished and its non-compliance, we have to go by the wording of the declaration only and in that view of the matter, it is unnecessary for us to consider the decision of the honourable Supreme Court in Vattukalam Chemicals Industries' case [2001] 124 STC 233, relied on by the revision petitioner, for, it turns on the peculiar facts of that case. There is no merit in this T.R.C. and it is accordingly dismissed.