Purchase Tax Imposed By Sections 7A & 5A Of TN & Kerala General Sales Tax Act Not Ultra Vires The Constitution: Supreme Court
The Supreme Court said that Section 7A is only attracted where the sales tax is not payable, which means there should be an exemption notification under Section 17 or exemption under the Third Schedule, read with Section 8 of the TN Act.
CJI Sanjiv Khanna, Justice Sanjay Kumar, Justice R. Mahadevan, Supreme Court
The Supreme Court has upheld the Constitutional validity of the purchase tax imposed by Section 5A of the Kerala General Sales Tax Act, 1963 (Kerala Act) and Section 7A of the Tamil Nadu General Sales Tax Act, 1959 (TN Act).
The Court was deciding a batch of Civil Appeals in which following issues arose for consideration –
I. Whether the purchase of goods by the assessee from dealers who were exempted from payment of tax by virtue of notifications or exemptions issued under the Kerala Act or the TN Act, is a purchase "which is liable to tax" within the meaning of Section 5A of the Kerala Act or Section 7A of the TN Act?
II. Whether the assessee who had purchased goods, that were exempt from payment of sales tax or from the dealers who were exempt from payment of sales tax, are liable to pay purchase tax under Section 5A of the Kerala Act or Section 7A of the TN Act?
III. Whether the purchase tax, as imposed by Section 5A of the Kerala Act or Section 7A of the TN Act, is a tax in the nature of manufacture or consignment tax or an inter-State levy, and therefore ultra vires the Constitution and beyond the legislative powers of the State Legislature?
The three-Judge Bench comprising Chief Justice of India (CJI) Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan held, “In view of the aforesaid discussion and applying the ratio in terms thereof, we must reject the argument on behalf of the assessee that Section 7A of the Tamil Nadu Act and Section 5A of the Kerala Act will have no application when tax is exempt at the hands of the seller, or for that matter, the tax under Section 3 or Section 5 of the aforesaid Act at the hands of the seller is payable at the point of first sale. Sections 5A or 7A, as the case may be, impose purchase tax specifically in situations where the seller is granted exemption from payment of tax. The legal position is that exemption from payment of tax at the time of sale is a pre-condition for attracting Sections 5A and 7A respectively.”
Senior Advocates C.N. Sreekumar and V Sridharan represented the Appellant while Senior Advocates V. Giri, Pallav Shishodia, and K. Radhakrishnan represented the Respondents.
Court’s Observations
The Supreme Court in view of the issues concerned, observed, “… the fact that in case the goods were not exempt from payment of tax at the time of sale and the goods would have attracted tax at the first point of sale, is immaterial and inconsequential. Levy of purchase tax is governed by the provisions and stipulations of Sections 5A or 7A. They are independent and in a way constitute charging sections. Purchase tax is leviable on and payable by the purchaser. However, the legislations do not levy the purchase tax to tax the transaction of the sale and purchase twice. Instead, it levies purchase tax only where no sales tax was payable on the sale.”
The Court further explained that the purchase tax has not been made leviable in all situations, except in three situations, namely, (a) where the goods on which no tax is paid were used in manufacture; or (b) where the goods were despatched out of the State other than by way of inter State trade or commerce; or (c) where the goods are disposed of in a manner other than sale within the State.
“However, the need to satisfy the conditions do not change the nature of the charge, which is, tax on purchase”, it added.
The Court elucidated that purchase tax is levied on the purchase of goods on which no tax has been paid on account of any exemption as a result of which the seller is not required to collect and pay sales tax and the decision whether or not to levy purchase tax is a prerogative and power of the State Legislature.
“… the liability to pay is distinct from levy of tax. This being so, the argument that purchase tax is leviable when there is cross border or inter-State movement of the goods or is a consignment tax must be rejected. Even otherwise, the event, that is inter-State movement of the goods, which does not amount to inter-State sale, falls within the legislative domain and power of the State Legislature. The State, when it imposes such tax, does not exceed its power to impose tax conferred by the State List as inter-State sale of goods is not being subjected to tax”, it also said.
The Court was of the view that income generation in the form of taxes is an important source of revenue for both the State and the Central governments and some play in the joints should be given to the Legislature while dealing with laws relating to taxation and economic activities except in case of encroachment upon the power to tax that is not vested with them in terms of the Union or the State List, etc.
“The grant of exemption being for the purpose of payment of sales tax, it does not follow that purchase tax would not be payable when conditions of Section 7A are satisfied. Further, it would be contradictory or rather nugatory to argue that the rate of tax specified in the Schedule should be taken as nil as no payment is to be made on the sale amount as sales tax. If we accept this argument, it would defeat the very purpose and objective of enacting Section 7A of the Tamil Nadu Act”, it observed.
Moreover, the Court said that Section 7A is only attracted where the sales tax is not payable, which means there should be an exemption notification under Section 17 or exemption under the Third Schedule, read with Section 8 of the TN Act.
“In view of the above, we also reject the argument that the applicable rate of tax on purchase would be nil as the tax payable on the sale in view of the exemption from payment of sales tax is nil. … The exemption in the present case relates only to payment of sales tax and not purchase tax”, it added.
The Court noted that there is no reverse levy in the case of customs duty or the excise duty in terms of the two enactments and that the purchase tax can be levied and payable, even the sales tax is not payable.
“Accordingly, question nos. I and II are answered in affirmative, that is, in favour of the Revenue and against the appellant-assessees in terms of the aforesaid reasoning and decision. Question No. III is answered in negative in favour of the State and against the appellant-assessees by upholding the constitutional validity of Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act”, it concluded.
Accordingly, the Apex Court dismissed the Appeals and upheld the impugned Judgments.
Cause Title- C.T. Kochouseph v. State of Kerala and Another Etc. (Neutral Citation: 2025 INSC 661)
Appearance:
Appellant: Senior Advocates C.N. Sreekumar, V Sridharan, AORs Prakash Ranjan Nayak, Rajan Narain, M. P. Vinod, Charanya Lakshmikumaran, Advocates Anupama Kumar, Debasis Jena, Rahul Kulhare, Ajay Aggarwal, Mallika Joshi, Sahil Parghi, Ayush Agarwal, Neha Choudhary, Nitum Jain, and Umang Motiyani.
Respondents: Senior Advocates V. Giri, Pallav Shishodia, K. Radhakrishnan, AORs G. Prakash, M. Yogesh Kanna, C. K. Sasi, Sabarish Subramanian, Advocates Meena K Poulose, Nihar Dharmadhikari, C. Kranthi Kumar, Vishnu Unnikrishnan, Sarathraj B, Danish Saifi, and Aswani Satheesh.
