KHADI GRAMA VYAVASAYA ASSOCIATION Vs. STATE OF KERALA
HIGH COURT OF KERALA
Khadi Grama Vyavasaya Association
STATE OF KERALA
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(1.) PETITIONERS in these Original Petitions who are either Associations of Khadi and Village Industries or Khadi and Villages Industries as such (hereinafter referred to as
"KV Industries"), are challenging the withdrawal of sales tax exemption hitherto enjoyed
by them. The Government notification under challenge is SRO 291/2000 dated
13.3.2000 which came into force with effect from 1.4.2000 under which sales tax exemption is limited to 21 KV Industries, while other KV Industries are liable to pay
sales tax like any other "dealer" under the KGST Act, but at a lower rate of tax on their
products at 4% vide Government notification, SRO 292/00 dated 31.3.2000 also
effective from 1.4.2000. The prayer of the petitioners is to quash SRO 291/00 and to
declare that the products of all KV Industries are entitled to sales tax exemption.
According to them, if this prayer is allowed, then SRO 292/00 providing for concessional
rate of tax at four per cent has no relevance and will have no application, and therefore
there is no challenge against the said notification, which of course is otherwise
beneficial to the petitioners and other KV Industries, if they are found to be not entitled
to total exemption.
(2.) I have heard the various counsel appearing for the petitioners, Sri. Raju Joseph, Special Government Pleader appearing for the State, and Sri. V.V. Joshi, appearing for
the KV Industries Board.
Before proceeding to decide the issue raised in the Original Petitions, it is useful to trace the nature of sales tax exemption enjoyed by the KV Industries and the periodical
changes effected by the Government leading to the impugned notifications.
(3.) ALL KV Industries were granted absolute and unqualified sales tax exemption on the sale of their products by periodical government notifications, the last of which is SRO
1727/93 which provided for sales tax exemption on the sale of products of KV Industries and exemption on the purchase of goods taxable at the last purchase-point
used by them in the manufacture of their products. However, the Government amended
the notification SRO 1727 of 1993 vide notification SRO 293/98 with effect from
1.4.1998 providing for sales tax exemption only to KV Industries whose annual turnover was below rupees twenty five lakhs. Eventhough tax was introduced for KV Industries
with annual turnover of rupees twenty five lakhs and above, the Government issued
another notification SRO 644/1998 again amending SRO 1727/93 and reintroduced
complete sales tax exemption for all KV Industries irrespective of their annual turnover.
However, the Government later issued SRO 1090 of 1999 dated 31.12.1999 with effect
from 1.1.2000 superseding SRO 1727 of 1993 and among other things providing for
sales tax for KV Industries with annual turnover of rupees ten lakhs and above. By
virtue of this notification, KV Industries were entitled to sales tax exemption from
1.1.2000 onwards only if their annual turnover was below rupees ten lakhs and those KV industries with annual turnover of rupees ten lakhs and above were liable to pay tax
on their products like any other dealer at the normal rate. This position prevailed from
1.1.2000 to 31.3.2000 when the Government issued notification SRO 291/00 dated 13.3.2000 effective from 1.4.2000 whereunder SRO 1090 of 1999 was amended and total exemption was introduced to the products of 21 KV Industries listed therein,
thereby withdrawing sales tax exemption for all other KV Industries. The ceiling on
turnover limit was also taken away and with the result all KV Industries other than 21
listed in SRO 291/2000 were liable to pay sales tax like other dealers if their annual
turnover is Rs. 2 lakhs and above, as provided under S.5(1) of the KGST Act. However,
the Government simultaneously issued SRO 292/00 dated 31.3.2000 effective from
1.4.2000 providing for concessional rate of tax on the products of all KV Industries, of course except the products of those Industries which are granted exemption. The
position as emerging after notifications SRO 291/00 and 292/00 still continues
whereunder while the 21 KV Industries listed in the impugned notification enjoy
exemption, the other KV Industries with turnover of rupees two lakhs and above are
liable to pay sales tax at the rate of 4 per cent on their products.;
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