2025-VIL-29-SC
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VAT Supreme Court Cases

Kerala General Sales Tax Act, 1963 & Tamil Nadu General Sales Tax Act, 1959 - Levy of purchase tax, exemption from tax, taxability vs. payability, Constitutional validity of purchase tax provisions - Interpretation and application of Section 5A of the Kerala General Sales Tax Act, 1963 and Section 7A of the Tamil Nadu General Sales Tax Act, 1959 - The appellants had purchased goods from dealers who were exempted from payment of tax by virtue of notifications or exemptions issued under the respective State Acts - Whether the purchase of goods by the appellants from dealers who were exempted from payment of tax is a purchase "which is liable to tax" within the meaning of Section 5A of the Kerala Act or Section 7A of the Tamil Nadu Act – HELD - The purchase of goods from dealers who were exempted from payment of tax is still a purchase "which is liable to tax" within the meaning of the relevant provisions. The Court relied on the ratio laid down in State of Tamil Nadu v. M.K. Kandaswami and Others, which distinguished between 'taxability/liability' and 'payability'. The exemption granted only affects the 'payability' of tax, not the underlying 'taxability' or 'liability'. Therefore, the purchase of such goods can still attract purchase tax under Section 5A of the KGST Act, 1963 and Section 7A on the TNGST Act, 1959 - the appellant-assessees are liable to pay purchase tax under the relevant provisions, as the exemption from sales tax does not automatically extend to purchase tax. Sections 5A and 7A are independent charging provisions that impose purchase tax in specified circumstances, even when sales tax is exempt – The impugned orders are upheld and assessee appeals are dismissed - Whether the purchase tax, as imposed by Section 5A of the KGST Act, 1963 or Section 7A of the TNGST Act, 1959 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 – HELD - The Court rejected the contention that the purchase tax is in the nature of a manufacture or consignment tax or an inter-state levy, and therefore unconstitutional. Relying on the decisions in Hotel Balaji and Devi Dass, the Court upheld the constitutional validity of Sections 5A and 7A, holding that the purchase tax is within the legislative competence of the state legislatures. The levy of purchase tax is distinct from the sale or inter-state movement of goods, and that the state legislature has the power to tax purchases within the state in the manner prescribed.
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