SDF INDUSTRIES LTD., vs. STATE OF KERALA,
What did the High Court hold?
The High Court held that the commercial agreements clearly stipulated the supply of demineralised water according to specified standards as an obligation of the petitioner. Therefore, the supply constituted a sale. The Court found no reason to upset the finding that demineralised water was supplied and that a portion of the consideration received for the job work should be attributed to this supply, especially since demineralised water constituted approximately 50% of the IMFL volume. Regarding valuation, the Court noted that the petitioner's primary contention was that the supply was free of cost. Having failed to substantiate this, the burden shifted to the petitioner to prove that the price of 90 paise per litre was exorbitant. In the absence of such material, the Court concurred with the Tribunal's finding on the price. The Court dismissed the revision petitions, answering the questions of law against the petitioner and in favour of the revenue.
What were the facts?
The assessee, M/s. SDF Industries Ltd., is in revision against the common order of the Kerala Value Added Tax Appellate Tribunal dated October 31, 2019. The dispute concerns the classification and valuation of demineralised water supplied by the assessee to distilleries under job work agreements for manufacturing and bottling Indian Made Foreign Liquor (IMFL). The assessee contended that the supply of demineralised water was free of cost and that it was soft water, attracting a nil rate of duty. The Tribunal rejected these contentions, finding that the supply constituted a sale and that demineralised water was supplied according to specified standards. The Tribunal also upheld the valuation of demineralised water at 90 paise per litre, as determined by the assessing authority, rejecting the assessee's claim for a lower rate of 10 paise per litre.
What were the issues?
1. Whether the supply of demineralised water by the petitioner to the distilleries, in the course of executing job work for manufacturing and bottling IMFL, constitutes a sale attracting tax under the Kerala Value Added Tax Act (KVAT Act)? (Question of law) 2. Whether the demineralised water supplied by the petitioner was, in fact, soft water attracting a nil rate of duty under Entry 54 of Schedule 1 to the KVAT Act? (Question of mixed law and fact) 3. Whether the valuation of demineralised water at 90 paise per litre by the assessing and appellate authorities is justified, or should it be reduced to 10 paise per litre as contended by the petitioner? (Question of mixed law and fact) Assessee's contentions: (a) The supply of demineralised water was free of cost under the agreements. (b) What was supplied was soft water, not demineralised water, and thus attracted a nil rate of duty. (c) The price of demineralised water should be 10 paise per litre. Revenue's contentions: The impugned order of the Tribunal does not warrant interference.
Which sections of the Income-tax Act were involved?
Entry 54 of Schedule 1 to the KVAT Act
AI-generated summary — verify with the full judgment below
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M. MONDAY, THE 5TH DAY OF AUGUST 2024 / 14TH SRAVANA, 1946 OT.REV NO. 59 OF 2021 (AGAINST THE ORDER DATED 31.10.2019 IN TA(VAT) NO.707 OF 2018 OF THE KERALA VALUE ADDED TAX/AGRL. INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE) REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE: M/S. SDF INDUSTRIES LTD., CHANDRANAGAR, PALAKKAD, REPRESENTED BY SUNNY MATHEW, SENIOR LAISON ASSISTANT. BY ADV SMT.MEERA V.MENON RESPONDENT/RESPONDENT/REVENUE: STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT. SECRETARIAT, THIRUVANANTHAPURAM-695001. BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 05.08.2024, ALONG WITH OT.REV NO. 62 OF 2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
:2: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M. MONDAY, THE 5TH DAY OF AUGUST 2024 / 14TH SRAVANA, 1946 OT.REV NO. 62 OF 2021 (AGAINST THE ORDER DATED 31.10.2019 IN TA(VAT) NO.435 OF 2018 OF THE KERALA VALUE ADDED TAX/AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE) REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE: M/S. SDF INDUSTRIES LTD., CHANDRANAGAR, PALAKKAD, REPRESENTED BY SUNNY MATHEW, SENIOR LAISON ASSISTANT. BY ADV SMT.MEERA V.MENON RESPONDENT/RESPONDENT/REVENUE: STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 05.08.2024, ALONG WITH OT.REV NO. 59 OF 2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
:3: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M. MONDAY, THE 5TH DAY OF AUGUST 2024 / 14TH SRAVANA, 1946 OT.REV NO. 64 OF 2021 (AGAINST THE ORDER DATED 31.10.2019 IN TA(VAT) NO.433 OF 2018 OF THE KERALA VALUE ADDED TAX/AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE) REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE: M/S.SDF INDUSTRIES LTD., CHANDRANAGAR, PALAKKA, REPRESENTED BY SUNNY MAHTEW, SENIOR LAISON ASSISTANT. BY ADV SMT.MEERA V.MENON RESPONDENT/RESPONDENT/REVENUE: STATE OF KERALA, REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT. SECRETARIAT, THIRUVANANTHAPURAM. BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 05.08.2024, ALONG WITH OT.REV NO. 59 OF 2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
:4: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M. MONDAY, THE 5TH DAY OF AUGUST 2024 / 14TH SRAVANA, 1946 OT.REV NO. 71 OF 2021 (AGAINST THE ORDER DATED 31.10.2019 IN TA(VAT) NO.434 OF 2018 OF THE KERALA VALUE ADDED TAX/AGRL.INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH,KOZHIKODE) REVISION PETITIONER/APPELLANT/APPELLANT/ASSESSEE: M/S. SDF INDUSTRIES LTD. CHANDRANAGAR, PALAKKAD, REPRESENTED BY SUNNY MATHEW, SENIOR LAISON ASSISTANT. BY ADV MEERA V.MENON RESPONDENT/RESPONDENT/REVENUE: STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT. SECRETARIAT, THIRUVANANTHAPURAM BY SENIOR GOVERNMENT PLEADER SRI.V.K.SHAMSUDHEEN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 05.08.2024, ALONG WITH OT.REV NO. 59 OF 2021 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
:5: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 O R D E R
Dr. A.K.Jayasankaran Nambiar, J. In all these OT. Revision Petitions, the only issue that arises for consideration is the legality of the common order of the Appellate Tribunal under the Kerala Value Added Tax Act that finds that there was a sale effected by the petitioner to the distilleries, with which it had entered into agreements for manufacture and bottling of Indian Made Foreign Liquor (IMFL) using some of the raw materials that were to be supplied by the distillery concerned. It is apparent from the impugned common order of the Appellate Tribunal that the agreement between the petitioner and the distilleries concerned clearly envisaged the supply by the petitioner to the said distilleries of demineralised water, as part of their obligations under the agreement to manufacture and bottle IMFL on a job work basis. The issue to be considered by the Tribunal therefore was whether there was any sale involved in the supply of demineralised water by the petitioner in the course of execution of the job work for the distilleries concerned. This was more so because there was a specific contention taken by the petitioner before the various authorities that (a) the supply of demineralised water was to be free of cost under the terms of the agreement entered into with the various distilleries and (b) that what was supplied was not
:6: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 demineralised water but only soft water that would attract Entry 54 of Schedule 1 to the KVAT Act attracting nil rate of duty.
The Appellate Tribunal found both of the said contentions of the petitioner to be unacceptable. On the aspect of free supply, the Appellate Tribunal found from a perusal of the records that the petitioner assessee was collecting various charges for the manufacture and bottling of the IMFL and since the demineralised water constituted almost 50% by volume of the total quantity of IMFL supplied to the distilleries, the contention of the assessee that the supply of demineralised water was free of cost under the agreement could not be accepted. The Tribunal also found that although the assessing authority had initially fixed the price of the demineralised water supplied by the petitioner assessee at Rs.5 per litre, it had subsequently reduced the price to 90 paise per litre after perusing the cost statements produced by the assessee before it. The contention of the assessee that the price of the demineralised water supplied had to be further reduced to 10 paise per litre was found unacceptable by the Tribunal. 3. On the aspect of classification of the product that was supplied by the petitioner assessee, the Tribunal rightly found that inasmuch as the agreement entered into between the petitioner assessee and the
:7: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 distilleries concerned clearly stipulated that the petitioner's obligation was to supply demineralised water answering to the specifications prescribed for the same in the agreement entered into with the distilleries, the petitioner could not contend that what was supplied in terms of the agreement was only soft water and not demineralised water. 4. Before us, it is the submission of the learned counsel for the revision petitioner that the supply of demineralised water was, in fact, free of cost, and therefore, there was no justification for treating it as a sale from the petitioner assessee to the distilleries concerned in the course of execution of the works contract.
Per contra, it is the submission of the learned Senior Government Pleader Sri.V.K.Shamsudheen that the impugned order of the Tribunal does not call for any interference.
On a consideration of the rival submissions, we are of the view that the contentions of the learned counsel for the petitioner cannot be accepted for more reasons than one. Since the commercial agreements entered into between the petitioner on the one hand, and the distilleries on the other, make it abundantly clear that the supply of demineralised
:8: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 water in accordance with the specifications prescribed under the agreement is an obligation cast on the petitioner assessee, we find no reason to upset the finding of the assessing authority that holds that what was supplied by the petitioner assessee to the distilleries was only demineralised water, and goes further to attribute a portion of the consideration received by the petitioner for the job work towards the supply of the demineralised water. This is more so because, as rightly observed by the assessing authority, demineralised water constitutes almost 50% of the total quantity of IMFL that was manufactured, bottled, and supplied back to the distilleries in pursuance of the obligations under the agreement entered into with them. We also find that the consideration attributed to the sale of demineralised water is also not exorbitant. While the petitioner would contend that the price of the demineralised water supplied to the distilleries ought to have been fixed at 10 paise per litre, as against 90 paise per litre taken by the assessing authorities under the Act, we find that there was no material that was produced/relied upon before the Appellate Authority to substantiate the contention that the price fixed at the rate of 90 paise per litre was exorbitant. This is especially so because the contention of the petitioner assessee at all stages has been that the supply of demineralised water was free of cost and without any consideration at all. In as much as that submission had been repelled by the assessing
:9: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 authority at the time of proceeding to finalise the assessment on best judgment basis, the burden shifted squarely to the petitioner assessee to thereafter produce material to substantiate their contention that the price adopted for the sale of demineralised water had to be less than 90 paise per litre as arrived at by the Assessing Authority/Appellate Authority. In the absence of any such material produced on behalf of the petitioner assessee, we are left with no other option than to concur with the findings of the Appellate Tribunal regarding the price to be attributed to the supply of demineralised water effected by the petitioner assessee. In the result, we see no reason to interfere with the impugned orders of the Appellate Tribunal. The OT Revision Petitions are therefore dismissed by answering the questions of law raised against the petitioner assessee and in favour of the revenue. Sd/-
DR. A.K.JAYASANKARAN NAMBIAR JUDGE Sd/- SYAM KUMAR V.M. JUDGE mns
:10: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 APPENDIX OF OT.REV 59/2021 PETITIONER ANNEXURES ANNEXURE A COPY OF ASSESSMENT ORDER ISSUED BY THE ASST.COMMISSIONER (ASSESSMENT), SPECIAL CIRCLE, COMMERCIAL TAXES DEPARTMENT, PALAKKAD, DATED 13.02.2017. ANNEXURE B COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), PALAKKAD DATED 24.08.2017. ANNEXURE C COPY OF ORDER ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDL.BENCH, KOZHIKODE DATED 31.10.2019.
:11: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 APPENDIX OF OT.REV 62/2021 PETITIONER ANNEXURES ANNEXURE A COPY OF ASSESSMENT ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, OFFICE OF THE ASST. COMMISSIONER (ASSESSMENT) PALAKKAD DATED 30.11.2015. ANNEXURE B COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), PALAKKAD DATED 22.02.2017. ANNEXURE C COPY OF ORDER ISSUED BY THE KERALA VALUE ADDED APPELLATE TRIBUNAL, ADDL. BENCH, KOZHIKODE DATED 31.10.2019.
:12: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 APPENDIX OF OT.REV 64/2021 PETITIONER ANNEXURES ANNEXURE A COPY OF AGREEMENT ENTERED INTO THE PETITIONER WITH M/S. NATIONAL INDUSTRIAL CORPORATION LTD., NEW DELHI DATED 25.2.20110 ANNEXURE B COPY OF ASSESSMENT ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, O/O. THE ASST. COMMISSIONER (ASSESSMENT), PALAKKAD DATED 30.11.2015. ANNEXURE C COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), PALAKKAD DATED 22.2.2017. ANNEXURE D COPY OF ORDER ISSUED BY THE IKERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDL. BENCH, KOZHIKODE DATED 31.10.2019.
:13: OT.Rev. No.59 of 2021 OT.Rev. No.62 of 2021 OT.Rev. No.64 of 2021 & OT.Rev. No.71 of 2021 APPENDIX OF OT.REV 71/2021 PETITIONER ANNEXURES Annexure A COPY OF ASSESSMENT ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, O/O. THE ASST. COMMISSIONER (ASSESSMENT), PALAKKAD DATED 30.11.2015. Annexure B COPY OF ORDER ISSUED BY THE DEPUTY COMMISSIONER (APPEALS), PALAKKAD DATED 22.02.2017. Annexure C COPY OF ORDER ISSUED BY THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, ADDL. BENCH, KOZHIKODE DATED 31.10.2019.
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