Holding

Goods purchased before the rate change are taxable at the rate prevailing at the time of purchase (3%) once they become the last purchase within the State.

Summary

The respondent, M/S Padinjarkara Agencies, had purchased goods before 30 June 1974 and held them in stock. After that date the purchase tax rate under the Kerala General Sales Tax Act, 1971 increased from 3% to 5%. The goods were later determined to be the last purchases made within the State because they were sold in inter‑state trade, thereby attracting purchase tax under Item 71 of the First Schedule. The Supreme Court examined whether the tax liability arose and, if so, at which rate. It held that liability arises as soon as the purchases are deemed last purchases, but the rate applicable is the one in force at the time of purchase, i.e., 3%. Consequently, the Court upheld the High Court’s decision that the respondent was liable to tax at 3% and dismissed the appeal.

Issues considered

What is the rate of purchase tax applicable to goods purchased before 30 June 1974 but later determined to be last purchases within the State?
Does liability for purchase tax arise for such goods once they are deemed last purchases after the rate change?

Legislation cited

Kerala General Sales Tax Act, 1971s. Item 71 of the First Schedule

Subjects

purchase taxlast purchasetax rate changestock in handinter‑state tradeKerala General Sales Tax Acttax liability

Judgment

DEPUTY COMMISSIONER OF SALES TAX (LAW)
BOARD OF REVENUE (TAXES)

v.
B
M/S. PADINJARKARA AGENCIES

January .21, 1985

[P.N. BHAGWATI AND RANGANATH MISRA, JJ.]
c Kerala .General Sales Tax Act, lte111 71 Of First Schedule-Liability to pur- ·
chase tax as la_st purchase, when arises-Rate of tax enhanced aftef a certain date
-Goods in Stock acquired prior to such date and sold subseque11tly in interest at
trade of commerce-Whether revised rate of tax applicable. '·

The respondent-assessee had made certain purchases before 30th June ·
D 1974 and sold them subsequently in the course of intef-state trade of commerce:
The rate of purchase tax under Item 71 of the First Schedule to the Kerala
General Sales Tax was increased from 3% to 5% with effect fro-m 1st July, 1974.
The High Court held that the purchases made by the respondent prior to 30th
June, 1974 were taxable at the rate of 3 %. ·
i Dismissing the appeal to this Court,
E
HELD : The assessee could not be made liable to tax on the purch~ses
made by it-prior to 30th June, 1974, unless the purchases acquired the qriality of
being last ptirchases in the Seate. In the 'instant case there can be no doubt tfiat
the assessee became liable to pay tax.: on the purchases made by it prior to 30th
June, 1974, 3s soon as it becan1e determined though subsequent to 30th June,
1974, that these purchases _were last purcha'ies inside the State and were conse·
F queotly exigible to ta~. Sitice the purchases took place before 30th June, 1974,
tho assessee would be liable to be taxed at the rate of 3 % which was prevailing
at the time when the purchases were nlade. [1075E; G-H; 1076B]

State of Madras v. Shri T. Narayanaswanii Naidu and Anr, (1967) 3
S.C.R. 622, referred to. •

G Seaso Rubbers v. State of Kera/a, 48 S.T.C. 256 approved.

CiVIL APPELLATE JURISDICTION: Civil Appeal No. 4160 of
1985
From the Judgment and Order dated 25. 6. 1984 of the Kerala
H High Court in T. R. C. No. 19 of 1984.
C.T.S. v. PANDINJARAKARA AGENCIES (Bhagwatl, J.) l07S

V. J. Francis for the Appellant. A

r. M. An;ari, Markose Vellapal/y and D. N. Misra, for the
Respondent.

The Judgment of the Court was delivered by
B
BHAGWATi, J. The sole question which arises for determi·
'' nation in this appeal is as to what is the rate at which the goods
which had ·been purchased earlier and which were in stock with the
assessee on 30-6· 74 were assessable to purchase tax when the_ pur·
chases were found to be last purchases as a result of events v.hich
took place subsequent to 30. 6. 1974. This question has become c
material ~ince the rate of purchase tax was increased from 3% to
\ 5% with effect from 1st July, 1974. Now it is not disputed in the
present case that the purchases of goods effected by the assessee
prior to 30-6-74 were last purchases within the State because the
goods purchased which were in stock on 30-~-74 were subsequently
sold by the assessee in the course of inter-state trade or commerce D
which means that ·they were not sold within the State and hence the
assessee was clearly the last purchaser within the State and as such
was liable to pay purchase tax under Item 71 of the First Schedule
to the K~rala General Sales Tax Act. Equally it is clear that the
assessee could not be made liable to tax on the purchases made by
E
it prior to 30th June 1974, unless the purchases acquired the quality
of being last purchases in the State. It was pointed out by this Court
in State of Madras v. Shri T. _Narayanaswami Naidu & Anr. [1967]
3 S. C. R. 622 when the assessee "files a return and declares the
stock in hand, the stock in hand cannot be said to have been acq
uired by last purchase because he may still during the next assess·
F
ment year, sell it or he may consume it himself or the goods may be
destroyed, etc .• He would be entitled to claim before the assessing
authorities that the character of acquisition of the stock in hand was
undetermined; in the light of subsequente vents it may or may not
become the fast purchase inside the State." There ean therefore be
no doubt that the assessee in the present case became liable to pay
tax on the purchases made by it prior to 30th June, 1974, as soon G
as it became determined though subsequent to 30th June 1974, that
these purchases were last purchases inside the State and were conse-
quently exigible to tax. ·

~ut the question' remains as to what is tbe rate at which H
1076 SUPREME COURT REPORTS [1985)3 s.c.R.

A the assessee was liable to be taxed in respect of these . purchases .
Since· the purchases took place before 30th June 1974, the
assessee would, in our opinion, liable to be taxed at the rate
prevailing at the time when the purchases were made and since
the rate at that time was 3% of the sale price, the High Court wa!i
right in taking the view that the purchases made by the assessee
B prior to 30th June 1974 were taxable at the rate of 3%. We may
point out that a similar view has been taken by the Kerala High.
Court in Seaso Rubbers v. State of Kera/a, 48 S. T. C. 256. We find
ouerselves in argeement with the reasoning adopted by the Full
Bench of the High Court in that case. ·
c We accordingly reject the appeal but with no order as to costs.
}·
/

0 Appeal dismissed .