The Supreme Court upheld the constitutional validity of Section 5A of the Kerala General Sales Tax Act and Section 7A of the Tamil Nadu General Sales Tax Act, ruling that purchase tax applies to taxable goods even when sellers are exempt. It clarified that these provisions constitute independent charging sections, ensuring tax collection when goods otherwise escape sale tax due to exemptions or specific transactional circumstances.
Facts Of The Case:
The case involved a batch of appeals concerning the applicability of purchase tax under Section 5A of the Kerala General Sales Tax Act, 1963, and Section 7A of the Tamil Nadu General Sales Tax Act, 1959. The appellants, including C.T. Kochouseph and others, were dealers who had purchased goods from sellers exempted from tax under various government notifications or due to their turnover falling below the statutory threshold. These goods were then either used in the manufacture of other goods, dispatched outside the state, or otherwise disposed of in a manner not amounting to a sale within the state.
The assessing authorities levied purchase tax on the appellants, arguing that although the initial sale was exempt, the subsequent use of the goods triggered the liability under the respective purchase tax provisions. The appellants contested this imposition, arguing that no tax could be levied since the purchase itself was from an exempt seller and was not a “taxable purchase.” Various High Courts had given conflicting decisions on the interpretation of these provisions, prompting a consolidated hearing before the Supreme Court. The dispute revolved around whether such purchases could be brought to tax and if the relevant provisions were intra vires the Constitution.
Procedural History:
The procedural journey of this case began with multiple assessment orders passed by sales tax authorities in Kerala and Tamil Nadu, levying purchase tax on dealers under Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act. Challenging these orders, the dealers filed writ petitions and appeals before the respective High Courts. While the Kerala High Court, in cases like Yusuf Shabeer, upheld the constitutional validity and applicability of Section 5A, a conflicting view was taken in other cases, such as T.S. Govindarajulu Naidu, where the High Court held that exemptions on sale also extended to purchase tax, thereby limiting the scope of the provisions.
Appeals against these divergent rulings reached the Supreme Court. The Court clubbed various civil appeals, including those arising out of Special Leave Petitions, for a unified determination of the legal issues involved. During the course of proceedings, the Supreme Court revisited earlier decisions like M.K. Kandaswami, Goodyear India Ltd., and Hotel Balaji, to address the constitutional validity, scope, and interpretation of the provisions in question. After extensive analysis, the Court delivered a detailed judgment clarifying the legal position and resolving the longstanding conflict.
Court Observation:
The Supreme Court made several significant legal observations while adjudicating the matter. It reaffirmed that Sections 5A of the Kerala Act and 7A of the Tamil Nadu Act are independent charging provisions that create a separate liability to pay purchase tax in specific circumstances, even where no tax is payable on the sale. The Court clarified that the phrase “goods, the sale or purchase of which is liable to tax under the Act” refers to the class or character of goods that are taxable under the statute, regardless of whether the specific transaction was exempt. It rejected the argument that a purchaser should not be taxed simply because the seller was exempt under a notification or due to turnover thresholds.
The Court emphasized the distinction between taxable goods, taxable person, and taxable event, holding that these provisions were designed to prevent revenue leakage when goods escape tax at the point of sale. It overruled previous inconsistent decisions and reaffirmed the reasoning in M.K. Kandaswami and Hotel Balaji, while disagreeing with the narrower interpretation adopted in Goodyear India Ltd.. Ultimately, the Court upheld the constitutional validity of the purchase tax provisions and clarified their proper scope and application.
Final Decision & Judgement:
The Supreme Court, in its final decision, upheld the constitutional validity and enforceability of Section 5A of the Kerala General Sales Tax Act, 1963, and Section 7A of the Tamil Nadu General Sales Tax Act, 1959. It ruled that the purchase tax levied under these provisions is intra vires and serves as an independent charge aimed at taxing purchases that escape assessment under regular sales provisions. The Court held that even if the seller is exempt from tax, the buyer can still be liable to pay purchase tax if the goods purchased are used in a manner outlined in the statutes, such as for manufacturing, interstate dispatch, or non-sale disposal.
By applying the correct interpretation of “goods liable to tax” as referring to the category of goods and not the specific exempt transaction, the Court overruled conflicting High Court decisions and endorsed earlier precedents like M.K. Kandaswami and Hotel Balaji. Consequently, the appeals filed by the State were allowed, and those filed by the assessees were dismissed. The judgment brought clarity to the scope and applicability of purchase tax provisions and reaffirmed the legislative competence of the states to impose such levies.
Case Details:
Case Title: C.T. Kochouseph v. State of Kerala and Another etc. Citation: 2025 INSC 661 Civil Appeal Nos.: Civil Appeal Nos. 941–945 of 2004 & connected appeals Date of Judgment: 9 May 2025 Coram (Judges): Hon’ble Chief Justice Sanjiv Khanna (CJI)
Download The Judgement Here