Supreme Court Rules on Sales Tax Evasion: Kerala Dealer’s Transactions at Mahe Upheld

The case of Commissioner of Commercial Taxes, Thiruvananthapuram, Kerala v. M/s K.T.C. Automobiles is a landmark judgment concerning sales tax liability and the place of sale for automobile dealers. The Supreme Court upheld the Kerala High Court’s ruling in favor of K.T.C. Automobiles, dismissing the state’s claim that the dealer had evaded tax in Kerala by showing vehicle sales at Mahe, a lower tax jurisdiction.

Background of the Case

K.T.C. Automobiles, a dealer of Hyundai cars, operates in Kerala with its head office at Kozhikode and a branch at Mahe, within the Union Territory of Pondicherry. The dispute arose when the Intelligence Officer inspected the Kozhikode office and alleged that 263 cars were wrongly shown as sold from Mahe instead of Kerala. This, according to the officer, resulted in a loss of Rs. 86 lakhs in sales tax for Kerala.

Following the inspection, the Intelligence Officer imposed a penalty under Section 45A of the Kerala General Sales Tax (KGST) Act. However, the Deputy Commissioner overturned the penalty. The Commissioner of Commercial Taxes then used suo-motu powers under Section 37 of the KGST Act to reinstate the penalty, leading K.T.C. Automobiles to appeal to the High Court.

Key Arguments by the Petitioner (State of Kerala)

• The vehicles were sold and delivered in Kerala, and the customers were from Kerala.
• The option given to buyers to register vehicles in Mahe was a tax evasion tactic.
• The same cash receipt book was used for sales at both Kozhikode and Mahe, proving that transactions occurred in Kerala.
• Under the Motor Vehicles Act, the obligation to register the vehicle rests on the buyer after purchase, meaning that registration at Mahe was an afterthought.

Key Arguments by the Respondent (K.T.C. Automobiles)

• All transactions were legally conducted in Mahe, and registration at Mahe was valid under law.
• The vehicles were not delivered in Kerala but were sent to Mahe for registration, aligning with the contract of sale.
• Motor vehicle sales involve a two-step process: the dealer sells the car, and the buyer registers it at the place of his choice, as permitted by law.
• The Kerala tax authorities had no jurisdiction over sales completed at Mahe.

Supreme Court Judgment

A bench comprising Justices Dipak Misra and Shiva Kirti Singh ruled in favor of K.T.C. Automobiles, dismissing Kerala’s appeal. The Court held:

• Motor vehicle registration is a post-sale event, and the place of registration does not determine the place of sale.
• Under the Sale of Goods Act, a motor vehicle remains an unascertained good until it is registered and physically transferred to the buyer.
• The cars were sold in Mahe, meaning tax liability was rightly borne under the Pondicherry Sales Tax Act.
• There was no conclusive evidence that the sales occurred in Kerala.
• As a result, the penalty imposed under the KGST Act was unjustified.

Conclusion

This judgment reinforces the legal principle that automobile sales are completed at the place of registration. It also clarifies that sales tax liability is determined by where the contract is executed and possession is transferred, rather than where a vehicle is booked or a dealer’s head office is located.

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Download Judgment: Commissioner of Comm vs Ms K.T.C. Automobil Supreme Court of India Judgment Dated 29-01-2016.pdf