Karnataka High Court
Manjula K. Shah And Others vs Commercial Tax Officer, 40Th Circle, ... on 9 January, 1996
Equivalent citations: ILR1996KAR1759
Author: B.N. Mallikarjuna
Bench: B.N. Mallikarjuna
JUDGMENT M.L. Pendse, C.J.
1. These batch of 10 appeals arise from the common judgment delivered by learned single Judge on November 28, 1991 dismissing 10 writ petitions on the ground that the reliefs sought by the appellants were not available in view of an unreported decision of a division Bench of this Court delivered on February 8, 1984 in S.T.R.P. No. 91 of 1980 (Mahendra Perfumery Works v. State of Karnataka (See page 174 infra [App.])). As the facts giving rise to the filing of the petitions are common and so also the issue raised in the appeals, it is convenient to dispose of all the appeals by this judgment.
2. The appellants are dealers in raw agarbathis and are assessed to sales tax under the provisions of the Karnataka Sales Tax Act, 1957 and also under the Central Sales Tax Act, 1956. The appellants had filed returns for the assessment year 1989-90. The assessing authority served notice on the appellants calling upon to make payment of difference in tax on the turnover of raw agarbathis in the course of inter-State sales. The notices, inter alia, state that on perusal of the monthly returns filed in form 3, it was noticed that the appellants had effected inter-State sales of raw agarbathis and tax collected at 2 per cent which was not correct. The notice suggests that the rate of tax on inter-State sales of raw agarbathis is 4 per cent if covered by "C" forms and otherwise 10 per cent. The notices called upon the appellants to pay difference amounts for the months of April, 1990 to January, 1991, within three days from the date of receipt of the notices and threatens that recovery proceedings will be adopted on failure to make payment. Notices under the Central Sales Tax Act were also served on the appellants demanding the difference in the tax payable. The notices set out that the notification dated March 31, 1989 issued in exercise of the powers conferred by sub-section (5) of section 8 of the Central Sales Tax Act, 1956, is applicable only in respect of sale of agarbathis and not in respect of sale of raw agarbathis, as claimed by the appellants. The notices, therefore, called upon the appellants to pay difference of tax. The liability to pay tax was at the rate of 8 per cent and the exemption notification had reduced it to 2 per cent with effect from April 1, 1989. The appellants had paid duty by claiming benefit under the exemption notification and according to the assessing authority, the benefit was not available in respect of sale of raw agarbathis.
3. The appellants challenged the service of notices demanding difference in payment of tax by filing writ petitions under articles 226 and 227 of the Constitution before the learned single Judge. The gravamen of the complaint was that the department had never made any distinction between agarbathis and raw agarbathis during the course of assessment proceedings and the appellants were taxed under the entry "agarbathi" under the Act. Appellant claimed that it is not permissible for the department to deny the benefit of exemption notification by claiming that the benefit is available only in respect of sale of agarbathis and not in respect of sale of raw agarbathis. The department, on the other hand, claimed that the exemption notification should be strictly construed and that the exemption is available only in respect of sale of agarbathis and not in respect of sale of raw agarbathis and therefore, the appellants are not entitled to any relief.
4. The learned single Judge, by the impugned judgment, held that the claim made by the appellants cannot be granted in view of the unreported decision of the division Bench of this Court (See page 74 infra (Mahendra Perfumery Works v. State of Karnataka - S.T.R.P. No. 91 of 1980 decided on 8th February, 1984)). The learned single Judge held that the division Bench had concluded that agarbathis and raw agarbathis are distinct commercial commodities and as exemption notification provides benefit only in respect of sale of agarbathis, the appellants cannot claim benefit of the notification. On the strength of this finding, all the petitions were dismissed and that judgment has given rise to the present appeals.
5. Learned counsel appearing on behalf of the appellants submitted that the learned single Judge was in error in denying the benefit of the exemption notification by reference to the decision of the division Bench of this Court. It was contended that the decision of the division Bench has no application to the contentions raised by the appellants and that the decision was rendered in entirely different circumstances. It was further contended that raw agarbathis as well as agarbathis were taxed under entry 153 of the Second Schedule to the Act and the assessment orders passed by the authorities on earlier occasions clearly indicate that the sale of raw agarbathis as well as agarbathis was not treated on different footing. Learned counsel for the appellants further contended that the department had treated raw agarbathis on par with agarbathis while levying tax and it is not permissible for the department to depart from the consistent practice when the benefit is sought under the exemption notification.
6. Learned Government Pleader, on the other hand, submitted that even though the relevant entry during the assessment year 1989-90 was only agarbathi and did not make any distinction between agarbathi and raw agarbathi, still the two commodities are commercially known as different commodities and the benefit of exemption notification is not available to the appellants.
7. In view of the rival contentions, the question which requires determination is, whether the benefit of notification issued under sub-section (5) of section 8 of the Central Sales Tax Act on March 31, 1989 is available in respect of sale of raw agarbathis ?
8. Section 5 of the Karnataka Sales Tax Act, 1957 is the charging section and, inter alia, provides that every dealer shall pay for each year tax on his taxable turnover. Sub-section (3) of section 5 of the Act prescribes that tax shall be levied in the case of sale of any goods mentioned in column (2) of the Second Schedule, by the first or the earliest of successive dealers in the State who is liable to pay tax under this section. A tax at the rate specified in the corresponding entry in column (3) of the said Schedule on the taxable turnover of such sale in each year relating to such goods. Turning to Second Schedule, entry 153 refers to "agarbathi" and the rate of tax was at 8 per cent in the assessment year 1989-90. There is no separate entry for levy of tax on sale of raw agarbathis.
9. The Government of Karnataka published notification in exercise of powers conferred by sub-section (5) of section 8 of the Central Sales Tax Act after being satisfied that it was necessary to do so in public interest. The notification directs that tax payable by a dealer under section 8 of the Central Sales Tax Act in respect of sale of "agarbathi" shall be calculated at the rate of two per cent with effect from the first day of April, 1989 subject to production of declaration in form "C" duly filled in and signed by the registered dealer to whom the goods are sold. The appellants are claiming benefit of payment of tax at the rate of 2 per cent in pursuance of this notification and the resistance of the department to the claim is only on the basis that what is prescribed under the notification is in respect of sale of "agarbathi" and not in respect of sale of "raw agarbathi".
10. The contention of the department cannot be entertained because while levying tax the taxing statute has not made any distinction between "agarbathi" and "raw agarbathi". The demand for tax is on the basis that the sale of raw agarbathi is liable to payment of duty at the rate of 8 per cent. The learned counsel for the appellants referred to the assessment order dated November 17, 1989 in the case of M/s. Mahalakshmi Agarbathi Works, copy of which is annexed as exhibit D in W.P. No. 7645 of 1991. The assessment order recites that the dealer is registered both under the State Act and the Central Act and deals in manufacture of raw agarbathi only. The assessment order further establishes that in respect of sale of agarbathi, tax was assessed at the rate of 8 per cent. It is therefore clear that the department at no stage made distinction between sale of agarbathis and sale of raw agarbathis. It is therefore difficult to appreciate how the department can deny the benefit available under the exemption notification dated March 31, 1989 to the appellants in respect of sale of raw agarbathis. The demand notices served by the department, therefore, cannot be sustained.
11. Learned Government Pleader submitted that the stand taken by the department is based on the decision of the division Bench of this Court wherein it was held that raw agarbathi and agarbathi are two different and distinct commodities known in commercial parlance and therefore the sale of raw agarbathis is liable to tax under section 6 of the Act. The learned single Judge relied upon the decision to conclude that the appellants are not entitled to the benefit of the exemption notification but the counsel for the appellants submitted that the said decision has no application whatsoever to the contention agitated before the learned single Judge. It is, therefore, necessary to closely scrutinise the decision dated February 8, 1984 delivered by the division Bench of this Court in S.T.R.P. No. 91 of 1980 (Mahendra Perfumery Works v. State of Karnataka (See page 74 infra.)).
12. In the case before the Division Bench the assessee was manufacturer and dealer in agarbathis and was assessed to tax under section 6 in respect of the purchase turnover in raw agarbathis during the year 1975-76. The assessee challenged the assessment by filing appeal before the Deputy Commissioner and later before the Tribunal but was unsuccessful. The assessee thereupon approached this Court by filing revision petition as prescribed under the Act. The disputed turnover related to purchase of raw agarbathis by the dealer from unregistered dealers. Raw agarbathis were subjected to further processing by dipping in scented solution so as to bring out a new product of different grades and standards for being marketed as scented agarbathis. The assessing officer held that provisions of section 6 of the Act were applicable and the assessee was liable to pay tax by treating it as part of purchase turnover. The division Bench rejected the contention of the assessee that raw agarbathis do not undergo any change and the exercise of dipping in scented solution do not lead to manufacture of another product. The division Bench held that raw agarbathi do not retain the original identity and attracts liability under section 6 of the Act.
13. The decision of the division Bench, in our judgment, has no application to the claim made by the appellants seeking benefit of the exemption notification. Section 6 of the Karnataka Sales Tax Act deals with levy of purchase tax under certain circumstances and, inter alia, provides that every dealer who has purchased any taxable goods in circumstances in which no tax under section 5 of the Act is leviable on the sale price of such goods, if either consumes such goods in the manufacture of other goods for sale or otherwise disposes of the goods in any other manner other than by way of sale in the State, shall be liable to pay tax on the purchase price of such goods. The plain reading of section 6 of the Act makes it clear that the liability for payment of tax on the purchases is attracted when the goods, are consumed in the manufacture of other goods and the goods which were consumed were such which were not leviable for tax under section 5 of the Act. The question which came up for consideration before the division Bench was whether the liability to pay tax under section 6 of the Act arose because the claim of the department that raw agarbathis which were purchased by the assessee were consumed in the manufacture of agarbathis. The division Bench was concerned only to examine the issue as to whether the exercise undertaken on raw agarbathis by dipping in scented solution lead to the manufacture of another article known differently in the market. The division Bench held that new article did come into existence. The question as to whether the assessee was liable for levy of purchase tax for consumption of goods in the manufacture of other goods does not arise in the present case and consequently, the decision relied upon has no application to the contention raised on behalf of the appellants.
14. In our judgment, the learned single Judge was in error in declining to grant relief to the appellants by reference to the unreported decision of the division Bench. The issue which arise in the present proceedings is, whether the department has treated raw agarbathis and agarbathis as separate items for the purpose of levy of tax under entry 153 of the Second Schedule to the Act. As mentioned hereinabove, the answer is in the negative. It is, therefore, obvious that once the sale of agarbathi and raw agarbathi are treated on par for the purpose of levy of tax, then the benefit made available under exemption notification is applicable both in respect of sale of agarbathi as well as raw agarbathi. It is therefore clear that the demand notices issued by the department were contrary to law and cannot be sustained and the appellants are entitled to the reliefs sought in the petitions.
15. Accordingly, all the 10 appeals are allowed. The demand notices issued against each of the appellant on the basis that the benefit of exemption notification dated March 31, 1989 is not available in respect of sale of raw agarbathi, stands quashed. In the circumstances of the case, there will be no order as to costs.
16. Appeals allowed.