Karnataka High Court
Food Corporation Of India vs The Commissioner Of Commercial Taxes In ... on 17 September, 2003
Equivalent citations: ILR2004KAR1201, [2004]138STC235(KAR)
Author: P. Vishwanatha Shetty
Bench: P. Vishwanatha Shetty, Ajit J. Gunjal
ORDER P. Vishwanatha Shetty, J.
1. Since these petitions are filed against the common Order dated 5th January 2000 passed by the Karnataka Appellate Tribunal [hereinafter referred to as 'the Tribunal'], these petitions are taken up for hearing together and disposed of by this Order.
2. The petitioner in these petitions is the Food Corporation of India [hereinafter referred to as 'the Assessee'] and a dealer under the provisions of the Karnataka Sales Tax Act, 1957 [hereinafter referred to as 'the Act']. In this petition filed under Section 23(1) of the Act, the assessee has called in question the correctness of the Order dated 5th January 2000 passed by the Tribunal. The Assessee is a Government of India undertaking established under the provisions of the Food . Corporation of India Act, 1964 [hereinafter referred to as 'the FCI Act']. It is claimed that the activities of the Assessee extends through out the Country and it is engaged in procurement, storage and release of essential food-grains under public distribution system without making any profit. It is also claimed by the Assessee that it is carrying out its activities, keeping in mind the national importance in maintaining price level of essential food commodities and also to meet the exigencies and requirement of famine affected areas and tribal areas.
3. The assessment years in these petitions pertain to the years 1982-83, 1984-85, 1985-86 and 1987-88 to 1989-90. Though the Assessing Officer initially accepted the returns filed by the assessee, subsequently in exercise of the power conferred on him under Section 12-A of the Act, by means of its Orders dated 19th June 1993, assessed the assessee under Section 6 of the Act in respect of the para boiled stock of rice transferred from the assessee to its various branches in the neighbouring States of Karnataka. The said Orders were called in question by the assessee before the joint Commercial Taxes (appeals) [hereinafter referred to as 1st Appellate Authority]. The 1st Appellate Authority, by means of his common order dated 26th April 1996 dismissed the appeals filed by the Assessee. The second appeal filed by the Assessee, aggrieved by the said order, also was unsuccessful. Hence, these Revision Petitions.
4. Sri E.R. Indrakumar, learned Counsel appearing for the Assessee challenging the correctness of the impugned order, made three submissions. Firstly, he submitted that the Tribunal as well as the subordinate authorities have failed to consider that the procurement of rice by the assessee in terms of Karnataka Rice Procurement (Levy) Order [hereinafter referred to as 'the Levy Order'] and surrender of rice by the millers in terms of Levy Order was neither a purchase nor a sale and as such the provisions of Section 6 of the Act has no application. In support of this submission, he relied upon the decision of this Court in the case of MADHUR TRADING COMPANY AND ORS. v. STATE OF KARNATAKA AND ORS., 1993 Vol. 90 STC 537 According to the learned Counsel, the principle laid down in the said decision while considering Section 5(3-C) of the Act read with the Proviso given to the said Section would fully support his contention as the provisions contained in Section 5(3-C) and the proviso given to the said section is in parimateria with the 2nd proviso given to Section 5(4) of the Act. Therefore, he submits that since there is no element of purchase involved in rice procured by the assessee, the Order of assessment made by the Assessing Officer in the purported exercise of power conferred on him under Section 12-A of the Act is totally unsustainable and therefore, all the Orders impugned in these petitions are liable to be set aside. Secondly, he submitted that under Section 6 of the Act the tax can be imposed, if a dealer, who in the course of business, purchases any taxable goods in the circumstances under which no tax under Section 5 of the Act is leviable on the sale price of such goods dispatched from a place outside the State except as a direct sale in the course of inter-State trade or commerce. In other words, it is his submission that it is only in the event where the tax is not made leviable under Section 5 of the Act on a commodity, it is only in respect of those commodities, if those commodities are dispatched by an assessee from the State of Karnataka out side the State except in the Course of inter-State trade or Commerce, the tax is made leviable under Section 6 of the Act and not in other cases. Elaborating this submission, the learned Counsel pointed out that so far as the transaction of levy-paddy sold to the assessee, which is treated as an Agent of the State is concerned, the tax is not made leviable and the miller is not payable to tax in respect of food-grains sold to the assessee. Therefore, he submits that since the miller is not payable tax in respect of food-grains sold to the assessee, the provision of Section 6 is not attracted and as such the assessee is not liable to pay the tax in respect of the food-grains sent outside the State. Finally, he contended that if the third proviso given to Section 5(4) read with explanation (1) given to Fourth Schedule of the Act is considered, the assessee is entitled for the deduction of tax paid in respect of levy-paddy which are subsequently converted as rice while making an order of assessment against the assessee. In support of his submission, he also referred to us the Full Bench decision of this Court in the case of B.V. PATIL v. THE COMMISSIONER OF COMMERCIAL TAXES, BANGALORE, 1979 Vol. 43 STC 419 and drew our attention to page 424 of the judgment and also the judgment of the Hon'ble Supreme Court in the case of FOOD CORPORATION OF INDIA v. STATE OF KERALA., 1997 Vol. 105 STC 4
5. However, Sri B. Anand, learned Government Advocate, strongly repelling each one of the submission of the learned Counsel for the assessee pointed out that the principle laid down in the case of MADHUR TRADING CO., (supra), has no application to the facts of the present case. It is his submission that the said decision mainly proceeded to decide the question whether the transaction in question is in the nature of inter-State transaction or not. It is his further submission that in the said decision, the question that came up for consideration was the liability to pay tax under Section 6 of the Act by the dealers of silk fabrics. In this connection, he drew our attention to the observation made at paragraph 13 of the said judgment. Therefore, he submits that the first contention of the learned Counsel for the petitioner is liable to be rejected. It is also his submission that the distinction sought to be made by the learned Counsel for the assessee about the 'tax leviable' and the 'tax payable' and the language employed in the second proviso given to Section 5(4) and Section 6(1) of the Act is totally misconceived. According to the learned Government Advocate, the second proviso given to Section 5(4) of the Act, if it is properly construed, it would be clear that the tax is not made leviable in respect of the sale of foodgrains by the miller to a procurement Agent, i.e., the assessee but tax is levied when it is sold by the procurement agent to others. He also pointed out that the whole object of the second proviso given to Section 5(4) of the Act is, to relieve the hardship of the miller who sells the paddy to the Agent of the State by way of levy; and the language of the said proviso makes it clear that the liability to pay tax is postponed from the point of first sale ie. from the miller to the Agent and it is made leviable at the point of sale by the Agent to any other person within the State of Karnataka. If the food articles in question are to be transferred by the Agent outside the State of Karnataka, such an Agent is made liable to pay tax in terms of Section 6 of the Act. It is also his submission that if the sale is made in the course of inter-State sale, the Central Sales Tax is made leviable for such sales under Section 6 of the Central Sales Tax Act. Therefore, according to him, the second contention of the learned Counsel for the petitioner also is liable to be rejected as one devoid of any merit. Lastly, he submitted that while the Corporation is entitled for deduction of tax paid in respect of levy-paddy, in terms of third proviso given to Section 5(4) of the Act, the claim is required to be made by the Assessee only after the assessee complies with the orders of assessment and makes the payment of producing necessary proof before the Assessing Officer that the articles in respect of which the assessment has been made, had already suffered tax. It is his further submission that since the assessee has not made any claim on this regard before the Assessing Officer, it should not now be permitted to urge the same.
6. In the light of the rival contentions advanced by the learned Counsel appearing for the parties, the only question that would arise for our consideration in this petition is as to whether the orders impugned in these petitions are liable to be interfered with in exercise of the power conferred on us under Section 23(1) of the Act?
7. We will now proceed to consider each of the contentions advanced by the learned Counsel appearing for the assessee in seriatim. So far as the first contention is concerned, at the very outset, we may point out that we are not impressed. As noticed by us earlier, the said submission is based on the premises that the essential commodities which were dispatched by the assessee were not purchased by the assessee. In our view, the reliance placed by Sri Indra Kumar, in support of his submission, on the decision of this Court in the case of MADHUR TRADING CO. (supra) is of no assistance to him. The observation made at Paragraph 7 of the judgment wherein it is observed that ; "if there was no sale, the consideration paid by the purchaser cannot be a sale price. If so, the main part of Section 6 itself will not be attracted. In these circumstances, we are constrained to hold that this is not a case where the petitioners "purchased' any taxable goods in circumstances in which no tax under Section 5 was leviable on the "sale price" of such goods, referred in Section 6 of the State Act cannot have any application to the facts of the present case. The second proviso given to Section 5(4) of the Act comprises of two parts. The first part provides that in respect of sale of cereals mentioned in Sl. No. 9 of the Fourth Schedule made by any person to a procurement agent appointed by the Government of Karnataka or to any sub-agent or such procurement agent, in pursuance of the Levy Order or any other food-grains levy order of the Government of Karnataka for the time being in force, such sale shall not be deemed to be the sale. However, the second part provides that the subsequent sale by the procurement. Agent or sub-agent should be considered and deemed to be the point at which the tax under the Act should be levied. It is useful to extract Sub-section (4) and the 2nd proviso of Section 5 of the Act, which reads as hereunder:
"5(4). Notwithstanding anything contained in Sub-section (1) (or Section 5B or Section 5C) a tax under this Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Schedule at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said schedule on the dealer liable to tax under the Act on his (taxable turnover) of sales or purchases in each year relating to such goods:
XXX XXX Provided further that in respect of the sale of cereals mentioned in Serial No. 9 of the Fourth Schedule, made by any person to a procurement agent appointed by the Government of Karnataka or to any sub-agent of such procurement agent in pursuance of the Karnataka Rice Procurement (Levy) Order 1981, or any other Foodgrains Procurement (Levy) Order of the Government of Karnataka for the time being in force, such sale shall not be deemed to be, but the subsequent sale by the said procurement agent or sub-agent shall be and shall be deemed to be the point at which the tax under this Act shall be levied."
It is also useful to extract Section 6 of the Act which, reads as hereunder:
"6. Levy of purchase tax under certain circumstances -- Subject to the provisions of Sub-section (5) of Section 5, every dealer who in the course of his business purchases any taxable goods in circumstances in which no tax under Section 5 is leviable on the sale price of such goods, and
(i) either consumes such goods in the manufacture of other goods for sale or otherwise or consumes otherwise, or disposes of such goods in any manner other than by way of sale in the State, or
(ii) dispatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under Section 5:
Provided that this section shall not apply -
(i) in respect of sale or purchase of goods specified in the Fourth Schedule -
(a) which are taxable at the point of purchase; and
(b) which have already been subjected to tax under Sub-section (4) of Section 5.
(ii) in respect of sale or purchase of goods specified in the Second Schedule which have already been subjected to tax under Clause (a) of Sub-section (3) of Section 5."
8 . As noticed by us earlier, the first part of the second proviso given to Section 5(4) of the Act provides that the purchase of food grains referred to at Sl.No. 9 of the Fourth Schedule should not be considered as a 'Sale'; and the second part of the said proviso provides that the sale made by the procurement agent like the assessee, should be the point at which the tax under the Act should be levied. In other words, while the sale made by any person to a procurement agent appointed by the Government of Karnataka like the assessee pursuant to the Levy Order is not made as a 'Sale', the subsequent sale to be effected by such a procurement agent is treated as a point at which the tax should be levied. In the case of MADHUR TRADING CO. (supra), the provision, which came up for consideration was of Clause (C) of Sub-section (3) of Section 5 of the Act. The submission of Sri E.R. Indrakumar that Clause (C) of Sub-section (3) of Section (5) of the Act is identical to the second proviso given to Section 5(4) of the Act, is not correct. However, it is useful to refer to Section 5(3)(C) of the Act, which reads as hereunder:
"5(3)(C) in respect of silk fabrics, at the rate of four per cent, at the point of last sale in the State by the dealer liable to tax under the Act on his taxable turnover of sales relating to such goods in each year."
It is also useful to extract the observation made by this Court in the case of MADHUR TRADING CO. (supra) at page 543 of the judgment, which reads as hereunder:
".... The legislative intention seems to be not to burden silk fabrics with the taxes under the Act to the extent those silk fabrics were manufactured by the weavers as stated in the proviso above. If the object was to grant exemption only to the weavers, these silk fabrics manufactured by the weavers could have been shifted to the Third Schedule read with Section 5(3)(b) of the State Act or a statutory exemption from liability to pay the sales tax could have been granted by saying so by a suitable wording of the proviso. The proviso could have said that sale by a handloom or a power-loom weaver, etc, of silk fabrics manufactured by him shall not be taxable under Clause (c) of Section 5(3). The proviso has clearly declared that such a sale is not a 'sale' at all for the purposes of the State Act. It will be straining the language of the proviso and the legal effect to be given to the deeming provision to say that there can be a purchase without a sale."
9. Therefore, we are of the view that the principle enunciated by the Court in the case of MADHUR TRADING CO. (supra), has no application to the facts of the present case, as the decision in the said case, as noticed by us earlier, was rendered with reference to the proviso given to Section 5(3)(C) of the Act. Therefore, since the second proviso given to Sub-section (4) of Section 5 of the Act makes the sale made by the procurement agent like the assessee should be treated as a 'sale' and at that point the tax should be levied, we are unable to accept to the submission of Sri Indra Kumar that there is no purchase made by the assessee in respect of the food grains in question and as such tax cannot be levied under Section 6 of the Act. In this connection, it is useful to refer to the observation made by the full bench of this Court in the case of B.V. PATIL (supra). In the said decision, at page 423 his Lordship E.S. Venkataramaiah, J , as he then was, has observed as follows:
"Section 6 of the Act also levies a ax on the purchase turnover when the above ingredients are present. The expression 'taxable goods' appearing in Section 6 refers not to goods whose turnover is taxable under Section 5 as held by this Court in the case of Guddad and Sons, but it refers to goods other than those whose turnover is exempted from tax by inclusion in the Fifth Schedule to the Act. The expression "in circumstances in which no tax is leviable on the sale price of such goods" refers to events under which tax may not be levied under Section 5 on the sales turnover including the case of a seller being an agriculturist who is not treated as a dealer under Section 2(1)(k) of the Act. Section 6, which is also a charging section, brings to tax goods other than those referred to in the proviso thereof the sale of which would normally have been taxed at some point in the State whose sale in favour of the dealer has not been taxed under Section 5 owing to certain circumstances and where subsequent to the purchase by the dealer those goods are not available for taxation owing to the act of the dealer in consuming them in the manufacture of other goods for sale or otherwise or consuming them in the manufacture of other goods for sale or otherwise or dispatching them in any manner other than by way of sale in the State or dispatching them to a place outside the State except as a direct result of sale or purchase in the Course of inter-State trade or commerce."
10. The observation made in the said decision, in our view, would fully apply to the facts of the present case. It is necessary to point out that the whole object of the first portion of the second proviso given to Section 5(4) of the Act which exempts levy of tax in respect of sale effected by any person to a procurement agent appears to be to give some benefit to such persons who sell or surrender the food grains to the procurement agent at the rate notified by the State which is generally lower than the market price. Therefore, it is not possible to take the view that the procurement agent is also exempted from payment of tax in terms of Section 6 of the Act. Section 6 of the Act provides for levy of purchase tax under certain circumstances. It s useful to refer to the observation made by this Court in the case of SHABIB JAN v. COMMISSIONER OF COMMERCIAL TAXES IN KARNATAKA, BANGALORE, 1993 (37) KLJ 274 which supports the view we have taken above. In the said judgment, at page 276 it is observed as follow:
".....The Supreme Court also pointed out that the concept taxable event referred in the earlier decision in Goodyear's case was not correctly applied to the fact situation involved. The Supreme Court also pointed out that purpose of a provision like Section 6 is to enable the State to levy at least one tax on the sale or purchase transaction involving the goods. The charge under the charging section is attracted because of the purchase made by the dealer though the sale under which the dealer purchases is not subjected to tax. The charge on the purchase is attracted on satisfaction of certain condition and those conditions are not the "taxable events" at all. His Lordship Justice Ranganathan was a party to both the decisions of the Supreme Court. The decision in Goodyear's case was rendered by a Bench of two Judges including Justice Ranganathan. His Lordship, while rendering a concurring judgment in Hotel Balaji case, pointed out that the ambit of power to levy a tax in respect of sale of goods is very wide and will cover any tax which has a nexus with the sale or purchase of goods including a 1st purchase in the State. In page 195, His Lordship observed thus:
"....The ambit of the power to levy a tax in respect of sale of goods is very wide and will cover any tax which as a nexus with the sale or purchase of goods including a last purchase in the State. This I think is a more appropriate test to be applied in these cases rather than the test of 'taxable event' which is somewhat ambiguous in the context I am not inclined to agree that a tax on the sale or purchase of goods will cease to be so merely because the determination of its character as a last purchase would depend upon certain subsequent events which may be spread over a subsequent period of time. In this view of the matter I am inclined to agree with my learned brother Jeevan Reddy, J. That the levy under the Andhra Pradesh Act is also within the legislative competence of the State."
11. Therefore, we are of the view that Section 6 of the Act is specific and clear in its terms, which provides for levy of purchase tax subject to the requirements laid down in the said Section. The State cannot be deprived of its right to levy tax on the short ground that the purchase of food grains by the procurement agent like the assessee, is made not a sale by virtue of the deemed provision. When the second proviso given to Section 5(4) of the Act specifically states that the sale made by the procurement agent shall be deemed to be the point at which the tax under the Act shall be levied, it is not possible to take the view that Section 6 of the Act has no application. Therefore, we hereby reject the first contention of Sri Indrakumar.
12. We are also of the view that there is also no merit in the second contention advanced by the learned Counsel for the petitioner. We are unable to accept the submission that tax is not levied under Section 5 of the Act as contended by Sri Indra Kumar. The reading of Sub-section (4) of Section 5 of the Act extracted above makes it clear that notwithstanding anything contained in Sub-section (1) or Section 5B or Section 5C tax under the Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Schedule at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said Schedule on the dealer liable to tax under the Act on his taxable turnover of sales or purchases in each year relating to such goods. However, the first ps of the second proviso only makes an exception in the case of the sale of food grains made by any person to a procurement agent appointed by the Government of Karnataka like the assessee from payment of tax under the Act. As noticed by us earlier, the food grains purchased by the procurement agent is liable for payment of tax. Therefore, we are also unable to accept the second submission of Sri Indra Kumar.
13. The only other contention remains to be considered is, whether in view of the third proviso given to Sub-section (4) Section 5 of the Act, whether the respondent was under an obligation to give deductions to the tax paid in respect of the paddy purchased by the petitioner?
14. To consider this question, it is useful to refer to the third proviso given to Sub-section (4) of Section 5 of the Act which reads as hereunder:
"5(4) xxxx xxxxxx xxxx XXX XXX XXX XXX XXX XXX Provided also that where tax has been paid under this sub-section on the purchase of paddy and such paddy is either subsequently sold to or is hulled and the resultant rice is sold to a procurement agent appointed by the Government of Karnataka or to any sub-agent of such procurement agent in pursuance of the Karnataka Rice Procurement Levy Order, 1984, or any other Foodgrains Procurement (Levy) Order of the Government of Karnataka for the time being in force, the tax paid under this Act on the purchase of such paddy shall be reimbursed to the person making such sale to such procurement agent or his sub-agent, as the case may be, in such manner and subject to such conditions as may be prescribed.
It is true, as contended by Sri Indra Kumar that in respect of the food grains purchased by the assessee if the tax has already been paid to that extent, the tax paid is required to be reduced. This is clear from the third proviso given to Section 5(4) and also the explanation given to the Fourth Schedule. To get the benefit of the said provision, the assessee must make a claim and on evidence, establish that the Foodgrains to which the tax is leviable under Section 6 of the act had already suffered tax in term of third proviso given to Section 5(4) of the Act. This purely is a question of fact. In the instant case, Sri Indra Kumar is unable to dispute that no such claim was made before the assessing officer and he fairly admitted before us that a claim was made for the first time before the 1st Appellate Authority. Under these circumstances, since there was no claim made before the assessing Officer and no evidence was placed before him on this behalf, it is not possible to accept the contention of Sri Indra Kumar that the Assessing Officer should have given the benefit of the tax reduction in respect of the tax stated to have been already paid. However, having regard to the facts and circumstances of the case and keeping in mind that the assessee is a Government of India Undertaking, we are of the view that the ends of justice would be met, if an opportunity is given to the assessee to make a claim for refund of the tax, if any paid, on the paddy sold by the persons to the assessee, in term of the third proviso given to Section 5(4) of the Act. However, reserving of such liberty to the assessee to make a claim for refund, it is made clear, would not absolve the assessee of its liability to pay tax under Section 6 of the Act; and on that ground the assessee cannot delay making the payment in terms of the order of assessment made under Section 6 of the Act.
15. In the light of the discussion made above and subject to the liberty reserved to the assessee to seek refund of the tax as stated above, these appeals are rejected. If the assessee intends to make a claim for refund, it should make such a claim within five months from the date of receipt of a copy of this Order. If such a claim is made within five months as stated above, the assessing officer shall consider the same on merits and in accordance with law without raising any objection with regard to the period of limitation only. However, no order is made as to costs.
16. Sri B. Anand, learned Government Advocate is given four weeks' time to file his memo of appearance.