Karnataka High Court
Siddhagiri vs Entry Tax Officer, Ii Circle, ... on 31 October, 1990
Equivalent citations: 1991(1)KARLJ112, [1993]89STC221(KAR)
JUDGMENT M. Rama Jois, J.
1. In all these writ petitions, the petitioners have questioned the legality of the levy of entry tax in respect of goods brought within a local area and re-exported after sale to places outside the local area, under section 3 of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979 ("the Act" for short).
2. The brief facts of the case are these : The State Legislature enacted the Act and came into force on October 1, 1980. Section 3 of the Act is the charging section. It reads :
"3. Levy of tax. - There shall be levied and collected a tax on entry of the scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding two per cent. ad valorem and from such date as may be specified, whether prospectively or retrospectively, by the State Government and different dates and different rates may be specified for different local areas."
According to the above section, a tax at the rate not exceeding 2 per cent. ad valorem is leviable on entry of the scheduled goods into any local area for consumption, use or sale. Petitioners are wholesale dealers in textile goods in different cities in the State. In view of section 3 of the Act, the petitioners do not dispute that if any goods are brought by them into any local area and sold by them within the said area for the purpose of consumption or use within the local area, they are liable to pay tax on the sale turnover of of such goods. Their sole grievance in these writ petitions is about the levy of tax under section 3 of the Act in respect of goods brought by them within the local area and sold therein to dealers outside the local area pursuant to which the goods so sold are transported or re-exported to places outside the local area. Respondents 1 and 2, however, levied tax under section 3 the Act even on that part of the turnover of the textile goods which were sold by the petitioners to other dealers doing business outside the local area and which were transported outside the local area pursuant to such sale. The stand of the respondents has been that, according to the clear language of section 3 whenever goods are brought within any local area, whether for consumption or for use or for sale, the tax under section 3 becomes leviable.
3. As far as the factual position is concerned, the petitioners do not dispute that the textile goods on which tax is leviable under section 3 of the Act which were brought by them within the concerned local area, had been sold within that area. But their case is the real meaning real meaning of section 3 of the Act is, the sale which attracts the under section 3 of the Act is a sale intended for consumption or use of the goods sold, within the local area and that if the sale of the goods takes place within the area which is intended for re-exporting the goods outside the local area it does not attract the levy under section 3 of the Act.
4. In support of their contention, the petitioners relied on the judgment of the Supreme Court in Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality . That was a case in which the question for consideration by the Supreme Court was under what circumstances the octroi was leviable within the areas of the Belgaum Municipality of this State. The levy of octroi was also a tax payable in respect of goods brought within a local area for consumption, use or sale by the local authority concerned, as such a power had been conferred on the municipalities under the relevant municipal enactments, and the levy was also relatable to entry 52 of the State List. The Supreme Court analysed the four types of cases and held that octroi was leviable within the municipal area in respect of goods brought and sold within the local area either for consumption or use, though actual consumption or might takes place outside the local area in a given case. The relevant portion of the judgment reads :
"According to the company, the goods brought by it within the octroi limits can be divided into four separate categories as follows :
1. Goods consumed by the company;
2. Goods sold by the company through its dealers or by itself and consumed within the octroi limits by persons other than the company;
3. Goods sold by the company through its dealers or by itself inside the octroi limits to other persons but consumed by them outside the octroi limits; and
4. Goods sent by the company from its depot inside the octroi limits to extra-municipal points where they are bought and consumed by persons other than the company.' * * *
20. It is not the immediate person who brings the goods into local area who must consume them himself, the act of consumption may be postponed or may be performed by some one else but so long as the goods have been brought into the local area for consumption in that sense, no matter by wham, they satisfy the requirements of the Boroughs Act and octroi is payable. Added to the word 'consumption' is the word 'use' also. There may be certain commodities which though put to use are not 'used up' in the process. A motor car brought into an area for use is not used in the same sense as food-stuffs. The two expressions use and consumption together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up. In this context, the word 'consumption', as has been shown above, must receive a larger meaning than merely the act of consuming in the generally understood sense.
* * *
21. Looking to the trade of the company, it is quite obvious that it bring in the goods (a) for consumption by itself - which of course is within the term 'octroi' as described; (b) for re-export either by itself or through dealers outside the area - which as is admitted by the municipality, entitles the company to a refund of tax and (c) for sale by it directly to consumers or to dealers who distribute the goods within the area to ultimate consumers. So long as the goods are brought inside the area for sale within the area to an ultimate consumer, it makes no difference that the consumer does not consume them in the area but takes them out for consumption elsewhere. A motorist who buys petrol within the municipal area and goes outside it for a drive buys the petrol in the area for purposes of consumption and the person who keeps and stores the petrol for sale in such circumstances keeps it for consumption therein. The word 'therein' does not mean that all the act of consumption must take place in the area of the municipality. It is sufficient if the goods are brought inside the area to be delivered to the ultimate consumer in that area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area. Indeed, the consumer may never consume them as, for example, a motorist buys a tin of oil and finds that it does not suit his vehicle and leaves it lying on his shelf. The goods must be regarded as having brought in for purposes of consumption when a person brings them either for his own use or consumption, or to put them in the way of others in the area, who are to use and consume. In this process the act of sale is merely the means for putting the goods in the way of use or consumption. It is an earlier stage, the ultimate destination of the goods being 'use or consumption'. The earlier stage, namely, the sale by him, does not save the person who brought the goods into the local area from liability to the tax if the goods were brought inside for consumption or use. In other words, a sale the goods brought inside, even though not expressly mentioned in the description of octroi as it stood formerly, was implicit, provided the goods were not re-exported out of the area but were bought inside for or consumption by buyers inside the area. In this sense the amplification of the description both in the Government of India Act, 1935 and the Constitution did not make any addition to the true concept of 'octroi' as explained above. That concept included the bringing in of goods in a local area so that the goods come to a repose there. When the Government of India Act, 1935 was enacted, the word 'octroi' was deliberately avoided and a description added to forestall any dispute of the nature which has been raised in this case. In other words, even without the description the tax was on goods brought for 'consumption, use or sale'. The word 'octroi' was also avoided because terminal taxes are also a kind of octroi and the two were to be allocated to different Legislatures.
22. In our opinion, even without the words 'sale' in the Boroughs Act the position was the same provided the goods were sold in the local area to a consumer who bought them for purpose of use or consumption or even for resale to other for the purpose of use or consumption by them in the area. It was only when the goods were re-exported out area that the tax could not legitimately be levied and in this case the municipality has agreed to refund the amount of tax on goods re-exported without being used or consumed in the municipal area. In this view of the matter it was not necessary for the municipality to follow the procedure for imposing taxes when the section was amended. The tax still remained the same. Its nature, incidence or rates were not altered.
23. In our opinion, the company was liable to pay octroi tax on goods brought into local area (a) to be consumed by itself or sold by it to consumers direct and (b) for sale to dealers who in their turn sold the goods to consumers within the municipal area irrespective of whether such consumers bought them for use in the area or outside it. The company was, however, not liable to octroi in respect goods which it brought into the local area and which were re-exported. But to enable the company to save itself from tax in that case it had to follow the procedure laid down by rules for refund of taxes."
The learned counsel also relied on the judgment of the Supreme Court in Hiralal Thakorlal Dalal v. Broach Municipality . In the said case the Supreme Court reiterated the view taken in Burmah-Shell's case .
5. Sri B. P. Gandhi and Sri E. R. Indra Kumar, learned counsel for the petitioners, submitted that the Act was enacted by the Legislature under entry 52 of the State List and therefore there was no difference between the point at which octroi was leviable under the municipal enactment and the entry tax is leviable under the Act. They pointed out that the only difference is, earlier, local authorities were invested with the power to levy octroi and with the abolition of octroi and enacting of the Act, the entry tax is levied by the State itself, on the entry of goods to any local area for the purpose of consumption, use or sale. To this extent, there is no controversy.
6. The learned counsel submitted that as the levy of tax on entry of goods and the levy of octroi happen to be same, the two decisions of the Supreme Court in the cases of Burmah-Shell and Hiralal apply on all fours and therefore it should be held that the levy of tax by the respondents in respect of goods brought and sold by the petitioners in the local area, for being taken outside the local area for resale to other dealers, was without the authority of law. In other words, their contention has been that the sale within a local area which attracts the levy under section 3 of the Act must be sale for the purpose of consumption or use and not a sale intended to transport the goods outside the local area for resale therein.
7. Sri H. L. Dattu, learned counsel for the State, however, submitted that the exact question which arises for consideration in this case did not arise consideration in the aforesaid two cases of the Supreme Court. The learned Government Advocate pointed out that the Supreme Court in both the cases had held that so long the sale place within the local area and such sale was intended for consumption or use of the goods within the local area, it attracted the levy though in a given case the parties may not actually use or consume the goods so purchased in the local area but may take them outside local area. He pointed out that in neither of the decision was there any clear principle laid down to the effect that even if a sale take place within a local area, if such sale was intended for purpose of transport of the goods outside the local area for resale it would not attract the levy.
8. The learned counsel for the petitioners, however, relied on a subsequent judgment of the Supreme Court in Municipal Council v. Parekh Automobiles Ltd. (1990) 32 STL 26. The learned counsel pointed out that in this judgment, the Supreme Court has enunciated the law on the precise question arising for consideration in this case, in clear terms. They pointed out that in the said case also the contention of the respondents was similar to the petitioners in these cases, in that they contended that the goods brought by them within Jodhpur City and sold with Jodhpur City did not attract the levy of octroi by the Jodhpur Municipality, for the reason that the sale was not intended for the use or consumption of the goods but was intended for being transported outside the Jodhpur Municipal area for resale and therefore the tax was not leviable, and that the said contention was upheld by the Supreme Court. The relevant portion of the judgment reads :
"The High Court, however, rested on the view that even if the sale took place within the octroi limits of Jodhpur Municipal Council for the use or consumption of the ultimate consumer outside the octroi limits of Jodhpur then the taxable event did not take place in the octroi limits of Jodhpur. In those circumstances, the High Court held the municipal council had no jurisdiction to levy octroi on the goods so exported. In view of the facts and circumstances of the case, the High Court was right. The High Court issued an order of restraint. It directed that the municipal council be restrained by way of mandamus not to levy octroi on the goods exported by the respondent No. 2 for the use of the ultimate user outside the octroi limits of municipal council even if the sale took place within octroi limits of Municipal Council, Jodhpur.
* * * The sine qua non for levy of octroi is consumption, according to this Court. Therefore, no octroi be levied in respect of goods which were re-exported for consumption or use outside the municipal limits, the Division Bench held. In that view of the matter, the Division Bench of the High Court held that in view of the decisions of this Court, no octroi was leviable on petroleum products re-exported to the retail outlets situated outside the municipal limits for consumption and use outside the limits. In our opinion, the Division Bench is right in so far as held as aforesaid.
* * * The learned single Judge in the High Court did not permit the petitioners to raise question that sale took place outside the municipal limits of Jodhpur since that involved an investigation into facts which could not be undertaken in a writ petition and proceeded on the footing that the sale of the products in question took place within the limits of jodhpur. He, however, accepted the contention of IOC and the dealer that even if the sale is taken been effected within Jodhpur, no octroi was leviable as admittedly the goods had been sold in Jodhpur only for their onward transmission for use and consumption in Dangiawas outside the municipal limits. The Division Bench of the High Court has also approved of this conclusion and, in our opinion, rightly. As pointed out by my leaned brother in his detailed discussion on this aspect, this issue is covered by the two decisions of the Supreme Court which have already been referred to. I have nothing to add, so far as this part of case is concerned."
9. In our opinion, the ratio of the judgment in Municipal Council, Jodhpur's case (1990) 32 STL 26 (SC) fully covers the question arising for consideration in these cases.
10. The learned counsel for the petitioners submitted that a portion of the tax levied, which they were not liable to pay, had already been paid by some of the petitioners, as interim orders were granted subject to the condition of such payment and in some cases the entire amount of tax had been paid under protest, and therefore there should be an order for refund of the amount. In the light of our judgment, such refund has to be made.
11. In the result, we make the following order :
(i) The writ petitions are allowed.
(ii) The impugned orders in so far as they relate to levy of tax under section 3 of the Act in respect of such quantity of goods brought and sold within the local area which intended to be re-exported or transported outside the local area, are set aside.
(iii) Respondents 1 and 2 are directed to re-do orders, in accordance with the law and in the light of this order.
(iv) The authorities are directed to refund the amount to which each of the petitioners is entitled to within there months.
12. Writ petitioners allowed.