Karnataka High Court
M.M.S. Exports (P) Ltd. vs The Addl. Commissioner Of Commercial ... on 6 October, 2005
Equivalent citations: ILR2005KAR5132, (2007)6VST728(KARN), 2006 (1) AIR KAR R 676, (2005) 59 KANTLJ(TRIB) 597
Author: H.L. Dattu
Bench: H.L. Dattu, H.N. Nagamohan Das
JUDGMENT H.L. Dattu, J.
1. The appellant before us is a private limited company. It is registered both under the provisions of the Karnataka Sales Tax Act ('the KST Act' for short) and the Karnataka Tax on Entry of Goods Act ('the KTEG Act' for short). It is engaged in the manufacture of readymade garments in its industry located in a plot allotted by the Karnataka Industries Area Development Board ('KIADB' for short).
2. For the assessment year 1994-95, the assesses had filed its annual returns in Form 5 before the Assessing Authority, declaring taxable purchases amounting to Rs. 3,43,920-72 liable for payment of entry tax. On verification of the books of accounts, the assessing authority has noticed, in the returns filed, the assessee had not disclosed the causing of entry of imported industrial machinery, namely, Industrial Sewing Machines amounting to Rs. 4,48,31,570/- into its industrial area situate at KIADB area. This view of the assessing authority is fortified by the inspection report of the intelligence officer of the department who had inspected the business premises of the assessee on 17.1.1995. In view of all these materials that were available on record, the assessing authority after rejecting the returns filed by the assessee, had issued a pre-assessment notice to the assessee, inter alia directing the assessee to show cause, why its returns should not be rejected and the proposal made in the proposition notice should not be confirmed.
3. Though the notice was served on the assessee, it failed to respond to the proposal made in the Pre-assessment notice. Therefore, by making use of the report of the intelligence wing of the respondent, the Assessing Authority has proceeded to complete the assessment proceedings by levying entry tax in a sum of Rs. 1,22,836/- under Section 5(4) of the KTEG Act, on the imported purchase of industrial machinery. The Assessing Authority has also passed an order under Section 5(5) of the KTEG Act for willful non disclosure turnover liable for payment of Entry tax.
4. The assessee being aggrieved by the order passed by the Assessing Authority under Section 5(4) and 5(5) of the KTEG Act, had filed appeals before the first Appellate Authority. In the appeal filed against the order passed by the Assessing Authority under Section 5(4) of the KTEG Act, the primary contention canvassed by the assessee was, that the Assessing Authority in the assessment order passed, has not pointed out any omissions or commissions said to have been committed by the assessee in the books of accounts maintained by the assessee in its regular course of its business nor has given out any details about the willful non disclosure of the turnover which was liable to tax under Entry Tax Act. Secondly, reliance was also placed on the Division Bench decision of this Court in the case of Joint Commissioner of Commercial Taxes v. Mysore Sales International, 84 STC 461 to contend, that causing of entry of sewing machine into local area would not attract the charging provisions under the Entry Tax Act. Therefore, the Assessing Authority was not justified in rejecting the turnover declared by the assessee and further, in estimating turnover without assigning any reasons whatsoever.
In the appeal filed against the order passed by the Assessing Authority under Sections 5(4) and 5(5) of the KTEG Act, the appellant had contended, that it is a new industrial unit having financial difficulties and since it was debatable issue as to the levy of tax on the purchase of sewing machines by an export oriented industrial unit, it had not disclosed its purchase of sewing machines imported in its annual returns, but when the error was pointed out by the authority who had inspected the business premises of the assessee, it has paid the entire tax under the Act, even before the completion of assessment proceedings on the promise held out by those authorities that minimum penalty would be levied while concluding the assessment. Since that has not been done, the order passed by the Assessing Authority requires to be set aside. The first Appellate Authority has accepted the contentions raised and canvassed by the assessee and accordingly has allowed the appeal and has set aside the order passed by the Assessing Authority.
5. Revision proceedings are initiated by the Revising Authority in exercise of his powers under Section 15(1) of the Act, to revise the order passed by the first Appellate Authority and restore the orders passed by the assessing authority by issuing a show cause notice under Section 15(1) of the Act. In the show cause notice, it is the tentative opinion of the Revisional Authority, that the first Appellate Authority could not have set aside the levy of entry tax on "Sewing Machine" that was imported and whose entry was caused in to the industrial area by the Assessing Authority by taking a view that sewing machines are not covered by the expression "industrial machinery". After considering the objections filed to the show cause notice, the Revisional Authority is of the view, that since the entry provides for levy of tax on "machinery" (all kinds), "sewing machine" is a machinery falling under Sl. No. 1 of notification No. FD. 173.CET.98 dated 23.9.1998 and therefore, tax at the rate of 2% is leviable on the value of sewing machine. Even before the Revisional Authority, it was not the contention of the assessee that its industrial unit is situated in a plot allotted by the KIADB and therefore it would not fall within the meaning of the expression "local area" as defined under Section 2(5) of the KTEG Act. But for the first time before this Court a contention is raised that the industrial area allotted by KIADB is not a 'local area' as held by this Court in the case of "Samyuktha Karnataka v. State of Karnataka, 110 STC 226 and therefore, the assessing authority and the revisional authority are not justified in levying tax under the KTEG Act on causing entry of Sewing Machine in to industrial area allotted by KIADB.
6. The Revisional Authority, after considering the objections to filed by the assessee, has come to the conclusion that since during the assessment year the entry provides for levy of entry tax on Machinery (all kinds) and therefore, causing of entry of sewing machine into the local area would attract tax at the rate of 2%. In so far as addition of 20% on the actual purchases of Sewing Machinery and levying tax thereon and in regard to the levy of penalty under Section 5(5) of the Act, by the assessing authority, the revisional authority has found that the appellate authority has not given any finding and therefore has thought it fit to remand the matter to the first appellate authority for fresh consideration.
7. The Learned Counsel for the petitioner has raised two contentions before us. Firstly, the petitioner is carrying on its business activities on a plot allotted by Karnataka Industrial Area Development Board and therefore would not come within the meaning of the expression 'local area' as defined under Section 2(5) of the Act and accordingly charging provisions are not attracted even assuming the 'Sewing Machines' would fall under entry "machinery" (all kinds) as provided in the Government Notification dated 23.9.1998. Secondly, it is contended that "Sewing Machines" are not "Industrial Machinery" and therefore entry tax is not attracted as held by this Court in the case of Assistant Commissioner of Entry Tax Assessment-1 and Anr. v. Mysore Sales Corporation, [1992)] 84 STC 461.
8. In so far as the first contention canvassed, in our view, it is no more res-integra, in view of the law declared by the Apex Court in the case of Widia (India) Limited v. State of Karnataka, [2003)] 132 STC 360. In the said decision, the Supreme Court has observed as under:
"Establishment of industrial areas under the Karnataka Industrial Areas Development Board Act, 1966, was only for the purposes of that Act. That Act did not provide that the area declared to be an "industrial area" for the purposes of that Act would cease to be part and parcel of either the municipal corporation or the area of a municipality or panchayat. The areas so declared would still be within the "local area" for the purposes of the Entry Tax Act."
9. In view of the decision of the Apex Court in Widia (India) Ltd's case, the contention of the Learned Counsel that since it's industrial unit is located in the plot allotted by Karnataka Industrial Development Board. It is not exigile to entry tax has no merit and accordingly, it requires to be rejected.
10. Now coming to the second contention canvassed by the Learned Counsel and reliance placed on the decision of this Court in Mysore Sales Corporation's case (supra), it would be desirable to notice firstly the issue and secondly, the entry which came up for consideration before this Court in the aforesaid decision.
11. The issue before this Court was, whether 'sewing machine' could be subjected to entry tax and brought under entry 7 of the schedule to Karnataka Tax on Entry of Goods in to local areas for consumption, use or sale therein Act, 1979?
Entry 7 of the Schedule was as under:
"Industrial Machinery and Parts and accessories thereof"
12. The court after considering the charging provisions and the entry under the schedule as it existed, was pleased to observe that "the taxable event for the imposition of octroi or entry tax is the entry of goods within the municipal limits or local areas, and the nature and type of goods at the point of entry are the relevant factors in determining the rate of duty and not how the goods are used thereafter.
Proceeding further, the Court has observed as under:
"Sewing Machines are not industrial machinery, and cannot be taxed under entry 7 of the schedule to the Karnataka Tax on Entry of Goods into local areas for consumption, use or Sale therein Act, 1979. Whether after entry they are used in garment factories or domestically will have no bearing on the exigibility of entry tax thereon.
13. The precise question before the Court was whether the 'Sewing Machines' are industrial machinery as envisaged under entry 7 of the schedule to the Act and if it is so, whether causing entry of those goods would attract levy of tax under the provisions of KTEG Act. The Court, in the said decision had come to the conclusion that, 'Sewing Machines' are not industrial machinery and cannot be taxed under entry 7 of the schedule to KTEG Act.
14. The State Government in exercise of its powers conferred by Sub-section (1) of Section 3 of the KTEG Act has issued a notification No. FD. 173. CET. 98 dated 23rd September 1998. The notification is given effect from 1.4.1994 up to 6.1.1998. The notification provides for levy of entry tax on the causing of entry of "machinery" (all kinds) and parts and accessories thereof, but excluding agricultural machinery. The rate of tax leviable is at 2%.
15. Now in the present case, what requires to be considered and decided is whether 'Sewing Machines' would come within the meaning of the expression 'Machinery' (all kinds).
16. The word "Machinery" is not defined under the Act. Therefore, recourse have to be taken to understand the meaning of the expression "Machinery" as defined in dictionaries and the Judicial pronouncements. The meaning assigned to the word "Machinery" in the dictionary as well as in the judicial decisions makes it clear that, an article to be machinery must either be a completed machine or a number of completed machines or parts or members of a machine, which when they are assembled, form complete machine. Reference can be made to the decision of Gujarath High Court in the case of State of Gujarath v. Minu Chemicals (P) Ltd. (1982) 50 STC 339. If this test is applied to the present case, the 'Sewing Machines" would definitely fall under Sl. No. 1 of the notification dated 23.9.1998, which provides for 'Machinery' (all kinds).
17. In the present case, the assessee is engaged in the manufacture of export ready made garments. For its business activity during the assessment year 1994-95, the assessee had caused entry of 'Sewing Machines' into local area. The assessing authority while concluding the assessments under Section 5(4) of the Act, had levied entry tax at the rate of 2%. This levy is set aside by the first appellate authority, taking the view 'Sewing Machines' are not industrial machinery, without noticing the notification issued by the State Government dated 23.9.1998 retrospectively, i.e., with effect from 1.4.1994 upto 6.1.1998, but by merely relying on the view expressed by this Court in Mysore Sales Corporation's case (84 STC 461). The revisional authority after noticing the notification issued by the State Government retrospectively which provides for levy of entry tax on machinery (all kinds), in our view, has rightly come to the conclusion that the order passed by the first appellate authority is not only erroneous but also prejudicial to the interest of the revenue. Therefore, we do not find any error in the order passed by the revisional authority. Accordingly, revision petition requires to be rejected and accordingly, it is rejected. No order as to costs. Ordered accordingly.