Karnataka High Court
Kirloskar Electric Co. Ltd. vs State Of Karnataka on 15 September, 1998
Equivalent citations: AIR1999KANT60, [1999]114STC460(KAR), AIR 1999 KARNATAKA 60, 1999 (1) KANTLD 691, (1999) ILR (KANT) 3118, (1999) 114 STC 460, (1998) 45 KANTLJ(TRIB) 495
Author: Ashok Bhan
Bench: Ashok Bhan, S.R. Venkatesha Murthy
JUDGMENT Ashok Bhan, J.
1. Important question which falls for consideration in these petitions is whether the notification issued by the State Government in exercise of powers conferred by Explanation II to Entry 16B of the Schedule to Karnataka Tax on Entry of Goods Act, 1979, is impliedly repealed or rendered ineffective with the amendment of the Act by the Legislature by introducing an entry in the Explanation II of Entry 16-B of the Schedule retaining raw materials while excluding component parts and inputs made out of raw materials, to which the exemption was given by the notification.
2. This order shall dispose of these appeals relating to assessment years 1986-87, 1987-88, 1988-89 and 1989-90. In all these appeals common questions of law and fact are involved and therefore being disposed of by a common order as has been done by the authorities below.
3. Petitioner herein is a Company registered under the Companies Act, 1956 and is engaged in the business of manufacturing Electrical Goods. It is a registered dealer under the provisions of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as 'the Act'). In the course of manufacturing activities petitioner caused entry of several goods enumerated in the schedule to the Act in the local area of Bangalore and Hubli. The subject-matter of these revision petitions inter alia relates to grant of exemption for component parts or goods made out of Iron and Steel under Notification No. FD.83.CET.84 dated 27th November, 1984.
4. Entry tax is levied under the Entry Tax Act on the goods enumerated in the Schedule contained in the Act. With effect from 1-5-1992, the Schedule has been thoroughly revised. For the relevant period which is the subject-matter of these petitions, the Entry in question was "all raw materials, component parts and inputs" which are used for the manufacture of intermediate or finished products. The said Entry was followed by two explanations. Explanation II provided that certain goods are excluded from the meaning of expression "raw materials, components and inputs". In addition to the specifically excluded items, power was vested in the State Government to exclude other items by means of a Notification. In exercise of this power, the Government of Karnataka issued Notification No. FD.83.CET.84 dated 27-11-84. By the said Notification certain items were specified as goods not falling under the heading "raw materials, component parts and inputs". The goods enumerated were Iron and Steel of 16 varieties and component parts or inputs manufactured out of 16 kinds of Iron & Steel. The Legislature passed the Amendment Act 18/89 incorporating 16 items of Iron and Steel illustrated in notification dated 27-11-1984 leaving out the component parts and inputs manufactured out of the 16 items mentioned in the notification. The amendment was given retrospective effect from 27-11-1984 which is the date of the notification itself. Petitioner who had imported the component parts manufactured out of Iron and Steel claimed exemption of Entry Tax on the plea that Act No. 18/89 did not take away the effect of operation of notification dated 27-11-84 and the incorporation of 16 items from the notification into Explanation II to Item 16-B in the Schedule does not lead to the inference that the exemption given to the component parts or inputs under the notification itself ceases to operate. This contention was not accepted by the Assessing Authority. Entry Tax was levied on the component parts brought by the petitioner within the city. The first appeal as well as the second appeal before the Tribunal filed by the petitioners failed aggrieved against which the present revision has been filed.
5. In order to appreciate the point raised in this revision directly it will be useful to reproduce Entry No. 16-B as it existed at the relevant time in Schedule I to the Act and the same reads as under:
"16-B. All raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product:
(i) When brought into local areas by an industrial unit; or
(ii) When brought into local areas by any dealer who, after having so brought, sells or supplies the same to an industrial unit located either within the same local area or outside it.
Explanation-I. The words 'Industrial Unit' mean a manufacturing unit which falls within the definition of a 'factory' under the Factories Act, 1948 (Central Act No. LXIII of 1948) but excludes (i) Handicrafts Manufacturing Units, (ii) Handloom Weaving Units and (iii) Any other group or class of industries which may with reference to their natures, competitiveness, employment potential or such other factors, be notified by the State Government.
Explanation-II. The words 'raw materials component parts and inputs' do not include agricultural product horticultural produce, timber or wood of any species, silk cocoons, raw, thrown or twisted silk, tobacco (whether raw or cured), cement, paper, electrical goods or such other inputs as may be notified by the State Government for purposes of exemption from tax under Item 16-B from time to time, but include aluminium ingots and ores of all kinds."
6. By virtue of Explanation II, agricultural product, horticultural produce, timber or wood of any species, silk cocoons, raw thrown or twisted silk, tobacco, cement paper, electrical good's are not considered as inputs or raw-materials and therefore not liable to tax under Sl. No. 16-B of the Schedule. The said explanation also empowers the Government to notify such other inputs for the purpose of exemption from tax under 16-3 of the Schedule from time to time. Accordingly Government issued notification dated 27-11-84 excluding Iron and Stell items detailed in SI. Nos. 1 to 16 of the Schedule and component parts and inputs manufactured out of such 16 items. Relevant portion of the notification reads as under :
"In exercise of the powers conferred by Explanation II to Item (18) of the Schedule to the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979 (Karnataka Act No. 27 of 1979), the Government of Karnataka hereby notifies that for the purposes of Explanation-II the words 'Raw-materials, Component Parts and any other inputs' do not include Iron and Steel, that is to say-
(i) pig iron and cast iron including ingot moulds, bottom plates, iron scrap, cast iron scrap, runner scrap and iron skull scrap;
(ii) steel semis (sic) (ingots, slabs, blooms and billets of all qualities, shapes and sizes);
(iii) skelp bars, tin bars, sheet bars, hoe bars and sleeper bars;
(iv) steel-bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as in straight lengths);
(v) steel structural (angles, joints, channels, fees, sheet piling sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form as rolled and in rivetted condition;
(vii) plates, both plain and chequered, in all qualities;
(viii) discs, rings, forgings and steel castings;
(ix) tool, alloy and special steels of any of the above categories;
(x) steel melting scrap in all forms including steel skull, turnings and borings;
(xi) steel tubes, both welded and seamless of all diameters and lengths, including tube fittings; (xii) tin plates, both hot dipped and electrolytic and tinfree plates;
(xiii) fish-plate bars, bearing plate bars, crossing sleeper bars, fish-plates, bearing plates, crossing sleepers and pressed steel sleepers, rails heavy and light crane rails;
(xiv) wheels, tyres, axles and wheel sets;
(xv) wire rods and wires rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;
(xvi) defectives, rejects, cuttings or end pieces of any of the above categories;
and component parts or inputs manufactured out of the above."
7. By Amending Act 18/89 all the 16 items of iron and steel illustrated in the notification dated 27-11-1984 were bodily incorporated into the main Act under Explanation II. The amendment was given retrospective effect with effect from 27-11-1984. The words 'and component parts or inputs manufactured out of the above' of the notification were not incorporated in the Act. According to the Government Pleader legislature deliberately omitted to include component parts and inputs manufactured out of the 16 items into the schedule under Explanation II and therefore exemption from Entry Tax on the component parts or goods made of Iron and Steel are not available. Per contra, counsel for the respondent argued that notification dated 27-11-1984 not having been withdrawn by any order or any statutory measure, has to be given effect to and there can be no implied repeal of the notification. Imposition of tax has to be by clear words and intentment of the legislature by mere omission to include component parts made out of Iron and Steel in Explanation II to Entry 16-B by the Amending Act 18/89 could not be inferred.
8. It was conceded before us that raw material, component parts and inputs in Entry 16-B are three distinct types of goods having different marketable value. Items 1 to 16 mentioned in the notification and which were incorporated by the Amending Act 18/89 in Explanation II is 'all raw materials' whereas the component parts made out of Iron and Steel are different goods having separate marketable value. The component parts made out of Iron and Steel in common parlance are not called as Iron and Steel, as they are known as component parts only. The component parts go into the final commodity as an intermediary product and as such the same falls within the ambit of Entry 16-B to the Schedule to the Act. Entries of Items 1 to 16 in the notification made in Explanation II of Entry 16-B by the Amending Act 18/89 cannot run parallel. Once the legislature has intervened and lifted certain items i.e., Items Nos. 1 to 16 from the notifications and bodily incorporated them in the main Act in Explanation II giving it retrospective effect, the intention of the legislature becomes manifest that it wanted to include only the raw materials and not the component parts or inputs from the list of exempted items from payment of entry tax under the Act. Contention of the counsel for the petitioner that the notification dated 27-11-84 still survives in so far as the component parts and inputs manufactured out of Iron and Steel cannot be accepted as correct. Such a construction in our view is totally opposed to legislative intention as expressed by the amendment to the Schedule with retrospective effect from 27-11-1984 by the Amending Act 18/89. Nothing prevented the Legislature to include component parts and inputs manufactured out of Iron and Steel as well when the legislature included Iron and Steel in Explanation II to Entry 16-B to the Schedule. It was not so because the intention of the legislature was not to confer any exemption in respect of the component parts and inputs manufactured out of iron and steel. In view of this the contention of the counsel for the petitioner that notification dated 27-11-1984 authorises exemption of tax in respect of component parts/inputs manufactured out of iron and steel even after the retrospective amendment to Explanation II to the Schedule is not convincing and has to be rejected.
9. Notification issued by the delegated authorities in exercise of the power conferred under the Statute stands impliedly repealed or rendered ineffective whenever the legislature intervenes and amends the Act relating to the same subject by making an amendment in the main Act. This point was examined by a Full Bench of this Court in Shaw Wallace & Co. Ltd. v. State of Karnataka, (1993)91STC 37. The following question of law was referred to the Full Bench :
"Whether a notification issued by the State Government in exercise of the power conferred by Section 8-A of the Karnataka Sales Tax Act, 1957, is impliedly repealed or rendered ineffective when the Legislature amends the Act and introduces an entry in the Schedule to the Act, which relates to the class of goods to which exemption is given by the notification?"
While answering the question referred in the affirmative it was held that the notification issued under Section 8-A of the Act impliedly repealed or rendered ineffective when the legislature amends the Act and introduces an entry in the Schedule to the Act which relates to the class of goods to which exemption is given by the notification. In coming to this conclusion the Full Bench observed and adopted the following reasons :
"In this connection, the decision of the Supreme Court in Commissioner, Sales Tax v. Agra Belting Works, requires to be referred. Section 3-A of the U.P. Act empowered the Government to vary the rate of tax, prescribed under Section 3 of the Act. Section 4 empowered the Government to grant exemption from liability to tax in respect of certain classes of goods. U.P. Government had granted the exemption by issuing a notification under Section 4 subsequently, in respect of the same goods, rate of tax was notified under Section 4-A. This subsequent notification was held as resulting in withdrawing the exemption notification. At page 3, Supreme Court held:
'All the three sections are pans of the taxing scheme incorporated in the Act and the power both under Section 3-A as also under Section 4 is exercisable by the State Government only. When, after a notification under Section 4 granting exemption from liability, a subsequent notification under Section 3-A prescribes the rate of tax, it is beyond doubt that the intention is to withdraw the exemption and make the sale liable to tax at the rate prescribed in the notification. As the power both for the grant of exemption and the variation of the rate of tax vests in the State Government and it is not the requirement of the Statute that a notification to recall of exemption is a condition precedent to imposing tax at any prescribed rate by a valid notification under Section 3-A, we see no force in the contention of the assessee which has been upheld by the High Court. In fact, the second notification can easily be treated as a combined notification -- both for withdrawal of exemption and also for providing higher tax.' The first part of the above observation would be equally applicable to the instant case; an intention to erase the earlier notification could easily be attributed in the legislative act altering the rate of tan as otherwise, no useful purpose is served by the Legislature in prescribing a different rate of tax. The legislative will being superior to that of the State Government, former would always override the latter. Similarly, when the Legislature introduces an entry in the Schedule to the Act relating to a particular class of goods, intention of the Legislature as on the said day of the introduction is quite clear, to treat the class of goods only in the particular manner stated in the entry; it is not possible to infer an implied intention on the part of the Legislature to treat the goods in any other manner, contrary to the express intention in the amending Act; necessarily, the earlier notification would cease to be effective, automatically.
If the legislature enacts on a particular dale that specified goods shall be taxed in a particular manner, it is clear that at least on the said date, the Legislature had a clear intention to levy the tax on the goods in question at that particular rate. The Legislature is presumed to be aware of the prevailing circumstances relevant to the subject-matter in question as it existed when the law was enacted. Therefore, when entry 48-A was amended retrospectively with the insertion of sub-entry (ii), it is clear that the Legislature intended that the tax under Section 5 will have to be levied in terms of said entry 48-A, with retrospective effect from 1st July, 1974. While inserting sub-entry (ii) by Act No. 23 of 1983 the Legislature has not found it necessary to save the operation of the notification issued by the State Government. If actually the intention of the Legislature was to keep alive the tax structure envisaged by the exemption notification issued by the State Government, an appropriate saving provision would have been found. While exercising the power under Section 8-A of the Act the State Government functions as the delegate of the State Legislature. The exercise of the power by the delegate cannot be in conflict with the mandate prescribed by the State Legislature.
10. We are not discussing in detail the judgments cited by the counsel for the petitioner i.e., The Commissioner of Income-tax, Bombay City, Bombay v. The Elephinstone Spinning & Weaving Mills Co., Ltd., . The Commissioner of Income-tax, Bombay City v. Jalgaon Electric Supply Co., Ltd., Bombay, AIR I960 SC 1182. The Commissioner of Income-tax, Patiala v. Shahzada and Sons & others, . Northern India Caterers (Private) Ltd. v. State of Punjab. , Swadeshi Polytex Ltd. v. Collector of Central Excise , and Bellad Automobile Engineers v .K.AT., ILR 1998 Kant 1460, as they are not relevant to the point in issue. These judgments do not cover the field which is before us.
11. For the reasons slated above, and following the judgment of the Full Bench in Shaw Wallace & Co. Ltd., supra, we dismiss these revision petitions with no order as to costs.