Karnataka High Court
State Of Karnataka vs M/S Reid & Taylor(India) Limited on 4 September, 2012
Bench: K.Sreedhar Rao, B.Manohar
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 4TH DAY OF SEPTEMBER 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
CRP No.107/2010, CRP.NO.108/2010,
CRP.NO.109/2010 & CRP.NO.110/2010
BETWEEN :
STATE OF KARNATAKA,
BY THE COMMISSIONER OF
COMMERCAL TAXES,
VANIJYA THERIGE KARYALAYA
GANDHINAGAR,
BANGALORE - 560 009. ... COMMON PETITIONER
(BY SMT.S.SUJATHA, AGA)
AND:
M/S REID & TAYLOR(INDIA) LIMITED,
THANDAVAPURA,
THANDYA INDUSTRIAL AREA,
NANJANGUD TALUK,
MYSORE DISTRICT - 571 302,
BY THE GENERAL MANAGER
MR.ASHOK KUMAR SHETTY. ...COMMON RESPONDENT
(BY SRI.K.PARAMESWARAN, SMT.M.JAMUNARANI &
SMT.ANURADHA, ADVS)
*****
2
THESE CRP'S ARE FILED UNDER SEC. 15-A OF KTEG
ACT,., FILED AGAINST THE ORDERS DATED 08.12.2009
PASSED IN STA.NO.1124/2008, STA.NO.1125/2008,
STA.NO.1126/2008 & STA.NO.247/2009 ON THE FILE OF THE
KARNATAKA APPELLATE TRIBUNAL, BANGALORE,
PARTLY ALLOWING THE APPEAL.
THESE CRP'S ARE HAVING BEEN HEARD AND
RESERVED AND COMING ON FOR PRONOUNCEMENT OF
ORDER THIS DAY, B.MANOHAR J., MADE THE
FOLLOWING:
ORDER
The State Government has preferred these revision petitions being aggrieved by the order dated 08-12-2009 made in STA No.1124-1126/2008 and STA No.247/2008 passed by the Karnataka Appellate Tribunal, setting aside the order dated 16-08-2008 and 13-01-2009 passed by the Joint Commissioner of Commercial Taxes (Appeals), Mysore Division (herein after referred to as 'First Appellate Authority') wherein the First Appellate Authority confirmed the order passed by the Assessing Authority for the assessment years 2002-2003 to 2005-2006.
2. Since the common question of law and facts are involved in these revision petitions but for the different assessment years with regard to purchase of furnace oil and diesel, all the petitions are 3 clubbed together and disposed off by this order.
3. The respondent is a company incorporated under the Companies Act, 1956 engaged in the manufacture of worsted fabrics and registered under the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as KTEG Act). The respondent-company has filed their returns for the assessment year 2002-2003 to 2005-2006. The Assessing Authority accepted the returns filed by the respondent-company. However, the Assistant Commissioner of Commercial Taxes (Enforcement-I) inspected the respondent- company on 18-01-2008 and noticed that the respondent has caused entry of furnace oil, high-speed diesel, lubricant, machinery, stores and spares during the assessment year 2002-2003 to 2005-2006. They also found that no entry tax has been paid on the said goods, which were brought into the local area. Accordingly, notice under Section 6(1) of the KTEG Act has been issued on 30th January 2008 for reassessment. Inspite of the said notice, the assessee has not filed any objections. However, he sought for time stating that he had filed an application before the State Government for exemption of the entry tax and the said application is pending. Further contending that KTEG Act exempts all inputs and raw materials brought into the 4 local area for consumption or use as raw materials, component parts and input in the manufacturing of intermediate or finished products. Hence, the respondent is not liable to pay any tax. The Assessing Authority after considering the contention raised by the respondent passed reassessment order and issued demand notice to the respondent calling upon them to pay the Tax along with penalty. Being aggrieved by the same, the respondent preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeals) Mysore in KTEG.AP.Nos.5-7/2007-08 and KTEG.AP.08/2008-09 taking various contentions that no opportunity has been given and the order has been passed in violation of principles of natural justice. Further, the furnace oil, high speed diesel were brought into the local limits as input/raw material for the generator set for generating electricity for production of fabrics. Hence, the respondent is not liable to pay any tax. The First Appellate Authority after considering the matter in detail, relying upon the Government Notification dated 30-3-2002 and also notification dated 30-7-2003 issued under Section 3(1) of the KTEG Act held that only the goods specified at Sl.Nos.2, 3, 4, 7, 8, and 9 used as raw materials and input in the manufacture of intermediate or finished products are exempted from the payment of entry tax. Admittedly, furnace oil and high speed 5 diesel fall under Sl.No.1 of the notification which were used as raw materials/input in manufacture of fabrics and as such, the respondent herein is not entitled to claim any exemptions under the KTEG Act and accordingly, dismissed the appeal by its order dated 16-8-2008 and 13-1-2009.
4. Being aggrieved by the said order, the respondent herein preferred appeals before the Karnataka Appellate Tribunal in STA No.1124-1126/2008 and STA No.247/2009. The Appellate Tribunal relying upon the Government Notification dated 30-3-2002 and taking into consideration the explanations 1 and 2 held that non- inclusion of diesel/furnace oil (and other petroleum products) in the explanation (1) of the said Government Notification is of no consequences. Even without that explanation, such goods are exempted when used as raw materials/input for manufacture of goods other than liquor and tobacco. These principles apply to diesel and furnace oil, used as raw material/input for manufacturing the goods. Accordingly allowed the appeal and set aside the reassessment order on diesel and furnace oil, used for generating electricity energy for the assessment years 2002-2003 to 2005-2006 by two separate orders dated 8-12-2009. Being aggrieved by the 6 order passed by the Karnataka Appellate Tribunal, the State Government preferred these revision petitions.
5. Smt.Sujatha S, learned Additional Government Advocate appearing for the State/revision petitioner contended that the order passed by the Karnataka Appellate Tribunal is contrary to law and has allowed the appeal wrongly interpreting the Government Notification dated 30-3-2002. The reading of Explanation (1) of the Government Notification makes it very clear that no tax shall be payable by the dealer on the goods specified in Sl.Nos.2,3,4,7,8, and 9 in the table above when brought by him into the local area for consumption or use as raw material, component parts and input in the manufacture of intermediate or finished products. However in the said notification, the furnace oil and high speed diesel were not included. The petroleum products come under Sl.No.1 and it was included in the said explanation. Further diesel and furnace oil are used not for the production of the end goods, however, they are used for generating power for the manufacturing of fabrics. The respondent is not selling the power generated from the generator sets. Hence, the furnace oil and high speed diesel cannot be treated as raw material or input in manufacturing the intermediate or 7 finished products. She also relied upon the Division Bench judgment of this court made in TAET Nos.3/2010 and 1/2011 disposed off on 29-07-2011 and contended that the subject matter is fully covered and sought for allowing the revision petitions setting aside the order passed by the Karnataka Appellate Tribunal.
6. On the other hand, learned counsel appearing for the respondent argued in support of the order passed by the Karnataka Appellate Tribunal contending that no tax can be levied under the Act in respect of the raw materials, components parts and input which are used in the manufacture of intermediate or finished products. The Policy of the State Government is to encourage the newly started industries and also to give the tax holidays. The application made by the respondent is pending consideration before the Government. Hence, the order passed by the Assessing Authority imposing tax on the raw materials and also penalty is contrary to law. The order passed by the Assessing Authority is in gross violation of natural justice. As per the Government Notification dated 30-3-2002, the respondent is entitled for exempt from payment of tax and sought for dismissal of revision petitions. 8
7. We have carefully considered the arguments addressed by the learned counsel for the parties.
8. Having heard the learned counsel for the parties, the only point that arises for consideration in these revision petitions is that:
Whether the Karnataka Appellate Tribunal is justified in setting aside the order passed by the Assessing Authority as well as the First Appellate Authority holding that as per the Government Notification dated 30-3-2002, if the diesel and furnace oil are used as raw materials, they are entitled for exemption of entry tax?
9. It is not in dispute that the respondent-company caused entry of furnace oil and high speed diesel into the local area for the purpose of manufacturing the electrical energy. The respondent is manufacturing the fabrics. The assessee has contended that he need not pay the tax in respect of the raw materials used for production of the intermediate or finished products. Whereas, the revision petitioner contended that the Government Notification issued under Section 3(1) of the KTEG Act, dated 30-3-2002 contemplates for payment of entry tax in respect of diesel and furnace oil at the rate of 5%. The revision petitioner as well as the respondent are relying upon the said notification. The notification dated 30-3-2002 issued under sub-Section (1) of section 3 of the Act reads as under: 9
In exercise of the powers conferred by sub-section (1) of Section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka, hereby specify that with effect from the First day of April, 2002, tax shall be levied and collected under the said Act on the entry of goods specified in column (2) of the table below into a local area for consumption, use or sale therein at the rates specified in the corresponding entries in column (3), thereof. -
TABLE Sl.No. Commodity Rate of Tax (1) (2) (3) (1) (i) Crude Oil 2%
(ii) Petrol 5%
(iii) Diesel 5%
(iv) Super Light Diesel Oil 5%
(iv) Furnace Oil 5%
(v) Naphtha other than for use in manufacture 5% of fertilizers
(vi) Low Sulphur Heavy Stock 5%
(vii) Rectified Spirit, Neutral Spirit, Ethyl 4% Alcohol
(viii) Petroleum products: that is to say: 5%
a) Lubricating Oil,
b) Transformer Oil,
c) Brake fluid or Clutch fluid,
d) Bitumen (asphalt),
e) Tar and others Excluding Liquefied Petroleum Gas (LPG), Aviation Fuel and Kerosene (2) Rubber and other tyres, tubes and flaps other 2% than those specified in Section 11 of the CST 10 Act, 1956 (Sl.No.154) (3) Sugar other than levy sugar, confectionery and 1% the like (4) Textiles, namely, cotton, woollen or silk or 1% artificial silk including rayon or nylon and other man-made or synthetic fabrics manufactured in mills or power looms and hosiery cloth in length; and including fabrics coated with or impregnated with PVC or cellulose derivatives (whether or not manufactured in mills or power looms) (5) Tobacco products of all descriptions including 4% cigarettes, cigars, churuts, zarda, quimam, etc., but excluding snuff
(i) Ghutka 4%
(ii) Beedies 1% (6) Diesel Captive Generation Sets 4% (7) Machinery (all kinds) and parts and accessories 2% thereof but excluding agricultural machinery (8) Films (all kinds) including X-ray films and 5% photographic paper (9) Lifts, elevators and escalators (whether 5% operated by electricity or hydraulic power) and parts and accessories thereof (10) Cement [Omitted by Sl.No.149) 5% (11) Raw materials and inputs, which are used in the 1% manufacture of Tobacco Products and Liquor Explanation -I. - No tax shall be payable by a dealer on the goods specified in Serial Number 2, 3, 4, 7, 8 and 9 in the table above when brought by him into a local area for consumption or Use as raw materials, component parts and inputs in the manufacture of an intermediate or finished product but excluding when brought for use in the manufacture of tobacco products and liquor. 11
Explanation-II - If any of the goods specified in Serial Numbers 1 to 10 in the above table are brought into a local area for use or consumption as raw material and inputs in the manufacture of tobacco product and liquor, the tax leviable and collectable on such goods shall be at the rate specified in such Serial Numbers.
10. Reading of the above notification makes it very clear that it contains 11 specific entries. Entry No.1 covers the petroleum products excluding LPG, Aviation fuel and kerosene. Entry Nos. 2 to 9, contain the products which are used as raw materials, component parts and input in the manufacturing of an intermediate or finished products, for which, the respondent need not pay any tax. Reading of the Explanation 1 and 2 of the said notification makes it very clear that furnace oil and high speed diesel fall under Sl.No.1 of the Notification and as such no exemption has been given insofar as Entry No.1 is concerned. Even if the said furnace oil and high speed diesel are used as raw materials/inputs in manufacturing the fabrics, they are liable to pay the entry tax. The finding of the Appellate Tribunal is that non-inclusion of the diesel and furnace oil in the Explanation (1) to the Government Notification is dated 30.03.2002 of no consequence, even without that explanation of such goods are used as raw material, they are entitled for exemption of tax is 12 totally incorrect. It is not the intendment of the notification issued by the State Government. The Appellate Tribunal misunderstood and misread the Government Notification dated 30-3-2002.
11. The issue raised in the above revision petitions is fully covered in the order made in TAET Nos.3/2001 and 1/2001 disposed off on 29-07-2011. The Division Bench of this Court in paragraphs 7 and 8 have held as under:
"7. The careful reading of the aforesaid three explanations makes it very clear that the transformer oil which finds entry in sub- entry (viii) of (b) of main entry (1) are taxable at 5% when they are caused entry into local area for consumption, use or sale therein. The transformer oil which finds entry in Serial no.1 (viii)(b) is always taxable at rate of 5% on its entry into local area whether for consumption, use or sale therein.
8. Therefore, the Reviewing Authority on a proper consideration of these explanations was justified in holding that the transformer oil even though it is brought into the local area by the assessee as a raw material and to be used as an input manufacturing of transformers, it is liable to tax at 5%. Therefore, we do not see any error with the well considered order passed by the Additional Commissioner, which has held that the assessee is liable for payment of tax and interest."13
12. In view of the above reasoning, the issue framed in these revision petitions is held against the assessee and in favour of the State Government. The order passed by the Karnataka Appellate Tribunal cannot be sustained. Accordingly, the revision petitions are allowed and order dated 08-12-2009 made in STA No.1124- 1126/2008 and STA No.247/2009 are set aside and restore the order of the Assessing Authority.
Sd/-
JUDGE Sd/-
JUDGE mpk/-*