Karnataka High Court
State Of Karnataka vs M/S Toyata Kirloskar Auto Parts Pvt Ltd on 31 August, 2012
Bench: K.Sreedhar Rao, B.Manohar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 31ST DAY OF AUGUST 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
CRP No.235/2009
BETWEEN :
STATE OF KARNATAKA
BY THE COMMISSIONER OF COMMERCIAL TAXES
VANIJYA THERIGE KARYALAYA
GANDHINAGAR,
BANGALORE. ...PETITIONER
(BY SMT.S.SUJATHA, AGA)
AND :
M/S.TOYATA KIRLOSKAR AUTO PARTS PVT LTD
PLOT NO.21,
BIDADI INDUSTRIAL AREA
RAMANAGARAM DISTRICT
BANGALORE RURAL . ...RESPONDENT
(BY SRI.G.RABINATHAN & M.THIRUMALESH, ADVS)
CRP FILED U/S 15-A OF KARNATAKA TAX ON ENTRY
OF GOOD ACT, 1979, AGAINST THE JUDGMENT DATED
9.1.2009 PASSED IN STA NO.662/2008 ON THE FILE OF THE
KARNATAKA APPELLATE TRIBUNAL, BANGALORE,
PARTLY ALLOWING THE APPEAL
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THIS CRP HAVING BEEN HEARD AND RESERVED
AND COMING ON FOR PRONOUNCEMENT OF ORDER THIS
DAY, B.MANOHAR J., MADE THE FOLLOWING:
ORDER
The State Government preferred this revision petition being aggrieved by the order dated 09-01-2001 made in STA No.662/2008 passed by the Karnataka Appellate Tribunal, setting aside the order dated 10-04-2008 passed by the Joint Commissioner of Commercial Taxes (Appeals-3) and the reassessment order dated 04-02-2008 passed by the Assessing Authority for the assessment year 2002- 2003.
2. The respondent is a Private Limited Company incorporated under the Companies Act, 1956 and a dealer registered both under the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as "KTEG Act" and Central Sales Tax Act, engaged in manufacture of parts and components of automobiles. The assessee- company was taken over from M/s. Toyota Kirloskar Auto Parts Private Limited w.e.f. 01-07-2002.
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3. The State Government formulated the comprehensive industrial policy in the year 2001. As per the said industrial policy, to encourage the establishment of new industries, certain benefits such as incentives and concessions have been extended. Subsidy on investment, exemption of entry tax, exemption of stamp duty and concessional charges for registration of the lands and sheds and special concession for the exports were also extended as per the G.O.No.CI 167 SPI 2001 dated 30-6-2001 and the implementation notification in FD 161 CSL 2001 dated 30-11-2001 wherein 100% exemption was granted from entry tax to the Export Oriented Unit payable on raw materials, components, packing materials, consumables, machinery and equipments, spares, material handling equipments, etc., subject to the condition that the goods are put to use in the manufacturing or processing of the goods in the Unit located in Karnataka and the goods so manufactured or processed are exported out of the territory of India.
4. The respondent-company imported Diesel Generating Sets (DG sets) along with parts and accessories valued at Rs.16,06,31,106/- to generate electricity for the purpose of production of transmission and parts of transmission of the automobile industry.
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5. For the assessment year 2002-2003 the respondent-company has filed annual returns declaring the total taxable turnover of Rs.73,11,46,891.47 and Rs.1,81,42,459.63 respectively. The Assessing Authority concluded the assessment under Section 5(4) of the KTEG Act, 1979. On the basis of the notification dated 30-11-2001, the Assessing Authority by its assessment order dated 18-4-2005 granted exemption to the respondent-company holding that it is 100% Export Oriented Unit insofar as importing of DG sets, parts and accessories. Subsequently, the assessment order was reviewed by the Assessing Authority while it was held that the respondent-company availed the benefit of the Government Notification dated 30-11-2001 insofar as exemption of imposition of tax on the imported DG sets, parts and accessories. However, the condition imposed in the Government Order has not been fulfilled. Further, the respondent was required to use the power generated from the DG sets in the manufacturing or processing of goods for export. Whereas, in the year 2003-2004 which was an accounting year subsequent to the year in which DG sets were imported, the respondent made use of the Power Generated from the DG sets for production of Domestic Tariff Area Unit (DTA unit). Hence, notice has been issued to the respondent under Section 6(1) of the Act with 5 the proposition notice for levying entry tax on imported DG sets, parts and accessories thereof. The notice was also issued under Section 11-A(3) and Section 8(2)(ii) of the Act. In pursuance to the said notice, the respondent filed detailed objections. The authorised representatives made available the records for verification. The Assessing Authority after verifying all the records found that the power generated from the imported DG sets are being used for the Domestic Tariff Areas. Further, the respondent-company has not exported any of its production during the assessment year 2002-2003 and exported its production only for Rs.10,74,870/- in the assessment year 2003-2004 as against total turnover of Rs.67,55,68,696/-. Accordingly, assessed the DG sets for entry tax and also imposed penalty under Section 11-A(3) and interest under Section 8(2)(ii) and issued demand notice for Rs.64,80,300/-. Being aggrieved by the demand notice, the respondent preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeals-3) Bangalore taking various contentions. The Appellate Authority after considering the matter in detail dismissed the appeal and upheld the order passed by the Assessing Authority by its order dated 10-4-2008.
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6. The respondent being aggrieved by the said order has preferred an appeal before the Karnataka Appellate Tribunal in STA 262/2008. The Appellate Tribunal, after considering the matter, by its order dated 09-01-2009 allowed the appeal in part and set aside the levy of entry tax in respect of DG sets, parts and accessories including penalty and interest. The Appellate Tribunal further held that the Government Notification dated 30-11-2001 does not prescribe any conditions that the capital goods such as DG sets should be used in the manufacture of goods for export or that the power generated from the DG sets should be exclusively and to the full extent used only for production in the 100% Export Oriented Unit. Further the said notification does not prescribe any prohibition that the power generated from the DG sets in excess of requirement of Export Oriented Unit should not be used elsewhere and that is not the intendment of the notification issued by the State Government. Being aggrieved by the order dated 9-1-2008 made in STA No.262/2008 the State Government preferred this revision petition.
7. Smt.S.Sujatha, learned Additional Government Advocate appearing for the revision petitioner contended that the order passed by the Karnataka Appellate Tribunal is contrary to law. The 7 industrial policy of the State Government dated 30-06-2001 was issued with a view to encourage the establishment of industries in the State and to export the goods to outside countries, the incentives and concessions were extended to such industries. Insofar as 100% Export Oriented Units, the Government has granted exemption from entry tax payable on raw materials, components, packing materials, consumables, machinery and equipments subject to certain conditions that goods are put to use in the manufacturing or processing of goods in the Unit located in Karnataka and the goods so manufactured or processed are exported out of territory of India with other certain conditions. In the instant case, for the assessment year 2002-2003, the respondent-company imported DG sets along with parts and accessories for the purpose of generating power. The power generated in the said DG sets ought to have been used for manufacturing or processing of the goods for export. However, the Assessing Officer noticed that for the assessment year 2002-2003, the respondent-company has not exported any of its goods, but, for the assessment year 2003-04, which was subsequent to the year in which DG sets were imported has exported only for Rs.10,74,870/- as against the total turnover of Rs.67,55,68,696/-. Hence it is clear that the DG sets imported after getting exemption for entry tax were 8 used for manufacturing the goods for domestic sale. The DG sets and accessories are imported for generating electricity for manufacture of goods intended to export as the permission was accorded to 100% Export Oriented Units. The assessee has violated the conditions stipulated in the Notification dated 30-11-2001. The exemption notification has to be strictly construed. Hence, the respondent-assessee is liable to pay the entry tax along with penalty and interest. The reasoning assigned by the Appellate Tribunal is quite contrary to the spirit of the notification issued by the State Government and sought for allowing the revision petition by setting aside the order passed by the Appellate Tribunal.
8. On the other hand, Sri.G.Rabhinathan, learned counsel appearing for the respondent argued in support of the order passed by the Appellate Tribunal contending that the DG sets are classified under the machinery and therefore they are scheduled goods by virtue of the notification dated 30-11-2001. The exemption of paying entry tax on these goods was allowed in the original assessment order and the benefit was extended, subsequently, on review of the assessment order that benefit was withdrawn which is contrary to law. Further DG sets imported by the assessee produces 9 optimum electricity. Instead of wasting the electrical energy, it is used in the manufacturing of auto parts by the other unit called "Domestic Tariff Area Unit". There is no such prohibition for using the excess power generated for the purpose of manufacturing the goods for domestic sale. Infact surplus power produced by the DG set is used in the Domestic Tariff Area Unit and manufactured taxable goods which are auto parts such as, front axle, shaft assembly, propeller and part thereof and tax has been paid. Insofar as Export Oriented Unit is concerned, it has produced transmission unit and parts thereof, namely gearbox and parts. These goods are intended to be exported to the parent company in Japan. There is no prescription of particular use of these goods classified under the 'machine' as to a particular unit and it is sufficient if these goods are purchased by the Export Oriented Unit meant for use by it. The penalty imposed under Section 11-A(3) and interest imposed under Section 8(2)(ii) under the Act is also contrary to law. For the assessment year 2002-2003, i.e. at the fag end of the assessment year in question, the generator set has been installed and the benefit extended by the Government Notification dated 30-11-2001 cannot be denied and sought for dismissal of the revision petition. 10
9. After considering the arguments addressed by the parties, the substantial question of law that arise for consideration in this revision petition is :
(i) Whether the Karnataka Appellate Tribunal is justified in setting aside the order passed by the Assessing Authority under Section 6(1) of levying tax on the DG sets, parts and accessories along with interest and penalty?
10. The respondent-company has imported DG sets, parts and accessories for generating electric supply for production of goods. As per the Government Notification dated 30-11-2001, the respondent got exempted the entry tax producing the certificate to the effect that it was 100% Export Oriented Unit. The State Government in order to encourage the export of goods and to earn more foreign exchange in its new industrial policy formulated in 2001 granted incentives and concessions to the 100% Export Oriented Units. For establishment of 100% Export Oriented Unit, 100% exemption of entry tax and sales tax payable on purchase of the raw materials, components parts, packing materials, consumables has been granted with certain conditions. To avail benefits of the said Government Notification, the assessee has to fulfil the conditions enumerated in the exemption notification. 11
11. The Government Notification No.FD 161 CSI 2001(II), Bangalore, dated 30th November 2001 reads as under:
In exercise of the powers conferred by Section II - A of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka being of the opinion that it is necessary in public interest so to do, hereby reduces the tax payable by one hundred per cent Export Oriented Units under the said Act to 'Nil' on raw materials, components, packing materials, consumables (excluding petroleum products like petrol diesel furnace oil, naphtha and LSHS used as consumables or for captive power generation units), machinery and equipment's, spares, material handling equipment, intermediates, semi-
finished goods and sub-assemblies brought into a local area for use in the manufacture of goods, subject to following restrictions and conditions:
i) Such goods are put to use by the one hundred per cent Export Oriented Unit in the manufacture of goods for export, the availment of entry tax at 'Nil' rate shall be 12 limited to the entry tax paid on the above-
mentioned goods which are used in manufacture of processing of goods in the unit in Karnataka and the goods so manufactured or processed are exported out of the territory of India:
ii) Time-limit for use of such goods in the manufacture of goods for export shall be before the expiry of the accounting year immediately succeeding year in which the goods are purchased;
iii) The one hundred per cent Export Oriented Unit, shall Export its entire production of goods subject to relaxation permitted by Government of India from time to time;
iv) Where for any reason, the one hundred per cent Export Oriented Unit fails to comply with the condition (iii) above, it shall forthwith cease to be eligible for the benefits of this notification;
v) Where for any reason the restrictions or conditions stipulated under (i), (ii) and (iii) above is contravened or not complied with, either wholly or partly, the provisions of 13 sub-section (3) of Section II-A of the said Act shall apply and the one hundred per cent Export Oriental Unit shall be liable to pay an amount equal to the tax payable at the rates prescribed under the said Act, on such purchases in respect of which such contravention or non compliance has taken place. The amount so payable shall be deemed to be amount due for the purpose of Section 8 of the said Act;
vi) Registered dealer effecting the sales to one hundred percent Export Oriented Unit shall produce before the Assessing Authority, a certificate prescribed hereunder duly filled and signed by the said Export Oriented Unit.
12. The respondent-assessee filed the returns for the assessment year 2002-2003 declaring the taxable turnover, subsequently he has filed revised returns declaring total taxable turnover of Rs.66,95,14,567/- and sought for exemption and he has also produced the certificate stating that for the purpose of 100% export unit, they have purchased the raw materials. In the assessment, the respondent has also shown the purchase of DG sets, 14 parts and accessories and got the exemption to the extent of Rs.16,06,31,106/-. During the reassessment proceedings, it was noticed that the DG sets are being used for manufacturing the goods for the domestic sale contrary to the conditions in the Government Notification. The reading of clause (iii) of the Notification referred to above makes it very clear that 100% Export Oriented Unit shall export its entire production of goods subject to relaxation permitted by the Government of India from time to time. Further, for any reason, 100% Export Oriented Unit fails to comply with condition No. (iii), shall forthwith ceased to be eligible for the benefit of the said notification. Clause (v) also makes it very clear that for any reason, restrictions or conditions stipulated under clauses (i), (ii),
(iii) are contravened or not complied with either wholly or partly sub-section (3) of Section 11-A shall apply and they have to pay the interest under Section 8 of the Act. One of the conditions of the Government Notification makes it very clear that the Export Oriented Unit shall manufacture goods only for export and they shall not do the business of domestic, then only they are entitled for exemption of the entry tax. In the instant case, the assessee has effected turnover of Rs.67,55,68,696/-. However, exported the production of only Rs.10,74,870/- for the assessment year 2003-04. 15 Hence, it is clear that the imported DG sets after getting exemption of entry tax, producing the certificate to the effect that the assessee is 100% Export Oriented Unit, has manufactured the goods for domestic sale. The turnover referred to above clearly disclose that the percentage of export is very negligible compared to the total turnover. Hence, the respondent is not entitled for the benefit of the Government Notification dated 30-11-2001. The reasoning of the Appellate Tribunal that the Government Notification does not prescribe any condition that the capital goods used in the manufacturing of goods for export or that the power generated from the DG sets should be exclusively and to the full extent used for the production of 100% Export Oriented Unit and there is no prohibition for use of the power generated from the DG set runs contrary to the Government Notification dated 30-11-2001 and it is erroneous in law. The Assessing Authority after considering the matter in detail reassessed the tax liability and the same was confirmed by the Appellate Authority. The finding recorded by the Assessing Authority as well as Appellate Authority is purely a question of law. The Appellate Tribunal ought not to have interfered with the same. Hence, the order passed by the Appellate Tribunal cannot be sustained. The substantial question of law framed in this revision 16 petition is held against the assessee and in favour of the revision petitioner. Accordingly we pass the following:
ORDER The Revision petition is allowed. The order dated 9-1-2009 made in STA No.662/2009 passed by the KAT is set aside and the order passed by the Assessing Authority is upheld.
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JUDGE Sd/-
JUDGE mpk/-*