Karnataka High Court
Voltas Limited By Its Deputy General ... vs State Of Karnataka, Rep. By ... on 30 January, 2004
Equivalent citations: ILR2005KAR279, (2008)11VST267(KARN), 2004 AIR - KANT. H. C. R. 1121, (2004) 56 KANTLJ(TRIB) 154
Author: Ajit J. Gunjal
Bench: P. Vishwanatha Shetty, Ajit J. Gunjal
ORDER Ajit J. Gunjal, J.
1. This revision petition is filed by the assessee under Section 15-A of the Karnataka Tax on Entry of Goods Act, 1979. The assessment year is 1992-93.
2. Brief facts which are germane for disposal of the revision petition can be stated as under;
The Petitioner is a limited company manufacturing, among others, air-conditioners and refrigerators in various States in India and the countrywide marketing network with branches including one at Bangalore. The petitioner is a dealer registered under the Central Sales Tax Act, 1956 (for short CST Act), Karnataka Sales Tax Act, 1957 (for short KST Act) and Karnataka Tax on Entry of Goods Act, 1979 (for short KTEG Act). The petitioner's branch at Bangalore is engaged in selling its manufactured goods. For the assessment year 1992-93, the petitioner filed its return under the KTEG Act declaring the value of goods arrived at by taking the amount shown in the stock transfer invoice issued by the manufacturing unit which represents the value declared for the purposes of Central Excise Duty as increased by freight incurred in transporting the goods from the manufacturing unit into its godown at Bangalore. Entry tax was paid accordingly on such value. The petitioner would contend that this practice is being followed ever since air-conditioners and refrigerators became taxable goods in the year 1982 though they ceased to be taxable goods in and around from 1984 to 1992.
3. The Assessing Officer did not accept the petitioner's return on the ground that the entry tax is required to be paid on the market price of the goods in the recipient local area and not on the value mentioned in the stock receipt memos. According to the Assessing Authority the word 'value' occurring in Section 2(8-a) of the Act in respect of goods received otherwise by way of purchase meant effectively eventual sale price. In so far as the refrigerators , the Assessing Authority held that the petitioner had marketed the same for consideration of a gross profit of 15.5% and therefore proposed to add the same to the stock receipt value. In respect of air conditioners, he also sought to adopt the same value. The Assessing Authority issued a notice proposing to levy tax on the said revised value. The said revised value was objected to by the petitioner by filing its objections. The petitioner inter alia contended that the taxation event in respect of the goods is at the entry point into the local area and in the circumstances the value of the scheduled goods at the time of entry becomes chargeable. In other words, the petitioner contended that the value at the point of entry would be the basis for levying of the entry tax. The petitioner also amongst other things contended that the levy of tax on the sale price is not permissible. They also contended that the tax is payable only on the cost of the goods when they entered the local area. The petitioner also further sought to explain that when the goods manufactured in its manufacturing units outside the State, the excise duty was paid and were brought into Karnataka and those goods will be assigned a value and described as stock transfer price when they enter the local area. In conclusion they stated that what is germane for levying tax is the stock transfer price and not the sale price. The Assessing Authority rejected all the contentions by its order dated 27th May 1996, marked as Annexure-A. The Assessing Authority has taken the sale price at 15.5% over and above the stock transfer price. This order of the Assessing Authority was taken up in appeal before the Joint Commissioner. The Joint Commissioner agreed with the view taken by the Assessing Authority regarding the interpretation of the term 'value of goods' but however; came to the conclusion that the course adopted by the Assessing Authority for levying tax was on the higher side and reduced the gross profit from 15.5% to 10%. The order passed by the Joint Commissioner is produced at Annexure-B. The petitioner aggrieved by the said order preferred an appeal to the Karnataka Appellate Tribunal in KTEG No. 106/ 97, which is marked as Annexure -C in this proceedings. The Appellate Tribunal, however, dismissed the appeal by its order dated 4th January 1999. The Tribunal interpreting Section 2(8-a) of the Act came to be conclusion that the latter part of the said definition of value of goods would be more relevant to the facts of the case and recorded a finding that for the purpose of levying tax what is required to looked into is the sale price and thus confirmed the order passed by the Assessing Authority as well as the Appellate Authority. The said orders of the authorities are challenged by the petitioner in the above revision petition.
4. Mr. K.P. Kumar, learned Counsel appearing for the petitioner strenuously contended that the Assessing Authority, the Appellate Authority as well as the Tribunal have not taken into consideration the principle laid down in the decision of the Hon'ble Supreme Court in the case of STATE OF KARNATAKA AND ORS. v. HANSA CORPORATION, . He submitted that the entry tax will have to be levied on the entry point and not on the sale price. He submitted that Section 3 is the charging section which would clearly indicate that entry tax can only be levied on the basis of the value at the time of entry which in the present scenario is the stock transfer price. He submitted that the Assessing Authority, the Appellate Authority as well as the Tribunal had not gone into this question at all. All the authorities including the two authorities and the Tribunal have proceeded to consider the levy of tax on the basis of the sale price which is determined by the assessing Authority at 15.5.%. over the stock transfer price and is marginally reduced by the appellate authority to 10%. Mr. K.P. Kumar further submitted that the basis to reject the value of goods on the basis of stock transfer price is not forthcoming in the assessment order. He submitted that in the event two views are possible in a taxing statute, the one that favours the assessee should prevail. He also relied on a judgment of Madhya Pradesh High Court reported in 1996 Tax Law Decisions Vol. 16p. 213. In the circumstances, he commends to us that what is to be taken note of for levying tax on the entry of goods is the value at the time when the goods enter the local area and submitted that the authorities and the Tribunal have wholly misread the provisions of the Act including Section 2(8-a) of the Act.
5. Mr. Anand, learned Government Advocate, supported the order of the Assessing Authority as well as the Joint Commissioner and the Tribunal. Mr. Anand submits that the levy of tax is on the value of the goods as defined under Section 2(8-a) of the Act. According to him, it is no doubt that Section 3 is the charging section, but however it is to be read along with Section 2(8-a) of the Act". He pressed into service the latter portion of the second part of Section 2(8-a) of the Act.
6. Mr. Kumar, learned Counsel for the petitioner has raised the following question of law for our consideration;
"Whether on the fa*cts, in the circumstances and on the contentions urged, the value of goods' which enter a local area otherwise than by way of purchase is the sale price of such goods as adopted by the lower authorities and confirmed by the Tribunal or value declared by the petitioner which is the value declared for central excise purposes as increased by freight for transporting the goods from the place of manufacture to Bangalore?.
7. To consider the contentions urged, we find it is necessary to closely look at what the charging Section is. Section 3 of the Act reads thus;
"levy of Tax.-(1) There shall be levied and collected a tax on entry of any goods specified in the first Schedule into a local area for consumption, use or sale therein, at such rates not exceeding five percent of the value of the goods as may be specified retrospectively or prospectively by the State Government by Notification, and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas".
The definition of the value of goods as defined under Section 2(8-a) of the Act reads thus;
"Value of the goods" shall mean the purchase value of such goods, that is to say, the purchase price at which a dealer has purchased the goods inclusive of charges borne by him as cost of transportation, packing, forwarding and handling charges, commission, insurance, taxes, duties and the like, or if such goods have not been purchased by him, the prevailing market price of such goods in the local area".
Section 3 of the Act is a charging section which provides for levy of entry tax on any goods specified in the first schedule which enters the local area for consumption, use or sale therein at such rates not exceeding 5 per cent of the value of the goods as may be specified only retrospectively or prospectively by the State Government by notification etc. The said section also provides that the rates may be followed by issue of different notifications in respect of different goods or different class of goods or different local area. The definition of value of goods as set out in Section 2(8-a) referred to above consists to two parts-the first part relates to determination of the value of the goods purchased by a dealer which is brought into the local area. The other part relates to goods which not been purchased by a dealer and which is brought into the local area. So far as the goods purchased by dealer is concerned, Section 2(8-a) of the Act provides that the value of the goods purchased should mean the purchase value of the said goods. That the purchase price at which a dealer has purchased the goods is inclusive of charges borne by him as cost of transportation, packing, forwarding and handling charges, commission, insurance, taxes, duties and the like so far as the goods which have not been purchased by a dealer according to Section 2(8-a), the entry tax payable will be in the basis of prevailing market price of such goods in the local area. Therefore, when Section 2(8-a) of the Act provides for determination of the value of the goods which enters the local area otherwise than by way of purchase and the tax is made payable on the basis of the said value, in our considered view, the entry tax that would be payable on the goods that enters the local area at the instance of a person who is not a purchaser of the goods could be only on the basis of the market price of such goods in the local area. When the language employed in the Section which provides for determination of the value of the goods is clear and unambiguous and does not lead to any absurdity, it is not permissible for the Court to interpret the said provision in any other manner. The Courts have to interpret the section as it reads. Therefore, while Section 3 of the Act confers the power on the State to levy entry tax, Section 2(8-a) of the Act, as noticed by us earlier, provides for determination of the value of the goods which enters the local area. Therefore, we do not find any merit in the submission of Sri Kumar that the Assessing Officer was required to tax only the value of the goods on the date of their entry into the local area, and for the said purpose the value of which is shown as stock transfer price by the petitioner should be taken into account. It is true that it is not permissible for the Assessing Officer to levy entry tax on the basis of the sale price of the goods which enter the local area. The decision in the case of State of Karnataka v. Hansa Corporation (supra) strongly relied upon by Sri, Kumar no doubt supports his contention that even if the dealer is a manufacturer of goods at a place outside the local area and brings the goods within the local area, since at the time of entry of the goods in the local area, the dealer would have determined the price of the goods he is required to pay the tax based on the price of the goods. In this connection, it is useful to refer to the observation made by the Supreme Court at paragraph 38 of the judgment which reads as hereunder;
"38 ......The contention overlooks the specific guideline to be found in the charging section itself. The taxing event is the entry of scheduled goods into a local area. The tax becomes payable on the entry of scheduled goods in a local area. Therefore, the price of the scheduled goods at the time of entry paid by the dealer who is the importer of goods within the scheduled area would be the ad valorem price on the basis of which tax would be computed. No subsequent rise or fall in price has any relevance to the computation of the tax. The charging sections says that the tax shall be levied and collected on the entry of scheduled goods in a local area at specified percentage not exceeding two percent ad valorem. Therefore, the price of the scheduled goods at the time when the tax becomes chargeable irrespective of the fact that it would be computed at later date when the dealer submits his return as required by the other provisions of the Act, would be the price for computation of tax. And there is no ambiguity or any vagueness in this behalf. There is thus specific guideline in the charging section itself for taking into account the price according to which tax would be computed. ......... This approach overlooks the specific language of Section 3 which clearly indicates what price is to be taken into account for computing the tax. When the goods are brought within the local area they have a certain price. The price may be the price which the importer of goods has paid before bringing the goods within the local area. Even if the dealer is the manufacturer of goods at a place outside the local area and brings the goods within the local area he must have determined the price of the goods. Therefore, the dealer has some specific price of the scheduled goods which are being brought within the local area at the time of entry in the local area and the entry being the taxing event that would be the price which alone can be taken into account for computing the tax ad valorem" (emphasis supplied) In our view, the principle enunciated by the Supreme Court in the case of State of Karnataka v. Hansa Corporation (supra) has no application to the facts of the present case. As noticed by us earlier, Section 2(8-a) of the Act as amended which has come into force with effect from 1st May 1992 makes it clear that in the case of the goods which have not been purchased by a dealer, if they are brought into the local area, the value of the said goods is required to be determined on the basis of the prevailing market price of such goods in the local area. Therefore, the liability to pay entry tax on the goods which enters the local area would be on the basis of the market price such goods in the local area on the date of the entry. Here it is necessary to notice the distinction between the sale price of the said goods by the dealer who gets the goods within the local area and the prevailing market price of such goods on the date of entry of the said goods into local area. What is contemplated is the determination of the market value of the goods when the goods enter the local area and not the market price or the sale price of such goods on a later date. In the light of the view expressed above, we are of the view that the judgment of the Madhya Pradesh High Court in the case of Commissioner of Sales Tax v. Hindustan Steel Ltd. has no application to the case of the petitioner. When Section 2(8-a) specifically provides for determination of the market value of the goods as noticed by us earlier, it is not permissible to determine the market price of the goods in a manner other than the one provided under Section 2(8-a) of the Act. If the market price as shown by the petitioner is on stock transfer basis, the determination of the said market value would run counter to the mandate of Section 2(8-a) of the Act. That cannot be permitted. In the instant case, the Assessing Authority in the absence of any material placed by the petitioner with regard to the prevailing market price of the goods which has entered the local area, has proposed to add gross profit of 15.5 per cent to the stock of refrigerators and proceeded to levy entry tax so far as air conditioners and its parts are concerned, he proceeded to determine entry tax on the basis of sale value.
8. However, the Appellate Authority in his order modified the gross profit of 15.5 percent added by the Assessing Officer to the stock receipts of refrigerators and reduced to 10 percent to arrive at the prevailing market price for determining the taxable value of the goods i.e. refrigerators and air conditioners. This is clear from the observation made in his order which reads as here under;
"There is no basis for the assessing authority to have adopted 15.5% G.P. Therefore, it is feasible to adopt the sales turnover value, and a G.P. of 10% to arrive at the prevailing market price for determining the taxable value of scheduled goods namely refrigerator and air-conditioners."
The said conclusion reached by the Appellate Authority was also affirmed by the Tribunal. In this connection, it is useful to refer to the observation made by the Tribunal at paragraph 8 of the order which reads as here under;
"8. The value of the goods under the Entry-tax Act' is defined under Section 2(8-a) of the Act. It read as under;
"Value of the goods shall mean the purchase value of such goods, that is to say, the purchase price at which a dealer has purchased the goods inclusive of charges borne by him as cost of transportation, packing, forwarding and handling charges, commission, insurance, taxes duties and the like, or if such goods have not been purchased by him, the prevailing market price of such goods in local area"
The provision is very clear. The latter part is material for us since Appellant did not purchase the goods but, there were stock transfers. The law lays down that if such goods had not been purchased by the dealer, the entry-tax should be levied on the prevailing market price of such goods in the local area. Thus rightly the authorities below added G.P. to the price of the stock transfer and levied entry-tax. The learned counsel for the appellant submitted that the turnover taxed by the authorities below was inclusive of profit, storing, marketing etc. But the contention is very vague. The appellant has not specifically given the costs made by for storing marketing etc. Though it contained that the value of the goods arrived at by the lower authorities was the sale price declared to the Central Excise Department, the appellant has not produced any material to show the sale price declared by it before the Central Excise Department. Thus under these circumstances, we do not find any reason to interfere with the impugned order of FAA."
9. Therefore, from the reading of the order passed by the Assessing Officer as well as the Appellate Authority and the Tribunal what emerges is that in the absence of the material placed by the petitioner with regard to the prevailing market price of such goods in the local area on the date of entry of the goods to the local area, while the assessing authority has added 15.5 percent to the price shown by the petitioner in stock transfer, the first Appellate Authority has modified it to ten per cent which is made applicable both for refrigerators and air conditioners and its parts. The said order was affirmed by the Tribunal which is the second Appellate Authority.
10. Therefore, we are unable to accede to the submission of Sri Kumar, learned Counsel appearing for the petitioner that the Assessing Officer as well as the first Appellate and the Second Appellate Authority have proceeded to determine the entry tax on the basis of the sale price.
11. In the light of the discussion made above, this petition is liable to be rejected. Accordingly, it is rejected. However, no order is made as to costs.