Karnataka High Court
Union Of India (Uoi) And Anr. vs State Of Karnataka And Anr. on 21 September, 2001
Equivalent citations: [2002]126STC501(KAR), 2002 AIR - KANT. H. C. R. 2552, (2002) 126 STC 501 (2001) 2 KANTLJ(TRIB) 454, (2001) 2 KANTLJ(TRIB) 454
Author: R.V. Raveendran
Bench: R.V. Raveendran
ORDER R.V. Raveendran, J.
1. The Union of India, owning and administering the Southern Railway, and the Divisional Railway Manager of Bangalore Division of Southern Railway, are the petitioners ; and the State of Karnataka and the Assistant Commissioner of Commercial Taxes, XIII Circle, Bangalore, are the respondents in this petition.
2. The second respondent issued a notice dated January 19, 1999 (annexure B) to second petitioner under Section 5 of the Karnataka Tax on Entry of Goods Act, 1979, ("the Act", for short). The notice stated that Southern Railway is causing the entry of HSD (High Speed Diesel) from outside Karnataka into Bangalore city local area ; that petitioners should therefore file monthly statements indicating the quantity and value of HSD, entering the Bangalore city local area and also pay tax on such value of goods at the notified rate of 2 per cent and that as petitioners failed to do so, it was proposed to levy entry tax on HSD caused to be entered by the Southern Railway between April 1, 1997 to March 31, 1998 at the rate of 2 per cent. After considering the objections dated February 11, 1999 and March 2, 1999, the second respondent has passed an order of assessment dated March 26, 1999 (annexure "E") under Section 5(4) of the Act, confirming the proposal in the notice and holding that the petitioners are liable to pay entry tax on the HSD caused to be entered from outside the State into Bangalore local area. Second respondent held that during the period from April 1, 1997 to March 31, 1998, the Southern Railway had caused entry of 1,04,100 kilo-litres of HSD and the value thereof at the rate of Rs. 9,283.09 per kilo-litre works to Rs. 96,63,69,660 and therefore the petitioners are liable to pay entry tax of Rs. 1,93,27,393. The said assessment order was followed by a demand notice dated June 4, 1999 (annexure F), calling upon the Railways to pay the said amount.
3. Feeling aggrieved, the petitioners have filed this petition and sought the following reliefs :
(a) to quash the assessment order dated March 26, 1999 (annexure E) passed by the second respondent and the consequential endorsement dated June 4, 1999 (annexure F) ; and
(b) a declaration that the respondent cannot apply the provisions of the Act to the petitioners and levy the tax thereunder in the matter of HSD purchased and made use of by the petitioners for the locomotives.
4. The petitioners have stated that the Indian Railway has constituted nine Zonal Railways including Southern Railway. The Southern Railway having its headquarters at Chennai has several divisions spread over the States of Karnataka, Tamil Nadu and Kerala. One such division is Bangalore Division, of which the second petitioner is the Administrative Head. The activities of Southern Railway are controlled by Ministry of Railways. The Railways functions in accordance with the Railways Act, 1989.
5. The railways uses high speed diesel (HSD) for its locomotives for running passenger and goods trains. Any of its locomotives can fill fuel at any railway depot on an "All India Railways" basis, irrespective of the zones wherein the depots are located. Such an arrangement became necessary as passenger and goods trains zigzag the country passing through several railway zones.
6. The Ministry of Railways/Railway Board has entered into an agreement with Indian Oil Corporation Ltd., Bharat Petroleum Corporation Ltd. (and other oil companies) for supply of HSD to its zonal railways. The headquarters of each zonal railway, through its stores branch, places indents/purchase orders of its requirements with the IOC and other oil companies three months in advance. In pursuance of the above arrangements, the Southern Railways receives delivery of HSD from IOC at Tondiarpet in Tamil Nadu and from BPCL at Irumpanam/Eranakulam in Kerala. The oil companies load HSD at the said points in order to supply the same to the railway depots in Karnataka, as there are no oil tank loading facility in Karnataka. The HSD that is supplied to the railway wagons at the said points by the oil companies, is taken delivery and shifted to the depots of the Southern Railway which are located in different places such as Byappanahalli, Krishnarajapuram and Bangalore city railway station (all at Bangalore), Arasikere, Mysore, Shimoga and Kankanadi (Mangalore). The HSD stored at the said railway oil depots is made use by the trains passing through the nearby railway stations on their way to destinations in several parts of the country. The HSD drawn in the said railway oil depots are used not only for the trains which run within the State of Karnataka, but also used by trains travelling beyond the border of Karnataka. Most of the HSD drawn by the locomotives from the said depots is used only beyond the border of Karnataka, as very few trains run exclusively within the State. The locomotives for the trains are filled at places of beginning of the journey and en route. There is also a diesel railway shed in K.R. Puram for maintenance of diesel locomotives and HSD is also used by the locomotives which travel to different parts of the country after repairs/maintenance at the said locoshed.
7. The petitioners have urged the following contentions :
(7.1) Article 285 of the Constitution provides that the property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State. HSD which is sought to be taxed is the property of the Union of India and therefore exempt from State taxation including tax under the Entry Tax Act.
(7.2) The activity carried on by the railways does not fall within the definition of "business" and the railways does not fall within the definition of "dealer" under the Entry Tax Act and therefore there is no liability to pay any tax under the Entry Tax Act.
(7.3) Alternatively, even if HSD, entry of which is caused into a local area by the railway, is liable to entry tax, the value of the entire quantity of HSD brought into the local area cannot be subjected to tax. What can be subjected to tax is only the entry of goods into a local area for consumption, use or sale therein. Section 3 read with Rule 9A of the Karnataka Tax on Entry of Goods Rules, 1979 (for short, "the Rules") make it clear that in determining the value of goods liable to tax, the value of the goods purchased or received from outside the local area but subsequently sent out of the local area shall be deducted. Therefore, what could be subjected to entry tax is only the value of the goods which are brought into local area and consumed by railways within the local area and not the goods which is taken out of the local area within a period of six months. HSD, entry of which into local area is caused by the railways, is stored in the storage depots for only about a week to four weeks and is filled into the tanks of its locomotives ; and only part of HSD filled into the tanks of locomotives is used within the local area and the balance that remains in the tanks of the locomotives when the locomotives leaves the border of local area should be treated as "sent out of the local area" and the value thereof shall be deducted from the value of total HSD that is brought into the local area, for purpose of levying entry tax.
(7.4) Lastly it is contended that when the State exempted from entry tax, HSD which is brought into the local area by oil companies and their retail dealers, for any specified period, failure to extend such an exemption to the actual user is arbitrary and discriminatory.
8. The respondents have resisted the petition. The contentions of the respondents, in brief, are as follows :
(8.1) What is exempted under Article 285 is a direct tax on property of the Union of India and not an indirect tax, which may affect the property of the Union Government. The entry tax is not a direct tax on the property of the Union (owning railways) but is a tax on the entry of the property (goods) into a local area for use, consumption or sale, and therefore Article 285 is not attracted.
(8.2) The Southern Railways is a "dealer" as defined in Section 2(A)(4) of the Act and the activities carried on by the railways are "business" as defined in Section 2(A)(2b) of the Act and therefore entry tax is attracted under Section 3.
(8.3) When HSD is brought into a local area and stored in the storage tanks situated in a local area, the Southern Railway causes the "entry" of goods into a local area. When the HSD is filled into tanks of the locomotives, HSD is "used" within the local area. Once it is so "used", the question whether it is fully consumed within the local area or not is not relevant, as entry tax is leviable on the entry of goods for use, as also for consumption or sale within the local area. As HSD which is caused to be entered into a local area is "used" by the railways by filling the tanks of locomotives within the local area, irrespective of the fact whether the entire HSD filled into the tanks are burnt or consumed within the boundaries of the local area or not, the railways become liable for entry tax and no deduction is permissible under Rule 9A(3) ; and (8.4) There was no exemption either in regard to oil companies or dealers during the period April 1, 1997 to March 31, 1998. Even though there was exemption for oil companies and its dealers, for the period May 14, 1998 to March 31, 2000, the exemption was in exercise of the power under Section 11A of the Act. It applied only to the oil companies and its retail dealers. The railways is neither an oil company nor a retail dealer. Therefore the exemption that was extended to the oil companies and retail dealers will not apply to the railways.
9. In view of the rival contentions the following questions arise for consideration :
(i) Whether Article 285 of the Constitution bars levy of entry tax on HSD brought into a local area by the Southern Railway, for use or consumption ?
(ii) Whether the Southern Railway is a "dealer" carrying on "business" for the purpose of the Entry Tax Act ?
(iii) Whether the railways are entitled to deduction under Section 3 read with Rule 9A(3), in regard to HSD which remains unused in the tanks of the locomotives when they leave the local area ?
(iv) Whether the exemption from entry tax granted under Section 11A of the Act to the oil companies and its retail dealers for the period May 14, 1998 to March 31, 2000, should be extended to the Southern Railway.
Re : Point (i) :
10. The State Government enacted Karnataka Tax on Entry of Goods Act, 1979 (for short, "the Act"), under which the taxable event is the entry of goods into a local area for consumption, use or sale therein. Section 3 is the charging provision. Sub-sections (1) and (2) of Section 3 which are relevant are extracted below :
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 per cent 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.
(2) The tax levied under Sub-section (1) shall be paid by every registered dealer or a dealer liable to get himself registered under this Act or the Central Government or a State Government other than the State Government of Karnataka who brings or causes to be brought into a local area the goods whether on his own account or on account of his principal or any other person or who takes delivery or is entitled to take delivery of such goods on its entry into a local area."
[Note.--The portion in bold Here italicised. letters inserted by Karnataka Act No. 5/2000, with effect from 1-4-2000]
11. Article 285 of the Constitution provides that the property of the Union shall, save in so far as Parliament may by law, otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State. There is a corresponding exemption in regard to the property of States from Union taxation under Article 289 of the Constitution.
12. The Supreme Court in In re, Sea Customs Act, Section 20(2) AIR 1963 SC 1760, considered the scope and extent of immunity of the States from taxes by the Union and of the Union from taxes by the States and held as follows :
"We are therefore of opinion reading Article 289 and its complementary Article 285 together that the intention of the Constitution-makers was that Article 285 would exempt all property of the Union from all taxes on property levied by a State or by any authority within the State while Article 289 contemplates that all property of the States would be exempt from, all taxes on property which may be leviable by the Union. Both the articles in our opinion are concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. The contention therefore on behalf of the Union that these two articles should be read in the restricted sense of exempting the property or income of a State in one case and the property of the Union in the other from taxes directly either on property or on income, as the case may be, is correct.
..........the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales tax are levied with reference to goods, the two are very different imposts ; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.
Similarly in the case of duties of customs including export duties though they are levied with reference to goods, the taxable event is either the import of goods, within the customs barriers or their export outside the customs barriers. They are also indirect taxes like excise and cannot in our opinion be equated with direct taxes on goods themselves. Now, what is the true nature of an import or export duty ? Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers, i.e., before they form part of the mass of goods within the country. Such a condition is imposed by way of the exercise of the power of the Union to regulate the manner and terms on which goods may be brought into the country from a foreign land. Similarly an export duty is a condition precedent to sending goods out of the country to other lands. It is not a duty on property.......the immunity granted in favour of States has to be restricted to taxes levied directly on property and income. Therefore, even though import and export duty or duties of excise have reference to goods and commodities, they are not taxes on property directly and are not within the exemption in Article 289(1).
.............
But, it is contended on behalf of the States that in the scheme of our Constitution no distinction has been made between direct and indirect tax and therefore this distinction is not relevant to the present controversy. It is true that no such express distinction has been made under our Constitution ; even so taxes in the shape of duties of customs (including export duties) and excise, particularly, with a view to regulating trade and commerce in so far as such matters are within the competence of Parliament and are covered by various entries in List I to which reference has already been made, cannot be called taxes on property ; they are imposts with reference to the movement of property by way of import or export or with reference to production or manufacture of goods. Therefore, even though our Constitution does not make a clear distinction between direct and indirect taxes, there is no doubt that the exemption provided in Article 289(1) from Union taxation to property must refer to what are known to economists as direct taxes on property and not to indirect taxes like duties of customs and excise which are in their essence trading taxes and not taxes on property."
This was reiterated by the Supreme Court in Collector of Customs v. State of West Bengal .
13. The said decision In re, Sea Customs Act, Section 20(2) AIR 1963 SC 1760 is a complete answer to the first point. It is evident therefrom that the immunity under Article 285 is in regard to direct taxes on property held by the Union, that is taxing the interest in property like property tax or motor vehicle tax. Article 285 does not impose any bar on the State Legislature from levying a tax on the transactions or activities relating to property or goods, that is, on the movement of goods or causing entry of goods into a local area for use or consumption. The Supreme Court has held that levy of excise duty by the Union on the State is not exempted, as it is not a direct duty on the goods, but on the manufacture thereof. Similarly, levy of customs duty in regard to any export or import by a State is not barred as the taxable event is not holding of goods, but causing movement of goods with reference to the customs barriers, The position is the same in regard to entry tax also, where the taxable event in the entry of goods into a local area for the purpose of use, consumption or sale therein. It is not therefore a direct tax on the goods, but an indirect tax which is not barred by Article 285 of the Constitution.
14. The learned Additional Solicitor-General, appearing for the petitioners, submitted that there is a basic difference between sales tax, customs duty and excise duty on the one hand, and entry tax on the other. According to him, the first three are not direct taxes on goods but indirect taxes either on the manufacture or sale or the import/export of goods ; but the taxable event in regard to entry tax is entry of goods within the local area for the purpose of use, consumption or sale ; and that the use, consumption or sale are incidents of ownership and therefore any tax on the entry of goods for use or consumption will have to be construed as a tax on the ownership itself. Elaborating on the contention, he submitted that "ownership of goods" means holding, possessing and enjoying of a property, including a right to dispose of the same. He stated that the movement of goods owned by a person for the purpose of use or enjoyment is, therefore, inseparable part of the ownership and any attempt to tax the movement of goods for the purpose of use or consumption will therefore amount to taxing the goods directly. Though the contention may look attractive, it cannot stand scrutiny, by applying the principle laid down in the Sea Customs reference AIR 1963 SC 1760. The Supreme Court has clearly held that indirect taxation is not barred by Article 285. What is taxed is not possession or ownership. What is taxed is the activity of bringing the goods into a local area for the purpose of use, consumption or sale. The Supreme Court has, while dealing with customs duty has held that the taxable event for the levy of customs duty is the import of goods within the customs barriers or export outside the customs barriers. When the act of import of goods within the customs barriers (for use, consumption of sale) is considered as not exempted, it follows that the import of goods into a local area, that is causing entry of goods into a local area, for use, consumption or sale is also not exempt from taxation by the State.
15. It was lastly contended under entry 22 of List I of the Seventh Schedule to the Constitution, Parliament has the exclusive power to make laws relating to railways. Therefore State Legislature has no legislative competence to make any law, in exercise of power under entry 52 of List II, which has the effect of taxing the railways ; and therefore the Entry Tax Act, to the extent it purports to tax railways is invalid, for want of legislative competence. The answer to this contention is found in the doctrine of "pith and substance". Entry Tax Act is not an enactment relating to Railways. It is an enactment relating to taxing the entry of goods into local area, for consumption, use or sale therein. An examination of the Entry Tax Act makes it clear that it is on a matter assigned to the State Legislature under entry 52 of List II. Even though it may incidentally have the effect of taxing Railways it does not become a law relating to Railways, and is therefore valid.
16. The first point is therefore answered against the petitioners.
Re : Point (ii) :
17. The petitioners have contended that a profit-motive is necessary to make the activity a "business". They contend that railways does not carry as business to make any gain or profit and therefore railways cannot be considered as a dealer liable to tax under the Entry Tax Act.
18. Reference to relevant provisions of the Act is necessary.
(18.1) Section 2(A)(2-b) defines "business" as follows :
"2A(2-b) 'business' includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern and any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern."
Section 2(A)(4) defines "dealer" and the relevant portion thereof is as under :
"2(A)(4) 'dealer' means any person who in the course of business, whether on his own account or on account of a principal or any other person, brings or causes to be brought into a local area any goods or takes delivery or is entitled to take delivery of goods on its entry into a local area and includes an occasional dealer.
Explanation I.--An industrial, commercial or trading undertaking of the Government of Karnataka, the Central Government or any other State Government, a local authority, company, a Hindu undivided family, an Aliyasanthana family, a firm, a society, a club or an association which carries on such business shall be deemed to be a dealer for purposes of this Act."
19. An identical contention put forth by the Southern Railway to contend that it was not carrying a "business" and it was not a "dealer" for the purpose of Rajasthan General Sales Tax Act, 1954 was negatived by the Supreme Court in District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer . The Supreme Court held :
"The word 'business' according to Clause (i) of that definition would include any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not it is carried on with a motive to make gain or profit. So even if it be assumed that the activity involved in selling unserviceable material and scrap-iron, etc., would not amount to carrying on business in the normal connotation of that term, it would be 'business' within Clause (i) of that sub-clause as introduced by the amending Act.
We also think that there is no fallacy in thinking that the Railway since it is concerned in the activity of transportation is engaged in commerce within the meaning of Clause (i) of the definition and that the sale of unserviceable materials and scrap-iron, etc., is transaction in connection with or ancillary to such commerce within the Clause (ii) of that definition."
20. A careful reading of the provisions of Entry Tax Act shows that Railways falls within the definition of "dealer" as its activities fall within the definition of "business". The absence of profit-motive is not relevant. Hence the second point is also answered against the petitioners.
Re : Point (iii) :
21. The Railways, on purchasing the materials from oil companies outside the State of Karnataka, brings HSD into the State and stores it at its storage points. Thus, it cannot be disputed that it causes entry of goods (HSD) into the local area. The next question is whether it is for "use", "consumption" or "sale" within the local area. It is common ground that the goods are not brought into the local area for sale by the railways. The State contends that it is brought into the local area for "use" that is filling into tanks of locomotives for locomotion and when HSD is filled from the storage tanks into the tanks of the locomotives, the HSD is "used" within the local area and it is immaterial whether HSD so filled into the tanks of locomotives is burnt up or consumed within the boundaries of the local area after being filled into the tanks of locomotives.
22. Reliance is placed by the respondents on the following observations of the Supreme Court in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality :
"Looking to the trade of the company, it is quite obvious that it brings in the goods (a) for consumption by itself--which of course is within the term 'octroi' as described ; (b) for re-export either by itself or through dealers outside the area--which as is admitted by the municipality, entitles the company to a refund of tax and (c) for sale by it directly to consumers or to dealers who distribute the goods within the area to ultimate consumers. So long as the goods are brought inside the area for sale within the area to an ultimate consumer, it makes no difference that the consumer does not consume them in the area but takes them out for consumption elsewhere. A motorist who buys petrol within the municipal area and goes outside it for a drive buys the petrol in the area for purposes of consumption and the person who keeps and stores the petrol for sale in such circumstances keeps it for consumption therein. The word 'therein' does not mean that all the act of consumption must take place in the area of the municipality. It is sufficient, if the goods are brought inside the area to be delivered to the ultimate consumer in that area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area. Indeed, the consumer may never consume them as, for example, a motorist buys a tin of oil and finds that it does not suit his vehicle and leaves it lying on his shelf. The goods must be regarded as having been brought in for purposes of consumption when a person brings them either for his own use or consumption, or to put them in the way of others in the area, who are to use and consume. In this process the act of sale is merely the means for putting the goods in the way of use or consumption. It is an earlier stage, the ultimate destination of the goods being 'use or consumption'. The earlier stage, namely, the sale by him, does not save the person who brought the goods into the local area from liability to the tax if the goods were brought inside for consumption or use. In other words, a sale of the goods brought inside, even though not expressly mentioned in the description of octroi as it stood formerly, was implicit, provided the goods were not re-exported out of the area but were bought inside for use or consumption by buyers inside the area."
Relying on the above observations it is contended by respondents that actual consumption within the local area is not necessary or relevant. But the said observation may not be of any assistance to the respondents. The said observation was made with reference to a sale. The Supreme Court held that once goods are sold and delivered to the ultimate consumer within the local area, it is immaterial whether the purchaser, i.e., consumer consumed the goods, or kept the goods unused. The Supreme Court has held that where the goods were sold within a local area for the purpose of being taken out of that local area and such goods are in fact taken out of the local area, no levy was permissible. This was reiterated in Hiralal Thakorlal Dalal v. Broach Municipality and Municipal Council, Jodhpur v. Parekh Automobiles Ltd. and Entry Tax Officer v. Chandanmal Champalal & Co. . In this case the railway did not bring the goods (HSD) into the local area for sale and there is no sale by the railways within the local area. Therefore the question is not whether sale is with a view to re-export or transport the goods outside the local area or whether it is intended for use and consumption by the purchaser within the local area. The question in this case is, whether the goods are "used" or "consumed" within the local area. The Supreme Court has clarified this position in Burmah Shell's case . The following observations are relevant :
"Added to the word 'consumption' is the word 'use' also. There may be certain commodities which though put to use are not 'used up' in the process. A motor car brought into an area for use is not used up in the same sense as food-stuffs. The two expressions 'use' and 'consumption' together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up. In this context, the word 'consumption', as has been shown above, must receive a larger meaning than merely the act of consuming in the generally understood sense...........".
23. The following observations in Anwarkhan Mahboob Co. v. State of Bombay ; are also relevant :
"In answering that question it is unnecessary and indeed inexpedient to attempt an exhaustive definition of the word 'consumption' as used in the explanation to Article 286 of the Constitution. The act of consumption with which people are most familiar occurs when they eat, or drink or smoke. Thus, we speak of people consuming bread, or fish or meat or vegetables, when they eat these articles of food ; we speak of people consuming tea or coffee or water or wine, when they drink these articles ; we speak of people consuming cigars or cigarettes or bidis when they smoke these. The production of wealth, as economists put it, consists in the creation of 'utilities'. Consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the 'utilisation' thereof. For each commodity, there is ordinarily what is generally considered to be the final act of consumption. For some commodities, there may be even more than one kind of final consumption. Thus, grapes may be 'finally consumed' by eating them as fruits ; they may also be consumed by drinking the wine prepared from 'grapes'. Again, the final act of consumption may in some cases, be spread over a considerable period of time. Books, articles of furniture and paintings may be mentioned as examples. It may even happen in such cases that after one consumer has performed part of the final act" of consumption, another portion of the final act of consumption may be performed by his heir or successor-in-interest, a transferee, or even one who has obtained possession by wrongful means. But, the fact that there is for each commodity what may be considered ordinarily to be the final act of consumption, should not make us forget that in reaching the stage at which this final act of consumption takes place the commodity may pass through different stages of production and for such different stages, there would exist one or more intermediate acts of consumption.............. In the absence of any words to limit the connotation of the word 'consumption' to the final act of consumption, it will be proper to think that the Constitution-makers used the word to connote any kind of user which is ordinarily spoken of as consumption of the particular commodity."
23(1) In Acqueous Victuals Pvt. Ltd. v. State of U.P. , the Supreme Court observed :
"It is, therefore, obvious that the underlying common idea behind all the three relevant words 'sale', 'consumption' or 'use' within the municipal limits of the imported commodity so as to attract the levy of octroi thereon would require proof of the fact that the concerned commodity got consumed completely within the municipal limits or was used for an indefinite period in such a way that it came to rest finally and permanently within the municipal limits or was sold within the municipal limits."
24. Let me therefore consider the position of a dealer who is in the course of his business, brings goods into a local area, not for sale, but for use or consumption. The words "use" and "consumption" refer to two different activities. As illustrated by the Supreme Court, some goods may be incapable of consumption in the normal sense, but nevertheless, used within the local area. The Supreme Court has given an example of a motor car or book, which are used, and foodstuffs or drinks which are consumed. While foodstuffs can be "consumed", a motor car cannot be consumed but can be "used". If the goods are such which is not capable of being consumed, but capable of being used, and such goods are brought into the local area for the purpose of use, then, it becomes liable for entry tax. On the other hand, if goods which are capable of being consumed, causing entry of such goods into the local area, for consumption, will make the entry liable to tax. It is possible that in some cases, goods may be capable of either "use" or "consumption". It is possible that some goods are capable of being "used and consumed" also. Soap for example is used and consumed. But, we are concerned with HSD, which in the very nature of things, can only be consumed and cannot be "used" with reference to providing energy to locomotives. For example petrol can be consumed by being burnt as fuel or used as a cleaning agent by a dry-cleaner. In so far as HSD brought into the local area by railways, tax can be levied only in regard to HSD that is brought for "consumption" within the local area. If the HSD is not consumed, but is re-exported, that is taken outside the local area, it cannot be subjected to tax.
25. In Indian Oil Corporation v. Municipal Corporation, Jullundhar , the Supreme Court considered the question whether petroleum products transported by Indian Oil Corporation to its depot situated within municipal limits for export thereof to dealers outside the municipal limits for consumption, use, or sale by persons other than IOC outside municipal limits came up for consideration. IOC admitted its liability to pay octroi on petroleum products sold by it to its dealers or used, consumed by it within the local area, but contended that in regard to goods which entered local area only for the purpose of being re-exported to places outside the local area, it was not liable to pay octroi as no sale, use or consumption took place within the limits of the local area. IOC stated that the procedure involved in the sale of goods to its dealers outside the municipal limits of the Municipal Corporation was that the dealers placed orders for unascertained petroleum products which were carried in the tanker lorries (belonging to IOC or engaged by IOC) for transportation and delivery of petroleum products at the outlets of its dealers located outside the municipal limits. IOC contended that the property in the goods passed to the dealers only at the premises of the dealers (outside the Municipal Corporation limits) and not at the depot of IOC and therefore no transaction took place within the limits of the Municipal Corporation involving the use, consumption or sale of the imported petroleum products. The High Court, however, held that the property in the goods passed to IOC's dealers as and when goods are loaded into the tanker lorries at IOC's depot within the Municipal Corporation limits and that sale was completed at the depot of IOC and not at the business place of its dealers and therefore octroi duty was rightly levied. Reversing the view of the High Court, the Supreme Court held that where the petroleum products transported to the depot of IOC (within the Municipal Corporation limits) are meant for exports from its depot inside the octroi limits to outside the municipal limits to its dealers for sale, use and consumption by persons other than IOC, outside the octroi limits, it is a transaction of re-export and that the appropriation of goods does not take place at the depot but at the outlets of the dealers or agents outside the municipal limits and therefore no octroi duty is chargeable on such transaction.
26. The case on hand is much stronger. The railway brings the HSD into the local area and stores them in its storage depots. It does not sell the goods. It merely loads them into the tanks of its locomotives. The locomotives partly use/consume HSD by fuelling the engines for travelling till the border of the local area. Thereafter the locomotive with the remaining HSD in its tank, enters another local area within the State and travels across that local area using up some more HSD. Like this, the locomotive enters and leaves several local areas in the State and uses up/consumes several portions of HSD in its tank and ultimately leaves the last local area in the State with the balance quantity of HSD in its tank. If the railways pays entry tax in regard to HSD brought into the first local area, then it is not liable to pay entry tax even when the goods are taken into other local areas for consumption. Therefore it need not pay further entry tax on the HSD in the other local areas in the State through which the locomotive passes. Whatever quantity of HSD remains unutilised in the tank of the locomotive, when it leaves the last local area in the State of Karnataka, is the quantity of HSD which is sent out or re-exported. The railways is not liable to pay entry tax on such quantity which is sent out or taken out, as the said quantity of HSD which was brought into the local area, filled into the tanks and then taken out of the local area and ultimately taken out of the State, is not sold, used or consumed within any local area in the State. Therefore, obviously the value of such quantity of HSD cannot be subjected to entry tax. The value of such quantity should be deducted under Rule 9-A.
27. Rule 9-A of Karnataka Tax on Entry of Goods Rules, 1979, deals with exemptions and deductions. Sub-rule (3), which is relevant, is extracted below :
"9-A(3). In determining the turnover liable to tax, the value of the goods purchased or received from outside the local area but subsequently sent out of the local area otherwise than by way of sale shall be deducted, provided that the goods are sent out of the local area within a period of six months from the date of entry of such goods into the local area and entries are made in the stock register in the manner specified in Sub-rule (5) of Rule 10."
28. In other words what could be subjected to tax is only the quantity of HSD that is used up or consumed, for providing power to locomotives within the local area or local areas within the State. It is not possible to accept the contention that HSD brought into and stored in the storage tanks in the local area by the railways are "used" when they are loaded to the tanks of the locomotives. Loading into locomotive tanks is not used, but is also storage. Whether the HSD is in the storage tank or in locomotive tank, the position and purpose is the same, that is to store it till consumption. Therefore any diesel that remains unused or unconsumed when the locomotive leaves the borders of Karnataka, cannot be subjected to tax subject to fulfilment of the requirements of Rule 9A.
29. It is no doubt true that the actual ascertainment as to what is taken out of the local area would cause some practical difficulty, in the case of diesel filled into the tanks of locomotives. But, that itself cannot be a ground to deny the railway, the benefit of exemption under Rule 9-A(3). One probable way of ascertainment is to find out the total distance travelled by the locomotive from the point of filling/loading into locomotive from the storage tank to the point of exit from Karnataka and calculate the HSD required for travelling such distance from the standard consumption figures (that is kms. per litre or litres for km.) and subject the quantity of HSD that is used up for travelling the said distance to tax and treat the remaining HSD in the tanks of the locomotive as having been taken out of the local area. For example : 2,000 litres of HSD is filled into the tank of a locomotive. The locomotive travels 200 km. from the point of filling to the border of last local area in Karnataka. The standard consumption is say four litres per km. Then value of 1,200 litres will have to be deducted under Rule 9-A as having been sent out of local area and only the value of 800 litres will have to be taxed as having been consumed. It is as if the locomotive has two tanks, one containing HSD for use and consumption with the local areas in Karnataka, and another as storage tank for taking out the diesel outside Karnataka to be used outside the State. Be that as it may. It is possible and permissible for the parties to work out other feasible methods of ascertaining the quantity to be deducted.
30. In view of the above, I hold that the Railways are entitled to deduction in regard to unconsumed or unutilised part of HSD that remains in the tanks of locomotives when they leave the border of last local area in Karnataka under Rule 9-A(3) of the Rules. What can be subjected to a single entry tax is what is brought into the local area and what is consumed or used up in the first or subsequent local areas in the State, and not what is taken out.
Re : Point (iv) :
31. The State Government by a notification dated May 14, 1998 in exercise of power under Section 11A of the Act, exempted the tax payable under the Act on the entry of diesel into any local area by oil companies, with effect from the date of said notification. By another notification dated October 8, 1999, the State Government exempted the tax payable under the Act on the entry of diesel into any local area caused by a retail dealer of an oil company with retrospective effect from May 14, 1998. However, these two notifications were subsequently cancelled by notification dated March 31, 2000. The effect of those notifications is that no entry tax is payable in regard to HSD brought into any local area between May 14, 1998 and March 31, 2000 by any oil company or any retail dealer or an oil company.
32. The said exemption was given only to oil companies and retail dealers and not to actual users. It is true that when the entire HSD that is brought into the local area by the oil companies and their retail dealers was exempted from tax, there was no logical explanation for subjecting the HSD brought by the railways for being filled into its locomotives, to tax. The petitioners submit that in all fairness, the State Government, while retrospectively extending the benefit of exemption to the retailers of oil companies, ought to have extended the benefit to railways also. But that is a matter to be taken up by the petitioners with the respondents as it relates to the policy of the State Government. Further, the assessments in regard to 1998-99 and 1999-2000 are not the subject-matter of this petition. It is open to the Railway to take up the matter with the State Government for extension of benefit similar to that was granted to oil companies and their retail dealers under notification dated May 14, 1998 and October 8, 1999 to Railways also. It is also open to Railways to take up the matter with the State for absolute exemption also. But no relief can be given to petitioners in these petitions on the basis of exemption extended to oil companies and its retail dealers.
33. Learned counsel for the petitioners submits that there is yet another discrimination practised by the State in so far as the Railways is concerned. He submitted that having regard to the definition of terms "dealer" and "business", if Railways can be considered as a "dealer" carrying on "business", it follows that every road transport operator operating any public transport, including buses (carrying passengers) or lorries (carrying goods) would also be "dealers" carrying on "business", and therefore, every public transport vehicle, which enters any local area with diesel in its tank, and uses up such petrol/diesel within the local area, will have to fall within the net of entry tax, as such transport operators will be causing goods (HSD or petrol) to enter the local area for use/consumption. He points out that though there is no exemption in case of road transport operators, none of the road transport operators are being assessed to entry tax, obviously because of the difficulty involved in subjecting such entry of diesel/petrol to tax. He also pointed out aviation fuel is also exempted from entry tax. He submits that while HSD brought by road transport from outside is not subjected to tax and when air transport is exempted, subjecting only the fuel used by Railways is unreasonable and arbitrary. He also stated that several States have not subjected the Railways to entry tax in regard to HSD brought by it into local areas. There may be considerable truth or logic in what is submitted by the learned counsel for the petitioner. But they are not grounds in law to give any reliefs based on discrimination. It is always open to the petitioners to take up the matter with the State for appropriate exemption, particularly in view of the difficulty in ascertaining the quantity that has to be subjected to entry tax after deducting the quantity taken out.
34. No relief can be granted to the petitioners on the ground of discrimination and point (iv) is answered accordingly.
Conclusion :
35. In view of above, this petition is allowed in part as follows :
(a) The prayer for declaration that the provisions of Entry Tax Act is inapplicable to HSD belonging to Railways and brought into local area for use/consumption, is rejected.
(b) It is however declared that the petitioners (Railways) are entitled to claim a deduction under Rule 9-A(3) of the Karnataka Tax on Entry of Goods Rules, 1979, in regard to the value of HSD which is taken out of the last local area in the State of Karnataka (that is HSD remaining unused in the tanks of the locomotives when they leave the borders of the last local area within the State) while calculating the entry tax payable on the HSD brought into a local area.
(c) As a consequence, the order of assessment dated March 26, 1999 passed by the second respondent and the consequential endorsement dated June 4, 1999 are quashed. The second respondent is directed to permit the second petitioner to file necessary returns in form No. (5) and then redo the assessment in the light of the observations made above.
(d) To expedite the matter, the second petitioner shall appear before the second respondent without further notice on November 7, 2001 at 11.00 a.m. with concerned records and take further orders from the second respondent.
(e) Parties to bear their respective costs.