Indian Kanoon - Search engine for Indian Law

1. The appellant is a Central Government company who filed this appeal assailing the orders of the Additional Commissioner of Commercial Taxes of Bangalore. The appellant is a dealer in methanol and prepares methanol mixtures (also known as meth mix) which is a combination of methanol and water in the proportion of 45 : 55 per cent. Except merely adding water to methanol mixture there is no process whatever involved to arrive at methanol mixture. Methanol mixture is supplied to only one type of aircraft and is carried by it during flight. It is supplied only to that aircraft with dart engine. Appellant stated that he has supplied the material at the relevant time mostly)' to Indian Air Force (IAF), The substance in principle is used as a coolant at the time of takeoff only to prevent the engines working at its highest speed from overheating. The appellant declared all along prior to March 31, 1992 the methanol mixture was an unscheduled item and liable to be taxed under Section 5(1) of the Karnataka Sales Tax Act, 1957 (hereinafter called "the Act"). Assessing authority accepted the position and passed necessary orders which are annexed as A. 1 to A.6, The Joint Commissioner of Commercial Taxes (Admn.), Bangalore City Division-I, Bangalore ("the JCCT" for short) issued notices under Section 21(4) of the Act proposing to shift the classification from the general rate to rate applicable to motor spirit. The appellant replied vide letters dated August 26, 1992, September 10, 1992, September 18, 1992, and December 21, 1992 explaining the facts and situations and requested for dropping the proceedings. The JCCT, after a thorough consideration of the case accepted the appellant's contention and held that classification of methanol mixture under Section 5(1) of the Act by the assessing authority was correct and therefore called for no revision. The respondent issued notice under Section 22A(1) of the Act dated October 30, 1993 proposing for revising the assessment orders for the reasons stated in the notice to construe and hold methanol mixture as a motor spirit within the meaning of entry 85(old) and M. 12 (new) of the Second Schedule of the Act for the years in question. He sought to set aside the order of the JCCT for the years 1984-85, 1985-86 and 1987-88 to 1989-90 and 1990-91 and the order of the assessing authority for the year 1986-87 respectively. The appellant filed reply to the above notices by its letter dated January 22, 1994. The respondent after considering the appellant's reply and other material on record finally passed the impugned order dated March 5, 1995 holding that methanol mixture is a motor spirit and as such liable to be taxed at appropriate rates and accordingly set aside common suo motu order of the JCCT dated February 9, 1993 as well as the assessment orders for the years in question. He held that methanol mixture for all the six assessment years represented a motor spirit and was subjected to tax at the rate prescribed under entry 85(old)/M.12(new) of the Second Schedule and accordingly directed assessing authority to collect the differential tax and issue demand notices for all the six assessment years and thereafter notices were issued. Against that order present appeal is filed.

4. In view of the above contentions important question of law that has to be considered is whether the methanol mixture is a motor spirit or not and whether it is taxable as a motor spirit or as a general item under the Act ?

5. To appreciate the above contention it is useful to refer to the provisions of the Act. Section 5 of the Act provides for levy of tax on purchase and sale of goods. Section 8A provides to empower State Government to notify exemption and redemption of taxes. Second Schedule of the Act provides for classification of goods and rate of tax leviable on such goods during the course of sale and purchase of the same. Old entry 85/M.12(new) of the Second Schedule deals with the motor spirit and provides for tax at the rate of 15 per cent for the years 1984-85, 1985-86 and thereafter entry 12 of the Second Schedule deals with the motor spirit and it provides for tax at the rate of 20 per cent for the years 1986-87, 1988-89. For the year 1989-90 tax is at the rate of 18 per cent and again for the year 1990-91 tax is at the rate of 19 per cent. With effect from April 1, 1992 the methanol mixture came to be classified under entry of category of petroleum products vide entry No. P5 of (xiv) carrying rate of 10 per cent tax. If the methanol mixture is not treated as motor spirit it will fall under the general entry and will be taxed at the rate of 5 per cent as an article not provided in the Schedule, Contention of the appellant is that methanol mixture cannot be treated as motor spirit. It is to be noticed that explanation IV to Second Schedule provides as to what is the meaning of motor spirit and which is as follows :

"Motor spirits" means any substance which by itself or in admixture with other substances is ordinarily used directly or indirectly to provide reasonably efficient fuel for automotive or stationery internal combustion engines and includes petrol, diesel oil and other internal combustion oil but does not include kerosene, furnace oil, coal, coke or charcoal.

6. By above explanation it is manifest that test furnished by the definition is whether it is a motor spirit or not is to find out if the substance is ordinarily used directly or indirectly to provide reasonably efficient fuel for automotive or stationery internal combustion engines. Methanol mixture is directly injected into the combustion chamber of aircraft during take-off for power augmentation. If the substance is used ordinarily directly or indirectly to provide reasonably efficient fuel for automotive or stationery internal combustion engines such substance could be termed to be a motor spirit within the meaning of entry 85 of the Second Schedule of the Act. Therefore, methanol mixture could be considered as motor spirit within the meaning of the Act, There is no dispute that the methanol mixture is injected into combustion chamber during take-off of the aircraft and also at high altitude for power restoration and augmentation. Further, it is noticeable that methanol mixture while mainly contributing to increase in the density in the combustion chamber of the jet engine, also partakes in the combustion releasing a certain amount of energy. It may be that it is not used as principal fuel ; but it is noticeable that provides a more fuel in the combustion chamber of jet engine by facilitating a greater and more optimum burning of the main fuel, besides contributing a small quantity of energy by its own burning. So the methanol mixture in admixture with gasoline and air indirectly provides efficient fuel for automotive internal combustion engine and falls within the description of "motor spirit" of the Second Schedule to the Act.

11. The above definition of "fuel" also supports contention of the Government Pleader that the methanol mixture could be treated as motor spirit.

12. Therefore, we are not able to agree with the contention of the learned counsel for the appellant.

13. The learned counsel for the appellant lastly contended that the Karnataka Government has issued Notification No. FD 71 CSL 84 dated March 3, 1986 reducing the percentage of tax to 4 per cent.

14. By reading the said notification it is evident that the reduction of the tax to 4 per cent is applicable only to the goods produced by the manufacturers in the State of Karnataka and which are sold to the departments of Government of India or Government of Karnataka or Government of any other State located in Karnataka State. The appellant is not the manufacturer of the methanol mixture. The appellant is a dealer in methanol and he supplies by adding water to the methanol as a methanol mixture to the consumers. Therefore, it cannot be said that the appellant is a manufacturer of the methanol mixture. Once he is not a manufacturer within the State of Karnataka even if he sells to the Central or State Government Departments at Karnataka the benefit provided in the notification is not available.