1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 4TH DAY OF SEPTEMBER 2012 PRESENT THE HON'BLE MR. JUSTICE K.SREEDHAR RAO BETWEEN : AND THE HON'BLE MR. JUSTICE B.MANOHAR CRP No.332/2010 STATE OF KARNATAKA REPRESENTED BY THE COMMISSIONER OF COMMERCIAL TAXES, V.T.K BUILDING, GANDHINAGAR, BANGALORE 560 009....PETITIONER (BY SMT.S.SUJATHA, AGA) AND: M/S. MADRAS CEMENTS LIMITED NO 1, 5TH BLOCK, LALBAGH ROAD, RANKA PARK APARTMENTS, II FLOOR, BANGALORE 560 027 BY ITS MANAGER....RESPONDENT (BY SRI.M.N.SHANKAREGOWDA & SRI.B.K.MANJUNATH, ADVS FOR VASAN ASSOCIATES) CRP FILED UNDER SEC.15 A OF THE K.T.E.G ACT, 1979, FILED AGAINST THE JUDGMENT DATED 17.11.2009 PASSED STA.2567/2004 ON THE FILE OF THE KARNATAKA
2 APPELLATE TRIBUNAL, BANGALORE, PARTLY ALLOWING THE APPEAL FILED UNDER THE PROVISIONS OF THE KARNATAKA TAX ON ENTRY OF GOODS ACT, 1979. THIS CRP HAVING BEEN HEARD AND RESERVED AND COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, B.MANOHAR J., MADE THE FOLLOWING: JUDGMENT The State Government has preferred this revision petition being aggrieved by the order dated 17-11-2009 made in STA No.2567/2004 passed by the Karnataka Appellate Tribunal, at Bangalore, setting aside the order dated 26-07-2004 passed by the Appellate Authority and the assessment order dated 23-08-2003 insofar as levying tax on diesel, for the assessment year 2000-2001. 2. The respondent-assessee is a Public Limited Company engaged in the manufacturing of Ramco Brand Cement and also registered dealer under the provisions of Karnataka Tax on Entry of Goods Act, 1979 (herein after referred to as KTEG Act ). In the course of business of cement, for the purpose of generating electrical energy, the assessee has installed generating sets. He has caused
3 entry of diesel and furnace oil into the local area for generating sets to generate electrical energy for the purpose of running the earthmovers. In the annual returns filed, they have declared gross net turnover and also turnover tax amount. On verification of the books of accounts during the assessment year 2000-2001, it is noticed that the assessee has claimed exemption towards importing of diesel and furnace oil stating that the furnace oil and diesel are being used as raw materials to generate electrical energy for the purpose of manufacturing cement. Hence, the assessee is entitled for exemption. The Assessing Authority relying upon the notification No.FD 37 CET 2000(5) Bangalore dated 31-3-2000 held that the assessee is liable to pay entry tax at 4% insofar as diesel and furnace oil are concerned. Accordingly, a demand notice was issued as per the assessment order dated 23-8-2003. The assessee being aggrieved by the said order preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeals) Dviision-2, Bangalore. The Appellate Authority after considering the matter in detail held that the diesel and furnace oil cannot be treated as raw materials for the purpose of manufacturing the cement. Hence, the assessee is liable to pay entry tax. Accordingly, dismissed the appeal by its order dated 26-7-2004. Being aggrieved by the same, the assessee
4 approached the Karnataka Appellate Tribunal in STA No.2567/2004. The Appellate Tribunal relying upon the notification No.FD 34 CET 98(1) dated 31-3-1998 and also notification No.FD 79 CET 98(1), dated 14-5-1998 held that the diesel being used as raw material/input in the manufacture of electrical energy, the assessee need not pay entry tax of 4%. As per the Government Notification dated 14-5-1998, the diesel is omitted from the notification dated 31-3-1998 wherein entry tax has been fixed at the rate of 2%. Further held that the diesel and furnace oil used for the manufacturing of the electrical energy are liable to be treated as raw materials. As per the Government Notification, no tax can be levied on the diesel, which is used as raw material. Accordingly allowed the appeal and set aside the levy of tax on the diesel which was used for the generator. However, imposed 1% tax on the diesel used for running the earth-movers for shifting the limestone to the respondent s factory from the adjoining quarries. In respect of the furnace oil, the Tribunal held that the assessee has to pay entry tax at the rate of 4%. The State Government being aggrieved by the order passed by the Karnataka Appellate Tribunal insofar as deduction of entry tax in respect of the diesel is concerned, has preferred this appeal. 3.. Smt.S.Sujatha, learned Additional Government Advocate
5 contended that the order passed by the Appellate Tribunal is contrary to law. The Appellate Tribunal misunderstood and misread the various Government Notifications, which were issued under Section 3(1) of the KTEG Act. Though the State Government by its notification No.FD 39 CET 98(1) dated 14-5-1998 deleted the diesel from the notification dated 31-3-1998, subsequently State Government by its notification bearing No.FD 37 CET 2000(3) dated 31-3-2000 imposed entry tax at the rate of 4% on diesel and furnace oil. Further the State Government by its notification bearing No.FD 37 CET 2000(5) dated 31-3-2000 clearly held that even if the goods specified in the notification No.FD 37 CET 2000(3) dated 31-3-2000 brought as raw materials, then also they have to pay the tax at the rate notified in the said notification. The Appellate Tribunal lost sight of these notifications, and only on the basis of the judgment of the Allahabad High Court reported in 132 STC 8 in the case of RAMA PAPER MILLS LIMITED v/s STATE OF UTTAR PRADESH AND OTHERS and also judgment in KIRLOSKAR POWER SUPPLY COMPANY LIMITED v/s STATE OF KARNATAKA reported in 2006 (61) KLJ 214 held that diesel and furnace oil have to be treated as raw materials for generation of electrical energy, hence they are not liable to pay tax. The
6 judgments relied upon by the Appellate Tribunal are not applicable to the facts of the case and sought for setting aside the same by allowing this appeal. 4. On the other hand, Sri.M.N.Shankare Gowda, learned counsel appearing for the respondent argued in support of the order passed by the Karnataka Appellate Tribunal and contended that there is no infirmity or irregularity in the order passed by the Appellate Tribunal. Further, the Appellate Tribunal relying upon the various judgments of this Court, Allahabad High Court and Supreme Court held that the diesel used as raw material for generating electrical energy for the manufacturing of cement has to be treated as raw material. He relied upon para 31 of the judgment in RAMA PAPER MILLS LIMITED case. He further contended that this court in a judgment of KIRLOSKAR POWER SUPPLY s case has held the diesel and lubricant used for generating electrical energy as raw materials which are not liable to entry tax in view of the fact that they are used to manufacture the electrical energy, which also finds entry in the II Schedule. He also relied upon a judgment of Hon'ble Supreme Court reported in (2007) 5 VST 529 (SC) in the case of
7 COMMERCIAL TAXATION OFFICER, UDAYAPUR v/s RAJASTAN TEXCHEM LIMITED. Hence, there is no infirmity in the order passed by the Karnataka Appellate Tribunal and sought for dismissal of the revision petition. 5. The substantial questions of law that arise for consideration in revision petition are: i) Whether the Karnataka Appellate Tribunal is justified in relying upon the notification No. FD 34 CET 98(1) dated 31-3-1998 and No. FD 79 CET 98(1) dated 14-5-1998 and come to the conclusion that the diesel is being used as raw material and the assessee is not liable to pay the tax since it is omitted from the Notification dated 31-3-1998? ii) Whether the Karnataka Appellate Tribunal, inspite of notification No.FD 37 CET 2000(5) dated 31-3-2000 is justified in holding that the diesel being used as raw material, the assessee is not liable to pay entry tax? 6. Section 3(1) of the Karnataka Tax on Entry of Goods Act provides for levy and collection of tax on entry of any goods specified in the First Schedule into local area for the consumption, use or sale therein at such rate not exceeding 5% of the value of the
8 goods as may be specified by the State Government by its notification. The State Government in exercise of the power under Section 3(1) of the KTEG Act issued notification No. FD 34 CET 98(1) dated 31-3-1998, specifying the levy of entry tax on diesel at the rate of 2% and the furnace oil at the rate of 4%. Subsequently, the word diesel was omitted in the notification 31-3-1998 referred to above by notification dated FD 79 CET 98(1) dated 14-5-1998 w.e.f 14-5-1998. A fresh notification No. FD 79 CET 98(2) dated 15-5-1998 was issued specifying the rate of tax at 5% on entry of diesel into local area for consumption, use and sale therein. This notification was rescinded by notification FD 37 CET 2000(6) dated 31-3-2000. However, the Notification FD 37 CET 2000(3) dated 31-3-2000 specifies the rate of tax at 4% w.e.f. 1-4-2000. The dispute in this revision petition is with regard to the assessment year 2000-2001 and the notification dated 31-3-2000 covers the field. 7. Further the State Government by its notification No. FD 34 CET 98(2) Bangalore dated 31-3-1998, fixed the rate of tax at 1% on raw materials, component parts and input which are used in the manufacture of intermediate or finished products other than those
9 specified in the II schedule. This notification was amended by another notification No.FD 37 CET 2000(5) Bangalore dated 31-3-2000 w.e.f. 1-4-2000 which reads as under: (a) after the first proviso, the following shall be inserted, namely, - Provided further that the rate of tax in case of goods specified in Notification No.FD 37 CET 2000(3), dated 31 st March, 2000, shall be at the rates specified in the said notification dated 31 st March, 2000, notwithstanding that such goods are brought into a local area as raw materials, component parts and inputs. 8. The reading of the aforesaid notification makes it very clear that during the assessment year 2000-2001, the diesel was liable to tax at the rate of 4% when it was brought into the local area for consumption, use or sale therein. As per the notification extracted above, even though the diesel was brought into the local area as raw material, component parts and input, the assessee is liable to pay tax at the rate of 4%. The Appellate Tribunal failed to consider the notification extracted above and came to a wrong conclusion. The
10 finding of the Tribunal that when the diesel is used a raw material, it was taken out from the purview of the notification dated 31-3-2000 is totally incorrect. As the said notification does not exempt goods when they are brought into the local area as raw material, component part and input, but prescribed the rate of tax at the rate prescribed in the notification dated 31-3-2000. 9. In the instant case, the assessee caused entry of diesel into local area, which is the scheduled goods as per entry 67 of the I Schedule to the Act. The assessee is manufacturing cement. The assessee has caused entry of diesel for generating electrical energy and for running the earth-movers for shifting the limestone to the respondent s factory from the adjoining quarries. As per the notification extracted above, even though the diesel which was brought in as a raw material is liable to be taxed at the rate of 4%, these aspects of the matter are totally lost sight by the Karnataka Appellate Tribunal. The judgment relied upon by the M.N.Shankare gowda are not applicable to the facts of this case. In KIRLOSKAR POWER SUPPLY s case, the diesel was brought into the local area for the purpose of generating electrical energy for sale which is the
11 finished product. In the instant case, the respondent is not selling electrical energy, he has only utilised the electrical energy for the purpose of manufacturing the cement. Hence, the diesel cannot be treated as raw material. The judgment of Allahabad High Court is also not applicable to the present case. In U.P. Trade Act, the goods has been defined wherein the goods include machinery, plant, fuel or lubricants and exemption has been given to those goods under the Act. The Hon'ble Supreme Court dealing with Rajasthan Sales Tax Act has noticed the definition of raw materials under Section 2(34). The raw materials means the goods used as ingredients in the manufacturing of other goods and include preservative fuel and lubricant required for the process of manufacturing. In that circumstances, the Hon'ble Supreme Court held that for the raw materials, concessional tax has to be levied. In the instant case, as per the notification extracted above, notwithstanding the goods which are brought into the local area as raw materials, component parts or input, the assessee is liable to pay tax at the rate of 4%. Hence, the judgments relied upon by the respondent are not applicable for the present case and the order passed by the Appellate Tribunal cannot be sustained. The substantial questions of law framed in this revision petition are held
12 in favour of the revenue. Accordingly, we pass the following ORDER The appeal is allowed. The order passed by the Karnataka Appellate Tribunal is set aside insofar as deduction of entry tax in respect of diesel is concerned. JUDGE Sd/- Sd/- JUDGE mpk/-*