Decided on September 02,2016



R.F.NARIMAN, J. - (1.) The appellant is a public limited company having a tea manufacturing unit at Dharwad and various other units which also manufacture tea. The tea manufactured by the appellant is of three types, namely, packet tea, tea in tea bags, and quick brewing black tea. It is claimed that the Dharwad Unit, as opposed to the other units manufacturing tea, is a new unit and is, therefore, exempt altogether from payment of entry tax on packing material of tea under a notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as the "Karnataka Entry Tax Act"). Insofar as the other units are concerned, it is the case of the appellant they are covered by Explanation II to a Notification dated 23.9.1998 issued under Section 3 of the said Act, and "packing material" being covered by the said Explanation would entitle them to pay entry tax at the rate of 1% and not 2%. In these appeals, we are concerned with three assessment years 1994 -1995, 1995 -1996 and 1996 -1997.
(2.) The question that arises for decision in this appeal is whether "packing materials" which enter the local area for consumption therein, that is for packing tea that is manufactured by the appellant, can be said to be raw material, components, or inputs used in the manufacture of tea. In order to answer this question, it is necessary to first set out the relevant provisions of the Karnataka Entry Tax Act. They are as follows: "2. Definitions. - (A) In this Act, unless the context otherwise requires, - (4a) goods means all kinds of moveable property (other than newspapers, actionable claims, stocks and shares and securities) and includes livestock; (7) "Schedule" means a schedule appended to this Act; (8) "tax" means tax leviable under this Act; (8a) '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. (B) Words and expressions used in this Act, but not defined, shall have the meaning assigned to them in the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957.)
(3.) 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. 11A. Power of State Government to exempt or reduce tax. - (1) The State Government may, if in its opinion it is necessary in public interest so to do, by notification and subject to such restrictions and conditions and for such period as may be specified in the notification, exempt or reduce either prospectively or retrospectively the tax payable under this Act, - (i) by any specified class of persons or class of dealers or in respect of any goods or class of goods; or (ii) on entry of all or any goods or class of goods into any specified local area. (2) The State Government may, by notification cancel or vary any notification issued under sub -section (1). (3) Where any restriction or condition specified under sub -section (1) is contravened or is not observed by a dealer or a declaration furnished under the said sub -section is found to be wrong, then such dealer shall be liable to pay by way of penalty an amount equal to twice the difference between the tax payable at the rates specified by or under the Act and the tax paid at the rates specified under the notification on the value of such goods in respect of which such contravention or non -observance has taken place or a wrong declaration is furnished: Provided that before taking action under the sub -section the dealer shall be given a reasonable opportunity of being heard. JUDGEMENT_4_LAWS(SC)9_2016.jpg 3. Under Section 11A of the Act, a Notification dated 31.3.1993, exempting raw materials, component parts, and inputs entering a local area for use in the manufacture of an intermediate or finished product, was promulgated. It reads as under: "Entry tax on raw materials, etc. for use in manufacture of goods by new industrial units ­ Exemption (Karnataka) Notification III No.FD.11.CET 93 dated the 31 st March,1993 [Public in Karnataka Gazette, Extraordinary No. 201, Part 4 -C(ii) dated 31st March, 1993] In exercise of the powers conferred by section 11 -A of the Karnataka Tax on Entry of Goods Act, 1979 the Government of Karnataka being of the opinion that it is necessary in the public interest so to do, hereby exempts with effect from the first day of April, 1993 the tax payable under the said act, on the entry of raw materials, component parts and inputs and machinery and its parts into a local area for use in the manufacture of an intermediate or finished product by the new industrial units mentioned in column (2) of the Table below located in the zones specified in column (3) and for the period mentioned in Column (4) thereof. JUDGEMENT_4_LAWS(SC)9_20161.jpg Explanation ­ (1) For the purpose of this notification "a new industrial unit" shall have the same meaning assigned to it in Notification No. FD 239 CSL 90(1) dated 19th June, 1991, issued under Section 8 -A of the Karnataka Sales Tax Act, 1957. (2) The provisions of the notification shall not apply to a unit to which the provisions of Notification No. FD 239 CSL 90(1) dated 19th June, 1991 issued under Section 8 -A of the Karnataka Salex Tax Act, 1957 shall not apply. (3) The procedure specified in Notification No. FD 239 CSL 90(1), dated 19th June, 1991 issued under Section 8 -A of the Karnataka Sales Tax Act, 1957 for claiming exemption under that notification shall mutates mutandis apply to a industrial unit claiming exemption under this notification." ;

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