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2004 (1) TMI 656
Issues Involved:
1. Legality of imposing tax under Section 3-B of the U.P. Trade Tax Act, 1948.
2. Validity of the recognition certificate under Section 4-B of the U.P. Trade Tax Act, 1948.
3. Applicability of alternative remedy under Section 9 of the U.P. Trade Tax Act, 1948.
Issue-wise Detailed Analysis:
1. Legality of imposing tax under Section 3-B of the U.P. Trade Tax Act, 1948:
The petitioner, a public limited company, challenged the imposition of tax under Section 3-B for the assessment year 2000-01. The petitioner argued that the RFO and furnace oil purchased against form III-B were used as "fuel" in the manufacture of camphor and allied products, and thus no action under Section 3-B was warranted. Section 3-B states that a person issuing a false or wrong certificate making the tax non-leviable or leviable at a concessional rate shall be liable to pay the tax that would have been payable had the certificate not been issued. The court found that the petitioner had not issued any false or wrong certificate as the RFO and furnace oil were used for the intended purpose of manufacturing camphor. The court relied on previous judgments, including Commissioner of Trade Tax v. Spox India and Allied Industries and Arora Steel Udyog (P) Ltd. v. Commissioner of Trade Tax, U.P., which held that no action under Section 3-B could be taken if the goods purchased were used for manufacturing the notified goods.
2. Validity of the recognition certificate under Section 4-B of the U.P. Trade Tax Act, 1948:
The petitioner was granted a recognition certificate under Section 4-B, allowing the purchase of diesel, RFO, and furnace oil at a concessional rate for manufacturing camphor. Section 4-B(2) provides special relief to manufacturers for purchasing goods at a concessional rate if the goods are used in manufacturing notified goods intended for sale within the state, inter-state trade, or export. The court noted that the petitioner had used the RFO and furnace oil for manufacturing camphor, as specified in the recognition certificate. Thus, the petitioner did not issue any false or wrong certificate, and no differential tax could be legally charged under Section 3-B. The court distinguished this case from Mahabir Wire Netting Industries and Vijendra Industry, where the dealers misrepresented their entitlement to total exemption rather than a concessional rate.
3. Applicability of alternative remedy under Section 9 of the U.P. Trade Tax Act, 1948:
The respondent argued that the writ petition was not maintainable as an appeal under Section 9 was available. However, the court noted the conflicting decisions of single judges in similar cases, which made it difficult for appellate authorities or the Sales Tax Tribunal to take a contrary view. The court cited the Full Bench decision in Engineering Traders v. State of Uttar Pradesh, which held that the alternative remedy is not efficacious if the matter involves recurring issues and significant legal questions. The court also referred to Cannon India Pvt. Ltd. v. State of U.P., which allowed the High Court to decide recurring legal issues without relegating the petitioner to alternative remedies. Thus, the court decided to entertain the writ petition to resolve the conflict and provide clarity on the issue.
Conclusion:
The court concluded that the petitioner had used the RFO and furnace oil for the intended purpose of manufacturing camphor, as specified in the recognition certificate under Section 4-B. Therefore, no false or wrong certificate was issued, and the imposition of tax under Section 3-B was not justified. The orders dated January 24, 2003, and March 31, 2003, were quashed, and the writ petition was allowed with no order as to costs.
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2004 (1) TMI 655
Issues:
1. Entitlement to exemption from sales tax on purchase of raw materials.
2. Entitlement to exemption from sales tax on sale of finished goods.
3. Requirement of prior permission for new industrial units.
4. Entitlement to sales tax exemptions without prior permission.
Analysis:
1. Entitlement to Exemption from Sales Tax on Purchase of Raw Materials:
The petitioner sought a declaration for exemption from sales tax on raw materials purchase under specific notifications issued under Bihar Industrial Policy, 1995. The petitioner invested significantly in setting up a new industrial unit but faced delays due to issues with the Electricity Board. Despite repeated requests for prior permission, the petitioner faced challenges in obtaining exemption certificates. The Commercial Taxes Department delayed the decision, causing financial losses to the petitioner.
2. Entitlement to Exemption from Sales Tax on Sale of Finished Goods:
Similarly, the petitioner claimed exemption from sales tax on the sale of finished goods under relevant notifications. The petitioner's case highlighted the delays and challenges faced in obtaining necessary approvals and certificates, impacting the production and financial viability of the industrial unit.
3. Requirement of Prior Permission for New Industrial Units:
The court analyzed whether prior permission was necessary for new industrial units under the relevant notifications. The State argued that prior permission was required, even for new units, and pointed out discrepancies in the petitioner's application process. The court referred to a previous judgment and concluded that the petitioner did not have the required prior permission before the policy expiry, emphasizing the importance of timely compliance with regulatory requirements.
4. Entitlement to Sales Tax Exemptions Without Prior Permission:
The court examined whether the petitioner could be entitled to sales tax exemptions without prior permission. Despite the petitioner's contentions and reliance on previous judgments, the court found that the petitioner's actions were not diligent. Delays in obtaining necessary approvals and permissions were noted, and the court emphasized the importance of compliance within the specified timelines. Ultimately, the court dismissed the writ petitions, stating that no relief could be granted to the petitioner.
In conclusion, the judgment addressed the issues of entitlement to sales tax exemptions, the requirement of prior permission for new industrial units, and the petitioner's compliance with regulatory procedures. The court's decision highlighted the importance of timely compliance and adherence to regulatory requirements for availing exemptions and benefits under industrial policies.
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2004 (1) TMI 654
Classification - buying and selling damaged foodgrains (wheat and rice) from Food Corporation of India - demand for payment of tax - specified purposes for which such damaged foodgrains can be used - term "cereals" - HELD THAT:- We hold that "rice" and "wheat" which are not fit for human consumption but fit for being used as animal feed for livestock and poultry, will still be a "cereal", subject to any definition to the contrary. Accordingly, we hold that damaged rice and wheat that has been classified and certified by FCI as fit for cattle/poultry feed, will fall under "cereal" and be exempt from tax under entry 15 of the Fifth Schedule. But if FCI categorises the damaged grains as fit only for manure or fit only for manufacture of inedible industrial starch, then it will not be a "cereal" falling under entry 15 of the Fifth Schedule.
FCI, by its letter dated May 30, 2000 called upon the petitioner to pay sales tax at 10 per cent plus 5 per cent of tax as cess in regard to sale of damaged rice already effected. from the record, it has to be held that FCI is not entitled to claim any tax on damaged rice/wheat sold for use as cattle/poultry feed.
The tax, refund of which is claimed, relates to the period 1993-1994 to 1998-1999. First respondent has been assessed to tax in regard to those years and amount recovered by it as tax in regard to the sales in favour of the petitioner has been remitted to the State Government. Therefore, we do not consider it a fit case for directing the first respondent to refund the amount collected as tax. It is open to the petitioner to seek a refund from the State Government under section 18-AA(4) of the Act. As and when such application is made, the State Government will have to consider and dispose of the same in accordance with law and the observations made above.
Accordingly, we allow this writ petition in parts.
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2004 (1) TMI 653
Issues Involved:
1. Priority of State's claim for sales tax dues over equitable mortgages created in favor of banks.
2. The effect of statutory provisions on pre-existing mortgage decrees.
Detailed Analysis:
1. Priority of State's Claim for Sales Tax Dues Over Equitable Mortgages Created in Favor of Banks:
Facts and Arguments:
- Multiple writ petitions were filed by various banks (State Bank of Travancore, Vijaya Bank, Alleppey District Co-operative Bank Ltd., and Allahabad Bank) challenging the priority of the State of Kerala's claim for sales tax dues over the equitable mortgages created by defaulters in favor of these banks.
- The banks argued that the State cannot claim priority over debts due to them, especially when the equitable mortgages were created before the liability to the State arose and when decrees had been obtained based on these mortgages.
Legal Provisions and Case Law:
- The banks relied on the Supreme Court decisions in *Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.* [2000] 120 STC 610 and *Bank of Bihar v. State of Bihar* AIR 1971 SC 1210, arguing that the State's claim should not override pre-existing equitable mortgages.
- The State, represented by the Special Government Pleader, cited Supreme Court decisions in *State of Madhya Pradesh v. State Bank of Indore* [2002] 126 STC 1 and *State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation* [1995] 96 STC 612, which upheld the priority of State claims for tax dues over other debts, including those secured by mortgages.
Judgment:
- The court referenced Section 26B of the Kerala General Sales Tax Act, 1963, which states: "Notwithstanding anything to the contrary contained in any other law for the time being in force, any amount of tax, penalty, interest, and any other amount, if any, payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer, or such person."
- The court also discussed similar provisions in other states' sales tax acts and their interpretation by the Supreme Court, notably in *State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation* and *State of Madhya Pradesh v. State Bank of Indore*, which supported the State's priority claim.
Conclusion:
- The court concluded that the State's claim for sales tax dues has priority over equitable mortgages created in favor of banks, even if the mortgages were created before the liability to the State arose. This is due to the statutory first charge created by Section 26B of the Kerala General Sales Tax Act, 1963.
2. The Effect of Statutory Provisions on Pre-existing Mortgage Decrees:
Facts and Arguments:
- The banks contended that Section 26B, inserted by the Finance Act, 1999, should not have retrospective effect and should not affect decrees obtained based on equitable mortgages created before the section's enactment.
- They argued that the statutory charge should not override judicial decrees obtained before the statutory provision came into effect.
Legal Provisions and Case Law:
- The court referred to the Supreme Court's interpretation of similar statutory provisions in *Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.* and *State of Madhya Pradesh v. State Bank of Indore*, which held that statutory charges for tax dues have precedence over other claims, including those secured by mortgages, irrespective of the timing of the mortgage or decree.
Judgment:
- The court noted that the Supreme Court in *State Bank of Indore* had upheld the priority of statutory charges over pre-existing mortgage decrees, emphasizing that the statutory first charge created by Section 26B operates on the entire property, not just the equity of redemption.
Conclusion:
- The court held that the statutory first charge for sales tax dues under Section 26B of the Kerala General Sales Tax Act, 1963, takes precedence over pre-existing mortgage decrees. The statutory charge operates on the entire property and overrides any prior claims, including those secured by judicial decrees.
Final Outcome:
- The writ petitions filed by the banks were dismissed, affirming the State's priority in recovering sales tax dues over the claims of the banks based on equitable mortgages and judicial decrees.
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2004 (1) TMI 652
Issues:
1. Priority of recovery of sales tax arrears by the State over a bank's right to recover as a secured creditor.
Analysis:
The appellant challenged a notice from the State to recover sales tax arrears from a company. The bank claimed a right to recover the amount due to a loan secured by the company's property. The learned single Judge ruled in favor of the State's right to recover under section 26-B of the Kerala General Sales Tax Act, 1963, dismissing the writ petition. The appellant contended that as a secured creditor, the bank should have priority in recovery.
The Court held that as per section 26-B, any tax amount payable by a dealer shall be the first charge on the dealer's property, giving the State a statutory right overriding other agreements or laws. Even though the land was mortgaged with the bank before the State's demand, the Supreme Court's decisions in Dena Bank v. Bhikhabhai Prabhudas Parekh Co. and State of Madhya Pradesh v. State Bank of Indore establish that public dues take precedence over all others, including secured creditors like the bank. No other points were raised, leading to the dismissal of the appeal as the Court found no merit in the bank's argument.
In conclusion, the High Court upheld the State's priority in recovering sales tax arrears over the bank's right as a secured creditor. The statutory right of the State under section 26-B prevails over any other agreements or laws, as established by Supreme Court precedents. The appeal was dismissed, affirming the decision of the learned single Judge and emphasizing the precedence of public dues in such matters.
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2004 (1) TMI 651
Levy entry tax on entry of furnace oil and low sulphur waxy residue oil into any local area in the State of Maharashtra for consumption, use or sale therein - Constitutional validity of the Maharashtra Tax on the Entry of Goods into Local Areas Act, 2002 - violation of articles 14, 19(1)(g), 301, 304 and 286 of the Constitution of India - Discrimination between Goods Imported from Outside the State and Locally Manufactured Goods - HELD THAT:- In the present case, although a rate of entry tax levied on the goods is equivalent to the rate of sales tax leviable on such goods under the BST Act, in view of refund/rebate/set-off granted under the BST Act, effectively, there is no tax if the goods are brought into the local area from within the State, whereas entry tax is levied on the said goods if brought from outside the State. In other words, even though the goods entering the local area from within the State do not bear sales tax, the goods entering the local area from outside the State are subjected to entry tax.
Whether, entry tax under the Entry Tax Act can be levied on a commodity on which there is no sales tax levied under the BST Act? - The answer to the above question has to be in the negative because the proviso to section 3(1) of the Entry Tax Act clearly provides that the rate of entry tax shall not exceed the rate of tax specified for that commodity under the BST Act. Therefore, if there is no sales tax leviable on a commodity under the BST Act, then entry tax cannot be levied on that commodity.
In our opinion, the words "rate specified" in section 3(1) of the Entry Tax Act have to be construed to mean the effective rate of sales tax payable on the said commodity under the BST Act. If the effective rate of sales tax is nil, then the entry tax has to be nil. If the entry tax exceeds the sales tax leviable on a commodity after taking into account the exemption granted under the BST Act, then it would be in violation of the proviso to section 3(1) of the Entry Tax Act, because the said proviso clearly provides that the entry tax on a commodity shall not exceed the sales tax leviable on that commodity under the BST Act. In this view of the matter, where the goods entering the local area from within the State do not bear sales tax, levy of entry tax on goods entering the local area from outside the State would be unauthorised.
In the present case, refund of sales tax paid on the raw materials used in the manufacture of a final product is a rule and not an exception. Where the State policy is not to tax the raw materials which are used in the manufacture of final products in a local area within the State, then, subjecting the raw materials which enter the local area from outside the State to tax to the exclusion of the raw materials entering the local area from within the State would be arbitrary. Where the raw materials entering the local area from outside the State are only subjected to tax, then such levy directly discriminates between the imported goods and the goods which enter the local area from within the State. By taxing the imported goods while exempting the local goods, the State has sought to treat equals unequally which is not permissible in law.
It is true that what should be the quantum of tax is the prerogative of the State and the same cannot be questioned in a court of law. However, when the State Legislature provides that the entry tax on a commodity shall not exceed the rate specified for that commodity under the BST Act, it would be open to the court to find out whether, effectively any sales tax is levied on that commodity. In the present case, the furnace oil and low sulphur waxy residue oil entering the local area from within the State do not bear sales tax and therefore, entry tax on those goods when enter the local area from outside the State cannot be levied. On the date on which entry tax was introduced on the goods in question, the general exemption granted on those goods under the BST Act and Rules made thereunder were in existence. Therefore, it cannot be said that the levy of entry tax was to ensure that all goods entering the local area bear either the entry tax or the sales tax.
Thus the entry tax on furnace oil and low sulphur waxy residue oil instead of striking a balance, in fact creates imbalance between the imported goods and the local goods and in fact has defeated the very purpose of enacting Entry Tax Act.
Thus, we hold that entry No. 13 to the Schedule to the Entry Tax Act in so far as it purports to levy entry tax on furnace oil and low sulphur waxy residue oil is unauthorised and unconstitutional.
Petitions are allowed in the above terms and rule made absolute accordingly, with no order as to costs.
Writ petition allowed.
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2004 (1) TMI 650
Issues Involved:
1. Whether the activity of mixing fertilizers in different proportions and selling them after granulation amounts to manufacture within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959.
Detailed Analysis:
Common Judgment for All References:
The High Court of Bombay delivered a common judgment for four references as the issues raised were common. The facts of the case involving Maharashtra Agro Industries Development Corporation Limited were taken as representative for all cases.
Issue 1: Definition of Manufacture under Section 2(17) of the BST Act
The primary question was whether the activity of mixing fertilizers in different proportions and selling them after granulation constitutes "manufacture" under section 2(17) of the Bombay Sales Tax Act, 1959.
Facts and Arguments:
1. Assessee's Activity:
- The assessee was involved in reselling various types of chemical fertilizers and also in mixing two or more fertilizers in different proportions and selling the mixture in granulated form.
- The assessee argued that mixing fertilizers does not create a new commodity and thus does not amount to manufacture.
2. Commissioner's Determination:
- The Commissioner of Sales Tax, relying on the Supreme Court's decision in Shaw Wallace & Co. Ltd. v. State of Tamil Nadu, held that the process of mixing fertilizers constitutes manufacture.
3. Tribunal's Decision:
- The Maharashtra Sales Tax Tribunal reversed the Commissioner's order, holding that the process did not constitute manufacture.
Legal Provisions and Amendments:
1. Original Definition:
- Section 2(17) of the BST Act defined "manufacture" as producing, making, extracting, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods.
2. Amendment in 1994:
- The definition was amended to include processes specified by the State Government through notification, having regard to the impact on goods and alteration in their nature, character, or utility.
3. Notification in 2000:
- The State Government issued a notification on December 8, 2000, specifying that the preparation of mixed fertilizers by mixing fertilizers constitutes manufacture.
Court's Analysis:
1. Period Relevant to the Case:
- The relevant period for the case was 1992-1993 and 1993-1994, before the 1994 amendment and the 2000 notification.
2. Court's Interpretation:
- The court noted that up to May 1, 1994, the process of mixing fertilizers was not included in the definition of "manufacture."
- The amendment in 1994 and the subsequent notification in 2000 indicated that the legislature did not consider the process as manufacture before these changes.
- Accepting the State's contention that the process was always included would render the amendment and notification redundant.
3. Distinguishing Precedents:
- The court distinguished the case from Shaw Wallace, noting differences in statutory definitions and the specific context of the Tamil Nadu General Sales Tax Act.
- The decision in Dunken Coffee Manufacturing Co. was also distinguished as it involved a different process and context.
Conclusion:
The court concluded that the process of mixing fertilizers carried on by the assessee during the relevant years did not constitute manufacture under section 2(17) of the BST Act.
Final Judgment:
1. S.T.R. No. 15 of 2000 and S.T.R. No. 3 of 2002:
- The question of whether the activity of mixing fertilizers in different proportions and selling them after granulation amounts to manufacture was answered in the negative, in favor of the assessee.
2. S.T.R. No. 5 of 2000 and S.T.R. No. 2 of 2000:
- The question of whether the Tribunal was justified in holding that the activity does not constitute a manufacturing activity was answered in the affirmative, in favor of the assessee.
The references were disposed of accordingly, with no order as to costs.
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2004 (1) TMI 649
Issues Involved:
1. Whether the use of the tug in territorial waters amounts to use within the State of Karnataka.
2. Whether the learned single Judge was justified in not considering the appellant's contention regarding the transfer of the right to use the tug.
3. Whether there was a transfer of the right to use the tug from the appellant to the NMPT under the agreement.
Issue-wise Detailed Analysis:
1. Use of Tug in Territorial Waters:
The primary question is whether the territorial waters abutting the landmass form part of the State of Karnataka. The court concluded that the territorial waters up to 12 nautical miles from the baseline form part of the State of Karnataka. The Constitution of India and the Territorial Waters Act do not exclude territorial waters from the State's territory. Article 297 of the Constitution and the Territorial Waters Act were examined, and it was determined that these provisions do not support the appellant's contention that territorial waters vest solely with the Union of India. The court emphasized that the sovereignty of India extends to the territorial waters, but this does not exclude these waters from the State's jurisdiction for taxation purposes. The court referenced the Madras High Court decision in A.M.S.S.V.M. Company v. State of Madras, which supported the view that territorial waters form part of the State.
2. Consideration of Transfer of Right to Use:
The learned single Judge refused to consider whether there was a transfer of the right to use the tug, stating it was a matter for the Assistant Commissioner of Commercial Taxes. However, the Supreme Court in State of Andhra Pradesh v. Rashtriya Ispat Nigam Ltd. held that such questions should be considered by the High Court. The court concluded that the learned single Judge was not justified in refusing to consider this question, and it should have been addressed on its merits.
3. Transfer of Right to Use the Tug:
Section 5-C of the KST Act imposes tax on the transfer of the right to use goods. The court examined the agreement between the appellant and NMPT, focusing on clauses (1), (3), (5), (6), (7)(a), (12), and (14)(a). These clauses indicated that the tug was let and hired for six months, placed at NMPT's disposal, and under its control. The court concluded that there was a transfer of the right to use the tug to NMPT, as the tug was at NMPT's disposal and control during the charter period. The appellant's obligation to maintain the tug did not negate the transfer of the right to use. The court distinguished this case from Rashtriya Ispat Nigam Ltd., where the machinery was under the State's control and only handed to the contractor for specific work. The court also referenced the Supreme Court decision in 20th Century Finance Corpn. Ltd. v. State of Maharashtra, which supported the view that the transfer of the right to use goods can occur without actual delivery of goods.
Conclusion:
The appeal was dismissed, with the court affirming that:
1. The territorial waters abutting Karnataka form part of the State.
2. The learned single Judge should have considered the transfer of the right to use the tug.
3. There was a transfer of the right to use the tug from the appellant to NMPT under the agreement.
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2004 (1) TMI 648
Issues Involved:
1. Validity of the amended provision of rule 45(b) of the Bihar Sales Tax Rules, 1983.
2. Whether the amended rule 45(b) is ultra vires of section 31(2a) of the Bihar Finance Act, 1981.
3. Whether the amended rule 45(b) violates articles 301 and 304 of the Constitution of India.
4. Whether the amended rule 45(b) is arbitrary, unreasonable, and oppressive.
5. Legislative competence of the State to enact rule 45(b) under entry No. 54 of List II of the Seventh Schedule to the Constitution of India.
Detailed Analysis:
Issue 1: Validity of the amended provision of rule 45(b) of the Bihar Sales Tax Rules, 1983
The petitioners challenged the validity of the amended rule 45(b) which requires the payment of disputed tax amounts as a condition for the issuance of declaration forms or exemptions. The State argued that the rule is valid, necessary to prevent tax evasion, and within the legislative competence of the State.
Issue 2: Ultra Vires of Section 31(2a) of the Bihar Finance Act, 1981
The petitioners argued that the amended rule 45(b) is ultra vires of section 31(2a) of the Act, which provides for carrying a declaration form for the transportation of goods for the purpose of obtaining particulars and information, not for tax recovery. The Court held that the provision of rule 45(b) is in line with the purpose of section 31(2a) as it aids in the verification and assessment of tax payable and prevents tax evasion. Thus, the rule is not ultra vires of section 31(2a).
Issue 3: Violation of Articles 301 and 304 of the Constitution of India
The petitioners contended that rule 45(b) imposes restrictions on inter-State movement of goods, violating article 301 of the Constitution. The Court referred to precedents, including the case of State of Bihar v. Harihar Prasad Debuka, and concluded that the rule is a regulatory measure facilitating trade rather than impeding it. It does not directly and immediately restrict the free flow of trade and commerce and is therefore not violative of article 301. The Court did not find it necessary to consider the applicability of article 304.
Issue 4: Arbitrary, Unreasonable, and Oppressive Nature of Rule 45(b)
The petitioners argued that the rule is arbitrary and oppressive as it coerces payment of disputed tax amounts. The Court noted that the rule, as amended, requires payment of tax as per notice under section 25(2) of the Act, which does not include penalties. The Court held that while the insistence on payment of admitted dues is justified to prevent tax evasion, requiring payment of disputed amounts is unreasonable and oppressive. The Court read down the provision to mean that the authorities cannot refuse declaration forms or exemptions for non-payment of disputed dues if the assessee has lawfully disputed the tax assessment.
Issue 5: Legislative Competence of the State
The petitioners questioned the State's legislative competence to enact rule 45(b) under entry No. 54 of List II of the Seventh Schedule. The Court, referring to the case of State of Bihar v. Harihar Prasad Debuka, held that the rule promotes free movement of goods and is within the legislative competence of the State. The rule is necessary to distinguish goods transported across the State and those reaching consumption points within the State to ascertain tax liability.
Conclusion:
The Court rejected the points (i), (ii), and (iv) raised by the petitioners, upholding the validity of the amended rule 45(b) in general. However, it allowed point (iii) to the extent that the authorities cannot refuse declaration forms or exemptions for non-payment of disputed taxes if the assessee has lawfully disputed the tax assessment. The writ application was partly allowed, directing the authorities to consider the petitioners' requests for exemptions or declaration forms accordingly.
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2004 (1) TMI 647
Issues:
Interpretation of the term "sealed container" under the Karnataka Sales Tax Act, 1957 for the sale of dressed chicken in polythene bags closed by stapling or crimping.
Analysis:
The appellant, engaged in poultry farming, sells dressed chicken in polythene bags closed by stapling or crimping. The dispute arose regarding whether such sales fall under the tax category for "meat and dressed chicken sold in sealed containers" as per the Karnataka Sales Tax Act. The appellant argued that a container should be hermetically sealed to be considered "sealed," or access to contents should require breaking the fastening. However, the authority ruled that selling dressed chicken in polythene bags closed by stapling/crimping qualifies as sales in sealed containers, subject to tax. The main issue was whether the polythene bags closed by stapling or crimping constitute sealed containers.
The Supreme Court's interpretation of "sealed container" in Commissioner of Sales Tax, U.P. v. G.G. Industries [1968] 21 STC 63 was crucial. The Court held that a container need not be hermetically sealed to be considered sealed, and access to contents should be impossible without breaking the fastening. Similarly, the Bombay High Court in Commissioner of Sales Tax v. National Chikki Mart [1977] 39 STC 447 emphasized that breaking the fastening is essential for a container to be sealed, not necessarily requiring physical damage to the container. The Karnataka High Court in Nanjuneshwara Mart v. State of Karnataka [1992] 84 STC 534 also reiterated that a container preventing access without breaking the fastening qualifies as sealed. These precedents established the legal standard for defining a sealed container.
The Court highlighted that breaking the fastening does not solely mean physical damage but includes actions like opening or parting the fastening to access contents. The appellant's argument that the polythene bags were not hermetically sealed or could be opened without damaging the bag was refuted. The Court examined the bags and concluded that accessing the contents required removing the staple or crimp wire, constituting breaking the fastening, as per legal precedent. Thus, the appellant's method of packaging dressed chicken in polythene bags with stapling or crimping qualified as selling in sealed containers, subject to tax.
The appellant cited Commissioner of Sales Tax, Delhi v. Pop Corn [1982] 49 STC 36 to support their argument, where loosely stapled polythene bags were not considered sealed containers. However, the Court distinguished this case based on the fact that access to contents was possible without breaking the fastening, unlike in the present scenario. The decision emphasized the importance of the fastening preventing access without breaking, aligning with the legal definition of a sealed container. Ultimately, the Court upheld the authority's ruling, dismissing the appeal and affirming that selling dressed chicken in polythene bags closed by stapling or crimping constitutes sales in sealed containers under the Karnataka Sales Tax Act.
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2004 (1) TMI 646
Issues Involved:
1. Applicability of the third proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957.
2. Applicability of the sixth proviso and Explanation III to section 5(3)(a) of the Karnataka Sales Tax Act, 1957.
3. Entitlement of the appellant to claim set-off on deemed tax paid on purchases from an exempted manufacturer.
Issue-wise Detailed Analysis:
1. Applicability of the third proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957:
The appellant, a registered dealer under the Karnataka Sales Tax Act, 1957 ("the KST Act"), entered into an agreement with M/s. Applicomp India Limited ("Applicomp") to manufacture and supply electronic products and electrical appliances under the trademark "Whirlpool." The State Government exempted Applicomp from tax on the sale of finished goods manufactured by it, for a period of 10 years from the commencement of commercial production.
The third proviso to section 5(3)(a) states that where goods are manufactured by a dealer with the trademark of another dealer and are not used as raw materials, component parts, or packing materials, the sale of such goods by the manufacturer to the trademark holder shall not be deemed to be the first sale. Instead, the subsequent sale by the trademark holder shall be deemed to be the first sale liable to tax.
The court found that the transaction between Applicomp and the appellant falls under the third proviso. Applicomp manufactured goods with the "Whirlpool" trademark and sold them exclusively to the appellant. The court held that the sale by Applicomp to the appellant is not liable to tax under section 5(3)(a) due to the third proviso. Instead, the subsequent sale by the appellant is liable to tax.
2. Applicability of the sixth proviso and Explanation III to section 5(3)(a) of the Karnataka Sales Tax Act, 1957:
The appellant contended that the transaction falls under the sixth proviso (read with Explanation III) to section 5(3)(a). The sixth proviso states that where goods are sold under a brand name by the trademark holder or any other dealer having the right to use the trademark, the subsequent sale by the buyer shall also be liable to tax, with the tax payable reduced by the amount of tax already paid on the initial sale.
The court determined that the sixth proviso does not apply to the transaction. The sale by Applicomp to the appellant was not considered a sale under a brand name because Applicomp did not have the right to use the "Whirlpool" trademark independently. Applicomp was merely manufacturing goods to the appellant's specifications, including affixing the trademark. Therefore, the sale by Applicomp to the appellant cannot be considered a sale under a brand name, and the sixth proviso is inapplicable.
3. Entitlement of the appellant to claim set-off on deemed tax paid on purchases from an exempted manufacturer:
The appellant argued that it is entitled to pay tax on its sales after deducting the amount of tax that would have been payable by Applicomp if it were not exempted. The appellant based this argument on Explanation III to the sixth proviso, which creates a legal fiction that the tax payable under section 5(3)(a) on sales by an exempted manufacturer can be set off against the tax payable by the appellant.
The court rejected this contention, affirming the authority's clarification that the transaction is governed by the third proviso, not the sixth proviso. Consequently, the appellant is not entitled to claim set-off on the deemed tax paid on purchases from Applicomp.
Conclusion:
The court affirmed the authority's clarification and dismissed the appeal. The sale by Applicomp to the appellant falls under the third proviso to section 5(3)(a), making the subsequent sale by the appellant liable to tax. The sixth proviso and Explanation III do not apply to the transaction, and the appellant is not entitled to claim set-off on deemed tax paid on purchases from Applicomp.
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2004 (1) TMI 645
Issues: Challenge to notice under section 25-A of the Act and interpretation of the term "woman" in section 17(4)(ii)
In this case, the petitioner, a partnership firm engaged in catering business with two women partners, challenged a notice issued under section 25-A of the Act and sought a declaration that the term "woman" in section 17(4)(ii) includes "women" as well. The Government had provided benefits to women entrepreneurs under this section, and the petitioner had applied for and received certain facilities under the amended section. However, a notice was issued to the petitioner due to errors in the application. The petitioner contended that the term "woman" should be interpreted to include "women" as well.
The court analyzed section 17(4) which provides for a composition available to certain dealers, specifically women engaged in catering food and drinks. The court noted that the provision was meant for a woman dealer, not multiple women partners as in the petitioner's case. The court referred to a Supreme Court judgment to support the view that special provisions for women do not violate constitutional principles. The court rejected the challenge to section 17(4)(ii) and upheld the notice issued under section 25-A.
Regarding the interpretation of the term "woman" in the provision, the court held that it was a policy decision of the Government to provide benefits to a woman dealer specifically. The court declined to interfere with the policy decision and rejected the argument that "woman" should be read to include "women." The court emphasized that it was not for the court to question the policy decisions of the Government. The court allowed the petitioner to file a reply to the notice within a specified period and directed the respondents to consider the objections and pass orders accordingly.
In conclusion, the court dismissed the challenge to the notice issued under section 25-A and upheld the distinction between a "woman" dealer and "women" dealers in the provision. The court emphasized the policy decision of the Government in providing benefits to women entrepreneurs and declined to interpret the term "woman" broadly to include multiple women partners in a firm.
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2004 (1) TMI 644
Constitutional validity of the U.P. Tax on Entry of Goods Act, 2000 ("the Act") - violation of articles 301 and 304 of the Constitution of India - Government of India undertaking - HELD THAT:- In our opinion a tax to be a compensatory tax must be in the nature of a cess. A cess is a tax imposed for realising revenue which is utilised for a specific purpose. Thus, while a cess is also a tax, it is a tax of a special nature. It does not realise revenue which is used for general public expenditure but for specific expenditure for a specific purpose. For example, education cess would be a tax which generates revenue which is utilised for education purposes, e.g., school buildings, paying salaries to teachers, etc.
We have carefully perused the impugned Act. It consists of only nine sections. There is no provision anywhere in the Act stating for what purpose the revenue raised by it will be utilised. There is also no provision therein stating that the revenue raised by it will be used for facilitating trade and commerce. Hence, the amounts realised under the impugned Act can be used for any purpose. Hence, in our opinion it is not a compensatory tax.
It may be noted that article 301 states that it is subject to the other provisions of Part XIII. Hence, it is not subject to article 246 as article 246 is in Part XI of the Constitution. Hence, power to legislate under article 246 of the Constitution has to be read as subject to article 301 of the Constitution. It follows that the State Legislature cannot make a law which violates article 301 of the Constitution. Hence, the scope of the legislative field contained in entry 52, List II of the Seventh Schedule has to be restricted and treated as subject to article 301 and other articles in the main body of the Constitution.
There is nothing to show that the President of India has given previous sanction to the Bill in connection with the impugned Act and all we can gather from the letter dated 19th January, 2000 is that the Government of India has no objection to the introduction of the U.P. Tax on Entry of Goods Bill, 2000 in the State Legislature. To our mind this does not meet the specific requirement of the proviso to article 304(b) of the Constitution. There is not even a mention of the President of India in the aforesaid letter dated January 19, 2000. The said letter does not state that it has been issued under the authority of the President of India, and hence we have to conclude that no previous sanction was given by the President of India to the Bill in connection with the impugned Act. No doubt article 255 of the Constitution validates an action even if the sanction was subsequently given by the President of India, but in the present case there is no averment that even subsequently the President gave assent.
However, even assuming that the President of India has given sanction under the proviso to article 304(b) we are of the opinion that that alone would not satisfy the requirement of article 304(b) of the Constitution.
It may be noticed that article 304(b) requires that the restriction on freedom of trade, commerce and inter-course should be reasonable and in the public interest.
Hence, even if the President of India has given previous sanction under the proviso to article 304(b), the petitioner has further to establish that the restriction on the freedom of trade, commerce and inter-course are: (i) reasonable and (ii) in the public interest.
We are of the opinion that the restrictions imposed by the impugned Act are not reasonable and they are not in the public interest as they would hamper the progress and development of the national economy.
Article 304(a) again gives further emphasis to article 301 providing for the economic unity of India. Thus, the whole scheme in articles 301 to 304 show that the founding fathers in their wisdom have repeatedly emphasised in these articles that India is one economic unit and different States are not separate economic entities.
No doubt invalidating the tax would affect the revenue of the State of U.P., but the nation is larger than the State. We have to first look at the interest of India, and place it above the interest of the State of U.P. However, it may be mentioned, as pointed out in para 8 of the supplementary rejoinder affidavit filed in reply to the supplementary counter-affidavit of Shri B.P. Sonkar, the State Government is getting its share from the excise duty, Central sales tax, etc. from the Central Government apart from getting substantial revenue from the petitioners towards U.P. trade tax (sales tax). In para 6 of that affidavit it is mentioned that no facility whatsoever has been provided by the U.P. Government to Mathura Refinery for transportation of crude oil from outside U.P., which in fact is done by underground pipes built by the petitioner itself.
By the notification dated June 18, 2001 exemption has been granted from payment of entry tax by the State Government to the petitioner-company being a 100 per cent export oriented unit, and the dispute is hence confined prior to June 18, 2001. Even by the subsequent notification dated February 18, 2003 machinery being imported for the purposes of installing it in the factory has been exempted and hence no entry tax is being levied even on those unit which are not 100 per cent export oriented unit on the import of machinery with effect from February 18, 2003.
Thus, this petition and all the connected/similar petitions are allowed. The impugned Act is declared violative of articles 301 and 304 of the Constitution and is hence ultra vires.
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2004 (1) TMI 643
Issues:
Challenge to impugned notification dated February 27, 1998 regarding condition No. 1 in the notification.
Analysis:
The petitioners, public limited companies manufacturing cement in Madhya Pradesh, challenged the notification granting rebates on goods with fly ash content, limited to units established in Uttar Pradesh. The petitioners argued that this condition violated articles 301 and 304(a) of the Constitution by discriminating against goods produced outside Uttar Pradesh. The court agreed with the petitioners, citing various Supreme Court judgments emphasizing non-discrimination in trade and commerce. The court discussed the historical background of article 301 and referred to cases like Firm A.T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 STC 355 (SC) and Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 to support its decision.
The court noted that while tax holidays are granted to new units for a limited period to encourage industrialization, the impugned condition did not limit the rebate to new units. Referring to cases like Loharn Steel Industries Ltd. v. State of Andhra Pradesh [1997] 105 STC 30, the court highlighted that restricting exemptions to products manufactured within the state violates freedom of trade and commerce. The court also discussed the difference between laws made by State Legislatures and Parliament under articles 302 and 304(a) of the Constitution.
The court considered the doctrine of severability, analyzing whether the unconstitutional condition in the notification could be separated from the rest of the notification. Citing precedents like State of Bombay v. United Motors (India) Ltd. [1953] 4 STC 133 (SC), the court held that the discriminatory provision was severable and could be struck down. The court examined the intention behind the notification, emphasizing the government's aim to incentivize the use of fly ash in manufacturing to address pollution and storage issues.
Ultimately, the court declared condition No. 1 in the notification as illegal and quashed it, directing the grant of consequential relief to the petitioners within two months. The court ordered the release of the bank guarantee and the refund of any excess amount deposited by the petitioners with interest. The petitions were allowed, granting relief to the petitioners.
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2004 (1) TMI 642
Issues:
Classification of nitrous oxide under the Karnataka Sales Tax Act, 1957 - Whether to treat nitrous oxide as a "chemical" falling under entry No. 10-A in Part C of the Second Schedule or as a "surgical aid" falling under entry No. 21 in Part S of the Second Schedule.
Analysis:
Issue 1: Classification of Nitrous Oxide
The petitioner declared the taxable turnover, including the first sale of nitrous oxide to hospitals for anaesthetic purposes. The assessing authority rejected the classification of nitrous oxide as a "chemical" and treated it as unclassified goods with a tax rate of 10%. The appellate authority classified it as an "industrial gas" under entry 3 of the Second Schedule, while the Tribunal classified it under entry No. 21 in Part S of the Second Schedule as "surgical and dental instruments, tools, and aids" taxed at ten percent.
Issue 2: Interpretation of Entries
The petitioner argued that nitrous oxide should be classified as a "chemical" based on its production process, while the State contended that the specific entry for surgical aids excludes it from the general entry for chemicals. Legal precedents emphasized interpreting tax entries based on common parlance understanding rather than scientific definitions. The Court referred to a case where "medical oxygen" was distinguished from "industrial oxygen," highlighting the importance of popular meanings in tax classifications.
Issue 3: Legislative Intent and Contextual Analysis
The Court analyzed the legislative intent behind entry No. 21 in Part S, which includes various surgical and dental instruments, tools, and aids. The term "surgical" was defined in the context of medical procedures involving manual or operative measures. Despite nitrous oxide and medical oxygen meeting the broad definition of chemicals, their specific use in surgical contexts led to their classification as surgical aids under the relevant entry.
Conclusion
The Court concluded that nitrous oxide, primarily sold for anaesthetic use in hospitals, is considered a surgical aid in trade circles and common parlance. As per legal principles, when a product falls under a specific entry, it must be classified accordingly, even if it could also fit a general description. Therefore, the Tribunal's classification of nitrous oxide under entry No. 21 in Part S of the Second Schedule was upheld, rejecting the petitioner's request to treat it as a chemical under entry No. 10-A in Part C. The revision petition was dismissed, and the judgment favored the tax authorities' classification of nitrous oxide as a surgical aid for tax purposes.
This detailed analysis of the judgment highlights the key issues, legal interpretations, and the Court's reasoning behind the classification of nitrous oxide under the Karnataka Sales Tax Act, 1957.
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2004 (1) TMI 641
Whether the document in respect of which privilege is claimed, is really a document (unpublished) relating to any affairs of State?
Whether disclosure of the contents of the document would be against public interest?
Held that:- Keeping in view the purport and object for which the disclosure of the Report of the Board has been withheld, we are of the opinion that it is not a fit case where this Court should exercise its discretionary jurisdiction under Article 136 of the Constitution of India. We may record that the learned Attorney General had made an offer to place the Report before us in a sealed cover. We do not think that in this case, perusal of the report by the Court is necessary. We are also satisfied that the order issued by the Central Government under Section 18 of the Act and its claim of privilege do not suffer from any legal infirmity warranting interference with the High Court judgment by us. Appeal dismissed.
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2004 (1) TMI 640
Whether the offences are made out is a matter of trial?
Held that:- The High Court was not justified in summarily rejecting the application for grant of leave. It has a duty to indicate reasons when it refuses to grant leave. Any casual or summary disposal would not be proper - set aside the impugned order of the High Court and remit the matter back to the High Court for hearing the matter on merits as according to us points involved require adjudication by the High Court. The appeal is allowed to the extent indicated.
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2004 (1) TMI 639
Provisions are in the nature of social-security measures like employment insurance, provident fund and pension - Held that: gratuity under the Payment of Gratuity Act, 1972 is no longer in the realm of charity but a statutory right given to the employee.
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2004 (1) TMI 638
Deduction under sections 80HH and 80-I - Profits and gains from hotels or industrial undertakings, etc., in backward areas - small-scale industrial unit manufacturing graded metal (granite rubble of various sizes) - Whether the activity carried out by the assessee qualifies as a manufacturing activity - HELD THAT:- One of the principles laid down by the Hon’ble Supreme Court on the subject is in the case of Pio Food Packers [1980 (5) TMI 30 - SUPREME COURT]. One of the tests laid down by the Hon’ble Apex Court therein is that in the case of manufacturing activity, the inputs and outputs shall be commercially different. This "commercial identity" is to be considered in the light of the respective trade practice, or if no such trade practice, in the common parlance. In the present case, the raw material extracted by the assessee-firm is the granite boulders. What is sold by the assessee is granite aggregates (commonly known as metals) of different commercial sizes of 1½", 1", ½", ¼", etc. These different sizes of granite aggregates are used for different purposes, even though used generally in construction activities. The granite aggregates of different sizes sold by the assessee are commercially different from granite boulders extracted by the firm from the quarry. There is no doubt that they are commercially different. Therefore, the finding of the CIT(Appeals) is just and proper and I agree with his finding that the assessee-firm is carrying on a manufacturing activity and therefore, the assessee is entitled for the deductions available under sections 80HH and 80-I.
Once it is held that the assessee is entitled for the deductions available under sections 80HH & 80-I, the incidental question to be considered is the manner in which the deductions are to be given. The Hon’ble Rajasthan High Court has held in CIT v. Chokshi Contracts (P.) Ltd. that deductions under sections 80HH and 80-I operate indecently and the assessee is entitled to deduction under both sections, which is to be simultaneously granted without any order of preference. Therefore, we direct the Assessing Officer to grant the benefit of sections 80HH and 80-I independently on the eligible profits of the assessee-firm.
In the result, these appeals filed by the Revenue are dismissed. Order accordingly.
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2004 (1) TMI 637
Issues Involved:
1. Applicability of Rules 3 and 4 of Schedule III of the Wealth-tax Act.
2. Validity of the notices issued under section 17 of the Wealth-tax Act.
3. Valuation of leasehold property for wealth-tax purposes.
4. Impact of the Central Government's clarification on lease renewal rights.
5. Whether the leasehold property should be valued under Rule 20 of Schedule III.
Issue-wise Detailed Analysis:
1. Applicability of Rules 3 and 4 of Schedule III of the Wealth-tax Act:
The primary issue was whether Rules 3 and 4 of Schedule III applied to the valuation of the leasehold property. The assessee argued that Rule 8 of Schedule III should apply, which excludes the application of Rule 3 when the unexpired lease period is less than 15 years and there is no option for renewal. However, the Assessing Officer and the CWT (Appeals) held that Rules 3 and 4 applied because the assessee was still in possession of the property and receiving rental income, despite the lease technically expiring.
2. Validity of the Notices Issued Under Section 17 of the Wealth-tax Act:
The assessee contended that the notices issued under section 17 were barred by limitation. However, this argument was not elaborated upon in the judgment, and the focus remained on the valuation and applicability of the relevant rules under Schedule III.
3. Valuation of Leasehold Property for Wealth-tax Purposes:
The Assessing Officer valued the property by capitalizing the net maintainable rent at eight times under Rule 3 of Schedule III. The assessee objected, arguing that the leasehold property had no value since the lease was not renewable and the buildings were old and of rough construction. The CWT (Appeals) upheld the Assessing Officer's valuation, noting that the assessee was still enjoying the property and receiving rental income.
4. Impact of the Central Government's Clarification on Lease Renewal Rights:
The Central Government's letter dated 8-7-1986 clarified that any lease extension beyond 30 years required prior approval from the Central Government. The assessee argued that this clarification meant their leasehold rights were automatically terminated after 30 years. However, the tribunal found that the clarification did not prohibit lease extensions but required prior approval. The assessee was still in possession and had applied for renewal, indicating an ongoing leasehold right.
5. Whether the Leasehold Property Should Be Valued Under Rule 20 of Schedule III:
The assessee argued that Rule 20 should apply, which considers the open market value of the property when the unexpired lease period is less than 15 years without renewal options. The tribunal, however, found that the assessee's continued possession and enjoyment of the property meant that Rules 3 and 4 were applicable. The tribunal concluded that the assessee's leasehold rights were not automatically terminated and that the property should be valued under Rules 3 and 4.
Conclusion:
The tribunal dismissed the wealth-tax appeals, upholding the Assessing Officer's valuation under Rules 3 and 4 of Schedule III. The tribunal found that the Central Government's clarification did not automatically terminate the leasehold rights and that the assessee's continued possession and rental income justified the application of Rules 3 and 4. The notices issued under section 17 were deemed valid, and the valuation of the leasehold property was affirmed.
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