2013 (4) TMI 682 - HC - VAT and Sales Tax

IPOL cylinder oil - Whether liable to tax under sub-section (1) of section 3 of the Act? - Levy of tax, penalty and interest - Held that - The revisional authority has proceeded on the ground that the assessee has purchased the lubricating oil and thereafter is upgrading it. That is the factual error on the part of the revisional authority. What is purchased is IPOL cylinder oil and not the lubricating oil. After purchasing the IPOL cylinder oil certain processes are conducted to convert it into a grease which is used for industrial purposes. Under these circumstances, when the IPOL cylinder oil is not one of the petroleum products included in entry 67 for the purpose of levying tax under section 3(1) of the Act, the same does not find place in the notification issued under the said provisions. The order passed by the first appellate authority setting aside the order passed by the assessing authority was legal and valid. The revisional authority committed a serious error in interfering with such an order without reading the invoice properly. Thus, the impugned order is liable to be set aside. Appeal allowed.

Summary

Issues:
Challenge to order restoring levy of tax, penalty, and interest for assessment years 2005-06, 2006-07, and 2007-08 under Karnataka Tax on Entry of Goods Act, 1979.

Analysis:
The assessee, a registered dealer, purchased "IPOL Cylinder Oil 1200" from Maharashtra and claimed exemption from entry tax based on it not being taxable under the Act. The assessing authority held the oil taxable as lubricating oil, imposing tax, penalty, and interest. The first appellate authority overturned this, deeming the oil as base oil. The revisional authority set aside the appellate order, reinstating the assessing authority's decision. The main issue was whether "IPOL cylinder oil" is taxable under section 3(1) of the Act.

Section 3 of the Act allows tax levy on goods specified in the First Schedule. The item "lubricating oil" is mentioned in the First Schedule, subject to a 5% tax rate. The assessing and revisional authorities considered the oil as lubricating oil based on the invoice description. However, the invoice clearly specifies the purchased oil as "IPOL cylinder oil 1200," classified under the Central Excise Act as lubricating oil, not applicable under the Act. The appellate authority explained the manufacturing process of lubricating oil from base oil, supporting the distinction.

An Advance Ruling Authority decision clarified that base oil, being a raw material, is not a finished product and thus exempt from entry tax. A test certificate also identified the oil as base oil. The revisional authority incorrectly assumed the purchased oil was already lubricating oil, leading to an erroneous decision. As "IPOL cylinder oil" is not listed as a taxable item under the Act, the appellate authority's decision to set aside the assessing authority's order was upheld. The impugned order was deemed legally flawed, necessitating its reversal.

In conclusion, the appeal was allowed, setting aside the impugned order and reinstating the first appellate authority's decision. Each party was directed to bear their own costs.