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Hindustan Lever Ltd. Versus State of Karnataka

2016 (9) TMI 409 - SUPREME COURT

Exemption from payment of entry tax - packing material of tea - packet tea - tea in tea bags - quick brewing black tea - notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979 - Explanation II to a Notification dated 23.9.1998 issued under Section 3 of the said Act - goods - section 2 (4A) - schedule - section 2(7) - tax - section 2(8) - value of the goods - section 8a - goods - Section 2(A)(4a) of the Entry Tax Act - manufacture - levy of tax - wh .....

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ings which go into the finished product, namely, tea in the present case, and cannot be extended to cover packing materials of the said tea which is separately provided for by the aforesaid Entry 66 - appeal dimsissed - decided against appellant. - Civil Appeal No. 4003 of 2007 - Dated:- 2-9-2016 - A. K. Sikri And R. F. Nariman, JJ. JUDGMENT 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 .....

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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 a .....

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ares 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 prevaili .....

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ctively 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 prospectiv .....

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der 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 rea .....

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rates, cans, carboys, drums, bags and cushion materials and the like ; (iv) wooden boxes, crates, casks and containers and the like; (v) gunny bags, bardan (including batars), hessian cloth, and the like ; (vi) glass bottles, jars and carboys and the like ; (vii) laminated pacing materials such as bitumanised paper and hessian based paper and the like; 80. Raw materials component parts and inputs which are used in the manufacture of an intermediate or finished product. 3. Under Section 11A of th .....

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wers 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 .....

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ny/small/medium and large scale industrial units Situated in Zone-IV specified in annexure I to Government Order No. CI/138/SPC/90, dated 27.9.1990 5 years from the date of commencement of commercial production or 5 years from the date of commencement of this notification whichever is later. 3 Tiny/small scale/ Medium and large scale industrial units in the thrust sector as defined in annexure-II to G.O. No. CI.138/SPC/90, dated 27.9.1990 Situated in Zone-III specified in annexure I to Governmen .....

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OR 6 years from the date of commencement of this notification whichever is later. 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 o .....

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wn by the High Court as violating Article 301 of the Constitution, and hence, the State Government came out with notification dated 23.9.1998 to cure the defects pointed out by the High Court, and was for the period dated 1.4.1994 to 6.1.1998. The aforesaid notification reads as follows: SI No.104 No. FD 112 CET 98, Bangalore, dated 23rd September, 1998 In exercise of the powers conferred by sub-section (1) of Section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), .....

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, paper boxes, Folding cartons, paper bags, carrier bags and card board boxes, corrugated board boxes and the like; 2% (ii) Tin plate containers (cans, tins and boxes), tin sheets, aluminium foil, aluminium tubes, collapsible tubes, aluminium or steel drums, barrels and crates and the like: 2% (iii) Plastic, polyvinyl chloride and polyethylene firms, bottles, pots, jars, boxes, crates, cans, carboys, drums, bags and cushion materials and the like; 2% (iv) Wooden boxes, crates, casks and containe .....

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chedule, horticultural produce, cereals, pulses, oil seeds including copra and cotton seeds, timber or wood of any species, newsprint, silk cocoons, raw, thrown or twisted silk, tobacco (whether raw or cured) and blended yarn, man-made filament yarn, man-made fibre yarn, man-made fibre, woolen yarn and woolen blended yarn, washed cotton seed oil, non-refined edible oil, rice bran and oil cake and such other goods as may be notified by the State Government from time to time. Explanation II - If a .....

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inputs used in the manufacture of finished goods and, therefore, in the context of the Entry Tax Act read with Schedule I, such packing material is neither exempt nor chargeable at the rate of 1% on a true construction of the aforesaid notifications of 1993 and 1998. The High Court in turn has dismissed the revision petitions filed under the statute by the assessee following their own judgment in Nestle India Ltd. v. State of Karnataka, a Division Bench judgment of the Karnataka High Court dated .....

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that Explanation II to the Notification of 23.9.1998 made the position clear that even though packing material may be covered under item 3 of the said Notification, yet, as it is an input in the manufacture of the finished product tea, it would be covered by Explanation II, and therefore would be taxable at the rate of 1% and not 2%. They further argued that words and expressions that are not defined under the Entry Tax Act but which are defined in the Karnataka Sales Tax Act, 1957 would have t .....

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They also cited a large number of judgments of this Court and of the High Court to buttress their submission that packing material would certainly come within the expression input and would therefore be covered by the aforesaid two notifications. Shri Kavin Gulati also specifically pointed out the Tea Marketing Control Order, 2003 made under Section 30 of the Tea Act, 1953 in which, manufacturer has been defined as a person who also produces value added products commercially known as tea, that .....

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cisions relatable to the Central Excise Act and to Sales Tax statutes would not therefore apply. His primary argument was that Schedule I of the Entry Tax Act itself made a clear distinction between packing materials, on the one hand, and raw materials, component parts and inputs, on the other, the Schedule making it clear that they were distinct and separate goods. He further adverted to the definition of the expression goods contained in the Entry Tax Act and argued that unlike in the Central .....

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entry tax statute but were all under the Central Excise Act or Sales Tax statutes. 8. Having heard learned counsel for the parties, it is important to go back to a few fundamentals. As has been explained in Escorts Limited v. CCE, (2015) 9 SCC 109, the definition of manufacture in the Central Excise Act is dependent upon the definition of goods defined by the Constitution in Article 366(12). This Court has therefore held:- It is clear on a reading of this Entry that a duty of excise is only lev .....

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ade; the constituent parts of something. Commodities .-a thing of use or value; a thing that is an object of trade; a thing one deals in or makes use of. Articles .-a particular item of business. Although the definition of goods is an inclusive one, it is clear that materials, commodities and articles spoken of in the definition take colour from one another. In order to be goods it is clear that they should be known to the market as materials, commodities and articles that are capable of being s .....

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substance. And secondly, the word goods necessarily means that such manufacture must bring into existence a new substance known to the market as such which brings in the concept of marketability in addition to manufacture. … [paras 8-11] 9. However, on a perusal of the definition of goods in Section 2(A)(4a) of the Entry Tax Act, the said definition is an exhaustive one including all kinds of movable property and livestock. It is obvious from a reading of this definition that marketabili .....

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in the concept of marketability in the context of a duty of excise, which is absent in the context of entry tax. We might also add that Section 2(A)(8a) wherein the value of the goods is defined, also makes a distinction between goods as such, and packing material , making it clear that charges borne by a dealer as cost of packing would have to be included in the value of goods . In the context of the Entry Tax Act, the difference between goods used in the manufacture of goods and packing mater .....

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ely, tea in the present case, and cannot be extended to cover packing materials of the said tea which is separately provided for by the aforesaid Entry 66. 10. The notification dated 23.9.1998 issued under Section 3 uses identical language as that contained in Entries 66 and 80 of Schedule I to the Entry Tax Act. Equally, notification dated 31.3.1993 is an exemption notification issued under Section 11A which also uses the identical language of Entry 80 of Schedule I. This being the case, it is .....

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oresaid Notification. Packing material is contained in Entry 3 of the table whereas raw materials, component parts and inputs are contained in Entry 4. The rate at which they are taxed is also different - packing materials at 2%, whereas raw materials, components parts and inputs are taxed at 1%. This being so, the reason for inclusion of Explanation II appears to be that goods which are liable to tax, being finished goods in themselves, may yet be brought into a local area for use or consumptio .....

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been held earlier, makes it clear that in no case can packing materials be said to be raw materials, component parts or inputs used in the manufacture of finished goods. For this reason alone we find it difficult to construe the notification dated 23.9.1998 in the manner suggested by the appellants. 13. Even otherwise, there is no such Explanation II contained in the exemption notification dated 31.3.1993. This being the case, if we were to accept the case of the appellants, they would be liabl .....

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pose of industrial inputs that packing materials are included, and forms a separate scheme of taxation under the Sales Tax statute. We cannot accede to the argument that de hors the context of the Entry Tax Act, we should accept that industrial inputs include packing materials and that therefore, by parity of reasoning, inputs under the Entry Tax Act should also include packing material. This argument has therefore correctly been turned down by the High Court of Karnataka in the Nestle case. 15. .....

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e tobacco for a sufficiently long period to avoid fermentation, and to make the tobacco mature for use in cigarettes, cigars, etc. The context of the judgment is entirely different from the facts contained in the present case and would thus have no relevance. Learned counsel for the appellants tried to draw succour from this judgment stating that the idea of packing tea is also to keep out moisture. While that may be so, that single fact cannot lead to a conclusion that would drive a coach and f .....

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ption notifications under the Sales Tax Act. As can be seen from paragraph 26 of the aforesaid judgment, the questions involved in that case were entirely different. Also, the test of what is manufacture was borrowed from the Central Excise Act as can be seen from paragraph 48 of the judgment. The High Court points to a new dimension to the word manufacture in the context of excise which would therefore include within it packing material as well in order that the goods be made marketable. This, .....

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ormally encompass the entire process carried on by the dealer of converting raw materials into finished products. The precise question before this Court was whether products finished in themselves, such as tyres, tubes, batteries, etc., when purchased by the appellant for use in the manufacture of vehicles, could be said to be inputs. This Court held that as a vehicle cannot be operative without tyres, tubes, and batteries, obviously they were inputs in the sense of the dictionary meaning of wha .....

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otification exempted goods used as component parts in manufacture of any goods on which excise duty was leviable. This judgment defines the word component to mean a constituent part. In this context, it was held that paper core is a component part of paper delivered to the customer in rolls, but not in sheets as it was not necessary for manufacture of paper sheets. This case would have no application to the facts of the present case. It is obvious that packing material used to pack a product com .....

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oods marketable. The second of these judgments CCE v. Ballarpur Industries Limited, (1989) 4 SCC 566, again concerned a completely different fact situation. The question in that case was whether an admitted input, Sodium Sulphate, in the manufacture of paper, would not be construed to be a raw material only by reason that in the course of chemical reactions Sodium Sulphate is consumed and burnt up. This Court held that consumption and burning up would make no difference, as an input need not alw .....

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