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CASE NO.: Appeal (civil)  2225 of 2008

PETITIONER: M/s Malnad Areca Processing & Marketing Ltd

RESPONDENT: The Dy. Commissioner of Commercial Taxes (Assessment) and Ors

DATE OF JUDGMENT: 28/03/2008

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T REPORTABLE

CIVIL APPEAL NO.      2225         OF 2008 (Arising out of SLP (C) No. 5968 of 2006)

Dr. ARIJIT PASAYAT, J

        1.      Leave granted.

2.      Challenge in this appeal is to the order passed by a  Division Bench of the Karnataka High Court dismissing the  Writ Petition and the Sales Tax Revision Petition filed by the  appellant.  

3.      The Writ Petition No.18392/2005 was filed under Articles  226/227 of the Constitution of India, 1950 (in short the  ’Constitution’) with a prayer to quash the assessment orders  on the ground that they are contrary to the policy notification  issued by the Karnataka Government. The Sales Tax Revision  Petition was filed under Section 23(1) of the Karnataka Sales  Tax Act, 1957 (in short the ’Act’) against the judgment and  order dated 29.6.2004 passed by the Karnataka Appellate  Tribunal, Bangalore (in short the ’Tribunal’).

4.      The only question that arose for consideration in the  petitions before the High Court was whether the assessee- industry was eligible for exemption in respect of purchase tax  leviable under Section 6 of the Act on the value of arecanut  purchased from member-growers and consignment of  arecanut outside the State for sale, as also the levy of turnover  tax under Section 6-B and cess under Section 6-D of the Act  by virtue of the Notification issued by the State Government  pursuant to the Government Order No.CI.30SPC.96(I) dated  15.3.1996 as amended by Government Order  No.CI.30.SPC.96(I) dated 14.5.1999.  

5.      The assessee was engaged in the processing of arecanut  purchased from members growers and sale thereof to non  resident commission agents. The assessee was registered as a  new industrial unit with the Directorate of Commerce and  Industries and claimed to be governed by package of New  Industrial Policy, 1996 and Package of Incentives and  Concessions under 1996-2001 Scheme and eligibility  certificate in that regard had been issued. Though initially the  claim was accepted, subsequently, the revisional authority  initiated proceedings under Section 21(1) of the Act and  revised the assessment orders  and levied purchase tax under

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Section 6 along with the turnover tax under Section 6-B of the  Act and cess under Section 6-D of the Act on the ground that  the appellant is eligible for sales tax  exemption only on the  sales turnover of manufactured goods in terms of the  Government Order dated 15.3.1996 as amended by  Government Order dated 14.5.1999 and thus Notifications did  not cover tax leviable under Section 6 of the Act on the  purchase value of arecanut effected from registered and  unregistered dealers.  It is to be noted that the writ petition  related to the assessment years 2001-2002 and 2002-2003  while revision petition related to assessment years 1999-2000  and 2000-2001.

6.      Stand of the assessee before the High Court was that the  expression "commercial tax, incentives and concessions" finds  its place in the Government Order dated 14.5.1999. It was the  assessee’s stand that the expression "tax" covers the tax  leviable under the provisions of the Act and there was no  justifiable reason to exclude purchase tax levied or leviable  under Section 6 as the same was tax under the provisions of  the Act. Stand of the revenue on the contrary was that what is  exempted under the Government orders and the  implementation notification is only "sales tax" and not  "purchase tax" levied under Section 6 of the Act.  It was  pointed out that the Government Orders dated 15.3.1996 and  14.5.1999 and Notification issued by the State Government in  exercise of its powers under Section 19(C) of the Act in  implementing the Government orders exempts only tax  payable under the Act in respect of the goods manufactured  and sold by the industrial units. The High Court after referring  to various clauses in the Government Order and the Industrial  Policies accepted the stand of the revenue.   

7.      The stand taken before the High Court was re-iterated by  learned counsel for the appellant.  

8.      With reference to one of the items covered by Notification  i.e. coffee curing unit, it was stated that there was no question  of any exemption being given at the time of purchase. It was  therefore submitted that the purchasers have been given the  additional benefits only. For the purpose of making the benefit  meaningful purchase tax has to be included. It is to be read  into it. The exemption is at the discretion of the Government  and there cannot be any doubt about it. But it was the  deliberate policy of the State Government to grant the benefit  under Section 6. The levy of purchase tax is under certain  circumstances.  

9.      Learned counsel for the State on the other hand  submitted that both the GOs dated 15.3.1996 and 14.5.1999  lay emphasis on manufacture and sale. It is pointed out that  the articles purchased by the appellant are processed and sent  to places outside the State and they purportedly sell the goods  in the course of inter State trade in other States.  The stress is  on sale and not purchase of raw materials. The GOs speak of  exemption or deferment. It is never the intention of the State  Government, it is pointed out, to grant the benefit to a dealer  who after getting the benefit effected sales purportedly in  course of inter State sale in some other States.  There is no  logic for granting such exemption.

10.     In order to appreciate the rival submissions the  Notification and Government order need to be noted. The  Notification dated 15.11.1996, so far as relevant, provided as  follows:

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"(i) (a) hereby exempts the tax payable under  the said Act in respect of goods manufactured  and sold by new industrial units mentioned in  column (2) of the ’Table-A’ below, located in the  zones specified in column (3) and during the  period and to the extent mentioned in column  (4)."

11.     The subsequent Government order dated 14.5.1999 so  far as relevant reads as follows:  

"Para II(7) of Annexure III to Government Order  No.CI 30 SPC 96, dated 15.3.1996 shall be  modified to read as under:

       "Commercial tax incentives and  concessions under the said order shall be  available only for the manufacturing units as  defined for the purposes of Karnataka Sales  Tax Act. However, certain specified categories  of non manufacturing units as detailed in  Appendix IV shall be eligible for the incentives  and concessions as per the said order."       

12.     As rightly submitted by learned counsel for the  respondents there is no change so far as the requirement in  the notification dated 15.11.1996 relating to prescription that  the goods manufactured and sold by new industrial units.  

13.     Clause 5 of the 1996 Industrial Policy reads as follows:

"Clause 5: Sales Tax Concession for new  Units:

       Industrial investments in the  Tiny/SST/Medium and Large Scale Sectors  would be provided with the option of either  Sales Tax exemption or sales tax deferral  (KST/CST). The option is allowed one time  only, at the initial stage of availing the  concession."

Clause 7 reads as follows:

       "7.     Incentives and concessions under  this order shall be available only for  ’manufacturing’ units as defined for the  purpose of Karnataka Sales Tax Act. However,  specified categories of ’Non-manufacturing’  units, as detailed in Appendix-IV shall also be  eligible for the incentives and concessions as  per this order."

        14.     There appear to be some amount of confusion as to the  effect of the two clauses 5 and 7. It is to be noted that the  confusion relating to entitlement of manufacturing and non  manufacturing units was sought to be clarified by the  Government Order. Primary objective of the subsequent  Government Order dated 14.5.1999 was to extend benefit  under Government Order dated 15.3.1996 to certain non- manufacturing units.  

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15.     In the Government Order what is provided to new  industrial units is the sales tax exemption or deferral of sales  tax under the Act and the Central Sales Tax Act, 1956 (in  short the ’CST Act’).  

16.     Clause 5 of the Government Order dated 15.3.1996 of the  industrial policy 1996-2001 provides for sales tax concession  and incentives. The said clause provides for an option to  industrial investments in the tiny/SSI/medium and large  scale sectors to claim either sales tax exemption or sales tax  deferral.  

17.     A sale and a purchase are two different aspects of the  same transaction. Whether sale or purchase, it will have same  ingredients, both in common law and also under Sale of Goods  Act. As stated by this Court in Devi Dass Gopal Krishnan v.  State of Punjab (AIR 1967 SC 1895), the transaction, which  the Sales Tax Laws are concerned with, is a transfer of  property in goods for price, inter vivos, both in the case of sale  as well as purchase.  In the Government Order, what is  provided to the new industrial units, is an option to claim  sales tax exemption or deferment of sales tax both under the  Act and CST Act. In the field of taxation, it is recognized that  the power to classify the objects or persons to be taxed or  exempted from levy is with the legislature. It also enjoys the  power to select persons or transactions. A law of the State,  could therefore, levy tax both at the sale point and at the  purchase point. Under the Government Order, the policy of the  Government as spelt out is, that tiny and small scale  industries and medium and large scale industries may  exercise their option either for sales tax exemption or sales tax  deferment for number of years prescribed in the Government  Order itself. In the context in which these expressions are  used, they only mean "sales tax holiday" or exemption from  payment of sales tax for number of years specified, depending  on where the tiny or small scale industry is located. "Sales tax"  refers to any tax which includes within its scope all ’business  of sale of goods’ specified in the Schedule. Similarly, "Sales tax  deferral" only means the aforesaid industries are entitled to  collect tax but they need not pay sales tax collected  immediately to the State. If understood in this manner and  thereafter the New Industrial Policy of the State Government  for the years 1993-1998 and the exemption notification is  looked into, the only conclusion that can be drawn is, what is  exempted under the notification issued by the State  Government is tax leviable under Section 5 of the Act on the  goods manufactured and sold by an industrial unit. Therefore,  the notification is in no way in variance or contrary to the  industrial policy for the years 1993-1998.            The above position has been rightly highlighted by the  High Court.  18.     In that view of the matter, we find no infirmity in the  impugned order of the High Court. The appeal is dismissed.   There will be no order as to costs.