| SooperKanoon Citation | sooperkanoon.com/385373 |
| Subject | Sales Tax |
| Court | Karnataka High Court |
| Decided On | Jun-09-2006 |
| Case Number | Writ Petition No. 34986/2004 |
| Judge | Mohan Shantanagoudar, J. |
| Reported in | [2006]148STC560(Kar) |
| Acts | Karnataka Sales Tax Act, 1957 - Sections 2(1), 5, 5A, 5B, 5C, 5(3), 6, 6B, 10, 10(1), 10(2), 12A, 12A(1A) and 28(6); Constitution of India - Articles 14, 19(1), 301 and 304 |
| Appellant | Hindustan Petroleum Corporation Limited Rep. by Its Senior Regional Manager-direct Sales and Constit |
| Respondent | The Deputy Commissioner of Commercial Taxes (Assessments-11, Fast Track), ;The Deputy Commissioner O |
| Appellant Advocate | R.V. Prasad, Adv. |
| Respondent Advocate | Niloufer Akbar, AGA |
| Disposition | Petition allowed |
Mohan Shantanagoudar, J.
1. Heard Sri R.V. Prasad, learned Counsel appearing for the petitioner and Smt. Niloufer Akbar, learned Addl. Government Advocate appearing on behalf of the respondents and perused the material on record.
Sri R.V. Prasad, learned Counsel for the petitioner submits that he does not press the main relief regarding striking down of Section 6-B of the Karnataka Sales Tax Act as substituted by Karnataka Act No. 5 of 2002 as being violative of Articles 14, 19(1)(g), 301 and 304(b) of the Constitution of India. The said submission is recorded. Hence, I proceed to pass the orders on the other reliefs claimed by the petitioner.
3. The petitioner is a Public Limited Company, carrying on business of manufacture, sales and distribution of petroleum products and is a dealer registered under the provisions of the Karnataka Sales Tax Act, 1957 ('hereinafter referred to as 'the Act' for short). The petitioner-Company is a Government of India enterprise and the President of India holds 51.01% of the total number of shares. As the petitioner has no refinery in the State of Karnataka, it either purchases petroleum products from other oil companies in the State of Karnataka or receives by way of inward stock transfer from its refineries located outside the State, or it imports from outside the country. In the case of hand, the petitioner had purchased the petroleum products viz., furnace oil and bitumin from Mangalore Refinery and Petro Chemicals Limited ('MRPL' for i short) and sold to other oil companies such as Indian Oil Corporation Limited (1OCL), Bharat Petroleum Corporation Limited (BPCL), and Indo-Burma Petroleum Company (IBP) in the State of Karnataka.
4. By the order Annexure-A dated 29.7.2004, the reassessment of taxes was done under Section 12-A of the Act and consequently, petitioner was levied tax payable under Section 6-B of the Act which was not levied in the earlier order of assessment. Subsequently, the order at Annexure-B came to be passed against the petitioner levying penalty under Section 12-A(1-A) of the Act.
In the meanwhile the 2nd respondent-Deputy Commissioner of Commercial Taxes (Int), on inspection of the premises of the petitioner, seized certain books of accounts, records, documents, and after forming an opinion, issued the show cause notice dated 30-6-2004 to the effect that the petitioner was liable for payment of tax under Section 6-B of the Act on the inter-company oil sales effected by the petitioner for the assessment year 2003-04. Objections were filed by the petitioner for the same. Thereafter, by overruling the objections filed by the petitioner, the 2nd respondent confirmed the proposals proposed in the show cause notice dated 30.6.2004 by passing an order dated 5.8.2004 under Section 28(6) of the Act as per Annexure-C. The demand notice was also issued in Form No. 6 dated 6.8.2004 against the petitioner as per Annexure-D to the writ petition. These Annexures-'A' to 'D' are called in question in this writ petition.
4. While passing the impugned orders, respondents 1 and 3 have held that the petitioner is liable to pay tax under Section 6-B of the Act on the sales of furnace oil and bitumin effected by the petitioner to other oil companies, such as IOCL, BPCL, IBP at the rate of 1.5% advalorem.
5. The petroleum products such as furnace oil and bitumin are goods which find a place in the Second Schedule (item 5 of Part-P) appended to the Act and on the sale of which, a single point tax is leviable on the first or the earliest of successive dealers in the State under Section 5(3)(a) of the Act. Section 5(3)(a) reads thus:
Section 5(3): Notwithstanding anything contained in Sub-section (1), the tax under the Act shall be levied:
(a) in the case of the sale of any of the goods mentioned in column (2) of the second Schedule, by the first or the earliest of successive dealers in the State who is liable to tax under the section, a tax at the rate specified in the corresponding entry of column (3) of the said Schedule, on the taxable turnover of sales of such dealer in each year relating to such goods.
It is relevant to note the second proviso to Section 5(3)(a) of the Act, which reads thus:
Provided also that in respect of sale of goods mentioned in Serial Number 11-A of Part 'F', Serial No. 12 of Part 'M' and Serial Number 5 of Part 'P' and Serial Number 1 of Part 'K' of the Second Schedule, the sale by one oil company to another oil company shall not be deemed to be a sale by the first or the earliest of successive dealers in the State but the sale by the latter company to another person not being an oil company shall be deemed to be the sale by tile first or the earliest of successive dealers in the State liable to tax.
Explanation-II to Section 5(3)(a) of the Act enumerates various oil companies for the purpose of the second proviso to Section 5(3)(a) of the Act. Explanation-II reads thus:
Explanation-II: for the purpose of the second proviso to Clause (a), the expression 'oil company' namely:
a) The Indian Oil Corporation Limited;
b) The Bharath Petroleum Corporation Limited;
c) The Hindustan Petroleum Corporation Limited;
d) Indo-Burma Petroleum Company;
e) Mangalore Refinery and Petrochemicals Limited,
And includes any other oil company which the Government of Karnataka may by notification, specify.
6. The petitioner is one of the oil companies named in Explanation-II. It is not in dispute that the petitioner purchases products of petroleum from another oil company viz., Mangalore Refinery and Petrochemicals Limited (MRPL), which is also a dealer registered under the provisions of the Act and the same also finds place in Explanation-II. It is also not in dispute that the petitioner, upon purchasing the products of petroleum from MRPL, effects the sales to other oil companies such as IOCL, BPCL and IBP in the State of Karnataka whose names also find place in Explanation-II.
7. On perusal of second proviso to Section 5(3)(a) of the Act along with Explanation-II, it is clear that the sale of petroleum products effected by MRPL to the petitioner-company is to be deemed as not being sale by the first or the earliest of successive dealers in the State because sale by MRPL to the petitioner is by one oil company to another oil company whose names are found in Explanation-II. Thus no tax can be levied against MRPL. So also as the petitioner on purchasing the petroleum products from MRPL, effects sales to other oil companies such as IOCL, BPCL and IBP in the State of Karnataka, again no tax can be levied against the petitioner since the sales are effected by the petitioner's oil company to another oil company.
8. It is relevant to note the provisions of Section 6-B of the Act at this stage, which read thus:
Section 6-B Levy of Resale tax:
(1) Every registered dealer and every dealer who is liable to get himself registered under Sub-sections (1) and (2) of Section 10 whose total turnover in a year is not less than the turnovers specified in the said sub-sections, shall be liable to pay tax at the rate of one and half percent of such portion of the total turnover which is not liable to tax under Sections 5, 5-A, 5-B, 5-C or 6;
Provided that no tax under this Sub-section shall be payable on that part of such turnover which relates to -
xxx xxx xxx (x) the total amount paid or payable by the dealer as a consideration for the purchase of any of the goods in respect of which tax is leviable at the point of sale:xxx xxx xxx
If Section 6-B of the Act is read carefully and harmoniously along with its head note, it is clear that the taxes can be levied against petitioner only if the petitioner is the resale of the goods. In other words, for levying 'Resale Tax' under Section 6-B on the petitioner, the petitioner ought to be a second or subsequent seller of the goods in the State of Karnataka. It pre-supposes that the petitioner should have purchased the goods before it sells to others. Though the petitioner purchases petroleum products from MRPL, because of the deeming provision as contained in second proviso to Section 5(3)(a) of the Act, the sale made by the MRPL to the petitioner cannot be treated as a sale because it is a sale by one oil company to another oil company. Thus, in law, petitioner cannot be said to be a purchaser, so also if the petitioner sells petroleum products to other oil companies, the same also would not be the sale in the eye of law in view of the unambiguous wordings contained in second proviso to Section 5(3)(a) of the Act. By the operation of second proviso to Section 5(3)(a) of the Act, it is deemed that the sales of petroleum products effected by MRPL to the petitioner are not to be construed as sales by the first or the earliest of successive dealers in the State. Likewise and again, by the application of the said second proviso, the petitioner's sales of petroleum products to other oil companies such as IOCL, BPCL & IBP, are not to be construed as by the first or the earliest successive dealers in the State.
9. The word 'Resale' is not defined in the Act. However, it is always open for the Courts to give a meaning as is understood in common parlance. When a word is not defined in the Act itself, reference to dictionary to find out common parlance meaning is permissible. The word 'Resale' as denned in Chambers 21st Century Dictionary is as under:
Re-sale- the selling of an article again.
The Random House Dictionary of the English Language -The Un-Abridged Edition, defines the word 'Resale' as under:
Re-sale
1) The act of selling the second time;
2) The act of selling something second hand.
Though the body of the Section 6-B of the Act does not contain the word 'Resale', heading of the Section discloses that the said Section pertains to levy of resale tax. It is well settled that in order to understand the meaning of Section employed in the statute, even the heading could be looked. It is true that for the interpretation of the words of the Section, the language of the heading cannot be used to control the operation of the Section, but, at the same time, being part of the statute, it prima facie furnishes some clue as to the meaning and purpose of the Section. In case of ambiguity or doubt, the heading can be referred to as an aid in construing the provision.
10. Looking to Section 6-B of the Act in its entirely, it is amply clear that the said provision is meant for levy of tax on resale of goods. Resale means second sale. This presupposes that there should be sale earlier to the said point of time. In this matter, as aforesaid, the products of petroleum manufactured by MRPL are sold to the petitioner in the State of Karnataka, the same cannot be treated as the first sale in view of deeming prevision contained second proviso to Section 5(3)(a) of the Act, because the said sale is from one oil company to another oil company. Thus, the first sale, in law, has never occurred in this case. So also, as the petitioner has sold the petroleum products to other oil companies, such as IOCL, BPCL & IBP, the said sale cannot be treated as a sale in law in view of the unambiguous language used in the second proviso to Section 5(3)(a) of the Act. Since the first sale has not occurred in favour of the petitioner, petitioner cannot be said to have resold the petroleum products to other oil companies. Thus, though in fact, the petitioner-company sells its products to other oil companies, the same cannot be treated as sale in view of deeming provision found in second proviso to Section 5(3)(a) of the Act.
11. Sri. R.V. Prasad, learned Counsel appearing on behalf of the petitioner has brought to the notice of the Court the Budget Speech presented by the Finance Minister. Portion of the Budget Speech presented by the Finance Minister on the floor of the House on 21.3.2002 for the Budget year 2002-03 with respect to the object in introducing Section 6-B of the Act, reads thus:
177. VAT entails multipoint levy of tax at all points of production and distribution. The second and subsequent dealers in the trade channel who are currently paying a nominal non-passable turnover tax of 1% would have to pay tax under VAT which could be higher but collectable. As an intermediate measure and to prepare dealers for a smooth transit to VAT, I propose to introduce a collectable resale tax of 1.5%. Most of the commodities which are totally exempt from tax on their second and sequent sales, however, are proposed to be exempt from this new levy, This collectable new levy should induce the entire trade to issue bills on all their sales.
From the Speech presented by the Finance Minister, it can be seen that Section 6-B of the Act is enacted with an intention to make it applicable only to second and subsequent transactions of sale. Consequently, the transactions anterior to second and subsequent transactions are not to be affected by Section 6-B of the Act. Thus, it can be safely concluded that the sales effected by the MRPL to the petitioner are not to be construed as sales by the first dealer and similarly the sales made by the petitioner thereafter to other oil companies are also not be construed as sales by the first or second dealer. Then, by the same logic, it would mean that the consideration paid by the petitioner to MRPL and the consideration received by the petitioner from oil companies cannot be considered as purchase/sale price of the goods bought/sold. At this juncture, it is relevant to note the observations made by this Court in the case of Madhur Trading Company v. State of Karnataka 90 STC 537, wherein this Court has examined the effect of the consequences flowing under the deeming provision. The relevant portion of the said judgment reads thus:
There is no definition of the 'purchase' under the Act. A purchase is nothing but the other side of the sale transaction. The primary side is sale and the resultant transaction is the purchase. The term 'sale' is defined under Section 2(1)(t) of the State Act. Primarily every transfer of the property in goods results in a sale. The transfer of property is by one person to another. No doubt in the ordinary parlance and under the general law the transfer of property in silk fabrics by the weavers in favour of the petitioners were sales but the State Act declares such transactions as not sales at all. In such a situation, for the purpose of the Act the vesting of title in the petitioners in respect of those silk fabrics is not by virtue of the sale as defined under the Act, for the purpose of levy of tax. If there was no transfer of property for the purpose of the Act in favour of the petitioners these petitioners cannot be held as the purchasers of those silk fabrics. The legislative intention seems to be not to burden silk fabrics with the taxes under the Act to the extent those silk fabrics were manufactured by weavers as stated in the proviso above. If the object was to grant exemption only to weavers, these silk fabrics manufactured by the weavers could have been shifted to Third Schedule read with Section 5(3)(b) of the State Act or a statutory exemption from liability to pay the sales tax could have been granted by saying so by suitable wording of the proviso. The proviso could hav said that sale by a handloom or a power-loom weaver, etc., of silk fabrics manufactured by them shall not be taxable under Clause (c) of Section (3). The proviso has dearly declared that such a sale is not a 'sale' at all for the purposes of the State Act. It will be straining the language of the proviso and the legal effect to be given to the deeming provision to say that there can be a purchase without a sale.
If there was no sale, the consideration paid by the purchaser cannot be a sale price. If so, the main part of Section 6 itself will not be attracted. In these circumstances, we are constrained to hold that this is not a case where the petitioners 'purchased' any taxable goods in circumstances in which no tax under Section 5 was leviable on the 'sale price' of such goods, referred in Section 6 of the State Act.
8. Mr. Santhosh Hegde learned Senior Counsel, appearing for some of the petitioners relief on the principle governing the interpretations of a legal fiction. The learned Counsel referred to the observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finnasbury Borough Council (1951) 2 ALL ER 587 (HI): . If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. The statute says that you must imagine a certain state of affairs; it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
9. There can be no doubt that proviso to Section 5(3)(c) creates a legal fiction. A real sale in the eye of law, is deemed to be not a sale for purposes of the Act under the said proviso. We are bidden to treat a real sale as not a sale at all. In such a situation we have to imagine as real, the consequences and incidents which follow from imagining the real sale as not a sale. A purchase is the real consequence and incident of a sale. Therefore if there is no sale no argument is required to say that there cannot be a purchase.
The above principle enunciated by Lord Asquith has been fallowed by the Supreme Court in severed decisions and it is unnecessary be repeat the same.
We have to bear in mind that we are interpreting a fiscal legislation and primary importance has to be given to the language used. Question of any equity does not arise and it is not permissible to read probable intention of the Legislature into the enacted provisions.
(Underlining is by me)
In view of the above, this Court is of the considered opinion that the impugned orders vide Annexures-'A' and 'C' dated 29.7.2004 and 5.8.2004 passed by the first and second respondents respectively and the demand notice vide Annexure-'D' arc liable to be quashed, inasmuch as, the petitioner is not liable to pay resale tax under Section 6-B of the Act. In view of the above, following order is made:
The orders vide Annexures-'A' and 'C' dated 29.7.2004 and 5.8.2004 passed by the first and second respondents herein respectively and the demand notice vide Annexure-'D' are quashed.
Writ petition is allowed accordingly. Rule made absolute.