Diamond Feeds Vs. Deputy Commissioner of Commercial Taxes (Asst. Ii) and ors. - Court Judgment

Excerpt:
- - 1. our learned brother, justice sri shylendra kumar, by his order dated july 15, 2004, has referred these two writ petitions in exercise of his powers under section 9 of the karnataka high court act, 1961, for consideration by a division bench of this court, since according to the learned judge, the question of law involved in these writ petitions is one of considerable general importance having repercussions on large number of dealers similarly placed like petitioners as well as on the revenue. any notification issued by the state government in exercise of its powers, if it is found to be repugnant to the industrial policy declared by the state government, then the notification must be held to be bad to that extent. any notification issued by the government order in exercise of.....orderh.l. dattu, j.1. our learned brother, justice sri shylendra kumar, by his order dated july 15, 2004, has referred these two writ petitions in exercise of his powers under section 9 of the karnataka high court act, 1961, for consideration by a division bench of this court, since according to the learned judge, the question of law involved in these writ petitions is one of considerable general importance having repercussions on large number of dealers similarly placed like petitioners as well as on the revenue. that is how these petitions are posted before us for determination of legal issues involved in these writ petitions.2. we have heard the learned counsel appearing for the parties to the lis. 3. the only issue that would arise in these two writ petitions for our consideration and.....

Judgment:
ORDER

H.L. Dattu, J.

1. Our learned brother, Justice Sri Shylendra Kumar, by his order dated July 15, 2004, has referred these two writ petitions in exercise of his powers under Section 9 of the Karnataka High Court Act, 1961, for consideration by a Division Bench of this court, since according to the learned Judge, the question of law involved in these writ petitions is one of considerable general importance having repercussions on large number of dealers similarly placed like petitioners as well as on the Revenue. That is how these petitions are posted before us for determination of legal issues involved in these writ petitions.

2. We have heard the learned Counsel appearing for the parties to the lis.

3. The only issue that would arise in these two writ petitions for our consideration and decision is, whether the notification issued by the State Government in exercise of its powers under Section 8A of the Act dated September 23, 1993, is in any way at variance with the industrial policy decision of the State Government for the period 1993-98 ?

4. We do not intend to dwell in detail the fact-situation in the present cases. Suffice to observe that the petitioners are dealers registered under the provisions of the Karnataka Sales Tax Act and are engaged in the manufacture and sale of animal feeds. They are also registered as new industrial units (small-scale sector) and according to them, they are eligible for tax exemption both under the Karnataka Sales Tax Act, 1957 ('the KST Act', for short) and Central Sales Tax Act, 1956 ('the CST Act', for short), in terms of Government Order No. CI 140 SPC 93, dated July 12, 1993 up to 100 per cent of its investment in fixed assets for a period of six years from the date of commencement of commercial production. The petitioners as part of their manufacturing activity, effected purchase of de-oiled rice bran and oil cake from unregistered dealers and have used the same in the manufacture of animal feeds. In the annual returns filed, for the assessment period April 1, 1999 to March 31, 2000, the assessee had declared a total turnover of Rs. 1,88,37,759 and had claimed exemption in respect of tax payable under Section 6 of the Act by relying on the notification issued by the State Government dated July 12, 1993. This claim is rejected by the assessing authority and the findings and the conclusion reached by the assessing authority are affirmed by the first appellate authority in the appeal filed by the assessee.

5. Apart from other reliefs sought, petitioner in W. P. No. 5059 of 2002 calls in question the correctness or otherwise of the orders passed by the assessing authority and confirmed by the first appellate authority for the assessment year April 1, 1999 to March 31, 2000.

6. In W.P. No. 69 of 2003, the assessee calls in question the legality or otherwise of the orders passed by the revisional authority under Section 21(2) of the Act for the assessment period April 1, 1998 to March 31, 1999, revising the orders passed by the assessing authority, who had exempted the purchase tax payable by the assessee on the purchase of raw material from unregistered dealers.

7. The learned Counsel Sri T.N. Keshava Murthy, would submit that the new industrial policy 1993-98 announced by the Government of Karnataka, which is notified as Government Order No. CI 140 SPC 93, dated July 12, 1993, provides for sales tax exemption/deferral (KST/CST) to the tiny/SSI/ medium and large scale industries (new industrial units) and under the industrial policy separate guidelines require to be issued for the administration of these incentives and concessions by the concerned departments. The learned Counsel would further contend, that pursuant to the Government Order, the Finance Department has issued Notification No. FD 171 CSL 93(I), dated August 28, 1993 and while issuing the notification, the Finance Department has restricted sales tax exemption only to the goods manufactured and sold and since such restriction being not authorised by the Government Order dated July 12, 1993, the notification issued by the Finance Department is contrary to policy decision of the State Government and therefore, the notification requires to be read down to include all taxes payable under the KST and the CST Acts.

8. The State Government, in order to encourage the establishment of new industrial units in the State of Karnataka, has come out with a new industrial policy and package of incentives and concessions for the years 1993-98. For the purpose of these cases, we need to refer to the clauses, which provide for sales tax concessions and the clause which provides for requirement of issuance of separate guidelines for administration of these incentives and concessions by concerned departments.

9. Clause 5.0 of the industrial policy provides for sales tax concessions. The same reads as under:

5.0 Sales tax concessions

Industrial investments in the tiny/SSI/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. The suggested scale and period of concessions are indicated below:

SALES TAX EXEMPTION/DEFERRAL

Tiny and small-scale industries Medium and large scale industriesZone No. of Ceiling No. of Ceilingyears (Rs.) years (Rs.)I. Developed 4 100% value of 4 100% value ofarea (onlythe specifiedcategories as (6) fixed assets (6) fixed assetsin appendix II)II. Developingareas 6 100% value of 5 100% value of(8) fixed assets (7) fixed assetsIII. Growthcentres 7 100% value of 6 100% value of(8) fixed assets (8) fixed assetsNote. - Figures in brackets indicate number of years for sales tax deferment in lieu of sales tax exemption, if opted.

(underlining Here italicised is by us)

10. Item II of the Government Order provides for terms and conditions for sanction of incentives and concessions to new industrial units. Clause (i) provides for the requirement of issuance of separate guidelines for implementation of the new industrial policy. It is as under:

(i) Separate guidelines for administration of these incentives and concessions will be issued for the guidance of the concerned agencies and officers. Interpretation of this G.O. and the decision thereon of the State Level Co-ordination Committee, under the chairmanship of the Secretary, Commerce and Industries Department shall be final.

11. In order to give effect to the new industrial policy announced by the Government of Karnataka, the State Government, in exercise of its powers under Sub-section (1) of Section 8A of the KST Act, has issued a notification in No. FD 171 CSL 93(1), dated August 28,1993. The said notification is gazetted on September 23,1993. The notification provides for exemption from the date of the notification, on the tax payable under the provisions of the KST Act in respect of the goods manufactured and sold by a new industrial unit mentioned in column (2) of the table appended to the notification located in the zones specified in column (3) and during the period and to the extent mentioned in column (4) of the notification. Omitting what is not necessary for the purpose of disposal of these writ petitions, the relevant portion of the notification is extracted and it reads as under:

In exercise of the powers conferred by Sub-section (1) of Section 8A of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the Government of Karnataka hereby exempts with immediate effect, the tax payable under the said Act, in respect of goods manufactured and sold by a new industrial unit.

12. Sri Keshava Murthy, learned Counsel appearing for the petitioners in these writ petitions, would urge before us, that the expression 'sales tax exempted' or 'sales tax deferral' would include all the taxes payable under the provisions of the KST Act and the CST Act. That only means, according to the learned Counsel, it includes purchase tax also which the petitioners' industries are primarily concerned with, in these writ petitions. In support of that submission, the learned Counsel invites our notice to Rule 20C of the Karnataka Sales Tax Rules, 1957, which provides for the procedure and conditions for granting deferred payment of tax or exemption of tax for new industry. The sum and substance of the contentions canvassed by the learned Counsel is, that the sales tax exemption or sales tax deferral would encompass the exemption from levy of purchase tax or purchase tax deferral under the provisions of the KST/CST Act. Therefore according to the learned Counsel, the notification which restricts the exemption under the Karnataka Sales Tax Act only in respect of goods manufactured and sold by new industrial units is in variance with the new industrial policy and therefore, the notification requires to be either read down or quashed by this court. In aid of this contention, the learned Counsel has relied upon the observations made by the apex court in the case of State of Bihar v. Suprabhat Steel Ltd. [1999] 112 STC 258. The learned Counsel also draws our attention to the observations made by a Division Bench of this court in the case of Brooke Bond Upton India Limited v. State of Karnataka [1998] 109 STC 265 and the decision rendered by a learned single Judge of this court in the case of Unique Creations (Bangalore) Ltd. v. State of Karnataka (W.P. Nos. 11851 to 11859 of 2001 dated July 24, 2003), reported in [2004] 135 STC 213. A feeble attempt was also made by the learned Counsel to persuade us to accept his submissions by referring to the earlier new industrial policies issued by the State Government to encourage the new industrial units in the State of Karnataka.

13. Per contra, Smt. Sujatha, learned Additional Government Advocate, would submit, that the industrial policy speaks of sales tax exemption or sales tax deferral under the KST Act and the CST Act. That only means, the sales tax leviable under Section 5 of the KST Act and by no stretch of imagination, according to the learned Additional Government Advocate, the levy under Section 5 of the Act can be equated with the levy either under Section 6 of the Act or under Section 6B of the Act or any other charging provisions of the Act. The learned Additional Government Advocate also invites our attention to the meaning of the expression 'tax' which finds a place in the dictionary clause of the Act, to suggest, that if for any reason, the new industrial policy had used the expression 'tax exemption' or 'tax deferral' under the KST Act and the CST Act, it would have encompassed all the taxes which could be levied and collected under the Act. Since that expression is not used in the Government policy and since the Government policy speaks of only sales tax exemption or sales tax deferral, the notification issued by the State Government in exempting the goods manufactured and sold is in consonance with the industrial policy framed by the State Government for the years 1993-98 and therefore, petitioners are not entitled to any relief whatsoever.

14. As we have already indicated, the only question that requires to be considered by us in these writ petitions is, whether the notification issued by the State Government is in any way contrary or in variance with the thinking of the policy-makers while issuing the new industrial policy If our answer is 'yes', then necessarily the notification issued by the State Government requires to be struck down, for the reason that the executive cannot deviate from the policy of the State Government, which has the approval of the cabinet. The law on this point is clear. In fact, the Supreme Court in Suprabhat Steel Ltd.'s case [1999] 112 STC 258 has concluded that, the notification issued by the State Government in the Finance Department is to carry out the purpose, the objectives and the policy decisions taken in the industrial policy itself. Any notification issued by the State Government in exercise of its powers, if it is found to be repugnant to the industrial policy declared by the State Government, then the notification must be held to be bad to that extent.

15. In Suprabhat Steel Ltd.'s case [1999] 112 STC 258, the apex court has observed:

The issuance of a notification by the State Government in exercise of the powers under Section 7 of the Bihar Finance Act, 1981, entitles industrial units to avail of the incentives and benefits declared by the State Government in its own industrial incentive policy. But in the exercise of such power it is not permissible for the State Government to deny any benefit which is otherwise available to an industrial unit under the Industrial Incentive Policy which is issued by the State Government after such policy is approved by the Cabinet itself. The issuance of the notification under Section 7 is by the State Government in the Finance Department which notification is issued to carry out the objectives and the policy decisions taken in the Industrial Policy itself. Any notification issued by the Government Order in exercise of the powers under Section 7, if it is found to be repugnant to the industrial policy declared in a Government resolution, then the notification must be held to be bad to that extent. (see para 7).

Under Clause 10.4(i) of the Industrial Incentive Policy of the State Government of Bihar sales tax exemption on the purchase of raw materials was admissible : (a) to industrial units coming into production between March 1, 1993 and March 31, 1998, whose investment on plant and machinery did not exceed Rs. 15 crores, for a period of 7 years from the date of production; and (b) such old industrial units whose investment on plant and machinery did not exceed Rs. 15 crores on April 1, 1993, for a period of 7 years from April 1, 1993. Notification dated April 2, 1994, issued under Section 7 of the Bihar Finance Act, 1981, limited the facility or benefit under the policy to old industrial units which had not availed of any facility or benefit under any Industrial Promotion Policy. On writ petitions filed by the respondents, which were old industrial units which had come into production prior to April 1, 1993, but whose investment on plant and machinery did not exceed Rs. 15 crores, the High Court held that the respondents were entitled to the benefit of the Industrial Incentive Policy of 1993 in terms of Clause 10.4(i)(b) and struck down that part of the notification which was repugnant to Sub-clause (b) of Clause 10.4(i). On appeal to the Supreme Court:

Held, affirming the decision of the High Court, (i) That while generally the incentives under the 1993 Policy would be available to the industrial units coming into production between April 1, 1993 and March 31, 1998, so far as sales tax exemption on the purchase of raw material was concerned, which was provided in Clause 10.4, old units, whose investment on plant and machinery did not exceed Rs. 15 crores on April 1, 1993, even though they had started production prior to April 1, 1993, would be entitled to the facility for a period of seven years ; and (see para 6)

(ii) that it was not open to the State Government to issue a notification under Section 7 of the Bihar Finance Act, 1981, overriding the incentive policy itself. The expression 'such conditions and restrictions as it may impose' in Section 7(3) did not authorise the State Government to negate the incentives and benefits which any industrial unit would be otherwise entitled to under the general Policy Resolution itself.

16. To appreciate the contentions canvassed, we need to notice some of the expressions that find a place in the Act itself.

17. The Karnataka Sales Tax Act provides for levy and collection of tax in the nature of sales tax, purchase tax, turnover tax, etc.

18. In the dictionary clause, namely, under Section 2(1)(u) of the Act, the expression 'tax' is defined to mean, tax leviable under the provisions of the Act.

19. The Act provides for different charging sections. Section 5 of the Act provides for levy of tax on every dealer on the sale or purchase of goods on his taxable turnover at the point of first sale. Section 5A of the Act provides for taxation of industrial inputs. Section 5B of the Act provides for levy of tax on transfer of property in goods involved in the execution of works contracts. Section 5C of the Act provides for levy of tax on the transfer of the right to use any goods. Section 5(3)(a) of the Act provides for levy of single point tax on the first or earliest of successive dealers in the State. Section 5(3)(b) of the Act provides for levy of single point purchase tax in respect of goods mentioned in the Third Schedule to the Act. Section 5(4) of the Act provides for levy of tax on declared goods. Section 6 of the Act provides for levy of purchase tax on purchase of any taxable goods in circumstances in which no tax under Section 5 of the Act is leviable on the sale price of such goods.

20. The policy-makers, while issuing New Industrial Policy for the years 1993-1998 have used the expression 'sales tax exemption' or 'sales tax deferral' (KST/CST). In our opinion, when the policy-makers have used this expression, it only means, tax leviable on the sales turnover of the scheduled goods. If for any reason, the Industrial Policy had used the expression that the industrial units would be provided with the option of either 'tax exemption' or 'tax deferral' (KST/CST) or exemption under 'Sales Tax Laws' (KST/CST), Sri Keshava Murthy, learned Counsel would have been justified in his submission, the reason being the meaning of the expression 'tax' is, a tax leviable under the provisions of the Act, which would include all types of taxes under the Act. Similarly, if the policymakers had used the expression 'exemption under Sales Tax Law' then also Sri Keshava Murthy, learned Counsel would be justified in his submissions, for the reason, 'Sales Tax Law' means any law for the time being in force in the State which provides for levy of taxes on the sale or purchase of specified goods. In the alternative, any law imposing a tax on the sale or purchase of goods is a sales tax law. 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 the Sale of Goods Act. As stated by the Supreme Court in Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 STC 430, 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 KST and CST Acts. In the field of taxation, it is recognised 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 a 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 immediately pay to the State the sales tax collected. 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 with the industrial policy for the years 1993-1998. Therefore, we cannot accept the submissions made by Sri Keshava Murthy, learned Counsel for petitioners on this point.

21. In our view, none of the decisions on which reliance was placed by the learned Counsel for petitioners would assist him in any manner, since the fact-situation and the question of law decided in those cases are entirely different from the one which has come up for our consideration.

22. In view of the aforesaid conclusion of ours, if for any reason, the assessing authority has levied purchase tax on the purchase turnover of the petitioners, we cannot take any exception to the same, since the petitioners are not entitled to the benefit under the notification issued by the State Government dated August 28, 1993. Accordingly, writ petitions are rejected. the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly.