Toyota Industries Engine India ... vs The Additional Commissioner Of
2021 Latest Caselaw 2107 Kant

                             1



     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 3RD DAY OF JUNE 2021

                         PRESENT

         THE HON'BLE MR. JUSTICE ALOK ARADHE

                            AND

THE HON'BLE MR. JUSTICE HEMANT CHANDANGOUDAR

                   S.T.A. NO.25 OF 2017
BETWEEN:

TOYOTA INDUSTRIES ENGINE INDIA PVT. LTD
(FORMERLY KNOWN AS KIRLOSKAR TOYODA
TEXTILE MACHINERY PVT. LTD)
PLOT NO.9, PHASE II
JIGANI INDUSTRIAL AREA, JIGANI
BANGALORE-560 105
REPRESENTED HEREIN BY ITS DIRECTOR
MR. PARAMESWARAN BALAKRISHNAN.
                                             ... APPELLANT
(BY SRI. SURYANARAYANA T, ADV.,)

AND:

1.     THE ADDITIONAL COMMISSIONER OF
       COMMERCIAL TAXES, (ZONE)-II
       BENGALURU, 6TH FLOOR, VTK-1
       VANIJYA THERIGE KARYALAYA
       GANDHI NAGAR
       BENGALURU-560 009.

2.     THE DEPUTY COMMISSIONER OF
       COMMERCIAL TAXES (AUDIT-4.1)
       BANGALORE
       VANIJYA THERIGE KARYALAYA
       KORAMANGALA, BANGALORE-560 047.
                                          ... RESPONDENTS
(BY SRI. JEEVAN J. NEERALGI, AGA)
                             2



                            ---
     THIS S.T.A. IS FILED UNDER SEC. 16 OF THE KARNATAKA
TAX ON ENTRY OF GOODS ACT, 1979, AGAINST THE ORDER
DTD:28.04.2017     PASSED     IN    NO.ADCOM/ZONE-II/APP-
4/KTEG/SMR/CR-06A/2016-17 ON THE FILE OF THE ADDL.
COMMISSIONER OF COMML. TAXES ZONE-II 6TH FLOOR, VTK-1,
GANDHINAGAR, BENGALURU, SETTING ASIDE THE ORDER
DTD:27.11.2012 PASSED IN NOS.KTEG.AP:62, 63 & 64/2009-10
ON THE FILE OF THE JCCT (APPEALS)-4 BENGALURU, RESTORING
THE ORDER DTD:17.02.2010 PASSED BY THE DCCT (AUDIT)-41
DVO-4, BENGALURU UNDER SEC.5(4) OF THE KTEG ACT, 1979
FOR THE FINANCIAL YEARS 2005-06, 2006-07 AND 2007-08.

     THIS S.T.A. COMING ON FOR HEARING,       THIS   DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                      JUDGMENT

In this appeal preferred under Section 16 of the

Karnataka Tax On Entry Of Goods Act, 1979 (hereinafter

referred to as 'the Act' for short), the question which

arises for consideration is whether the assessee is

entitled to claim the benefit of exemption as contained

in Explanation I to the Notification dated 30.03.2002

issued by the Government of Karnataka under Section

3(1) of the Act. The said question in turn depends on

whether the cutting tools used by the appellant such as

twist drills, reamers, cutters and tapes etc can be

termed as component parts of inputs in the manufacture

of finished product viz., textile machinery and auto

parts.

2. Facts leading to filing of this appeal briefly

stated are that the appellant was engaged in the

business of manufacture and supply of textile machinery

and auto parts. The appellant purchases and causes

entry of tools viz., twist drills, reamers, cutters and

tapes for manufacture of finished products such as

textile machinery and auto parts. The appellant by

placing reliance on Explanation I to Notification dated

30.03.2002, claimed exemption from levy of entry tax

on cutting tools. The Assessing Authority by an order

dated 17.02.2010 passed for Assessment Years 2005-

06, 2006-07 and 2007-08 levied entry tax on cutting

tools at the rate of 2%.

3. The appellant thereupon filed an appeal

before the first Appellate Authority. The first Appellate

Authority by an order dated 17.12.2012 inter alia held

that three type of goods viz., drill bits, millers and

inserts are inputs, which have gone into manufacturing

activity and have been consumed in the process.

Therefore, the appellant is entitled to benefit of

Explanation-I to the Notification dated 30.03.2002.

Accordingly, the appeal preferred by the appellant was

allowed. The matter was taken up suo motu revision

under Section 15(2) of the Act by the revisional

authority and by an order dated 28.04.2017 set aside

the order passed by the first Appellate Authority on the

ground that cutting tools used by the appellant are not

used as raw materials, component parts or inputs in the

manufacture of textile machinery / auto parts

manufactured by the assessee. Therefore, the

Explanation-I in the Notification dated 30.03.2002 does

not apply to the case of the assessee. It was further

held that the order dated 27.11.2012 passed by the first

Appellate Authority is erroneous and is prejudicial to the

interest of the revenue. Accordingly, the order passed

by the Appellate Authority dated 17.02.2010 was

maintained. In the aforesaid factual backdrop, this

appeal has been filed.

4. Learned counsel for the appellant while

inviting the attention of this court to the words

'Consumption' or 'Use' in Explanation submitted that

specified goods need not necessarily be part of

intermediate or finished product and since, the specified

goods there consumed / used in the manufacturing

activity, as component parts / inputs, the appellant is

entitled to benefit of exemption contained in

Explanation-I to the Notification dated 30.03.2002. It is

further submitted that first Appellate Authority after

examining the sample of cutting tools of each category

produced before it held that cutting tools are used and

consumed and inputs in manufacturing activity. It is also

urged that decision of this court in 'ADDISON AND CO.

LTD. VS. State of Karnataka', (2008) 64 KAR.L.J

211 (HC) (DB) does not apply to the facts of the case.

It is further submitted that without reversing the finding

recorded by the first Appellate Authority, a conclusion

has been recorded that cutting tools are not used as raw

materials, component parts or inputs but are used as

capital machinery. It is also submitted that an 'input'

need not necessarily go into the final product but it is

sufficient that if an input enters the system of

manufacturing process of the final product. It is further

submitted that the order of the first Appellate Authority

can neither be said to be erroneous nor prejudicial to

the interest of the revenue and therefore, the revisional

power could not have been invoked in the fact situation

of the case. In support of aforesaid submissions,

reliance has been placed on decision of Supreme Court

in 'STAR PAPER MILLS LTD. VS. COLLECTOR OF

CENTRAL EXCISE', (1989) 4 SCC 724, 'HINDUSTAN

SANITARYWARE & INDSUTRIES LTD., VS.

COLLECTOR OF CUSTOMS', (2000) 10 SCC 224,

'COLLECTOR OF CENTRAL EXCISE VS. BALLARPUR

INDUSTRIES LTD', (1989) 4 SCC 566 and 'TATA

ENGINEERING & LOCOMOTIVE COMPANY LIMITED

VS. STATE OF BIHAR', (1994) 6 SCC 479.

5. On the other hand, learned counsel for the

Additional Government Advocate has submitted that

cutting machines used by the appellant can neither be

treated as input nor component parts and cutting

machines are not used as raw materials for manufacture

of finished product. It is further submitted that the

revisional authority has therefore, rightly held that the

appellant is not entitled to benefit of exemption under

Explanation I to the Notification dated 30.03.2002. It is

also submitted that the order passed by the revisional

authority does not call for any interference in this

appeal.

6. We have considered the submissions made

by learned counsel for the parties and have perused the

record. The relevant extract of the Notification dated

30.03.2002 issued by the State Government in exercise

of powers under Section 3(1) of the Act, which reads as

under:

In exercise of powers conferred by sub- Section (1) of Section 3 of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka, hereby specify that with effect from the First day of April, 2002, tax shall be levied and collected under the said Act on the entry of goods specified in column (2) of the table below into a local area for consumption, use or sale therein at the rates specified in the corresponding entries in column (3), thereof.

      Sl.                   Commodity                       Rate
      No.                                                    of
                                                            Tax
     1      (i) Crude oil                                   2%
            (ii) Petrol                                     5%
            (iii) Diesel                                    5%
            (iv) Furnace oil                                5%
            (v) Naphtha other than for use in               5%
            manufacture of fertilizers
            (vi) Low Sulphur Heavy Stock                    5%

(vii) Rectified Spirit, Neutral Spirit, Ethyl 4% Alcohol

(viii) Petroleum products that is to say:

(a) Lubricating oil,

(b) Transformer oil,

(c) Brake fluid or Clutch fluid,

(d) Bitumen (asphalt),

(e) Tar and others

Excluding Liquefied Petroleum Gas (LPG), Aviation Fuel and kerosene XXXXXXX

7. Machinery (all kinds) and parts and 2% accessories thereof but excluding agricultural machinery

Explanation-I- No tax shall be payable by a dealer on the goods specified in Serial Number 2, 3, 4, 7, 8 and 9 in the table above when brought by him into a local area for consumption or Use as raw materials, component parts and inputs in the manufacture of an intermediate or finished product but excluding when brought for use in the manufacture of tobacco products and liquor.

7. Thus, from perusal of the relevant extract of

the aforesaid Notification, it is evident that if goods

specified in the table are bought by the dealer into the

local area for 'consumption' or 'use' as raw materials,

component parts and inputs in the manufacture of an

intermediate or finished product, such goods are

exempted from levy of tax.

8. A constitution bench of the Supreme Court

examined the correctness of the ratio laid down by three

judge bench in 'SUN EXPORT CORPN. VS.

COLLECTOR OF CUSTOMS', (1997) 6 SCC 564, in

which it was held that an ambiguity in a tax exemption

provision or Notification must be interpreted so as to

favour the assessee claiming the benefit of such

exemption and answered the reference in the following

terms:

66.1. Exemption Notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case come within the parameters of the exemption clause or exemption Notification.

66.2. When there is ambiguity in exemption Notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject / assessee and it must be interpreted in favour of the Revenue.

9. Thus, in view of aforesaid enunciation of law

of the constitution bench of the Supreme Court, it is

evident that an exemption Notification should be strictly

interpreted and the burden of proving its applicability is

on the assessee to show how his comes within purview

of exemption Notification. It is the case of the appellant,

which is evident from the reply dated 06.03.2017

submitted by it to the revisional authority that assessee

had purchased and caused entry of various cutting tools

for use and consumption of process of manufacture of

intermediate and finished goods. The appellant's stand is

that cutting tools were used by it for roughing, drilling

and boring of semi finished goods and for cutting and

shaping of metals and other materials during the

process of manufacture of textile machines. The

exemption was claimed on the ground that the cutting

tools were used in the process of manufacture of

intermediate or final products. The first Appellate

Authority after perusal of samples of drill bits, millers

and inserts accepted the explanation of the appellant

that they were consumed as inputs in the process of

manufacture. Accordingly, it was held that the appellant

is entitled to benefit of exemption under Explanation I to

the Notification dated 30.03.2002.

10. However, the revisional authority without

assigning any reasons has concluded that cutting tools

are not used as raw materials, component, parts and

inputs in the manufacture of intermediate of finished

product. The revisional authority is required to record

the findings on the factual aspect viz., whether goods

viz., drill bits, millers and inserts have been consumed

as inputs in the process of manufacture of finished

goods viz., textile machinery and auto parts. However,

no finding has been recorded by the revisional authority.

In the absence of the aforesaid finding on the factual

aspect of the matter, we are unable to adjudicate the

question of applicability of Notification in case of the

appellant. Therefore, it has become inevitable for us to

set aside the order passed by the revsiioanl authority

and to remit the matter for decision afresh in

accordance with law.

In the result, impugned order dated 28.04.2017

passed by the Additional Commissioner of Commercial

Taxes is set aside and the matter is remitted to the

aforesaid authority to decide the matter afresh after

affording an opportunity of hearing to the parties. It is

made clear that this court has not expressed any opinion

on the claim made by the appellants.

In the result, appeal is disposed of.

Sd/-

JUDGE

Sd/-

JUDGE ss