Full Judgment Text
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CASE NO.:
Appeal (civil) 439 of 2007
PETITIONER:
M/s B.G. Shirke Construction Technologies (P) Limited
RESPONDENT:
The Addl. Commissioner of Commercial Taxes
DATE OF JUDGMENT: 02/02/2007
BENCH:
Dr. ARIJIT PASAYAT & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
(Arising out of S.L.P. (C) No. 21522 of 2005)
Dr. ARIJIT PASAYAT, J.
Leave granted.
Challenge in this appeal is to the judgment rendered by a
Division Bench of the Karnataka High Court dismissing the
appeal filed by the appellant under Section 24(1) of the
Karnataka Sales Tax Act, 1957 (in short the ’Act’). Appellant
called in question legality or otherwise of the orders passed by
the Additional Commissioner of Commercial Taxes, Zone-II,
Gandhinagar, Bangalore, dated 12.6.2002.
Background facts in a nutshell are as follows:
The appellant is a dealer registered under the provisions
of the Act. It is borne on the files of the Deputy Commissioner
of Commercial Taxes (Assessment), 46th Circle, Bangalore. The
main activity of the appellant is construction of mass houses
for Karnataka Housing Board. For its business activity, the
appellant manufactures pre-fabricated pillars, columns,
beams etc., and then those items are used for the execution of
the civil works contract.
During the financial year ending on 31.3.1996, i.e.
assessment year 1995-96 the assessee had purchased Tower
Cranes from another registered dealer and had availed
concessional rate of tax at 4% on the said purchases by
producing declaration Form No.37. While computing the tax
liability of the assessee for the assessment year 1995-96, the
assessing authority had noticed that the Tower Cranes so
purchased by the assessee are nothing but machinery covered
under Sl. No.1(iii) of Part ’M’ of the Second Schedule to the Act
and since the company had not fulfilled all the conditions
prescribed under the notification No.FD.43.CSL 94(iv) dated
31.3.1994, it was not eligible to claim any benefit under the
notification and, therefore, had initiated proceedings under
Section 8-A (5)(a) of the Act. In the said proceeding, it was the
stand of the assessee-appellant that it is an industrial unit
located in the State and the purchase of the machinery made
by it is used in the manufacturing of goods for sale and,
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therefore, eligible and also entitled to take the benefit of the
notification issued by the State Government dated 31.3.1994.
The assessing authority, after considering the objection of the
assessee, came to the conclusion that the nature of the
business activity carried on by the assessee is not one of
manufacturing or processing of goods for sale and, therefore, it
has contravened the specified conditions under the
notification. Accordingly, he raised a demand of an amount
equal to the difference between the tax payable and tax paid
amounting to Rs.10,71,745/- and also penalty amounting to
Rs.18,00,531/- as envisaged under Section 8A(5)(a) of the Act.
Aggrieved by the aforesaid order, the assessee carried the
matter in an appeal before the first appellate authority. The
said authority allowed the appeal and set aside the orders
passed by the assessing authority, on the ground that the
assessee satisfied all the conditions prescribed in the
notification and, therefore, was entitled to take the benefit of
the notification issued by the State Government dated
31.3.1994.
The Additional Commissioner of Commercial Taxes, being
of the view that the order passed by the first appellate
authority is erroneous and also prejudicial to the interest of
the revenue, initiated proceedings under Section 22-A (1) of
the Act, and came to the conclusion that the first appellate
authority was not justified in allowing the appeal and in
setting aside the order passed by the assessing authority
dated 3.3.2001. The revisional authority, who revised the
orders passed by the first appellate authority assigned several
reasons. However, the amount of penalty was reduced by 50%.
Appellant filed an appeal under Section 24(1) of the Act.
Stand of the appellant before the High Court was that the
Assessing Authority was not justified in holding that the
assessee had contravened the conditions specified in the
notification issued by the State Government dated 31.3.1994
and, therefore, levy of penalty under Section 8A(5)(a) of the Act
was not justified. On the contrary, stand of the respondent-
State was that since the assessee did not satisfy all the
conditions specified in the notification, the Assessing
Authority as well as the Revisional Authority were justified in
directing the assessee to pay the amount equal to the
difference between tax payable and the tax paid under the Act
and also in levying the penalty for contravention of the
conditions specified in the notification dated 31.3.1994. The
High Court after analyzing the notification came to hold that
the order passed by the authorities did not warrant any
interference.
Learned counsel for the appellant submitted that the
authority empowered to issue the notification had made it
abundantly clear that the dealer who effects the sale of
machinery can take the benefit of the notification only after
fulfilling the other two conditions mentioned in the notification
i.e. (1) that the dealer should produce a declaration in Form
37 duly filled and signed by the manufacturing industrial unit
i.e. the purchasing dealer and (2) satisfactorily prove that what
has been sold to a registered dealer is an industrial input for
use by him/it as a component part of raw material or packing
material for manufacture and sale inside the State.
The High Court observed that what was purchased by the
appellant by the appellant is a "Tower Crane". By no stretch
of imagination the High Court observed that "Tower Crane"
would be considered as an industrial input for use either as a
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’component part’ or as a ’raw material’ of any other goods.
Accordingly, the appeal was dismissed as noted above.
In support of the appeal, learned counsel for the
appellant submitted that a narrow construction has been put
on the expression "industrial input". By giving a broader
interpretation, it should have been held that the appellant was
entitled to get the benefit of the notification.
Per contra, learned counsel for the respondent supported
the judgment and orders of the authorities below and the
impugned judgment of the High Court.
In order to appreciate the rival submissions the
notification which forms focal point of controversy is to be
quoted. The same reads as follows:
"In exercise of the powers conferred by Section
8-A of the KST Act, 1957 (Karnataka Act 25 of
1957, the Government of Karnataka hereby
reduces with effect from the first day of April,
1994, the rate of tax payable by a dealer under
Section 5 of the said Act to four per cent on,
(i) raw edible oil when sold to a
manufacturer in the State for
processing of refined oil; and
(ii) Machinery covered under Sl.
No.1(iii)(a) of part M of II Schedule
when sold to an Industrial Unit
located in the State for use by such
unit in the manufacturer or
processing of goods for sale.
Subject to the condition that the dealer
produces before the assessing authority a
declaration in Form 37 duly filled in and
signed by the said manufacturer or industrial
unit, as the case may be and subject to further
condition that all the provisions relating to
taxation of industrial inputs under Section 5-A
of the said Act shall apply mutatis mutandis to
the notification."
Stand of the appellant before the High Court and in this
appeal is that the appellant is a civil contractor and it
manufactures pre-fabric beams and column for sale and,
therefore, is an industrial unit. Though the High Court had
reservation about accepting this stand, it held that it did not
intend examination of that issue. The expressions "industrial
inputs" ’"component parts" and "raw material" have been
explained in the explanation appended to this provision itself.
The expression "industrial inputs" means either component
part or raw material or packing material. The expression "raw
material" means any material from which another product can
be made through the process of manufacture, either by itself
or in combination with another material; or a processing of
any other solvent (including chemicals) used for testing
analysis or research used in the solvent extraction process or
a catalyst required in the manufacturing process, but it does
not include fuels and consumable stores of similar types. All
these conditions require to be satisfied by the dealer effecting
the sale of machinery of all kinds to an industrial unit to claim
reduced rate of tax under the notification.
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There is no dispute that a crane is a hoisting machine
used to lift and move heavy loads. There are different types of
cranes and Tower Crane is one such crane which is mostly
used to construct high rise buildings. It has been noted by the
High Court that most Tower Cranes also called "Climbing
Cranes", have built in jacks that raise the cranes through
openings in the floor as the building goes up. The cranes are
taken apart and lowered after completion of the buildings. As
rightly observed by the High Court the Tower Cranes cannot
be considered as industrial inputs for use either as a
component part or as a raw material of any other goods.
The residual question is the quantum of penalty. The
Assessing Authority had imposed penalty of Rs.18,00,531/-
The sum was reduced to 50% of the amount by the revisional
authority. Section 8A(5)(a) which is relevant provision relating
to imposition of penalty reads as follows:-
"Where any restriction or condition specified
under sub Section (2) in respect of goods
taxable at the point of sale is contravened or is
not observed by the purchaser of such goods,
notwithstanding that such a purchaser is not
a dealer or that the sale value of such goods is
less than the turnover specified in sub Section
(5) of Section 5, such purchaser shall be liable
to pay an amount equal to the difference
between the tax payable at the rates specified
under the Act and the tax paid at the rates
specified under the notification on the goods
purchased in respect of which such
contravention or non-observance has taken
place, as if the provision of the notification
under sub-Section (1) did not apply to such
purchases and in addition, such purchaser
shall also be liable to pay by way of penalty a
sum not exceeding the amount equivalent to
the amount of tax leviable on the sale price of
such goods."
The outer limit of the amount of penalty is a sum not
exceeding the amount equivalent to the amount of tax leviable
on the sale price of the goods. It has been accepted by the
respondent that the amount of tax payable is Rs.10,28,875/-
though originally it was calculated at Rs.10,71,745/-. The
appellant had purchased the Tower Cranes to the extent of
Rs.1,71,47,917.80 in the year 1995 and had availed
concessional rate of tax of 4% on the said purchase by
producing declaration in Form-37 i.e. declaration prescribed
under Section 5A of the Act.
Learned counsel for the appellant has submitted that
there was a finding recorded by the Joint Commissioner of
Commercial Taxes (Appeals) under Section 20(5) of the Act
that the order of the Assessing Authority imposing tax and
penalty was not maintainable. The revisional order passed by
the Additional Commissioner, Commercial Tax under Section
22(A)(1) of the Act set aside such order. Since there was a
finding in favour of the assessee-appellant, the inevitable
conclusion is that the claim of the assessee to avail
concessional rate of tax was based on a possible view. We find
no substance in that plea. Revisional authority has
elaborately discussed the legal and factual position to
conclude that the claim made by the assessee-appellant was
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untenable and not sustainable. In fact, the High Court has
also analysed the position in great detail as noted above. We
concur with the view expressed by the High Court about the
non-acceptability of the claim and levy of tax and penalty.
However, so far as the question of quantum of penalty is
concerned, it is to be noted that the legitimate amount which
was to be collected by the Revenue was not deposited by the
assessee-appellant because of the claim at concessional rate of
tax. Considering the quantum of tax involved and the period
for which the amount was withheld, we are of the view that
levy of penalty of rupees five lakhs would suffice. The amount
shall be deposited within a period of one month from today if
not already done. The appeal is allowed, so far as the quantum
of penalty is concerned only and dismissed so far as other
aspects are concerned. There shall be no order as to costs.