M/S B.G.
Shirke Construction Technologies (P) Limited Vs. The Addl. Commissioner of
Commercial Taxes [2007] Insc 90 (2 February 2007)
Dr. ARIJIT PASAYAT & S.H. KAPADIA
(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, 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 '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,
-
raw edible oil when sold to a
manufacturer in the State for processing of refined oil; and
-
Machinery covered under Sl. No.1
-
-
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.
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 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.
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