2006 (4) TMI 466 - HC - VAT and Sales Tax

Assessment orders quashed due to goods not used locally under Entry Tax Act

Reliance Industries Ltd. Versus The Assessing Authority, Jagatsinghpur Circle and others

The court quashed the assessment orders and demand notices, ruling that the goods were not used, consumed, or sold within the local area as defined under ... - Issues Involved:1. Legality and validity of the assessment orders under the Orissa Entry Tax Act (OET Act) and Orissa Entry Tax Rules (OET Rules).2. Jurisdiction of the State of Orissa to levy entry tax on goods brought to the continental shelf.3. Application of the Maritime Zones Act to the continental shelf.4. Whether the goods were used, consumed, or sold within the local area as defined under the OET Act.Detailed Analysis:1. Legality and Validity of the Assessment Orders:The petitioner, a registered dealer under the Orissa Entry Tax Act, was assessed for entry tax for the years 2003-04 and 2004-05, with demands raised for Rs. 1,79,62,793 and Rs. 1,02,33,947 respectively. The petitioner challenged the assessment orders on the grounds that the assessing authority rejected their claim for deduction on the value of goods brought into the state for exploration work, arguing that the goods were not used, consumed, or sold within the local area as defined under the OET Act. The court found that the assessment orders were based on the incorrect assumption that the goods were used within the local area, despite evidence suggesting they were intended for use on an offshore rig.2. Jurisdiction of the State of Orissa:The assessing authority claimed that the territorial jurisdiction of the State of Orissa extends up to 200 nautical miles, including the continental shelf, based on an analysis of Article 1 of the Constitution of India. This was used to justify the imposition of entry tax on goods brought into the state for offshore exploration. However, the court noted that the continental shelf is not automatically included in the local area without a specific notification extending the application of the OET Act to that region.3. Application of the Maritime Zones Act:The petitioner argued that under section 6(6) of the Maritime Zones Act, the Union of India has the exclusive authority to extend the application of Indian laws to the continental shelf through a notification. Since no such notification had been issued for the OET Act, the assessment orders were deemed invalid. The court agreed, stating that in the absence of a notification, the state could not impose entry tax on goods used in the continental shelf.4. Use, Consumption, or Sale within the Local Area:The court examined whether the goods were used, consumed, or sold within the local area as defined under the OET Act. The assessing authority had concluded that the goods were used within the local area based on the location of the petitioner's business and the delivery of goods at Paradeep. However, the court found that the goods were intended for use on an offshore rig, located 40 nautical miles from the coast, and not within the defined local area. The court also noted that the assessing authority's reliance on a new argument presented in the counter-affidavit-regarding a contract with M/s. Baker Hughes Singapore Pvt. Ltd.-was not substantiated in the original assessment orders.Conclusion:The court quashed the assessment orders and demand notices, ruling that the goods were not used, consumed, or sold within the local area as defined under the OET Act. The court emphasized the need for a notification under the Maritime Zones Act to extend the application of the OET Act to the continental shelf. The writ petitions were allowed, and the assessments were declared invalid.