Composition levy under entry tax law excludes machinery for manufacture, while exempt input deductions must be allowed in computation.

Plant and machinery brought into a local area for use in manufacturing does not fall within the composition levy under section 5C of the Karnataka Tax on Entry of Goods Act, because that scheme applies to goods brought in for sale; such goods remain subject to the regular entry tax provisions. However, Explanation II to section 5C requires deduction of the value of raw materials, component parts and inputs used in manufacture where entry tax on those inputs is paid or exempt. The decision therefore supports deduction of exempt inputs in computing composition tax on manufactured goods.

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Issues: (i) Whether plant and machinery brought into the local area for use in manufacturing was outside the composition levy under section 5C of the Karnataka Tax on Entry of Goods Act, 1979. (ii) Whether the value of raw materials, component parts and inputs used in manufacture and exempt from entry tax had to be deducted while computing composition tax on manufactured goods.

Issue (i): Plant and machinery brought into the local area for use in manufacture does not fall within the composition scheme under section 5C, which applies to goods brought into a local area for sale therein. Goods not covered by section 5C remain governed by the regular entry tax provisions, and the composition option cannot be extended to exclude liability merely because the dealer has opted for composition.

Conclusion: The assessee was not entitled to claim that plant and machinery was wholly of entry tax liability under section 5C on the ground urged.

Issue (ii): Explanation II to section 5C specifically requires deduction, for purposes of levy under the composition scheme, of amounts paid towards raw materials, component parts and inputs used in manufacture where entry tax on such goods is paid or exempt. Since the manufactured goods were exempt, the corresponding value of such inputs had to be deducted from the value of manufactured goods. The contrary view of the Tribunal was erroneous.

Conclusion: The assessee was entitled to deduction of the value of raw materials, component parts and inputs used in manufacture for computing composition tax.

Final Conclusion: The revision petition succeeded only to the extent of the deduction claim, and the matter was sent back for fresh computation of tax liability and consequential refund, if any, in accordance with law.

Ratio Decidendi: Under the composition scheme for entry tax, only goods falling within the statutory composition provision are covered, and where the statute expressly provides a deduction for exempt inputs used in manufacture, that deduction must be given while computing the tax.

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