2012 (8) TMI 866 - HC - VAT and Sales Tax

High Court Invalidates Entry Tax Exemption Due to Non-Compliance

State of Karnataka Versus Toyata Kirloskar Auto Parts Pvt. Ltd.

The High Court held that the respondent failed to comply with the government notification conditions, leading to the invalidation of the exemption from ... Whether the Karnataka Appellate Tribunal is justified in setting aside the order passed by the assessing authority under section 6(1) of levying tax on the DG sets, parts and accessories along with interest and penalty? - Held that:- In the instant case, it is clear that the imported DG sets after getting exemption of entry tax, producing the certificate to the effect that the assessee is 100 per cent export oriented unit, has manufactured the goods for domestic sale. The turnover referred to above clearly disclose that the percentage of export is very negligible compared to the total turnover. Hence, the respondent is not entitled for the benefit of the Government Notification dated November 30, 2001. The reasoning of the Appellate Tribunal that the Government Notification does not prescribe any condition that the capital goods used in the manufacturing of goods for export or that the power generated from the DG sets should be exclusively and to the full extent used for the production of 100 per cent export oriented unit and there is no prohibition for use of the power generated from the DG set runs contrary to the Government Notification dated November 30, 2001 and it is erroneous in law. The assessing authority after considering the matter in detail reassessed the tax liability and the same was confirmed by the appellate authority. The finding recorded by the assessing authority as well as the appellate authority is purely a question of law. The Appellate Tribunal ought not to have interfered with the same. Hence, the order passed by the Appellate Tribunal cannot be sustained. The substantial question of law framed in this revision petition is held against the assessee and in favour of the revision petitioner. Appeal allowed. Issues Involved:1. Exemption from entry tax on imported DG sets.2. Compliance with government notification conditions.3. Use of DG sets for domestic production.4. Imposition of penalty and interest.Issue-wise Detailed Analysis:1. Exemption from Entry Tax on Imported DG Sets:The respondent, a private limited company, imported diesel generating sets (DG sets) along with parts and accessories valued at Rs. 16,06,31,106 to generate electricity for the production of automobile parts. For the assessment year 2002-03, the respondent filed annual returns and was initially granted an exemption from entry tax based on a government notification dated November 30, 2001, which provided a 100% exemption for export-oriented units on certain goods, including machinery and equipment.2. Compliance with Government Notification Conditions:The exemption was contingent upon the condition that the goods, including DG sets, be used in the manufacturing or processing of goods for export. The notification stipulated that the power generated from the DG sets should be used exclusively for the production of goods intended for export. However, the assessing authority found that the respondent did not export any goods during the assessment year 2002-03 and used the power generated from the DG sets for domestic production in the subsequent year. This non-compliance with the conditions of the notification led to the reassessment and imposition of entry tax, penalty, and interest.3. Use of DG Sets for Domestic Production:The respondent argued that the DG sets produced optimum electricity, and instead of wasting the excess power, it was used in the domestic tariff area unit for manufacturing auto parts for domestic sale. The Karnataka Appellate Tribunal supported this view, stating that the notification did not explicitly prohibit the use of excess power for domestic production. However, the High Court found this reasoning contrary to the notification's intent, which required the entire production of the export-oriented unit to be exported, with any deviation resulting in the loss of exemption benefits.4. Imposition of Penalty and Interest:The assessing authority imposed a penalty under section 11A(3) and interest under section 8(2)(ii) of the Karnataka Tax on Entry of Goods Act, 1979, due to the respondent's failure to comply with the conditions of the exemption notification. The appellate authority upheld this decision, but the Karnataka Appellate Tribunal set aside the penalties and interest. The High Court, however, reinstated the assessing authority's order, emphasizing that the respondent's minimal export activities compared to its total turnover disqualified it from the exemption benefits.Conclusion:The High Court concluded that the respondent failed to meet the conditions of the government notification, thereby invalidating the exemption from entry tax. The order of the Karnataka Appellate Tribunal was set aside, and the assessing authority's order was upheld, including the imposition of entry tax, penalty, and interest.Order:The revision petition is allowed. The order dated January 9, 2009, made in STA No. 662 of 2009 by the Karnataka Appellate Tribunal is set aside, and the order passed by the assessing authority is upheld.