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of <h1>Tea packing materials not considered inputs under Entry Tax Act. Court affirms distinction.</h1> The Supreme Court dismissed the appeal, affirming that packing materials used for packing tea cannot be considered as raw materials, components, or inputs ... Exemption from payment of entry tax - packing material of tea - packet tea - tea in tea bags - quick brewing black tea - notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979 - Explanation II to a Notification dated 23.9.1998 issued under Section 3 of the said Act - goods - section 2 (4A) - schedule - section 2(7) - tax - section 2(8) - value of the goods - section 8a - goods - Section 2(A)(4a) of the Entry Tax Act - manufacture - levy of tax - whether “packing materials” which enter the local area for consumption therein, that is for packing tea that is manufactured by the appellant, can be said to be raw material, components, or inputs used in the manufacture of tea? - Held that: - the judgement of the case Nestle India Ltd. v. State of Karnataka [2006 (3) TMI 742 - KARNATAKA HIGH COURT], is followed where it was held that when raw materials, component parts and inputs are spoken of, obviously they refer to materials, components and things which go into the finished product, namely, tea in the present case, and cannot be extended to cover packing materials of the said tea which is separately provided for by the aforesaid Entry 66 - appeal dimsissed - decided against appellant. Issues Involved:1. Whether packing materials used for packing tea can be considered as raw materials, components, or inputs under the Karnataka Entry Tax Act.2. Applicability of the exemption notification dated 31.3.1993 and the notification dated 23.9.1998 to packing materials.3. Interpretation of Explanation II to the notification dated 23.9.1998.4. Relevance of definitions and provisions from the Karnataka Sales Tax Act to the Entry Tax Act.5. Whether the High Court's reliance on the judgment in Nestle India Ltd. v. State of Karnataka was correct.Detailed Analysis:1. Whether packing materials used for packing tea can be considered as raw materials, components, or inputs under the Karnataka Entry Tax Act:The court examined whether 'packing materials' entering the local area for consumption, specifically for packing tea, could be classified as raw materials, components, or inputs used in the manufacture of tea. The relevant provisions of the Karnataka Entry Tax Act were scrutinized, including definitions and the schedule of goods subject to entry tax. The court concluded that packing materials are distinct from raw materials, components, and inputs used in manufacturing tea. The distinction in the schedule of the Act, where packing materials and raw materials/components/inputs are separately listed, supports this view.2. Applicability of the exemption notification dated 31.3.1993 and the notification dated 23.9.1998 to packing materials:The court analyzed the exemption notification dated 31.3.1993, which exempts raw materials, component parts, and inputs used in manufacturing from entry tax, and the notification dated 23.9.1998, which specifies tax rates for various goods including packing materials. The court held that neither notification could be interpreted to include packing materials as raw materials, components, or inputs used in the manufacture of tea. The language of the notifications and their alignment with the schedule of the Entry Tax Act were pivotal in this determination.3. Interpretation of Explanation II to the notification dated 23.9.1998:The court interpreted Explanation II to the notification dated 23.9.1998, which states that goods liable to tax, if used as raw materials, components, or inputs in manufacturing, should be taxed at 1%. The court clarified that this explanation does not apply to packing materials, which are separately listed and taxed at 2%. The scheme of the Entry Tax Act and the notifications clearly distinguish between packing materials and raw materials/components/inputs, preventing the inclusion of packing materials under Explanation II.4. Relevance of definitions and provisions from the Karnataka Sales Tax Act to the Entry Tax Act:The appellants argued that definitions from the Karnataka Sales Tax Act, particularly Section 5A, should be applied to the Entry Tax Act, suggesting that packing materials should be considered as industrial inputs. The court rejected this argument, noting that the context and scheme of the Entry Tax Act are different from those of the Sales Tax Act. The court emphasized that the Entry Tax Act's specific provisions and definitions should govern the interpretation of terms within it.5. Whether the High Court's reliance on the judgment in Nestle India Ltd. v. State of Karnataka was correct:The court upheld the High Court's reliance on the judgment in Nestle India Ltd. v. State of Karnataka, which held that packing materials are not raw materials, components, or inputs under the Entry Tax Act. The court found the reasoning in the Nestle case to be sound and applicable to the present case, affirming the High Court's decision.Conclusion:The Supreme Court dismissed the appeal, affirming that packing materials used for packing tea cannot be considered as raw materials, components, or inputs under the Karnataka Entry Tax Act. The court upheld the High Court's interpretation and application of the relevant notifications and provisions, confirming the distinction between packing materials and manufacturing inputs in the context of entry tax.
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