TaxTMI 
TaxTMI 
2010 (2) TMI 1073
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....nsumed in the manufacture of agarbathi in the State for sale. The said notification reads as follows: "In exercise of the powers conferred by section 8A of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the Government of Karnataka hereby exempt with effect from the first day of April, 1993,- (i) the tax payable by a manufacturer of agarbathi under section 6 of the said Act on the purchase of 'raw bathi' consumed in the manufacture of agarbathi in the State for sale; (ii) the tax payable by a dealer under section 5 of the said Act on the sale of 'raw bathi' to a manufacturer of agarbathi in the State subject to production of declaration in form 37 duly filled and signed by the manufacturer to whom the said goods are sold." (II) The assessee is engaged in manufacture and sales of agarbathis under the brand name "Nandi" and is registered both under the KST and CST Act. The assessee is also an exporter of agarbathi. (IIA) The facts in respect of these two revision petitions are independently enumerated as follows. (III) Re. 56/2007: For the period of assessment from April 1, 1995 to March 31, 1996 the assessee declared a total turnover o....
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....hould not be demanded, on the ground a purchase turnover of raw bathis used in the manufacture of agarbathis which are consigned to place outside the State of Karnataka and sold, had escaped assessment under section 6 of the Act and accordingly the assessing authority proposed to levy turnover tax under section 6B of the Act, surcharge under section 6C, cess under section 6D of the Act. On considering the reply filed by the assessee an order came to be passed under section 25A of the Act by order dated September 29, 1999 (annexure G). (IX) The assessee filed an appeal before the Joint Commissioner of Commercial Taxes (Assessment) II, Bangalore 3 which came to be dismissed by order dated April 23, 2001 (annexure J). (X) The assessee being aggrieved by the said order of the first appellate authority filed further appeal before the Karnataka Appellate Tribunal in S.T.A. No. 548/2001. The Tribunal on considering the grounds urged in the appeal memorandum, by its order dated October 17, 2006 dismissed the appeal and confirmed the orders passed by the assessing officer as upheld by the first appellate authority as per annexure A. (XI) A common order dated October 17, 2006 passed....
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.... consignment sale is immaterial for the purpose of availing of exemption. He would further contend that by another notification dated March 31, 1995 issued with effect from April 1, 1995 in exercise of power conferred under section 8A of the Act exempting the turnover tax under section 6B of the Act with effect from April 1, 1995 by a manufacturer of agarbathis in respect of turnovers relating to purchase of raw bathis consumed in the manufacture of agarbathis in the State for sale also and hence contends that by combined reading of these two notifications the only conclusion required to be arrived at is that the charging section would come into play only in the event of the raw bathis is not consumed in the manufacture of agarbathis in the State and not otherwise. It is further contended that, the word "sale" used in the notifications referred to above is not qualified with the words "for being sold in the State of Karnataka" and what is qualified is the manufacturing activity and it is the "manufacturing activity" alone which is required to be construed for extending the benefit arising under the notifications and thus harps upon the act of manufacture. He would also contend t....
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....ing her submissions she would also rely upon the judgment of the honourable Supreme Court in the case of Hotel Balaji [1993] 88 STC 98 wherein, the enactments of various States challenging the levy of purchase tax and its interpretation regarding exemption in cases of sales have been extended to contend that the Act of State Legislature excluding the consignment sales has been approved and as such submits that the questions of law framed hereinabove are required to be answered in favour of the Revenue and against the assessee. Having heard the learned counsel appearing for the parties, perusing the records as also the judgment cited at the Bar, it would be necessary to extract the relevant provisions of the Act as also the exemption notifications for considering the said contention. Relevant provisions of the Act are as follows: "2. Definitions.-(1) In this Act, unless the context otherwise requires,- (a) to (s) . . . (t) 'Sale' with all its grammatical variation and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of trade or business for c....
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..... (d) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purposes of this Act, the transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be deemed to have taken place in the State, if such goods are for use within the State, irrespective of the place where the contract of transfer of the right to use the goods is made. Explanation 3A.-Every transaction of supply by way of or as a part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration, shall be deemed to be a sale of those goods by the person making the supply and purchase of those goods by the person to whom such supply is made. Explanation 4.-Notwithstanding anything to the contrary contained in this Act or any other law for the time being in force, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place,- (a) when the goods are transferred from a principal to his selling agent and from....
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....t, 1956 (Central Act 74 of 1956); (v) all amounts falling under the head 'freight', when specified and charged for by the dealer separately without including such amounts in the price of the goods sold; (vi) all amounts allowed as discount, provided that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of a contract or agreement entered into a particular case and provided also that the accounts show that the purchaser has paid only the sum originally charged less discount; (vii)(a) all amounts allowed to purchasers in respect of goods returned by them to the dealer when the goods are taxable on sales provided that the goods were returned within a period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made; (b) all amounts received from the seller in respect of goods returned to them by the dealer, when the goods are taxable on the purchase value provided that the goods were returned within a period of six months from the date of delivery of the goods and the account shows t....
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....as discount, provided that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of a contract or agreement entered into a particular case and provided also that the accounts show that the purchaser has paid only the sum originally charged less discount; (vii)(a) all amounts allowed to purchaser in respect of goods returned by them to the dealer when the goods are taxable on sales provided that the goods were returned within a period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made; (b) all amounts received from the sellers in respect of goods returned to them by the dealer, when the goods are taxable on the purchase value provided that the goods were returned within a period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was received; (viii) such amounts towards labour charges and other like charges not involving any transfer of property in goods, actually....
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....triction or condition specified under sub-section (2) is contravened or is not observed by a dealer, the sales or purchases of such dealer may, with effect from the commencement of the year in which such contravention or non-observance took place, be assessed to tax or taxes under the appropriate provisions of this Act as if the provisions of the notification under sub-section (1) did not apply to such sales or purchases. (5)(a) 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 provisions of the notification under subsection (1) did not apply to such purchase and in addition, such purchaser shal....
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....ating to purchase of raw bathis, consumed in the manufacture of agarbathi in the State for sale. " It is not in dispute that for both the years, the revision petitioner has sent goods for consignment sale outside the State of Karnataka. For the said purpose raw bathis were purchased from unregistered dealers by the revision petitioners. The exemption notification is meant to encourage the manufacture in the State and for increasing the said industry in the State of Karnataka. The consignment sent outside the State is not a sale effected in the State of Karnataka. In so far as understanding and interpreting an exemption notification guiding principle would be to read the notification as a whole and in this context contends the decision in Innamuri Gopalam and Maddala Nagendrudu v. State of Andhra Pradesh reported in [1963] 14 STC 742 (SC) would be beneficial and relevant paragraphs reads as follows (at page 743): "(1) That the operative words of the notification were to be found in the first paragraph granting the exemption and the appellants were within that provision. As the proviso could not apply to cases where an additional duty of excise was not leviable under clause (3)....
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.... by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different but that is not the case here. . ." Another factor which requires to be noticed by us is that when an exemption clause has been pressed into service to get the benefit of exemption, the claimant must prove that he is covered by the provision. Keeping the above principles enunciated by their Lordships of the honourable Supreme Court, the words used in the notifications in question are required to be examined. The words used in the notification in question are as follows: "Consumed in the manufacture of agarbathi in the State for sale." The exemption to an assessee is available under sections 6 and 6B, respectively, in the event raw bathis purchased by the assessee is consumed in the manufacture of agarbathis within the State and for sale in the State. A combined reading of these words as used in the notification would without any doubt throw light that all the three ingredients are to be satisfied, namely: (i) The raw bathis should be consumed in the ma....
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....unto himself inasmuch as if the consignment sales were to be 'sale' within the definition of section 2(1)(t) of the Act the same would have constituted part of the total turnover" as defined under section 2(1)(u2) of the Act. By reading of definition of "sale" as per section 2(1)(t) it cannot be held to include consignment sales. The sale as mentioned in the exemption notifications should take place within the State. In this regard it would be of benefit to extract the relevant portion of the judgment in Hotel Balaji's case [1993] 88 STC 98 (SC) as found at pages 142-143 which reads as follows: ". . . The levy created by the said provision is a levy on the purchase of raw material purchased within the State which is consumed in the manufacture of other goods within the State. If, however, the manufactured goods are sold within the State, no purchase tax is collected on the raw material, evidently because the State gets larger revenue by taxing the sale of such goods (The value of manufactured goods is bound to be higher than the value of the raw material). The State Legislature does not wish to-in the interest of trade and general public-tax both the raw material and....
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....erial within the State because I derive larger revenue there; I do not want to tax both the raw material and the manufactured goods, in the interest of trade and public. But if you dispose of the manufactured goods in some other manner, I will tax the purchase of raw material because there is no reason why I should forego the purchase tax due to raw material, when I am not getting any revenue from your method of disposal or dispatch of manufactured products.' There is nothing objectionable in the State saying so. It can indeed rely on the principle of the decision of this court in Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax reported in [1992] 87 STC 186 (SC). . ." The raw materials purchased by the assessee in the instant case are taxable. However exemption is provided for by virtue of notification since taxable goods are used in the manufacture by an assessee in the State and such manufacture also results in sale within the State which would yield higher revenue to the State. It is in this context the notifications are required to be examined and interpreted. However, the proposition sought to be put forward by the learned counsel for the petitioner, if i....