Case Law Details
Mangalore Chemical And Fertilizers Limited Vs State of Karnataka (Karnataka High Court)
In the case of Mangalore Chemical and Fertilizers Ltd. vs. State of Karnataka, the Karnataka High Court ruled that diesel captive generating sets are exempt from entry tax under Section 11-A of the Karnataka Tax on Entry of Goods (KTEG) Act, 1979. The appeal challenged an advance ruling order that classified Waste Heat Recovery Boilers (WHRB) and Diesel Generating (DG) Sets under Entry 52 of KTEG Act, subjecting them to a 2% entry tax. The appellant argued that a 2004 government notification expressly exempted diesel captive generating sets from such taxation. The Revenue department defended the advance ruling, maintaining that the classification was justified.
Upon review, the High Court found that the advance ruling misinterpreted the law by imposing tax on goods that were clearly exempt. The court observed that the 2004 notification, published in the Karnataka Gazette, categorically exempted diesel captive generating sets from entry tax from October 1, 2004. The court ruled in favor of the appellant, concluding that the advance ruling contradicted the legislative intent. Consequently, questions of law (b) and (c) were answered in favor of the assessee, and the impugned order was set aside. This decision clarifies that diesel captive generators are tax-exempt, reinforcing the need for tax authorities to align decisions with statutory provisions.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This Appeal by the Assessee seeks to call in question the order dated 27.03.2017 made by the second Respondent who happens to be the Authority for Clarification and Advance Ruling clarifying that the Waste Heat Recovery Boilers purchased by the Appellant who caused their entry in the local area falls under Sl.No.7 of the table printed in the Notification No. FD 11 CET 2002 dated 30.03.2002 attracting entry tax at the rate of 2%.
2. A Coordinate Bench of this Court vide order dated 10.06.2024 has admitted the Appeal for consideration on the following questions of law:
“a) Whether i8n the facts and circumstances of the case, Respondent Authority has acted within the four corners of the KTEG Act read with KVAT Act by passing the impugned order much beyond the time limit prescribed therein;
b) Whether in the facts and circumstances of the case, Respondent Authority was right in ignoring S.No.6 of the Schedule Notification while framing the issue to be determined in the advance ruling application, when the said entry reads ‘Diesel Captive Generating Sets’ and the goods which are to be classified are DG Sets;
c)Whether in the facts and circumstances of the case, Respondent Authority was right in holding that the DG Sets imported by the Appellant and its auxiliaries procured indigenously are classifiable as ‘machinery of all kinds and parts and accessories thereof but excluding agricultural machinery’ under Entry 52 of the KTEG Act read with S.no.7 of the Schedule Notification;
d) Whether on the facts and circumstances of the case, the Respondent Authority was right in holding that WHRB procured by the Appellant is classifiable ‘machinery of all kinds and parts and accessories thereof but excluding agricultural machinery’ under Entry 52 of the KTEG Act with S.no.7 of the Schedule Notification.”
3. Learned counsel for the Assessee drawing attention of the Court to the Notification No. FD 147 CET 2004, Bangalore, dated 29.12.2004 seeks to falter the impugned advance ruling contending that this Notification being a piece of delegated legislation, absolutely exempts commodities of the kind namely, diesel captive generation sets from entry tax. Learned AGA appearing for the Revenue resists the Appeal making submission in justification of the impugned advanced ruling and the reasons on which it is apparently constructed.
4. Having heard the learned counsel for the parties and having perused the Appeal papers, we are inclined to grant indulgence in the matter broadly agreeing with the submission made by the learned counsel appearing for the Assessee. He is right in telling that the impugned advance ruling is absolutely sustainable apart from being contrary to law inasmuch as, it seeks to levy tax when exemption avails.
5. The subject Notification dated 29.12.2004 that has been published in the Karnataka Gazette, extraordinary No.148 dated 29.12.2004 reads as under:
“In exercise of the powers conferred by sub-section (1) of Section 11-A of the Karnataka Tax on Entry of Goods Act, 1979 (Karnataka Act 27 of 1979), the Government of Karnataka being of the opinion that it is necessary in Public interest so to do, hereby exempts, with effect from the First day of October, 2004, the tax payable by a dealer under the said Act, on the entry of diesel captive generation sets.”
The reasoning of the Advance Ruling Authority runs counter to the intent & policy content of the Rule Maker as has been expressed in the above Notification. This is a case of misdirection in law attributable to the second Respondent. Therefore, the question of law (b) & (c) are answered in favour of the Assessee and against the Revenue to the net effect that Diesel Captive Generating Sets are exempt from tax under Section 11-A of the Karnataka Tax on Entry of Goods Act, 1979 r/w the provisions of Karnataka Value Added Tax, 2003. The other questions of law pale into insignificance.
In the above circumstances and with the above observations, this Appeal is disposed off setting aside the impugned order of the second Respondent. All logical consequences would follow.
Costs made easy.
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