1990 (10) TMI 356 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the levy of entry tax on goods brought into a local area and re-exported after sale to places outside the local area under section 3 of the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1979.

Detailed Analysis:

1. Legality of Levy of Entry Tax on Re-exported Goods:
The petitioners challenged the legality of the levy of entry tax under section 3 of the Act on goods brought into a local area and re-exported after sale to places outside the local area. Section 3 of the Act states: "There shall be levied and collected a tax on entry of the scheduled goods into a local area for consumption, use or sale therein at such rate not exceeding two per cent ad valorem." The petitioners, wholesale dealers in textile goods, argued that they are liable to pay tax only on goods sold within the local area for consumption or use within that area, not on goods sold to dealers outside the local area and transported there.

2. Petitioners' Argument and Case Law:
The petitioners did not dispute the factual position that the goods were brought into the local area and sold there. However, they contended that section 3 should be interpreted to mean that the tax is applicable only if the sale is intended for consumption or use within the local area. They relied on the Supreme Court's judgment in Burmah-Shell Oil Storage and Distributing Co. of India Ltd. v. Belgaum Borough Municipality AIR 1963 SC 906. The Supreme Court had analyzed four types of cases and held that octroi was leviable within the municipal area for goods brought and sold within the local area for consumption or use, even if the actual consumption or use occurred outside the local area.

3. State's Argument:
The State argued that the exact question in this case did not arise in the Supreme Court cases cited by the petitioners. The State contended that the Supreme Court had held that as long as the sale took place within the local area and was intended for consumption or use within the local area, it attracted the levy, even if the goods were taken outside the local area. The State maintained that there was no clear principle in those decisions stating that goods sold for transport outside the local area for resale would not attract the levy.

4. Supreme Court Judgment in Municipal Council v. Parekh Automobiles Ltd.:
The petitioners also relied on the Supreme Court's judgment in Municipal Council v. Parekh Automobiles Ltd. [1990] 32 STL 26, where the Court held that no octroi was leviable on goods sold within the municipal limits for use or consumption outside the limits. The Supreme Court affirmed that the sine qua non for the levy of octroi is consumption, and no octroi could be levied on goods re-exported for consumption outside the municipal limits.

5. Court's Conclusion:
The Court found that the ratio of the Supreme Court's judgment in Municipal Council, Jodhpur's case fully covered the question in these cases. The Court held that the levy of tax under section 3 of the Act on goods brought and sold within the local area, intended to be re-exported or transported outside the local area, was without authority of law.

6. Refund of Tax Paid:
The petitioners sought a refund of the tax paid under protest or as a condition of interim orders. The Court directed that such refunds be made in light of the judgment.

Final Order:
1. The writ petitions were allowed.
2. The impugned orders related to the levy of tax under section 3 of the Act on goods intended to be re-exported or transported outside the local area were set aside.
3. Respondents 1 and 2 were directed to re-do the orders in accordance with the law and the judgment.
4. The authorities were directed to refund the amount to which each petitioner was entitled within three months.

Conclusion:
The High Court held that the levy of entry tax on goods brought into a local area and re-exported after sale was not authorized under section 3 of the Act. The Court directed the authorities to re-do the orders and refund the amounts paid by the petitioners.

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