1993 (11) TMI 209 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of entry tax on goods used as inputs by the petitioner.
2. Definition and scope of the term "dealer" under the Act.
3. Adequacy of opportunity to show cause against the proposition notice.
4. Allegation of antedating the assessment order.

Detailed Analysis:

1. Levy of Entry Tax on Goods Used as Inputs by the Petitioner:
The petitioners sought to quash the proposition notice dated March 1, 1988, which proposed to levy entry tax for the year 1982-83 under the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979. The goods in question were aluminum ingots, industrial gases, iron and steel, petroleum products, coal, and coke, used as inputs in the manufacture of electrical goods by the first petitioner-company. Petitioners contended that entry tax should not be levied on these goods as they were not dealers in those goods but used them as inputs in manufacturing.

2. Definition and Scope of the Term "Dealer" Under the Act:
The primary question was whether the first petitioner was a "dealer" in the goods referred to in the impugned show cause notice. The petitioners argued that the term "dealer" should be understood as someone regularly engaged in buying and selling the goods, not someone who brings in goods for use in manufacturing other goods. The court referred to sections 3 and 4 of the Act, which levy tax on the entry of scheduled goods and require every dealer in scheduled goods to get registered. The court concluded that a manufacturer who buys goods as inputs for manufacturing is also considered a dealer in those goods under the Act, as per the definitions in the Karnataka Sales Tax Act incorporated into the Act.

3. Adequacy of Opportunity to Show Cause Against the Proposition Notice:
The petitioners argued that they were not given adequate time to respond to the proposition notice, which was issued nearly five years after the relevant period. They sought four weeks to gather necessary information but were not granted this time. The court found that the second respondent should have provided reasonable time for the petitioners to show cause, especially given the complexity and the time elapsed since the transactions.

4. Allegation of Antedating the Assessment Order:
Petitioners alleged that the assessment order dated March 14, 1988, was antedated to circumvent the interim stay order issued by the court on March 22, 1988. The demand notice was issued on March 26, 1988. The court found it unnecessary to probe this allegation but noted that the issuance of the demand notice was unjustified given the interim stay order.

Conclusion:
The court allowed the writ petition, setting aside the assessment order and the demand notice (annexures "J" and "H") due to the violation of principles of natural justice. The petitioners were granted four weeks from the receipt of the court's order to show cause against the proposition notice, which the second respondent must consider and pass appropriate orders according to law after hearing the petitioners. The rule was made absolute, and no costs were awarded.

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