1996 (3) TMI 474 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether beedi leaves are exempt from tax under the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979.
2. Whether beedi leaves can be considered agricultural produce for tax exemption purposes.
3. Burden of proof on dealers to establish goods are not liable to tax.
4. Validity of circular issued by the Commissioner of Commercial Taxes regarding tax exemption for beedi leaves.

Analysis:

The petitioners, engaged in manufacturing beedies, challenged notices for assessing/reassessing tax on entry of tendu leaves, arguing that tendu leaves are exempt from tax as agricultural produce. The key issue is whether beedi leaves qualify as agricultural produce for tax exemption under the Act. The Supreme Court precedent in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy establishes that agricultural produce includes various products raised from the land, such as timber, tendu leaves, etc. However, the Court clarified that the classification as agricultural produce depends on whether primary operations like cultivation of land are undertaken to derive the produce.

The Court emphasized that products growing wild on land without human labor are not agricultural produce. Therefore, it is crucial for the petitioners to provide admissible evidence showing that tendu leaves were acquired through agricultural operations. The burden of proof lies on the dealers to demonstrate that the goods brought into the local area are not taxable under the Act, as per section 28-A(1) of the Act. The petitioners must substantiate their claim of exemption conclusively.

Regarding the circular issued by the Commissioner of Commercial Taxes stating that beedi leaves are not agricultural produce, the Court held that such circular does not bind assessing authorities. Dealers must convince the assessing authority, with evidence, that beedi leaves qualify as agricultural produce as per the Supreme Court's interpretation. The Court disposed of the writ petitions, allowing the petitioners to comply with the notice and present evidence demonstrating that the beedi leaves are indeed agricultural produce. No costs were awarded in the judgment.