1998 (11) TMI 617 - HC - VAT and Sales Tax

Issues Involved:
1. Levy and collection of entry tax under the Kerala Tax on Entry of Goods into Local Areas Act, 1994.
2. Retrospective application of tax exemption notification.
3. Eligibility for exemption based on sales tax liability.
4. Validity of assessment order, demand notice, and penalty order.
5. Mens rea and intentional evasion of tax.

Detailed Analysis:

1. Levy and Collection of Entry Tax:
The petitioner, a company manufacturing ferro silicon, challenged the levy and collection of entry tax on iron and steel under Section 3 of the Kerala Tax on Entry of Goods into Local Areas Act, 1994. The court noted that Section 3 provides for the levy and collection of tax on the entry of goods into any local area for consumption, use, or sale therein, with the tax rate not exceeding the rates specified in the First Schedule to the KGST Act. Item 9 of the Schedule to the Act includes iron and steel, with a notified tax rate of 4%.

2. Retrospective Application of Tax Exemption Notification:
The petitioner argued that the exemption notification dated March 19, 1998, should have retrospective effect from April 1, 1997. The court held that the notification and Section 12 of the Act do not provide for retrospective exemption. Section 12 allows the Government to exempt specified classes of importers from tax payment, but the notification did not state that the exemption is retrospective. The court emphasized that every statute is prima facie prospective unless expressly stated otherwise, and the power to grant retrospective exemption must be explicitly conferred by the parent enactment.

3. Eligibility for Exemption Based on Sales Tax Liability:
The petitioner claimed entitlement to exemption from entry tax on iron and steel used as raw material for manufacturing goods subject to sales tax under the KGST Act or CST Act. The court found that the petitioner exported a substantial portion of the product and did not satisfy the condition of liability to sales tax under the KGST Act or CST Act. Consequently, the petitioner was not eligible for the exemption.

4. Validity of Assessment Order, Demand Notice, and Penalty Order:
The petitioner sought to quash the assessment order (Exhibit P6), demand notice (Exhibit P7), and penalty order (Exhibit P8). The court noted that the petitioner had not filed the required returns or paid the tax for the import of iron and steel. The assessment order found a wilful attempt to evade tax, justifying the penalty under Section 15, which allows imposing a penalty not exceeding twice the amount of tax due.

5. Mens Rea and Intentional Evasion of Tax:
The court addressed the issue of mens rea, concluding that the petitioner intentionally withheld tax payment by not filing returns throughout the year. The court dismissed the argument of a bona fide dispute, affirming that the failure to file returns and pay tax was intentional, supporting the penalty imposed by the second respondent.

Conclusion:
The court dismissed the petition, upholding the levy and collection of entry tax, the prospective application of the exemption notification, the ineligibility for exemption based on sales tax liability, the validity of the assessment order, demand notice, and penalty order, and the finding of intentional tax evasion by the petitioner.

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