2004 (7) TMI 630 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Karnataka Appellate Tribunal was justified in holding that the element of entry tax separately collected and billed by the assessee could not form the sale price of the goods for the reason of the same having been collected under a separate statute.
2. Whether the amount of entry tax collected on entry of goods into the local area before its sale to the ultimate consumer can be treated as the pre-sale value of the goods when the assessee has passed on the same to the ultimate purchaser adding it to the sale price of the goods.

Detailed Analysis:

Issue 1: Justification of Entry Tax Exclusion from Sale Price
The core question was whether the Karnataka Appellate Tribunal was correct in excluding the separately collected entry tax from the sale price of goods. The assessee, a public limited company and a Government of Karnataka undertaking, argued that the entry tax should not be included in the sale price as it was collected under a separate statute. The assessing authority disagreed, treating the entry tax as part of the sale price, thus subject to sales tax and turnover tax. The Tribunal initially sided with the assessee, relying on the Supreme Court's decision in Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax [1980] 46 STC 477 and a Karnataka High Court decision in Karnataka Forest Plantation Corporation Limited v. State of Karnataka. However, the High Court found that these precedents were not directly applicable because they dealt with different statutory provisions. The High Court concluded that the Tribunal erroneously decided the issue by misapplying the law.

Issue 2: Treatment of Entry Tax as Pre-Sale Value
The second issue was whether the entry tax collected before the sale could be treated as part of the pre-sale value of the goods. The High Court examined the statutory provisions of the Karnataka Tax on Entry of Goods Act, 1979 (KTEG Act) and the Karnataka Sales Tax Act, 1957 (KST Act). Section 3 of the KTEG Act authorizes the levy of entry tax, while Section 3A restricts the collection of such tax by unregistered dealers. The High Court noted that the entry tax collected by the dealer is not collected as an agent of the State but as part of the sale price. This interpretation aligns with the Supreme Court's rulings in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13, Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48, and E.I.D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes [2000] 117 STC 457, which state that any amount collected as part of the consideration for the sale of goods should be included in the sale price.

Conclusion:
The High Court concluded that the entry tax collected by the assessee forms part of the sale price and should be included in the taxable turnover. The Tribunal's decision to exclude the entry tax from the sale price was incorrect. Consequently, the revision petitions were allowed, and the orders of the Karnataka Appellate Tribunal were set aside. Each party was directed to bear its own costs.