2004 (9) TMI 631 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether rice bran used for oil extraction constitutes a raw material for manufacturing under the Karnataka Tax on Entry of Goods Act, 1979.
2. Whether the extraction of oil from rice bran is a manufacturing process or merely a processing activity.
3. Whether the Joint Commissioner had the authority to revise the assessment order passed by the Entry Tax Officer.

Issue-wise Detailed Analysis:

1. Whether rice bran used for oil extraction constitutes a raw material for manufacturing under the Karnataka Tax on Entry of Goods Act, 1979:

The appellant, a registered dealer under the Act, contended that rice bran used for oil extraction should not be considered a raw material for manufacturing purposes. The assessing authority initially exempted the appellant from paying entry tax, considering the activity as processing rather than manufacturing. However, the Joint Commissioner later took the view that rice bran used for oil extraction falls under entry 16B of the Schedule of the Act, making it liable for entry tax. The court examined section 3 of the Act and the relevant entries in the Schedule, concluding that rice bran used in the manufacturing of oil is indeed subject to entry tax as it constitutes a raw material for manufacturing.

2. Whether the extraction of oil from rice bran is a manufacturing process or merely a processing activity:

The appellant argued that oil extraction from rice bran is a processing activity, not manufacturing, citing various Supreme Court decisions. The court, however, distinguished between processing and manufacturing, stating that manufacturing involves creating a new product, while processing improves the quality of the existing material. The court referred to several Supreme Court judgments, including Devi Dass Gopal Krishnan v. State of Punjab and Modern Proteins Ltd. v. State of Andhra Pradesh, which supported the view that producing oil from rice bran constitutes manufacturing. The court concluded that since oil is a new product distinct from rice bran, the extraction process is a manufacturing activity, making it liable for entry tax.

3. Whether the Joint Commissioner had the authority to revise the assessment order passed by the Entry Tax Officer:

The appellant contended that the Joint Commissioner could not revise the assessment order because the assessing authority had followed a higher authority's decision. The court, however, noted that the Joint Commissioner who passed the impugned order was not below the rank of the Joint Commissioner who decided the earlier case. The court emphasized that the revisional authority has the power to correct erroneous orders prejudicial to the interest of the Revenue, even if the assessing authority followed a higher authority's decision. The court referred to section 15(3) of the Act, which allows the Joint Commissioner to revise orders that are erroneous and prejudicial to the Revenue's interest. The court concluded that the revisional authority acted within its jurisdiction to revise the assessment order.

Conclusion:

The court rejected the appellant's appeal, holding that rice bran used for oil extraction is a raw material for manufacturing, the extraction process is a manufacturing activity, and the Joint Commissioner had the authority to revise the assessment order. The appeals were dismissed, and no order was made as to costs.