2011 (7) TMI 1040 - HC - VAT and Sales Tax

Whether the assessee is not entitled to the commission on the payment of entry tax in so far as petroleum oil, which is used in the manufacturing of transformers? Held that - The reviewing authority on a proper consideration of these Explanations was justified in holding that the transformer oil even though it is brought into the local area by the assessee as a raw material and to be used as an input manufacturing of transformers, it is liable to tax at five per cent. Therefore, we do not see any error with the well considered order passed by the Additional Commissioner, which has held that the assessee is liable for payment of tax and interest. The appeal is allowed in part. The order of the revisional authority setting aside the order of the Joint Commissioner and restoring the order passed by the assessing authority in so far as payment of tax and interest is concerned is upheld. However, the penalty portion of the order of the assessing authority as well as the revisional authority is hereby set aside. Therefore, the assessing authority is directed to issue of fresh demand excluding the penalty portion

Summary

Issues:
Challenge to order denying commission on entry tax for petroleum oil used in manufacturing transformers.

Analysis:
The appellant challenged the order of the revisional authority denying commission on entry tax for petroleum oil used in manufacturing transformers. The assessing authority had subjected the entry value of transformer oil to tax under the Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979. The Joint Commissioner allowed the appeal, stating that transformer oil brought in as an input in manufacturing transformers was not liable for entry tax. However, the Additional Commissioner, invoking suo motu proceedings, restored the order, citing subsequent notifications clarifying the liability of entry tax on transformer oil. The appellant contended that entry tax is not leviable when the manufacturer brings petroleum products as raw material for the final product. The Additional Commissioner upheld the liability of tax and interest but set aside the penalty, citing the clarity of legal provisions. The court upheld the order regarding tax and interest but set aside the penalty portion, directing the assessing authority to issue a fresh demand excluding the penalty portion.

The appellant argued that entry tax is not leviable when a manufacturer brings petroleum products as raw material for the final product. The Revenue supported the impugned order. The Additional Commissioner noted that the Joint Commissioner did not consider subsequent notifications and explanations. The Explanations I and II clarified that transformer oil is taxable at five percent when brought into the local area for consumption, use, or sale. The court agreed with the Additional Commissioner's interpretation, upholding the liability of tax and interest on transformer oil brought in as raw material for manufacturing transformers. The court found no error in the well-considered order passed by the Additional Commissioner.

The court held that the Additional Commissioner was justified in holding the appellant liable for tax and interest on transformer oil brought in as raw material for manufacturing transformers. However, due to the varying interpretations of the legal provisions, the court found the imposition of penalty uncalled for. The court set aside the penalty portion of the order, directing the assessing authority to issue a fresh demand excluding the penalty portion. The court allowed the appeal in part, upholding the order regarding tax and interest but setting aside the penalty portion. The assessing authority was directed to issue a fresh demand excluding the penalty portion.