2011 (3) TMI 1542 - HC - VAT and Sales Tax

Benefit of deduction of the value of the raw material & the value of the manufactured goods denied - exemption from payment of entry tax in respect of plant and machinery denied Held that - In the instant case, the manufactured goods though attracted tax falls under Schedule II that is exempted from payment of entry tax. Therefore the raw materials, component parts and inputs whether used in the manufacturer of tractor, shall be deducted from the value of the manufactured goods for the purpose of calculating composition tax under section 5C. The reasoning of the Tribunal that there is no provision providing for such deduction is ex facie incorrect and cannot be sustained. Therefore, the said contention of the revision petitioner is upheld - matter remanded back to the assessing authority to give deduction to the value of the raw materials, component parts and inputs which are used in the manufacture of goods on which goods entry tax is exempted under this Act and deduct a sum from the value of manufactured goods and reassess the tax liability and if any amount has been paid in excess of amounts due under section 5C, to refund the same to the assessee in accordance with law. To that extent the revision petition is partly allowed. The assessing authority is directed to reassess the tax liability.

Summary

Issues:
1. Benefit of deduction of raw material value and manufactured goods value challenged.
2. Exemption from payment of entry tax for plant and machinery disputed.

Analysis:
1. The revision petition involves a challenge to an order passed by the Appellate Tribunal denying the deduction of raw material value and manufactured goods value, along with disputing the exemption from entry tax for plant and machinery. The petitioner, a limited company registered under relevant tax acts, opted for a composition scheme under section 5C of the Karnataka Tax on Entry of Goods Act, 1979. The scheme allowed for the payment of tax at compounded rates in lieu of regular tax. The petitioner had been paying tax under this scheme until an amendment in 1994. The assessing authority initially granted some benefits but later denied certain exemptions post-August 1992. The subsequent appeals to the Tribunal were dismissed, leading to the current challenge before the High Court.

2. The petitioner contended that under the composition scheme of section 5C, no entry tax on plant and machinery was required as it was not provided for in the claim. Additionally, the petitioner argued that if raw materials were exempted from entry tax, their value should be deducted from the manufactured goods' value before imposing composition tax. The Government Advocate supported the lower authorities' order. The Court analyzed section 5C, which applies to goods brought into the local area for sale. Goods used for purposes other than sale fall under section 3(1). The Court rejected the argument that section 5C's non-applicability to plant and machinery absolved the petitioner from paying tax on other goods. Regarding the deduction of raw material value, the Court found that the manufactured goods, though taxable, were exempt from entry tax. Thus, the value of raw materials used in manufacturing should be deducted for calculating composition tax under section 5C.

In conclusion, the Court upheld the petitioner's contention regarding the deduction of raw material value and directed the assessing authority to reassess the tax liability, refunding any excess amount paid. The revision petition was partly allowed, and the matter was remanded for reassessment in accordance with the law.