2012 (2) TMI 464 - HC - VAT and Sales Tax

Additional duty on non production of proof - exemption denied - Held that - The conditions imposed for claiming exemption in no way contemplate a dealer providing proof of payment of additional duties of exemption by the manufacturer. A proof of this nature is obviously not contemplated in the Scheme of this Act. The exemption granted in respect of the items figuring in entry 3 are not qualified by a condition that it should be purchased from a manufacturer. Thus the argument on behalf of the Revenue to the effect that the dealer having never made good that his purchase turnover was one corresponding to the very description of the goods as in the Schedule to the Additional Duties of Excise Act in the absence of production of proof of payment of additional duty of excise and is not entitled for exemption and therefore, the order passed by the Additional Commissioner is justified and to be sustained on such logic is not a tenable argument. The Additional Commissioner did not issue show-cause notice proposing for revision either on the ground that the dealer had not made good the precise goods which he had purchased were covered under the Schedule to the Excise Act or on the premise that they have not been sold as such, but utilised in manufacturing. Show-cause notice was only one confining to non-production of the proof of payment of additional duties and the order for denying exemption is also on the same reason and therefore, the order passed by the Additional Commissioner cannot be sustained. Appeal allowed.

Summary

Issues:
1. Interpretation of exemption under entry 3 of the Fifth Schedule to the Karnataka Sales Tax Act, 1957.
2. Revisional jurisdiction of the Additional Commissioner under section 22A of the Act.
3. Requirement of proof of payment of additional excise duty by the manufacturer for claiming exemption.
4. Validity of denial of exemption by the Additional Commissioner.

Issue 1: Interpretation of exemption under entry 3 of the Fifth Schedule:
The appellant, a registered dealer, claimed exemptions under entry 3 of the Fifth Schedule for textiles purchased during the assessment period of 1998-99. The assessing officer accepted this claim initially. However, the Joint Commissioner proposed a revision, questioning the exemption claim on the grounds that the purchased textiles might have been used for manufacturing instead of being sold as free-flowing cloth. After a show-cause notice and subsequent orders, the Additional Commissioner denied the exemption, leading to the appeal before the court.

Issue 2: Revisional jurisdiction of the Additional Commissioner:
The appellant contested the Additional Commissioner's revisional order, arguing that it was beyond the four-year limit prescribed by section 22A of the Act and that the Commissioner was essentially revising the assessment order instead of the Joint Commissioner's decision. The appellant also highlighted that the show-cause notice was issued beyond the permissible period and challenged the requirement for proof of payment of additional excise duties for claiming exemption under entry 3.

Issue 3: Requirement of proof of payment of additional excise duty:
The Additional Commissioner insisted on proof of payment of additional excise duty by the manufacturer as a condition for claiming exemption under entry 3. The appellant argued that such a requirement was not stipulated in the Act and was unreasonable, especially considering the practical challenges in obtaining such proof, especially when goods are purchased from subsequent dealers.

Issue 4: Validity of denial of exemption by the Additional Commissioner:
The Additional Commissioner's decision to deny the exemption based on the lack of proof of payment of additional duties was challenged by the appellant. The court, after considering the arguments presented by both parties, concluded that the conditions for claiming exemption under entry 3 did not include the requirement of proving payment of additional duties by the manufacturer. Therefore, the court allowed the appeal, setting aside the Additional Commissioner's order and upholding the assessment order.

In conclusion, the court found that the Additional Commissioner's decision to deny the exemption based on the lack of proof of payment of additional duties was not legally justified, and the conditions for claiming exemption under entry 3 did not include such a requirement.