2015 (9) TMI 1516 - HC - VAT and Sales Tax

Entry tax on barley malt / malted barley - whether the Tribunal is justified in giving a finding that malted barley/barley malt is an agricultural produce falling under II Schedule to the Karnataka Tax on Entry of Goods Act, 1979 and is exempted from the levy of tax under the KTEG Act? Held that - If an agricultural produce is subjected to a process for being made fit for consumption, it is excluded from the definition clause. When it is expressly excluded from the definition clause, it cannot be included in the exemption clause by implication or on the premise that the product has retained its original identity despite being subjected to a process. Therefore, it has to be held that when an agricultural produce is subjected to a process for being made fit for consumption, i.e., either for human consumption or consumption in a manufacturing process or for consumption of livestock or animals, then it ceases to be an agricultural produce. But only on those agricultural produces which are made fit for consumption in a manufacturing process as a raw material, or as an input used in the manufacture of intermediate or finished product, entry tax is leviable, under entry 80 of Schedule I. Then it cannot be construed as an agricultural produce within entry 2 of Schedule II, which contains the list of exempted products. When once it is admitted by the respondents that those products were subjected to certain processes for being used as raw materials in the preparation or manufacture of beer, it must be held that they were subjected to certain processes for being made fit for consumption, in which event, those products cannot be considered to be agricultural or horticultural produce within the definition clause. Hence, they are not subject to exemption from payment of entry tax under the Act. It is held that malted barley/barley malt, hops pellets and maize flakes are not agricultural/horticultural produce falling under entry 2 of Schedule II of the Act and they are not exempted from the levy of tax under the Act - petition allowed - decided against assessee.

Issues Involved:
1. Whether the Tribunal is justified in finding that malted barley/barley malt, hops, and maize are agricultural produce falling under Schedule II of the K.T.E.G. Act and exempted from tax.
2. Whether the Tribunal is correct in interpreting the definition clause of section 2(A)(1) of the K.T.E.G. Act to hold that malted barley/barley malt, hops, and maize continue to be barley, malt, hops, and maize even after processing.
3. Whether barley/barley malt, hops, and maize are liable to tax under the provisions of the K.T.E.G. Act.
4. Whether the Tribunal was right in holding that the assessing authority has no jurisdiction to pass the assessment order under the K.T.E.G. Act, 1979.

Issue-wise Detailed Analysis:

1. Whether the Tribunal is justified in finding that malted barley/barley malt, hops, and maize are agricultural produce falling under Schedule II of the K.T.E.G. Act and exempted from tax:

The court examined the definition of "agricultural or horticultural produce" under section 2(A)(1) of the Act and Schedule II. It was determined that the definition is couched in negative language, excluding certain items and those subjected to processes making them fit for consumption. The court noted that malted barley/barley malt, hops pellets, and maize flakes are subjected to processes making them fit for consumption, thus ceasing to be agricultural produce. Therefore, the Tribunal's finding that these items are agricultural produce exempted from tax was incorrect.

2. Whether the Tribunal is correct in interpreting the definition clause of section 2(A)(1) of the K.T.E.G. Act to hold that malted barley/barley malt, hops, and maize continue to be barley, malt, hops, and maize even after processing:

The court emphasized that the test should be whether the product has been subjected to a process to make it fit for consumption. It was concluded that malted barley/barley malt, hops pellets, and maize flakes undergo processes that convert them into distinct commercial commodities fit for consumption, thereby excluding them from the definition of agricultural produce under the Act. The Tribunal's interpretation that these items retain their original identity was found to be incorrect.

3. Whether barley/barley malt, hops, and maize are liable to tax under the provisions of the K.T.E.G. Act:

The court held that since malted barley/barley malt, hops pellets, and maize flakes are not agricultural produce due to the processes they undergo, they fall under entry 80 of Schedule I as raw materials used in manufacturing intermediate or finished products. Consequently, these items are liable to entry tax under the Act.

4. Whether the Tribunal was right in holding that the assessing authority has no jurisdiction to pass the assessment order under the K.T.E.G. Act, 1979:

The court did not find the Tribunal's reasoning on jurisdiction persuasive. It concluded that the assessing authority had jurisdiction to pass the assessment orders, and the Tribunal's judgments were set aside.

Conclusion:

The court concluded that malted barley/barley malt, hops pellets, and maize flakes are not agricultural produce under the K.T.E.G. Act and are liable to tax. The judgments of the Tribunal were set aside, and the revision petitions filed by the State were allowed.

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