2016 (1) TMI 189 - HC - VAT and Sales Tax

Levy of entry tax on Coolants - whether or not it is a petroleum by product - Karnataka Tax on Entry of Goods Act 1979 - various petroleum products including lubricating oil to be taxable under the KTEG Act at the rate of 5% - Held that - The notices Annexures-D Series are quashed. Liberty is reserved to the 2nd respondent-clarifying authority to have the coolant manufactured by the petitioner, tested, and examined in a manner known to law over the genuineness of the claim of the petitioner relating to its contents/ingredients, and if necessary to issue clarification of the coolant manufactured by the petitioner, contains petroleum by product, after extending a reasonable opportunity of hearing to the petitioner, to pass orders in accordance with law. In the event, it is established, by way of test or other examination, that the coolant manufactured by the petitioner contains demineralised water and Ethylene Glycol and nothing more, the two clarifications Annexures-B and C will have no application to the case of the petitioner.

Issues involved:
1. Tax liability on entry of goods under Karnataka Tax on Entry of Goods Act 1979.
2. Exemption claim for coolant products from entry tax.
3. Interpretation of clarifications issued by the Commissioner of Commercial Taxes.
4. Legality of rectification notices issued by the Revenue Department.
5. Determination of whether coolants are classified as lubricating oils or petroleum products.
6. Prematurity of writ petitions filed challenging the notices.

Issue 1: Tax liability on entry of goods under Karnataka Tax on Entry of Goods Act 1979
The petitioner, a registered trader under the KTEG Act, engaged in the manufacture and sale of petroleum products, brought in stocks by transfer into Karnataka for local sale. Tax was levied on specified goods under the Act, including lubricating oil, at a rate of 5%. The petitioner paid entry tax on lubricating oil and other petroleum products for several assessment years.

Issue 2: Exemption claim for coolant products from entry tax
The petitioner claimed exemption from entry tax on coolant products, arguing that coolants are not petroleum products and do not fall under the tax purview. Assessments for previous years had accepted this exemption. However, subsequent clarifications by the Commissioner stated that coolants were classified as lubricating oils and liable for tax at 5%.

Issue 3: Interpretation of clarifications issued by the Commissioner of Commercial Taxes
The Commissioner's clarifications regarding the classification of coolants as lubricating oils and petroleum products were challenged by the petitioner. The clarifications were issued in response to queries from other entities but were applied to the petitioner's case without considering the specific ingredients of the coolant manufactured by the petitioner.

Issue 4: Legality of rectification notices issued by the Revenue Department
The Revenue Department issued rectification notices proposing to levy tax on the petitioner's coolant products based on the clarifications. The petitioner contended that the notices were arbitrary and illegal as they did not consider the differences in coolant compositions between different manufacturers.

Issue 5: Classification of coolants as lubricating oils or petroleum products
The petitioner argued that the coolant manufactured did not contain petroleum byproducts and should not be classified as a lubricating oil or petroleum product. The court emphasized the need for a proper examination of the coolant's ingredients to determine its classification for tax purposes.

Issue 6: Prematurity of writ petitions challenging the notices
The Revenue Department argued that the petitions were premature as factual aspects needed examination by the statutory authority. The court allowed the petitions in part, quashing the rectification notices and directing the clarifying authority to test the petitioner's coolant product to determine its composition accurately.

In conclusion, the judgment addressed the tax liability, exemption claims, clarifications, legality of notices, coolant classification, and the prematurity of the petitions, providing detailed analysis and directions for further examination of the coolant product to ascertain its tax liability under the KTEG Act.

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