2014 (4) TMI 1 - HC - VAT and Sales Tax

Imposition of entry tax - Importation of natural gas - identification of value of goods under Entry of Goods into Local Areas Act, 2007 Held that - Judgment in State of Karnataka Vs. Hansa Corporation 1980 (9) TMI 273 - SUPREME COURT followed - The dealer has some specific price of the scheduled goods which are being brought within the local area at the time of entry in the local area and the entry being the taxing event that would be the price which alone can be taken into account for computing the tax ad valorem - The expenses incurred by assessee after transporting the goods inside the local area where it has to be consumed, used or sold, would not be a part of value of goods for the purpose of tax liability under Act, but it shall confine upto the stage where the goods are brought inside the local area Sale price of the goods by importer, inside the local area, cannot be identified as value of goods under Act - The price on which the goods are sold by assessee to its ultimate consumers inside local area cannot be taken as value of goods for the purpose of taxability under Act, 2007 Judgment of Tribunal set aside - Matter remanded back to Tribunal for passing of fresh order - Decided in favour of assessee.

Summary

Issues involved:
Interpretation of Section 2(h) of U.P. Tax on Entry of Goods into Local Areas Act, 2007; Assessment of entry tax based on purchase price or sale price of goods; Applicability of Section 4 of Act, 2007; Legality of imposing entry tax on sale price instead of purchase price.

Analysis:

Issue 1: Interpretation of Section 2(h) of U.P. Tax on Entry of Goods into Local Areas Act, 2007
The Court examined whether the "value of goods" for entry tax purposes, as defined in Section 2(h) of the Act, should be based on the purchase price or the sale price of the goods. It was argued that the Tribunal incorrectly considered the sale price as the value of goods, whereas the Act specifies that the value should be ascertained from the original purchase invoice or bill. The Court clarified that various charges related to bringing goods into the local area can be included in the value of goods, but charges incurred inside the local area should not be considered. The sale price to consumers inside the local area cannot be equated with the value of goods for entry tax assessment.

Issue 2: Assessment of entry tax based on purchase price or sale price of goods
The Court referred to a Supreme Court decision in a similar context to emphasize that the tax becomes payable on the entry of goods in a local area, and the price paid at the time of entry by the importer should be the basis for computing the tax. Any subsequent rise or fall in price is irrelevant for tax computation. The Court reiterated that the price at the time of entry, regardless of whether it is the purchase price or sale price, should be considered for tax calculation, as per the Act's provisions.

Issue 3: Applicability of Section 4 of Act, 2007
The Court analyzed the provisions of Section 4 of the Act, which specify the rate of entry tax to be paid on the value of goods as defined in Section 2(h). It was clarified that the market value of goods should only be considered when the goods have been acquired otherwise than by way of purchase. The Court emphasized that the entry tax should be based on the value of goods as defined in the Act, and not on the sale price determined by the importer within the local area.

Issue 4: Legality of imposing entry tax on sale price instead of purchase price
The Court concluded that the Tribunal's decision to impose tax on the sale price of natural gas, instead of the purchase price, was illegal and unsustainable. It was held that the expenses incurred after transporting goods inside the local area should not be included in the value of goods for tax liability under the Act. The Court directed the Tribunal to pass a fresh order in accordance with the law, setting aside the previous orders in favor of the revisionists.

In summary, the judgment clarified the interpretation of the relevant provisions of the Act regarding the assessment of entry tax based on the purchase price of goods, emphasized the importance of considering the price at the time of entry for tax calculation, and deemed the imposition of tax on the sale price as illegal.