2019 (11) TMI 718 - HC - VAT and Sales Tax

Levy of entry tax - validity of insertion of new entry as unmanufactured tobacco in sealed container - agriculture product or not - power to levy - whether it was covered in the residual entry earlier - Karnataka Value Added Tax Act, 2003 - Central Sales Tax Act, 1956 - and Karnataka Tax on Entry of Goods Act, 1979. HELD THAT - Section 3 1 of the KTEG Act provides that the tax on entry of goods specified in the First schedule into a local area for consumption, use or sale therein shall be levied at such rates not exceeding 5% of the value of the goods as may be specified retrospectively or prospectively by the State Government by Notification, with different dates and different rates specified in respect of different goods or different classes of goods or different local areas. Thus, the charging Section shall be effective only on the notification issued by the State Government under Section 3(1) of the KTEG Act in respect of any of the goods enumerated under the first schedule to the Act. In view of the product sold in sachet under a brand name after subjecting raw tobacco to physical process of cutting, shredding and sizing so as to make it fit for consumption including the process of being packed in a sealed container, the unmanufactured tobacco ceases to be an agricultural produce as defined under the KTEG Act and the dictionary meanings. The arguments advanced on behalf of the petitioner that Entry 96 of the First Schedule does not include unmanufactured tobacco assuming to be accepted, even then, certainly it would fall under the Residuary Entry 103. Entry 103 of First Schedule encompasses all such goods which are not covered under any of the Entries enumerated in Entry No.1 to 102 except the goods mentioned in the Second Schedule. For better clarity, understanding or specification, if the Entries are expressly made, it cannot be held to be beyond the power contemplated under Section 3 1 of the Act otherwise, the Entry 103 would render redundant or innocuous - the challenge to the notification impugned fails. The Notification impugned dated 1.10.2013 issued by the Government of Karnataka insofar it relates to the amendment made to the Notification dated 30.3.2002 for insertion of sub-item ii in Serial No. 5 , specifying unmanufactured tobacco in sealed container for levy of Entry Tax at 5% with effect from 02.10.2013 cannot be held to be unjustifiable and is accordingly upheld - petition dismissed.

Summary

Issues Involved:
1. Validity of the Notification dated 1.10.2013 amending the Notification dated 30.3.2002.
2. Power of the State Government to levy entry tax on unmanufactured tobacco in sealed containers.
3. Compliance with Articles 301 and 304(b) of the Constitution of India.
4. Classification of unmanufactured tobacco under the KTEG Act.

Issue-wise Detailed Analysis:

1. Validity of the Notification dated 1.10.2013 amending the Notification dated 30.3.2002:
The petitioners challenged the Notification-III No.FD 208 CSL 2013 dated 1.10.2013, which amended the Notification No.FD 11 CET 2002 dated 30.3.2002, by inserting sub-item (ii) in Sl.No.(5) to levy entry tax at 5% on "unmanufactured tobacco in sealed container" effective from 2.10.2013. The petitioners argued that this amendment was against the First Schedule to the KTEG Act and lacked the President's assent, thus violating Article 304(b) of the Constitution.

2. Power of the State Government to levy entry tax on unmanufactured tobacco in sealed containers:
The petitioners contended that the State Government had no authority to levy entry tax on unmanufactured tobacco in sealed containers, as it was contrary to Articles 301 and 304(b) of the Constitution. They relied on previous judgments, such as Avinyl Polymers Pvt. Ltd. Vs. State of Karnataka and others, and M/s. Bellary Steels and Alloys Ltd. Vs. State of Karnataka, to support their claim that the State Government exceeded its legislative power by specifying tax rates for different groups of a given commodity.

3. Compliance with Articles 301 and 304(b) of the Constitution of India:
The petitioners argued that the notification violated Articles 301 and 304(b) of the Constitution, which ensure freedom of trade and commerce and restrict states from imposing discriminatory taxes on goods from other states. They claimed that the notification did not have the President's assent, making it unconstitutional. However, the court referred to the constitutional bench decision in Jindal Stainless Limited Vs. State of Haryana, which clarified that fiscal statutes should be tested under Article 304(a) for non-discrimination and not under Article 304(b) unless they impose non-fiscal restrictions.

4. Classification of unmanufactured tobacco under the KTEG Act:
The court examined the classification of unmanufactured tobacco under Entry 96 of the First Schedule to the KTEG Act, which includes "tobacco products of all description." The court found that this entry was exhaustive and encompassed both manufactured and unmanufactured tobacco. The amendment to the notification was deemed clarificatory in nature. The court also discussed the definition of 'product' and 'agricultural produce' under the KTEG Act and concluded that unmanufactured tobacco in sealed containers, having undergone a physical process and packaging, ceased to be agricultural produce and fell under Entry 96.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the Notification dated 1.10.2013. It ruled that the amendment to levy entry tax on unmanufactured tobacco in sealed containers was within the State Government's power and did not violate Articles 301 or 304(b) of the Constitution. The court also noted that the petitioners' arguments were not applicable in light of the Supreme Court's ruling in Jindal Stainless Limited. Additionally, the court acknowledged that reassessment orders had been passed by the Assessing Authority, and statutory appeals were pending, but did not express any opinion on their merits.