2021 (1) TMI 926 - HC - VAT and Sales Tax

Levy of Entry Tax - petroleum based lubricating oil - Entry 67 of 3rd Schedule of Karnataka Tax on Entry of Goods Act, 1979 read with Entry 1(viii)(a) Notification bearing No. FD/11/CET/2002 dated 30.03.2002 - HELD THAT - Section 3 of the 1979 Act is the charging Section, which mandates that there shall be levy and collection of tax on entry of any goods specified in First schedule into a local area for consumption, use or sale therein at such rates not exceeding 5% of the value of goods as may be specified retrospectively or prospectively by the State Government by a Notification. The aforesaid Section further provides that different dates on different rates may be specified in respect of different goods or different classes of goods or different local areas. First Schedule to the Act specifies the items or goods, on which tax is levied - Thereafter, the Finance Department of Government of Karnataka issued Circulars. By Circular dated 12.04.2006, it was provided that petroleum products, which are similar to tar would be covered by the words and others . Similar view was taken in the Circular dated 02.05.2006 and it was provided that benzene, toluene and xylene are not covered under the Entry tar and others or under any other sub entry, therefore, they are not petroleum products specified in the Notification. Thereafter, by Circular dated 09.04.2013, the Circular dated 12.04.2006 was withdrawn. However, the Circular dated 02.05.2006 issued by the I9nance Department of Government of Karnataka is in force. It is well established rule of interpretation of taxing statutes in words of Lord Simonds that subject is not to be taxed without clear words for that purpose and that every Act of Parliament must be read according to natural construction of its words - From perusal of the Entry 67 as well as Sl.No.1 of the Notification, it is evident that Entries seem to cover only petroleum based lubricating oil which entry tax is being paid by the appellant. The synthetic based lubricating oil is not a petroleum product and is therefore, not covered under the entry. Similarly, the grease and base oil have also not been specifically enumerated in the Notification and therefore, the same also cannot be subjected to entry tax. It is also pertinent to mention here that grease and base oil not being similar to tar cannot be classified within the expression tar and others which are already been clarified by the revenue department vide Circular dated 02.05.2006. It is trite law that the Circulars issued by the department are binding on it. It is well settled in law that a decision of the court is only an authority for what it decides and not what can logically be deduced therefrom. It cannot be quoted for a proposition that may seem to follow logically from it and such a mode of reasoning assumes that law is necessarily a logical code, whereas it must be acknowledged that law is not always logical. It is equally well settled legal position, that court should not place reliance on a decision without discussing as to how the factual situation fits in with the fact situation of the decision, on which reliance is placed - the revisional authority could not have concluded in the fact situation of the case that the tribunal has failed to decide or has decided erroneously any question of law. Appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of suo motu revision proceedings under Section 15 of the Karnataka Entry Tax Act, 1979.
2. Taxability of synthetic-based lubricating oil, grease, and base oil under Entry 67 of the First Schedule of the Karnataka Entry Tax Act, 1979 and relevant notifications.

Detailed Analysis:

1. Jurisdiction of Suo Motu Revision Proceedings:

The appellant contended that the initiation of suo motu revision proceedings under Section 15 of the 1979 Act was without jurisdiction. They argued that the conditions for such proceedings, namely that the order passed by the lower authority should be erroneous and prejudicial to the interest of revenue, were not satisfied. The appellant cited various legal precedents to support their claim that the term "erroneous" should be understood as a jurisdictional irregularity and not merely a disagreement with the lower authority's order.

The respondent, on the other hand, maintained that the Additional Commissioner of Commercial Taxes rightly invoked powers under Section 15 of the Act, as the order passed by the first appellate authority was erroneous and prejudicial to the revenue. They argued that the term "erroneous" includes errors of fact or law and encompasses orders not in accordance with law or wrongly interpreting the law.

2. Taxability of Synthetic-Based Lubricating Oil, Grease, and Base Oil:

The appellant argued that under Section 3 of the 1979 Act, entry tax is levied on goods specified in the First Schedule and notified by the State Government. They contended that synthetic-based lubricating oil, classifiable under Chapter 34 of the Customs Tariff Act, 1975, is distinct from petroleum-based lubricating oil, which falls under Chapter 27. Thus, synthetic-based lubricating oil is not covered under Entry 67 or the relevant notification. They also argued that grease and base oil are not specifically enumerated in the notification and cannot be subjected to entry tax. The appellant cited various legal precedents and circulars issued by the Finance Department to support their argument.

The respondent countered that the issue of taxability of base oil and grease is covered by the Supreme Court's judgment in the Indian Aluminum Company case, which was followed by the Karnataka High Court in the Hyva India case. They argued that the terms "tar and others" in the notification refer to petroleum products other than those specifically mentioned and that synthetic lubricating oils, which contain petroleum oils, should be considered petroleum products.

Judgment:

The court considered the submissions and reviewed the relevant statutory provisions. It noted that the first appellate authority had found the appellant's product to be synthetic-based, a finding not disturbed by the revisional authority. The court observed that Entry 67 and the notification seem to cover only petroleum-based lubricating oil, not synthetic-based lubricating oil, grease, or base oil. The court emphasized that the circulars issued by the department, which are binding, clarified that grease and base oil not similar to tar cannot be classified within the expression "tar and others."

The court referred to well-established principles of interpretation of taxing statutes, emphasizing that the subject should not be taxed without clear words for that purpose. It concluded that since synthetic-based lubricating oil, base oil, and grease are not mentioned in Entry 67 or the notification, they cannot be subjected to entry tax. The court also distinguished the facts of the present case from the precedents cited by the respondent, noting that those decisions were rendered in different factual contexts.

The court quashed the order dated 16.07.2014 passed by the Additional Commissioner of Commercial Taxes, Zone-I, Bangalore, insofar as it was prejudicial to the appellant's interest, and allowed the appeal. The court did not find it necessary to address the other contention regarding the invocation of suo motu powers under Section 16 of the Act.