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TMI Blog2001 (9) TMI 1090X X X X Extracts X X X X X X X X Extracts X X X X ..... used to be entered by the Southern Railway between April 1, 1997 to March 31, 1998 at the rate of 2 per cent. After considering the objections dated February 11, 1999 and March 2, 1999, the second respondent has passed an order of assess ment dated March 26, 1999 (annexure "E") under section 5(4) of the Act, confirming the proposal in the notice and holding that the petitioners are liable to pay entry tax on the HSD caused to be entered from outside the State into Bangalore local area. Second respondent held that during the period from April 1, 1997 to March 31, 1998, the Southern Railway had caused entry of 1,04,100 kilolitres of HSD and the value thereof at the rate of Rs. 9,283.09 per kilolitre works to Rs. 96,63,69,660 and therefore the petitioners are liable to pay entry tax of Rs. 1,93,27,393. The said assessment order was followed by a demand notice dated June 4, 1999 (annexure F), calling upon the Railways to pay the said amount. 3.. Feeling aggrieved, the petitioners have filed this petition and sought the following reliefs: (a) to quash the assessment order dated March 26, 1999 (annexure E) passed by the second respondent and the consequential endorsement dated June 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... railway oil depots are used not only for the trains which run within the State of Karnataka, but also used by trains travelling beyond the border of Karnataka. Most of the HSD drawn by the locomotives from the said depots is used only beyond the border of Karnataka, as very few trains run exclusively within the State. The locomotives for the trains are filled at places of begin ning of the journey and en route. There is also a diesel railway shed in K.R. Puram for maintenance of diesel locomotives and HSD is also used by the locomotives which travel to different parts of the country after repairs/maintenance at the said locoshed. 7.. The petitioners have urged the following contentions: (7.1) Article 285 of the Constitution provides that the property of the Union shall, save in so far as Parliament may by law other wise provide, be exempt from all taxes imposed by a State or by any authority within a State. HSD which is sought to be taxed is the property of the Union of India and therefore exempt from State taxation including tax under the Entry Tax Act. (7.2) The activity carried on by the railways does not fall within the definition of "business" and the railways does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays is a "dealer" as defined in section 2(A)(4) of the Act and the activities carried on by the railways are "business" as defined in section 2(A)(2b) of the Act and therefore entry tax is attracted under section 3. (8.3) When HSD is brought into a local area and stored in the storage tanks situated in a local area, the Southern Railway causes the "entry" of goods into a local area. When the HSD is filled into tanks of the locomotives, HSD is "used" within the local area. Once it is so "used", the question whether it is fully consumed within the local area or not is not relevant, as entry tax is leviable on the entry of goods for use, as also for consumption or sale within the local area. As HSD which is caused to be entered into a local area is "used" by the railways by filling the tanks of locomotives within the local area, irrespective of the fact whether the entire HSD filled into the tanks are burnt or consumed within the boundaries of the local area or not, the railways become liable for entry tax and no deduc tion is permissible under rule 9A(3); and (8.4) There was no exemption either in regard to oil companies or dealers during the period April 1, 1997 to March 31, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry or is entitled to take delivery of such goods on its entry into a local area." [Note.The portion in bold* letters inserted by Karnataka Act No. 5/2000, with effect from 142000] 11.. Article 285 of the Constitution provides that the property of the Union shall, save in so far as Parliament may by law, other wise provide, be exempt from all taxes imposed by a State or by any authority within a State. There is a corresponding exemption in regard to the property of States from Union taxation under article 289 of the Constitution. 12.. The Supreme Court in In re, Sea Customs Act, Section 20(2) AIR 1963 SC 1760, considered the scope and extent of immunity of the States from taxes by the Union and of the Union from taxes by the States and held as follows: "We are therefore of opinion reading article 289 and its comple mentary article 285 together that the intention of the Constitution makers was that article 285 would exempt all property of the Union from all taxes on property levied by a State or by any authority within the State while article 289 contemplates that all property of the States would be exempt from all taxes on property which may be leviable by the Union. Both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be restricted to taxes levied directly on property and income. Therefore, even though import and export duty or duties of excise have reference to goods and commodities, they are not taxes on prop erty directly and are not within the exemption in article 289(1). ............... But, it is contended on behalf of the States that in the scheme of our Constitution no distinction has been made between direct and indirect tax and therefore this distinction is not relevant to the present controversy. It is true that no such express distinction has been made under our Constitution; even so taxes in the shape of duties of customs (including export duties) and excise, particularly, with a view to regulating trade and commerce in so far as such matters are within the competence of Parliament and are covered by various entries in List I to which reference has already been made, cannot be called taxes on property; they are imposts with reference to the movement of property by way of import or export or with reference to production or manufacture of goods. Therefore, even though our Constitution does not make a clear distinction between direct and indirect taxes, there is no doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns holding, possessing and enjoying of a property, including a right to dispose of the same. He stated that the move ment of goods owned by a person for the purpose of use or enjoyment is, therefore, inseparable part of the ownership and any attempt to tax the movement of goods for the purpose of use or consumption will therefore amount to taxing the goods directly. Though the contention may look attractive, it cannot stand scrutiny, by applying the prin ciple laid down in the Sea Customs reference AIR 1963 SC 1760. The Supreme Court has clearly held that indirect taxation is not barred by article 285. What is taxed is not possession or ownership. What is taxed is the activity of bringing the goods into a local area for the purpose of use, consumption or sale. The Supreme Court has, while dealing with customs duty has held that the taxable event for the levy of customs duty is the import of goods within the customs barriers or export outside the customs barriers. When the act of import of goods within the customs barriers (for use, consumption of sale) is considered as not exempted, it follows that the import of goods into a local area, that is causing entry of goods into a local a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry into a local area and includes an occasional dealer. Explanation I.An industrial, commercial or trading undertak ing of the Government of Karnataka, the Central Government or any other State Government, a local authority, company, a Hindu undi vided family, an Aliyasanthana family, a firm, a society, a club or an association which carries on such business shall be deemed to be a dealer for purposes of this Act." 19. An identical contention put forth by the Southern Railway to contend that it was not carrying a "business" and it was not a "dealer" for the purpose of Rajasthan General Sales Tax Act, 1954 was negatived by the Supreme Court in District Controller of Stores, Northern Railway, Jodhpur v. Assistant Commercial Taxation Officer [1976] 37 STC 423. The Supreme Court held: "The word 'business' according to clause (i) of that definition would include any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not it is carried on with a motive to make gain or profit. So even if it be assumed that the activity involved in selling unserviceable material and scrapiron, etc., would not amount to carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he area for sale within the area to an ultimate consumer, it makes no difference that the consumer does not consume them in the area but takes them out for consumption elsewhere. A motorist who buys petrol within the municipal area and goes outside it for a drive buys the petrol in the area for purposes of consumption and the person who keeps and stores the petrol for sale in such circumstances keeps it for consumption therein. The word 'therein' does not mean that all the act of consumption must take place in the area of the municipality. It is sufficient, if the goods are brought inside the area to be delivered to the ultimate consumer in that area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area. Indeed, the consumer may never consume them as, for example, a motorist buys a tin of oil and finds that it does not suit his vehicle and leaves it lying on his shelf. The goods must be regarded as having been brought in for purposes of consumption when a person brings them either for his own use or consumption, or to put them in the way of others in the area, who are to use and consume. In this process the act of sale is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions 'use' and 'consumption' together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up. In this context, the word 'consumption', as has been shown above, must receive a larger meaning than merely the act of consuming in the generally understood sense...........". 23.. The following observations in Anwarkhan Mahboob Co. v. State of Bombay [1960] 11 STC 698 (SC); AIR 1961 SC 213 are also relevant: "In answering that question it is unnecessary and indeed inexpe dient to attempt an exhaustive definition of the word 'consumption' as used in the explanation to article 286 of the Constitution. The act of consumption with which people are most familiar occurs when they eat, or drink or smoke. Thus, we speak of people consuming bread, or fish or meat or vegetables, when they eat these articles of food; we speak of people consuming tea or coffee or water or wine, when they drink these articles; we speak of people consuming cigars or cigarettes or bidis when they smoke these. The production of wealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot for sale, but for use or consumption. The words "use" and "consumption" refer to two different activities. As illustrated by the Supreme Court, some goods may be incapable of consumption in the normal sense, but nevertheless, used within the local area. The Supreme Court has given an example of a motor car or book, which are used, and foodstuffs or drinks which are consumed. While foodstuffs can be "consumed", a motor car cannot be consumed but can be "used". If the goods are such which is not capable of being consumed, but ca pable of being used, and such goods are brought into the local area for the purpose of use, then, it becomes liable for entry tax. On the other hand, if goods which are capable of being consumed, causing entry of such goods into the local area, for consumption, will make the entry liable to tax. It is possible that in some cases, goods may be capable of either "use" or "consumption". It is possible that some goods are capable of being "used and consumed" also. Soap for example is used and consumed. But, we are concerned with HSD, which in the very nature of things, can only be consumed and cannot be "used" with reference to providing energy to locomotives. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration limits) are meant for exports from its depot inside the octroi limits to outside the municipal limits to its dealers for sale, use and consumption by persons other than IOC, outside the octroi limits, it is a transaction of reexport and that the appropriation of goods does not take place at the depot but at the outlets of the dealers or agents outside the municipal limits and therefore no octroi duty is charge able on such transaction. 26.. The case on hand is much stronger. The railway brings the HSD into the local area and stores them in its storage depots. It does not sell the goods. It merely loads them into the tanks of its locomo tives. The locomotives partly use/consume HSD by fuelling the engines for travelling till the border of the local area. Thereafter the locomotive with the remaining HSD in its tank, enters another local area within the State and travels across that local area using up some more HSD. Like this, the locomotive enters and leaves several local areas in the State and uses up/consumes several portions of HSD in its tank and ultimately leaves the last local area in the State with the balance quantity of HSD in its tank. If the railways pays entry t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual ascertainment as to what is taken out of the local area would cause some practical diffi culty, in the case of diesel filled into the tanks of locomotives. But, that itself cannot be a ground to deny the railway, the benefit of exemption under rule 9A(3). One probable way of ascertainment is to find out the total distance travelled by the locomotive from the point of filling/loading into locomotive from the storage tank to the point of exit from Karnataka and calculate the HSD required for travelling such distance from the standard consumption figures (that is kms. per litre or litres for km.) and subject the quantity of HSD that is used up for travelling the said distance to tax and treat the remaining HSD in the tanks of the locomotive as having been taken out of the local area. For example: 2,000 litres of HSD is filled into the tank of a locomotive. The locomotive travels 200 km. from the point of filling to the border of last local area in Karnataka. The standard consumption is say four litres per km. Then value of 1,200 litres will have to be deducted under rule 9A as having been sent out of local area and only the value of 800 litres will have to be taxed as having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in regard to 199899 and 19992000 are not the subjectmatter of this petition. It is open to the Railway to take up the matter with the State Government for extension of benefit similar to that was granted to oil companies and their retail dealers under notification dated May 14, 1998 and October 8, 1999 to Railways also. It is also open to Railways to take up the matter with the State for absolute exemp tion also. But no relief can be given to petitioners in these petitions on the basis of exemption extended to oil companies and its retail dealers. 33.. Learned counsel for the petitioners submits that there is yet another discrimination practised by the State in so far as the Railways is concerned. He submitted that having regard to the definition of terms "dealer" and "business", if Railways can be considered as a "dealer" carrying on "business", it follows that every road transport operator operating any public transport, including buses (carrying passengers) or lorries (carrying goods) would also be "dealers" carrying on "business", and therefore, every public transport vehicle, which enters any local area with diesel in its tank, and uses up such petrol/diesel within the loca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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