2016 Supreme(SC) 689

SUPREME COURT OF INDIA
A.K. SIKRI, R.F. NARIMAN, JJ.
HINDUSTAN LEVER LTD. – APPELLANT
Versus
STATE OF KARNATAKA – RESPONDENT
CIVIL APPEAL NO.4003 OF 2007
Decided On : 02-09-2016

IMPORTANT POINT
Packing materials cannot be construed to be included in ‘raw materials, component parts and inputs’ under Karnataka Entry tax Act.

Headnote:(a) Karnataka Entry Tax Act – Section 2(A)(4a) and 8(a) – Goods – Manufacture – Definition of “manufacture” in the Central Excise Act depends upon the definition of “goods” under Article 366(12) of the Constitution of India – However definition of goods in section 2(A)(4a) of the Act being exhaustive, includes all kinds of movable property and livestock – Unlike Excise Act, marketability not a sine qua non for qualifying as goods under the Act – Taxable event is entry – Charges borne as cost of packing would have to be included in the “value of goods” – Schedule I defines ‘goods’ and ‘packing material’ separately – Packing materials are defined in Entry 66 and ‘raw materials, component parts and inputs’ used in manufacture are separately and distinctively given in Entry 80 – Definition in Entry 80 cannot be extended to cover packing material – Notification dated 31.3.1993 and 23.9.1998 cannot be read to include “packing material” as “raw materials, component parts or inputs used in the manufacture” of tea. (Para 9, 10)

       (2015) 9 SCC 109 – Referred

       (b) Karnataka Entry Tax Act – Section 3 – Notification dated 23.9.1998, Explanation II – Providing for tax @1% for goods which are liable to tax @2%, being finished goods in themselves, may yet be brought into a local area for use or consumption as raw material, component parts and inputs in the manufacture of an intermediate or finished product – In that case such goods will be taxed @1% – Construing Explanation II to include packing material will fly in the face of the scheme of Schedule I of the statute – Further, exemption notification dated 31.3.1993 not containing such Explanation II – Packing material liable to tax @2%. (Para 12, 13)

       (c) Interpretation of statute – Importing definition from another statute – Inputs – Packing material included in ‘industrial input’ u/s 5A of Karnataka Sales Tax Act – Scheme of the Karnataka Sales Tax Act being different, packing material cannot be included in the inputs under Karnataka Entry Tax Act. (Para 14)

       15 STC 240; 109 STC 265; (1994) 6 SCC 479; (1989) 4 SCC 724; (1989) 4 SCC 244; (1989) 4 SCC 566; (1965) 1 SCR 900 – Distinguished

       Facts of the case:

       It is claimed that the Dharwad unit of the appellant, as opposed to the other units manufacturing tea, is a new unit and is, therefore, exempt altogether from payment of entry tax on packing material of tea under a notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as the “Karnataka Entry Tax Act”). Insofar as the other units are concerned, it is the case of the appellant they are covered by Explanation II to a Notification dated 23.9.1998 issued under Section 3 of the said Act, and “packing material” being covered by the said Explanation would entitle them to pay entry tax at the rate of 1% and not 2%. In these appeals, we are concerned with three assessment years 1994-1995, 1995-1996 and 1996-1997.

       The question that arises for decision in this appeal is whether “packing materials” which enter the local area for packing tea manufactured by the appellant can be said to be raw material, components, or inputs used in the manufacture of tea.

       All the authorities under the Entry Tax Act i.e. the Assessing Authority, the First Appellate Authority and the Karnataka Appellate Tribunal have held that packing material cannot be regarded as raw material, component parts or inputs used in the manufacture of finished goods and, therefore, in the context of the Entry Tax Act read with Schedule I, such packing material is neither exempt nor chargeable at the rate of 1% on a true construction of the aforesaid notifications of 1993 and 1998.

       The High Court has dismissed the revision petitions.

       Finding of the Court:

       High Court rightly dismissed the petition.

       Result: Appeal dismissed.