Holding

Tower cranes are not industrial inputs; the claim for concessional tax is untenable, but a penalty may be imposed, reduced to Rs.5 lakhs.

Summary

B.G. Shirke Construction Technologies (P) Ltd, a dealer engaged in constructing houses for the Karnataka Housing Board, purchased tower cranes in 1995-96 and claimed a concessional 4% sales tax rate under Notification FD.43.CSL 94(iv) by filing Form 37. The assessing authority held that the company did not satisfy the conditions of the notification, particularly that the cranes were not "industrial inputs" and levied differential tax and a penalty under Section 8‑A(5)(a). The first appellate authority set aside the demand, but the revisional authority reversed that decision, reducing the penalty by half, and the Karnataka High Court dismissed the appeal. On appeal before the Supreme Court, it was held that tower cranes are hoisting machines used in construction and cannot be treated as industrial inputs or component parts of any other goods, rendering the claim for concessional tax untenable. The Court affirmed the liability to pay the differential tax but reduced the penalty to Rs.5 lakhs, considering the quantum of tax involved. The appeal was therefore partly allowed with respect to the penalty, and dismissed on all other points.

Issues considered

Whether tower cranes qualify as "industrial inputs" under Notification FD.43.CSL 94(iv) for the purpose of claiming a concessional sales tax rate.
Whether the assessee satisfied the conditions prescribed in the notification, including filing Form 37 and proving the purchased machinery as an industrial input.
Whether a penalty under Section 8‑A(5)(a) of the Karnataka Sales Tax Act can be imposed and, if so, what is the appropriate quantum.

Legislation cited

Karnataka Sales Tax Act, 1957s. 20(5), s. 22(A)(1), s. 24(1), s. 5, s. 5-A, s. 8-A(5)(a), s. SA

Subjects

sales taxindustrial inputtower cranepenaltyKarnataka Sales Tax Actnotificationconcessional tax rateForm 37construction

Judgment

A MIS. B.G. SHIRKE CONSTRUCTION TECHNOLOGIES (P) LTD.
v.
THE ADDL. COMMISSIONER OF COMMERCIAL TAXES

FEBRUARY 2, 2007

B [DR. ARJJIT PASA YAT AND S.H. KAPADIA, JJ.]

Sales Tax:

Karnataka Sales Tax Act, 1957: ss. 8-A(5)(a), 20(5), 22(A)(l) and 24
C and Notification No. FD.43, CSL 94(iv) dated 31.3.94:
Exemption Notification-Assessee-dealer engaged in manufacture of
prefabricated pillars, column etc. purchasing Tower Cranes availing rebate
in tax in terms of the Notification-Applicability of Notification-Held: A
D crane is a hoisting machine used to lift and move heavy loads-Tower cranes
a have built in jacks to raise the crane through opening in the floor as
building goes up-Cranes are taken apart and lowered after completion of
buildings-High Court rightly observed that Tower cranes could not be
considered as industrial inputs either as component or as raw materials of
any other goods-Hence the claim made by the assessee untenable and not
E sustainable-However, in the facts and circumstances of the case, levy of
penalty of rupees jive lakhs would suffice.

Appellant-assessee is a dealer engaged in the construction of houses
for Karnataka Housing Board. It manufactures pre-fabricated pillars,
columns, beams etc., and then used them for the execution of the civil works
F contract. During the assessment year 1995-96 the assessee had purchased
Tower Cranes from another registered dealer and had availed concessional
rate of tax at 4% on the purchases by producing declaration in Form No.37.
However, the assessing authority found that the assessee company had not
fulfilled all the conditions prescribed under the exemption Notification
G No.FD.43.CSL 94(iv) dated 31.3.1994, therefore, it was not eligible to claim
any benefit under the Notification. The Authorities had initiated proceedings
under Section 8-A(S)(a) of the Karnataka Sales Tax Act and came to the
findings that the nature of the business activity carried on by the assessee is
not manufacturing or processing of goods for sale and, therefore, it has
contravened the specified conditions of the Notification. Thus, the authorities
H 248
j
B.G. SHIRKE CONSTRUCTION TECHNOLOGIES {PJ LTD. 1' THE ADDL COMMNR. OF COMMERCIAL TAXES 249

held the assessee liable to pay differential amount of tax and also penalty in A
terms of Section 8A(S)(a) of the Act. Aggrieved, the assessee filed an appeal
before the first appellate authority. The authority allowed the appeal. The
revisional authority reversed the orders passed by the first appellate authority,
however, the amount of penalty was reduced by 50%. Appellant filed an appeal
under Section 24(1) of the Act before the High Court. The High Court held B
that the order passed by the authorities did not warrant any interference.
Hence the present appeal.

Appellant-assessee contended that the authority empowered to issue the
Notification had made it abundantly clear that the dealer who effects the sale
of machinery can take the benefit of the said Notification only after fulfilling C
the other two conditions mentioned therein i.e. (1) that the dealer should
produce a declaration in Form 37 duly filled in and signed by the
manufacturing industrial unit, the purchasing dealer and (2) satisfactorily
prove that what has been sold to a registered 1ealer is an industrial input for
use by it as a component part of raw material or packing material for
manufacture and sale inside the State; and that a narrow construction has D
been put on the expression "industrial input". By giving a broader
interpretation, it should have been held that the assessee was entitled to get
the benefit of the Notification.

Partly allowing the appeal, the Court
E
HELD: I. A crane is a hoisting machine used to lift and move heavy
loads. There are different types of cranes and Tower Crane is one such crane
which is mostly nsed to construct high rise buildings. It has been noted by
the High Court that most Tower Cranes also called "Climbing Cranes", have
built in jacks that raise the cranes through openings in the floor as the F
building goes up. The cranes are taken apart and lowered after completion of
the buildings. As rightly observed by the High Court the Tower Cranes cannot
be considered as industrial inputs for use either as a component part or as a
raw material of any other goods. [Para - 13) (253-G-H; 254-AJ

2. Assessee had purchased the Tower Cranes in the year 1995 and had G
availed concessional rate of tax of 4% on the said purchase by producing
-I declaration in Form-37 in terms of Section SA of the Karnataka Sales Tax
Act. Revisional authority has elaborately discussed the legal and factual
position to conclude that the claim made by the assessee was untenable and
not sustainable. In fact, the High Court has also analysed the position in
great detail. The view expressed by the High Court about the non-acceptability H
250 SUPREME COURT REPORTS [2007] 2 S.C.R.

A off:he claim and levy of tax and penalty is. However, so far as the question of
quantum of penalty is concerned, the legitimate amount which was to be
collected by the Revenue was not deposited by the assessee because of the
claim at con~essional rate of tax. Considering the quantum of tax involved
and the period for which the amount was withheld, levy of penalty of rupees
B five lakhs would suffice. [Paras 15 and 16] [254-F-H; 255-A-B]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 439 of 2007.

From the final Judgment and Order dated 14. 7.2005 of the High Court ~
ofKamataka at Bangalore in S.T.A. No. 1/2003.

C U.U. Lalit, Nikhil Majithia, Joseph Pookkatt and Prashant Kumar for the
Appellant.

Sanjay R. Hedge, Anil K. Mishra, Vikrant Yadav and Sashidhar for the
Respondents.

The Judgment of the Court was delivered by

Dr. ARIJIT PASAYA T, J. Leave granted.
I-
I. Challenge in this appeal is to the judgment rendered by a Division
Bench of the Kamataka High Court dismissing the appeal filed by the appellant
under Section 24(1) of the Kamataka Sales Tax Act, 1957 (in short the 'Act').
Appellant called in question legality or otherwise of the orders passed by the
Additional Commissioner of Commercial Taxes, Zone-JI, Gandhinagar, Bangalore,
. dated 12.6.2002.

2. Background facts in a nutshell are as follows:

The appellant is a dealer registered under the provisions of the Act. 1t
is borne on the files of the Deputy Commissioner of Commercial Taxes
(Assessment), 46th Circle, Bangalore. The main activity of the appellant is
construction of mass houses for Kamataka Housing Board. For its business
activity, the appellant manufactures pre-fabricated pillars, columns, beams
etc., and then those items are used for the execution of the civil works
contract.

3. During the financial year ending on 31.3.1996, i.e. assessment year
1995-96 the assessee had purchased Tower Cranes from another registered
dealer and had availed concessional rate of tax at 4% on the said purchases
I
j_

B.G. SH!RKE CONSTRUCTION TECHNOLOGIES (P) LTD. r. THE ADDL. COM~fNR. OF COMMERCIAL TA.\'.F.S IPASA YAT. J.] 25 J

by producing declaration Fonn No.37. While computing the tax liabiiity of the A
assessee for the assessment year 1995-96, the assessing authority had noticed
that the Tower Cranes so purchased by the assessee are nothing but machinery
covered under SL No.l(iii) of Part 'M' of the Second Schedule to the Act and
since the company had not fulfilled all the conditions prescribed under the
notification No.FD.43.CSL 94(iv) dated 31.3.1994, it was not eligible to claim B
any benefit under the notification and, therefore, had initiated proceedings
under Section 8-A (5)(a) of the Act. In the said proceeding, it was the stand
of the assessee-appellant that it is an industrial unit located in the State and
) the purchase of the machinery made by it is used in the manufacturing of
goods for sale and, therefore, eligible and also entitled to take the benefit of
the notification issued by the State Government dated 31.3.1994. The assessing C
authority, after considering the objection of the assessee, came to the
conclusion that the nature of the business activity carried on by the assessee
is not one of manufacturing or processing of goods fJr sale and, therefore,
it has contravened the specified conditions under the notification.
Accordingly, he raised a demand of an amount equal to the difference between
the tax payable and tax paid amounting to Rs.10,71,745/- and also penalty D
amounting to Rs.18,00,531/- as envisaged under Section 8A(5)(a) of the Act.

4. Aggrieved by the aforesaid order, the assessee carried the matter in
an appeal before the first appellate authority. The said authority allowed the
appeal and set aside the orders passed by the assessing authority, on the E
ground that the assessee satisfied all the conditions prescribed in the
notification and, therefore, was entitled to take the benefit of the notification
issued by the State Government dated 31.3.1994.

5. The Additional Commissioner of Commercial Taxes, being of the view
that the order passed by the first appellate authority is erroneous and also p
prejudicial to the interest of the revenue, initiated proceedings under Section
22-A (1) of the Act, and came to the conclusion that the first appellate
authority was not justified in allowing the appeal and in setting aside the
order passed by the assessing authority dated 3.3.2001. The revisional
authority, who revised the orders passed by the first appellate authority
assigned several reasons. However, the amount of penalty was reduced by G
50%. Appellant filed an appeal under Section 24( I) of the Act.

6. Stand of the appellant before the High Court was that the Assessing
Authority was not justified in holding that the assessee had contravened the
conditions specified in the notification issued by the State Government dated H
252 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 31.3.1994 and, therefore, levy of penalty under Section 8A(5)(a) of the Act ~
was not justified. On the contrary, stand of the respondent-State was that
since the assessee did not satisfy all the conditions specified in the notification,
the Assessing Authority as well as the Revisional Authority were justified
in directing the assessee to pay the amount equal to the difference between
tax payable and the tax paid under the Act and also in levying the penalty
B for contravention of the conditions specified in the notification dated 31.3.1994.
The High Court after analyzing the notification came to hold that the order
passed by the authorities did not warrant any interference.

7. Learned counsel for the appellant submitted that the authority
C empowered to issue the notification had made it abundantly clear that the
dealer who effects the sale of machinery can take the benefit of the notification
only after fulfilling the other two conditions mentioned in the notification i.e.
(I) that the dealer should produce a declaration in Fonn 37 duly filled and
signed by the manufacturing industrial unit i.e. the purchasing dealer and (2)
satisfactorily prove that what has been sold to a registered dealer is an
D industrial input for use by him/it as a component part of raw material or
packing material for manufacture and sale inside the State.

8. The High Court observed that what was purchased by the appellant
by the appellant is a "Tower Crane". By no stretch of imagination the High
Court observed that "Tower Crane" would be considered as an industrial
E input for use either as a 'component part' or as a 'raw material' of any other
goods. Accordingly, the appeal was dismissed as noted above.

9. In support of the appeal, learned counsel for the appellant submitted
that a narrow construction has been put on the expression "industrial input".
F By giving a broader interpretation, it should have been held that the appellant
was entitled to get the benefit of the notification.

I 0. Per contra, learned counsel for the respondent supported the
judgment and orders of the authorities below and the impugned judgment of
the High Court.
G 11. In order to appreciate the rival submissions the notification which
fonns focal point of controversy is to be quoted. The same reads as follows:

"In exercise of the powers conferred by Section 8-A of the KST Act,
1957 (Karnataka Act 25 of 1957, the Government of Kamataka hereby
H reduces with effect from the first day of April, 1994, the rate of tax
B.G. SHIRKE CONSTRUCTION TECHNOLOGIES (P) LT~.~·. THE ADDL. COMMNR. OF COMMERCIAL TAXES IPASAYAT. J.j 25 3

payable by a dealer under Section 5 of the said Act to four per cent A
on,

(i) raw edible oil when sold to a manufacturer in the State for
processing of refined oil; and
(ii) Machinery covered under SI. No.l(iii)(a) of part M ofll Schedule B
when sold to an Industrial Unit located in the State for use by
such unit in the manufacturer or processing of goods for sale.

Subject to the condition that the dealer produces before the assessing
authority a declaration in Form 37 duly filled in and signed by the said
manufacturer or industrial unit, as the case may be and subject to
further condition that all the provisions relating to taxation of industrial C
inputs under Section 5-A of the said Act shall apply mutatis mutandis
to the notification."

12. Stand of the appellant before the High Court and in this appeal is
that the appellant is a civil contractor and it manufactures pre-fabric beams D
and column for sale and, therefore, is an industrial unit. Though the High
Court had reservation about accepting this stand, it held that it did not intend
examination of that issue. The expressions "industrial inputs" '"component
parts" and "raw material" have been explained in the explanation appended
to this provision itself. The expression "industrial inputs" means either
component part or raw material or packing material. The expression "raw E
material" means any material from which another product can be made through
the process of manufacture, either by itself or in combination with another
material; or a processing of any other solvent (including chemicals) used for
testing analysis or research used in the solvent extraction process or a
catalyst required in the manufacturing process, but it does not include fuels
and consumable stores of similar types. All these conditions require to be
F
satisfied by the dealer effecting the sale of machinery of all kinds to an
industrial unit to claim reduced rate of tax under the notification.

13. There is no dispute that a crane is a hoisting machine used to lift
and move heavy loads. There are different types of cranes and Tower Crane G
is one such crane which is mostly used to construct high rise buildings. It
has been noted by the High Court that most Tower Cranes also called
-~ · "Climbing Cranes", have built in jacks that raise the cranes through openings
in the floor as the building goes up. The cranes are taken apart and lowered
after completion of the buildings. As rightly observed by the High Court the
Tower Cranes cannot be considered as industrial inputs for use either as a H

I
\
J,
254 SUPREME COURT REPORTS [2007] 2 S.C.R.

A component part or as a raw material of any other goods.
14. The residual question is the quantum of penalty. The Assessing
Authority had imposed penalty of Rs.18,00,531/- The sum was reduced to
50% of the amount by the revisional authority. Section 8A(5)(a) which is
relevant provision relating to imposition of penalty reads as follows:-
B
"Where any restriction or condition specified under sub Section (2)
in respect of goods taxable at the point of sale is contravened or is
not observed by the purchaser of such goods, notwithstanding that
such a purchaser is not a dealer or that the sale value of such goods
is less than the turnover specified in sub Section (5) of Section 5,
c such purchaser shall be liable to pay an amount equal to the difference
between the tax payable at the rates specified under the Act and the
tax paid at the rates specified under the notification on the goods
purchased in respect of which such contravention or non-observance
has taken place, as if the provision of the notification under sub-
D Section (I) did not apply to such purchases and in addition, such
purchaser shall also b~ liable to pay by way of penalty a sum not
exceeding the amount equivalent to the amount of tax leviable on the
sale price of such goods."

15. The outer limit of the amount of penalty is a sum not exceeding the
E amount equivalent to the amount of tax leviable on the sale price of the
goods. It has been accepted by the respondent that the amount of tax
payable is Rs. I 0,28,875/- though originally it was calculated at
Rs.10,71,745/-. The appellant had purchased the Tower Cranes to the extent
ofRs.1,71,47,917.80 in the year 1995 and had availed concessional rate of tax
F of 4% on the said purchase by producing declaration in Form-3 7 i.e. declaration
prescribed under Section SA of the Act.

16. Learned counsel for the appellant has submitted that there was a
finding recorded by the Joint Commissioner of Commercial Taxes (Appeals)
under Section 20(5) of the Act that the order of the Assessing Authority
G imposing tax and penalty was not maintainable. The revisional order passed
by the Additional Commissioner, Commercial Tax under Section 22(A)(I) of
the Act set aside such order. Since there was a finding in favour of the
assessee-appellant, the inevitable conclusion is that the claim of the assessee
to avail concessional rate of tax was based on a possible view. We find no
substance in that plea. Revisional authority has elaborately discussed the
H legal and factual position to conclude that the claim made by the assessee-
·-L
B.G. SHIRKE CONSTRUCTIONTECHNOLOGIES(P) LTD.1•. THE ADDL COMMNR. OF COMMERCIAL T~ES jPASAYAT. J.f 255

appellant was untenable and not sustainable. In fact, the High Court has also A
analysed the position in great detail as noted above. We concur with the
view expressed by the High Court about the non-acceptability of the claim
and levy of tax and penalty. However, so far as the question of quantum of
penalty is concerned, it is to be noted that the legitimate amount which was
to be collected by the Revenue was not deposited by the assessee-appellant
because of the claim at concessional rate of tax. Considering the quantum of B
tax involved and the period for which the amount was withheld, we are of the
view that levy of penalty of rupees five lakhs would suffice. The amount shall
be deposited within a period of one month from today if not already done.
The appeal is allowed, so far as the quantum of penalty is concerned only
and dismissed so far as other aspects are concerned. There shall be no order C
as to costs.

S.K.S. Appeal Partly allowed.