M/S MALNAD ARECA PROCESSING & MKTG. LTD.versusTHE DY. COMMISSIONER OF COMMERCIAL TAXES (ASSESSMENT) AND ORS.

                                [2008] 5 S.C.R. 571


             M/S MALNAD ARECA PROCESSING & MKTG. LTD.                    A
                                     v.
                THE DY. COMMISSIONER OF COMMERCIAL
                   TAXES (ASSESSMENT) AND ORS.
                     (Civil Appeal No. 2225 of 2008)
 ...._                          MARCH 28, 2008                           B

                  [DR. ARIJIT PASAYAT AND D.K. JAIN, JJ.]

                Sales Tax:
                 Karnataka Sales Tax Act, 1957 - ss. 5 and 6 - New       c
           Industrial Policy, 1996 - Clause 5 - Sales Tax concession for
           new industrial units - Assessee purchasing arecanut from
           members-growers and selling it outside the State - Purchase
           tax leviab/e u/s 6 - Exemption - Entitlement of - Held: Not
•          entitled - Under the Notification, tax leviable u/s 5 on goods D
-~         manufactured and sold by industrial units is only exempted -
           Government order No. Cl. 30SPC. 96(1) dated 15. 3. 1996 as
           amended by Government Order No. Cl. 30SPC. 96(1) dated
           14.5.1996 -Notification dated 15.11.1996.
                 Words and Phrases:                                       E

                'Sales tax' and 'Sales tax deferral' - Meaning of
                The question which arose for consideration in this
           appeal was whether assessee was eligible for exemption
           from purchase tax levied under section 6 of the Karnataka F
 ".:....   Sales Tax Act, 1957 on the value of arecanut purchased
           from member-growers and consignment of arecanut
           outside the State for sale by virtue of the Notification
           issued by the State Government pursuant to Government
           order No. Cl. 30SPC. 96(1) dated 15.3.1996 as amended by G
           Government Order No. Cl. 30SPC. 96(1) dated 14.5.1996.
    I
    -r          Dismissing the appeal, the Court
                HELD: 1.1 A sale and a purchase are two different
                                    571                                  H
    572       SUPREME COURT REPORTS                  [2008] 5 S.C.R.


A aspects of the same transaction. Whether sale or
  purchase, it will have same ingredients, both in common
  law and also under Sale of Goods Act. In the field of
  taxation, it is recognized that the power to classify the
  objects or persons to be taxed or exempted from levy is
B with the legislature. It also enjoys the power to select
  persons or trransactions. Therefore, a law of the State
  could levy tax both at the sale point and at the purchase
  point. [Para '17] [577-F, G; 578-A]
          1.2 Undler the Government Order, the policy of the
C   Government as spelt out is, that tiny and small scale
    industries and medium and large scale industries may
    exercise theiir option either for sales tax exemption or
    sales tax deferment both under the Karnataka Sales Tax
    Act, 1957 and Central Sales Tax Act, for number of years
0   prescribed im the Government Order itself. In the context
    in which these expressions are used, they only mean
    'sales tax holiday' or exemption from payment of sales
    tax for number of years specified, depending on where
    the tiny or !Small scale industry is located. 'Sales tax' refers
    to any tax which includes within its scope all 'business of
E   sale of goods' specified in the Schedule. Similarly, 'Sales
    tax deferral' only means the aforesaid industries are
    entitled t:o collect tax but they need not pay sales tax
    collected immediately to the State. If understo,ad in this
    manner and thereafter the New Industrial Policy of the
F   State Government for the years 1993-1998 and the
    exemption notification is looked into, the only conclusion
    that cam be drawn is, what is exempted under the
    notification issued by the State Government is tax leviable
    under Section 5 of the Act on the goods manufactured
G   and sold by an industrial unit. Therefore, the notification
    is in nci way in variance or contrary to the industrial policy
    for the years 1993-1998. The High Court rightly highlighted
                                                                           •
    the above position. Thus, there is no infirmity in the             T
    impugned order of the High Court. [Paras 17 and 18]
H   [578-A, B, C, D, E, F, G]
          M/S MALNAD ARECA PROCESSING & MKTG. LTD. v.                    573
          THE DY. COMMNR. OF COMM. TAXES [PASAYAT, J.)

               Devi Dass Gopal Krishnan v. State of Punjab AIR 1967             A
          SC 1895 - referred to.
              CIVIL APPELLATE JURISDICTION : Civil Appeal No.
          2225 of 2008.
               From the final Judgment and Order dated 02.01.2006 of            B
          the High Court of Karnataka at Bangalore in W.P. No. 18392 of
          2005 (T-KST) C/W Sales Tax Revision Petition 91/04 (STRP
          No. 91-92 of 2004).

              G. Sarangan, Sanjay Kunur and N.N. Keshwani for the
          Appellant.                                                            c
               Sanjay R. Hegde for the Respondents.

               The Judgment of the Court was delivered by
               DR. ARIJIT PASAYAT, J. 1. Leave granted.
                                                                                D
   ....         2. Challenge in this appeal is to the order passed by a
          Division Bench of the Karnataka High Court dismissing the Writ
          Petition and the Sales Tax Revision Petition filed by the
          appellant.
                                                                                E
                3. The Writ Petition No.18392/2005 was filed under Articles
          226/227 of the Constitution of India, 1950 (in short the
          'Constitution') with a prayer to quash the assessment orders on
          the ground that they are contrary to the policy notification issued
          by the Karnataka Government. The Sales Tax Revision Petition
          was filed under Section 23(1) of the Karnataka Sales Tax Act,         F
",;.;.    1957 (in short the 'Act') against the judgment and order dated
          29.6.2004 passed by the Karnataka Appellate Tribunal,
          Bangalore (in short the 'Tribunal').
                4. The only question that arose for consideration in the G
          petitions before the High Court was whether the assessee-
          industry was eligible for exemption in respect of purchase tax
•,.....   leviable under Section 6 of the Act on the value of arecanut
          purchased from member-growers and consignment of arecanut
          outside the State for sale, as also the levy of turnover tax under
                                                                             H
    574       SUPREME COURT REPORTS                  (2008] 5 S.C.R.


A   Section 6-8 and cess under Section 6-D of the Act by virtue of
    the Notification issued by the State Government pursuant to the
    Government Order No.Cl.30SPC.96(1) dated 15.3.1996 as
    amended by Government Order No.Cl.30.SPC.96(1) dated
    14.5.1999.
B         5. The assessee was engaged in the processing of
   arecanut purchased from members growers and sale thereof
   to non resident commission agents. The assessee was
   registered as a new industrial unit with the Directorate of
   Commerce and Industries and claimed to be governed by
C package of New Industrial Policy, 1996 and Package of
   Incentives and Concessions under 1996-2001 Scheme and
   eligibility certificate in that regard had been issued. Though
   initially the claim was accepted, subsequently, the revisional
   authority initiated proceedings under Section 21 (1) of the Act
D and revised the assessment orders and levied purchase tax
   under Section 6 along with the turnover tax under Section 6-8
   of the Act and cess under Section 6-D of the Act on the ground
   that the appellant is eligible for sales tax exemption only on the
   sales turnover of manufactured goods in terms of the
E Government Order dated 15.3.1996 as amended by
   Government Order dated 14.5.1999 and thus Notifications did
   not cover tax leviable under Section 6 of the Act on the purchase
 · value of arecanut effected from registered and unregistered
   dealers. It is to be noted that the writ petition related to the
F assessment years 2001-2002 and 2002-2003 while revision
   petition related to assessment years 1999-2000 and 2000-
   2001.
         6. Stand of the assessee before the High Court was that
  the expression "commercial tax, incentives and concessions"
G finds its place in the Government Order dated 14.5.1999. It was
  the assessee's stand that the expression "tax" covers the tax
  leviable under the provisions of the Act and there was no
  justifiable reason to exclude purchase tax levied or leviable under   T
                                                                            '
  Section 6 as the same was tax under the provisions of the Act.
H Stand of the revenue on the contrary was that what is exempted
             M/S MALNAD ARECA PROCESSING & MKTG. LTD. v.                     575
             THE DY. COMMNR. OF COMM. TAXES [PASAYAT, J.]
 ·-r
            .under the Government orders and the implementation                     A
            notification is only "sales tax" and not "purchase tax'' levied under
            Section 6 of the Act. It was pointed out that the Government
            Orders dated 15.3.1996 and 14.5.1999 and Notification issued
            by the State Government in exercise of its powers under Section
            19(C) of the Act in implementing the Government orders                  B
   .4.
            exempts bnly tax payable under the Act in respect of the goods
            manufactured and sold by the industrial units. The High Court
            after referring to various clauses in the Government Order and
            the Industrial Policies accepted the stand of the revenue.

                  7. The stand taken before the High Court was re-iterated          c
            by learned counsel for the appellant.
                    8. With reference to one of the items covered by
            Notification i.e. coffee curing unit, it was stated that there was
            no question of any exemption being given at the time of
                                                                                D
            purchase. It was therefore submitted that the purchasers have
    .....
            been given the additional benefits only. For the purpose of
            making the benefit meaningful purchase tax has to be included.
            It is to be read into it. The exemption is at the discretion of the
            Government and there cannot be any doubt about it. But it was
            the deliberate policy of the State Government to grant the benefit E
            under Section 6. The levy of purchase tax is under certain
            circumstances.
                  9. Learned counsel for the State on the other hand
            submitted that both the GOs dated 15.3.1996 and 14.5.1999 F
........    lay emphasis on manufacture and sale. It is pointed out that the
            articles purchased by the appellant are processed and sent to
            places outside the State and they purportedly sell the goods in
            the course of inter State trade in other States. The stress is on
            sale and not purchase of raw materials. The GOs speak of
                                                                               G
            exemption or deferment. It is never the intention of the State
            Government, it is pointed out, to grant the benefit to a dealer
•-y-        who after getting the benefit effected sales purportedly in course
            of inter State sale in some other States. There is no logic for
            granting such exemption.
                                                                               H
    576       SUPREME COURT REPORTS                   [2008] 5 S.C.R.

                                                                         ~

A         10. ln order to appreciate the rival submissions the
    Notification and Government order need to be noted. The
    Notification dated 15.11.1996, so far as relevant, provided as
    follows:

          "(i) (a) hereby exempts the tax payable under the said Act
B         in respect of goods manufactured and sold by new
          industrial units mentioned in column (2) of the 'Table-A'
                                                                         ..
          below, located in the zones specified in column (3) and
          during the period and to the extent mentioned in column
          (4)."
c
          11. The subsequent Government order dated 14.5.1999
    so far as relevant reads as follows:
          "Para 11(7) of Annexure Ill to Government Order No.Cl 30
          SPC 96, dated 15.3.1996 shall be modified to read as
D         under:
                                                                         ....
          "Commercial tax incentives and concessions under the
          said order shall be available only for the manufacturing
          units as defined for the purposes of Karnataka Sales Tax
          Act. However, certain specified categories of non
E
          manufacturing units as detailed in Appendix IV shall be
          eligible for the incentives and concessions as per the said
          order."
          12. As rightly submitted by learned counsel for the
F   respondents there is no change so far as the requirement in the
    notification dated 15.11.1996 relating to prescription that the      _,.,_ •
    goods manufactured and sold by new industrial units.
          13. Clause 5 of the 1996 Industrial Policy reads as follows:
          "Clause 5: Sales Tax Concession for new Units:
G
          Industrial investments in the Tiny/SST/Medium and Large
          Scale Sectors would be provided with the option of either
                                                                                '
          Sales Tax exemption or sales tax deferral (KST/CST).             T
          The option is allowed one time only, at the initial stage of
H         availing the concession."
              M/S MALNAD ARECA PROCESSING & MKTG. LTD. v.                 577
              THE DY. COMMNR. OF COMM. TAXES_[PASAYAT, J.]
 ~
                  Clause 7 reads as follows:                                     A
                  "7. Incentives and concessions under this order shall be
                  available only for 'manufacturing' units as defined for the
                  purpose of Karnataka Sales Tax Act. However, specified
                  categories of 'Non-manufacturing' units, as detailed in
                  Appendix-IV shall also be eligible for the incentives and B
                  concessions as per this order."
                  14. There appear to be some amount of confusion as to
             the effect of the two clauses 5 and 7. It is to be noted that the
             confusion relating to entitlement of manufacturing and non          c
             manufacturing units was sought to be clarified by the Government
             Order. Primary objective of the subsequent Government Order
             dated 14.5.1999 was to extend benefit under Government Order
             dated 15.3.1996 to certain non-manufacturing units.
                   15. In the Government Order what is provided to new D
    ......   industrial units is the sales tax exemption or deferral of sales
             tax under the Act and the Central Sales Tax Act, 1956 (in short
             the 'CST Act').
                   16. Clause 5 of the Government Order dated 15.3.1996
             of the industrial policy 1996-2001 provides for sales tax E
             concession and incentives. The said clause provides for an
             option to industrial investments in the tiny/SSl/medium and large
             scale sectors to claim either sales tax exemption or sales tax
             deferral.
                                                                               F
•,.....            17. A sale and a purchase are two different aspects of the
             same transaction. Whether sale or purchase, it will have same
             ingredients, both in common law and also under Sale of Goods
             Act. As stated by this Court in Devi Dass Gopal Krishnan v.
             State of Punjab (AIR 1967 SC 1895), the transaction, which the
                                                                               G
             Sales Tax Laws are concerned with, is a transfer of property in
             goods for price, inter vivos, both in the case of sale as well as
t...,.       purchase. In the Government Order, what is provided to the new
             industrial units, is an option to claim sales tax exemption or
             deferment of sales tax both under the Act and CST Act. In the
                                                                               H
    578       SUPREME COURT REPORTS                     [2008] 5 S.C.R

                                                                            ..,._-
A   field of taxation, it is recognized that the power to classify the
    objects or persons to be taxed or exempted from levy is with
    the legislature. It also enjoys the power to select persons or
    transactions.A law of the State, could therefore, levy tax both at
    the sale point and at the purchase point. Under the Government
B   Order, the policy of the Government as spelt out is, that tiny and
    small scale industries and medium and large scale industries
    may exercise their option either for sales tax exemption or sales
    tax deferment for number of years prescribed in the Government
    Order itself. In the context in which these expressions are used,
c   they only mean "sales tax holiday'' or exemption from payment
    of sales tax for number of years specified, depending on where
    the tiny or small scale industry is located. "Sales tax" refers to
    any tax which includes within its scope all 'business of sale of
    goods' specified in the Schedule. Similarly, "Sales tax deferral"
    only means the aforesaid industries are entitled to collect tax
D
    but they need not pay sales tax collected immediately to the             ..._
    State. If understood in this manner and thereafter the New
    Industrial Policy of the State Government for the years 1993-
    1998 and the exemption notification is looked into, the only
    conclusion that can be drawn is, what is exempted under the
E   notification issued by the State Government is tax leviable under
    Section 5 of the Act on the goods manufactured and sold by an
    industrial unit. Therefore, the notification is in no way in variance
    or contrary to the industrial policy for the years 1993-1998.
         The above position has been rightly highlighted by the High
F
    Court.                                                                    >-
                                                                                     .
         18. In that view of the matter, we find no infirmity in the
    impugned order of the High Court. The appeal is dismissed.
    There will be no order as to costs.
G
    N.J.                                           Appeal dismissed.

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