Allowed

M/S Indian Oil Corporation Ltd. v. State of Karnataka

Karnataka HC19 Jun 2023CRP/88/2014

Case brief

AI extract

What is this about?

This judgment allows civil revision petitions filed by oil corporations against orders dismissing their appeals challenging entry tax levied on denatured spirit. The Court held that denatured spirit and ethyl alcohol are distinct products, reasoning that the Government notification taxing ethyl alcohol did not cover denatured spirit, and thusEntry taxes cannot be imposed retrospectively.

What did the court decide?

The petitions were allowed; the question of law was answered in favor of the assessee against the Revenue.

M/S Indian Oil Corporation Ltd. Vs State of Karnataka — GST and Indirect Tax | Karnataka HC (2023)

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1 - NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 19^TH DAY OF JUNE, 2023

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PRESENT

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THE HON'BLE MR JUSTICE P.S.DINESH KUMAR

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AND

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THE HON'BLE MR JUSTICE T.G. SHIVASHANKARE GOWDA

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CIVIL REVISION PETITION NO. 88 OF 2014

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C/W

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CIVIL REVISION PETITION NO. 196 OF 2014 (TAX)

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IN C.R.P No. 88 OF 2014

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Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA

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BETWEEN:

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M/s. INDIAN OIL CORPORATION LTD., MARKETING DIVISION INDIAN OIL BHAVAN NO.29, P. KALINGA RAO ROAD (MISSION ROAD) BANGALORE-560 027. REPRESENTED BY ITS MANAGER i/c (F) Ms. VIJAYA MOHAN …PETITIONER

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(BY SHRI. G. SHIVADASS, SENIOR ADVOCATE FOR SHRI. PRASHANTH S. SHIVADASS, ADVOCATE)

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AND:

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STATE OF KARNATAKA REPRESENTED BY PRINCPAL SECRETARY TO GOVERNMENT FINANCE DEPARTMENT GOVERNMENT OF KARNATAKA VIDHANA SOUDHA BANGALORE-560 001.

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COMMISSIONER OF COMMERCIAL TAXES, KARNATAKA VANIJYA THERIGE KARYALAYA

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2 - NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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GANDHINAGAR BANGALORE-560 009.

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JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEAL)-11 BMTC BUS STOP, SHANTINAGAR BANGALORE-560 027.

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DEPUTY COMMISSIONER OF COMMERCIAL TAXES (AUDIT)-3.4 DVO-3, BMTC BUS STOP SHANTINAGAR BANGALORE-560 027.

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ASST. COMMISSIONER OF COMMERCIAL TAXES (ENF.)-7 SOUTH ZONE VANIJYA THERIGE KARYALAYA-11 KORAMANGALA BANGALORE-560 047. …RESPONDENTS

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(BY SHRI. JEEVAN J. NEERALGI, AGA)

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THIS CRP IS FILED UNDER SECTION 15-A OF KARNATAKA TAX ON ENTRY OF GOODS ACT, 1979, AGAINST THE JUDGMENT DATED 3.9.2013 PASSED IN STA NO.107/2010 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL, BANGALORE, DISMISSING THE APPEAL FILED UNDER SECTION 14(1) OF THE KARNATAKA TAX ON ENTRY OF GOODS INTO LOCAL AREAS FOR CONSUMPTION, USE OR SALE THEREIN ACT, 1979.

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IN C.R.P No. 196 OF 2014

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BETWEEN:

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BHARAT PETROLEUM CORPORATION LTD., DUPARC TRINITY, 7^TH FLOOR NO.17, M.G.ROAD BANGALORE-560 001. REPRESENTED HEREIN BY ITS GENERAL MANAGER – FINANCE (SS) SOUTH MRS. S. RAJESWARI …PETITIONER

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(BY Ms. TANMAYEE RAJKUMAR, ADVOCATE)

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NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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AND:

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THE STATE OF KARNATAKA REPRESENTED BY THE COMMISIONER OF COMMERCIAL TAXES VANIJYA THERIGE KARYALAYA KALIDASA ROAD GANDHINAGAR BANGALORE-560 009. …RESPONDENT

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(BY SHRI. JEEVAN J. NEERALGI, AGA)

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THIS CRP IS FILED UNDER SECTION 15-A OF THE KARNATAKA TAX ON ENTRY OF GOODS ACT, 1979, AGAINST THE JUDGMENT DATED 3.9.2013 PASSED IN STA NO.818/2010 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL, BANGALORE, DISMISSING THE APPEAL FILED UNDER SECTION 14(1) OF THE KARNATAKA TAX ON ENTRY OF GOODS INTO LOCAL AREAS FOR CONSUMPTION, USE OR SALE THEREIN ACT, 1979.

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THESE CRPs, COMING ON FOR FINAL HEARING , THIS DAY,

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P.S.DINESH KUMAR, J. , MADE THE FOLLOWING:

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ORDER

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Indian Oil Corporation Ltd¹ ., and Bharath

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Petroleum Corporation Ltd² ., have presented these petitions challenging common impugned order dated September 3, 2013 passed by the KAT³ , Bengaluru, imposing entry tax on denatured spirit. In CRP No.88/2014, Indian Oil Corporation has challenged the order passed in STA No.107/2010.

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1 IOC for short

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2 BPCL for short

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3 Karnataka Appellate Tribunal

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NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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In CRP No.196/2014, Bharath Petroleum Corporation has challenged the order passed in STA No.818/2010.

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The issues involved in these two petitions are common. Hence, they are considered simultaneously and disposed of by this common judgment.

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Heard Shri G.Shivadass, learned Senior Advocate for the assessee and Shri Jeevan J.Neeralgi, learned AGA for the Revenue. They submit that though petitioners have raised several questions of law at the time of filing these petitions and the petitions have been admitted without framing any question of law. According to them, only the following question arises for consideration;

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“Whether the Tribunal was right in holding that denatured spirit purchased by the Petitioner is ethanol, liable to entry tax when sub-entry No. (1) of Entry No. 86 of the First Schedule to the KTEG Act, namely, "(i) Denatured spirit" has not been notified in the Notification No. FD 11 CET 2002 (1) dated 30.03.2002, issued by the Government of Karnataka in exercise of the powers conferred by Section 3(1) of the KTEG Act and when Sl. No. 1 (vii) of the said Notification cannot be interpreted that it covers ' denatured spirit ' like, ' Denatured Anhydrous Ethyl Alcohol/Ethanol (037) ’?”

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NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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These two petitions pertain to A.Y⁴ . 2007-08. During the relevant financial year, the oil companies were selling petrol blended with 5% denatured spirit. The companies bring petrol as well as denatured spirit within the local jurisdiction where the blending takes place. After blending, petrol is sold to dealers. In addition to the KVAT⁵ , petroleum dealers were also paying entry tax on the total sale value of the petrol at 5%.

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During the assessment, the AO⁶ took a view that the denatured spirit which was brought into the jurisdiction was taxable under the Karnataka Tax on Entry of Goods Act, 1979. Accordingly, he levied tax, interest and penalty. The FAA⁷ accepted AO’s order and dismissed assessee’s appeal and so also the KAT.

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Shri Shivadass, learned Senior Advocate

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submitted that;

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Entry Tax is leviable under Section 3 on goods specified in First Schedule of the Act,

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4 Assessment Year

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5 Karnataka Value Added Tax

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6 Assessing Officer

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7 First Appellate Authority

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NC: 2023:KHC:21083-DB CRP No. 88/2014 C/W CRP No. 196/2014

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when the goods are brought into the local

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area for consumption or use or for sale;

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Entry 86(i) is the relevant entry for denatured spirit;

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By a Notification No.FD 69 CET 92(I), dated 30.04.1992, the State Government imposed 2% tax on the denatured spirit and the same was mentioned at Sl.No.66(i). The said notification was cancelled by the State Government by Notification dated 30.03.1994 bearing No.FD 112 CET 93(I);

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By subsequent notification No.FD 11 CET 2002(I) dated 30.03.2022, the State Government sought to impose tax on entry of goods on items mentioned in the notification at Sl.No.1(vii). The entry tax was limited to rectified spirit, neutral spirit and ethyl alcohol and did not include denatured spirit; and

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For A.Ys. 2008-09 to 2013-14, the tribunal has held that denatured spirit and ethyl

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alcohol are not one and the same and deleted the entry tax imposed by the AO and confirmed by the FAA.

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Thus, in substance, the argument canvassed by Shri Shivadass is that entry tax imposed by the State Government is by issuing a notification. The notification issued in the year 1992 was cancelled in the year 1994. In the subsequent notification issued in the year 2002, the State Government have not imposed entry tax on denatured spirit. The relevant A.Y. is 2007-08 and the Notification dated 30.03.2002 is applicable. Under the said Notification, the entry tax could not have been imposed on denatured spirit.

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To demonstrate that the AO was dealing with the product ‘denatured anhydrous ethyl alcohol’, he has placed reliance on Annexure-C and contended that since the Notification dated 30.03.2002 does not include denatured spirit, the entry tax imposed by the AO, confirmed by the FAA and the KAT are unsustainable in law.

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In reply to the contentions urged by Shri Shivadass, Shri Jeevan Neeralgi, learned AGA submitted that ethyl alcohol and denatured spirit are one and the same. The AO has recorded his reasons for imposing entry tax on the denatured spirit and the same has been rightly upheld by both the appellate authorities below. Adverting to Annexure-G, the invoice dated 04.09.2012 issued by the Karnataka State Beverages Corporation Ltd., to the BPCL, Mangalore, relied upon by Shri Shivadass, Shri Neeralgi submitted that anhydrous ethyl alcohol is nothing but ethyl alcohol without water content. Ethyl alcohol finds its place at Sl.No.1(vii) in Notification dated 30.03.2002. Therefore, levy is sustainable. So far as A.Ys.2008-09 to 2013-14 are concerned, the State Government have decided to challenge the same before this court.

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We have carefully considered rival contentions and perused records.

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Section 3 of the Entry Tax Act reads as follows;

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“ 3. Levy of tax:

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(1) There shall be levied and collected a tax on entry of any goods specified in the First Schedule into a local area for consumption, use or sale therein, at such rates not exceeding five percent of the value of the goods as may be specified retrospectively or prospectively by the State Government by Notification and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas.”

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(Emphasis supplied)

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Levy of Entry Tax Act can be imposed by the State Government on products mentioned in the Schedule by issuing a notification. Admittedly, denatured spirit finds its place on Entry 86(i) of the First Schedule. The State Government had imposed tax on the denatured spirit by notifying it at Sl.No.66(i) in the Notification dated 30.04.1992 and the said Notification was cancelled by subsequent Notification dated 31.03.1994.

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Entry Tax has been again imposed on items mentioned in the Notification dated 30.03.2002 at

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Sl.No.1(vii) and the relevant portion reads as follows;

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Sl. No.	Commodity	Rate of Tax
(1)	(2)	(3)
(1)	(i) xxx	xxx
	(ii) xxx	xxx
	(iii) xxx	xxx
	(iv) xxx	xxx
	(v) xxx	xxx
	(vi) xxx	xxx
	(vii) Rectified Spirit, Neutral Spirit, Ethyl Alcohol	4%
	(viii) xxx	xxx

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We may record that the statute recognized denatured spirit in Entry 86(i) in Schedule 1 of the Act. State Government had imposed entry tax in the year 1992 and subsequently cancelled the said Notification. It is not in dispute that what is brought into the local area is ‘denatured anhydrous ethyl alcohol/ethanol’. It is the specific contention of the Revenue that the aforementioned item is ethyl alcohol and therefore, covered by Notification dated 30.03.2002. It was very vehemently contended by Shri Neeralgi that anhydrous ethyl alcohol

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is nothing but ethyl alcohol without water content and they are one and the same. Along with the additional documents, a flow sheet has been filed. It shows that ethyl alcohol has alcohol content of 8 to 12%, anhydrous alcohol contains 99.5% of alcohol and denatured spirit contains 99.8% of alcohol.

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In Notification dated 30.03.2002, the State Government have imposed 4% entry tax on ethyl alcohol. As noticed by us hereinabove, the ethyl alcohol contains 8-12% alcohol. Anhydrous alcohol or denatured spirit which is final product contains alcohol at 99.5% and 99.8% alcohol respectively. Therefore, the contention urged by the Revenue that ethyl alcohol and denatured anhydrous ethyl alcohol are one and the same is untenable. We may further record that once the statute specifies that tax can be imposed by issuing notification by the State Government, the notification must be unambiguous. Earlier, the State Government had imposed on denatured spirit and cancelled that notification. In a subsequent notification, denatured spirit has not been taxed. With this factual situation,

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the Revenue cannot seek to impose tax by canvassing

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an argument that two different products are

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one and the same. Resultantly, these petitions merit consideration and hence, the following;

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ORDER

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(i) Petitions are allowed; and

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(ii) Question of law is answered in favour of the assessee and against the Revenue.

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In view of disposal of these petitions, pending interlocutory applications, if any, do not survive for consideration and they stand disposed of .

No costs.

Sd/JUDGE

Sd/JUDGE

List No.: 1 Sl No.: 23

M/S Indian Oil Corporation Ltd. v. State of Karnataka

Case brief

What is this about?

What did the court decide?

M/S Indian Oil Corporation Ltd. v. State of Karnataka

Case brief

What is this about?

What did the court decide?

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