STATE OF KARNATAKA REPRESENTED BY THE COMMISSIONER OF COMMERCIAL TAXES, V.T.K BUILDING, GANDHINAGAR, BANGALORE - 560009 Vs. M/S. MADRAS CEMENTS LIMITED NO 1, 5TH BLOCK, LALBAGH ROAD, RANKA PARK APARTMENTS, II FLOOR, BANGALORE - 560027 BY ITS MAN

JUDGEMENT

(1.) The State Government has preferred this revision petition being aggrieved by the order dated 17-11-2009 made in STA No.2567/2004 passed by the Karnataka Appellate Tribunal, at Bangalore, setting aside the order dated 26-07-2004 passed by the Appellate Authority and the assessment order dated 23-08-2003 insofar as levying tax on diesel, for the assessment year 2000-2001.

(2.) The respondent-assessee is a Public Limited Company engaged in the manufacturing of Ramco Brand Cement and also registered dealer under the provisions of Karnataka Tax on Entry of Goods Act, 1979 (herein after referred to as "KTEG Act"). In the course of business of cement, for the purpose of generating electrical energy, the assessee has installed generating sets. He has caused entry of diesel and furnace oil into the local area for generating sets to generate electrical energy for the purpose of running the earthmovers. In the annual returns filed, they have declared gross net turnover and also turnover tax amount. On verification of the books of accounts during the assessment year 2000-2001, it is noticed that the assessee has claimed exemption towards importing of diesel and furnace oil stating that the furnace oil and diesel are being used as raw materials to generate electrical energy for the purpose of manufacturing cement. Hence, the assessee is entitled for exemption. The Assessing Authority relying upon the notification No.FD 37 CET 2000(5) Bangalore dated 31-3-2000 held that the assessee is liable to pay entry tax at 4% insofar as diesel and furnace oil are concerned. Accordingly, a demand notice was issued as per the assessment order dated 23-8-2003. The assessee being aggrieved by the said order preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeals) Dviision-2, Bangalore. The Appellate Authority after considering the matter in detail held that the diesel and furnace oil cannot be treated as raw materials for the purpose of manufacturing the cement. Hence, the assessee is liable to pay entry tax. Accordingly, dismissed the appeal by its order dated 26-7-2004. Being aggrieved by the same, the assessee approached the Karnataka Appellate Tribunal in STA No.2567/2004. The Appellate Tribunal relying upon the notification No.FD 34 CET 98(1) dated 31-3-1998 and also notification No.FD 79 CET 98(1), dated 14-5-1998 held that the diesel being used as raw material/input in the manufacture of electrical energy, the assessee need not pay entry tax of 4%. As per the Government Notification dated 14-5-1998, the diesel is omitted from the notification dated 31-3-1998 wherein entry tax has been fixed at the rate of 2%. Further held that the diesel and furnace oil used for the manufacturing of the electrical energy are liable to be treated as raw materials. As per the Government Notification, no tax can be levied on the diesel, which is used as raw material. Accordingly allowed the appeal and set aside the levy of tax on the diesel which was used for the generator. However, imposed 1% tax on the diesel used for running the earth-movers for shifting the limestone to the respondent's factory from the adjoining quarries. In respect of the furnace oil, the Tribunal held that the assessee has to pay entry tax at the rate of 4%. The State Government being aggrieved by the order passed by the Karnataka Appellate Tribunal insofar as deduction of entry tax in respect of the diesel is concerned, has preferred this appeal.

(3.) Smt.S.Sujatha, learned Additional Government Advocate contended that the order passed by the Appellate Tribunal is contrary to law. The Appellate Tribunal misunderstood and misread the various Government Notifications, which were issued under Section 3(1) of the KTEG Act. Though the State Government by its notification No.FD 39 CET 98(1) dated 14-5-1998 deleted the diesel from the notification dated 31-3-1998, subsequently State Government by its notification bearing No.FD 37 CET 2000(3) dated 31-3-2000 imposed entry tax at the rate of 4% on diesel and furnace oil. Further the State Government by its notification bearing No.FD 37 CET 2000(5) dated 31-3-2000 clearly held that even if the goods specified in the notification No.FD 37 CET 2000(3) dated 31-3-2000 brought as raw materials, then also they have to pay the tax at the rate notified in the said notification. The Appellate Tribunal lost sight of these notifications, and only on the basis of the judgment of the Allahabad High Court case of RAMA PAPER MILLS LIMITED v/s STATE OF UTTAR PRADESH AND OTHERS, 2003 132 STC 8 and also judgment in KIRLOSKAR POWER SUPPLY COMPANY LIMITED v/s STATE OF KARNATAKA, 2006 61 KLJ 214 held that diesel and furnace oil have to be treated as raw materials for generation of electrical energy, hence they are not liable to pay tax. The judgments relied upon by the Appellate Tribunal are not applicable to the facts of the case and sought for setting aside the same by allowing this appeal.