SANGHVI Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) This set of Appeals once again concerns the aspect of exemption from payment of Entry Tax under the Karnataka Tax on Entry of Goods into Local Areas, Consumption, Use or Sale Therein Act, 1979. The issue in question has been the subject matter of various Decisions and undoubtedly, the law on the point is well settled. There is however one small aspect of the matter that requires due emphasis insofar as it is precisely in respect of this very aspect which has once again arisen also in the present set of Appeals that the legal requirements must be duly clarified. When a contention is taken up that even though the goods physically entered a local area which is subjected to the payment of Entry Tax and the goods in question have either been re-sold or otherwise re-exported out of that area for purposes of ultimate consumption, the Courts have invariably taken the view that since the levy of tax is in respect of ultimate consumption that the goods could be exempt from payment of local tax if they are re-exported to a point where such tax is not payable. Such pleas are often taken up and it is necessary to plug the loopholes with regard to the application of these principles, in order to avoid situations whereunder for purposes of evading the payment of Entry Tax, a plea has been taken up that there has been a resale or a re-export. Occasionally, incidents do arise, such as in the case of consumer goods, whereby the contention is that the goods are carried out of the local area for distribution to various clients, agents and customers and that therefore, that sector of the goods should be exempt from the Entry Tax. This Court had occasion to consider the legal position which is enunciated in the Division Bench Decision reported in 89 STC 221, Siddhagiri v. Entry Tax Officer, II Circle, Commercial Tax Department, Belgaum and also in the subsequent Decision of the Supreme Court reported in 95 STC 5, Entry Tax Officer, Bangalore v. Chandanmal Champalal & Co.. It is with regard to the application of the principle that flows from these Decisions that we need to lay down some further clarifications and guidelines.

(2.) As indicated by us where the plea is that despite the imports into a local area which attracts tax, that an exemption is still liable to be granted because the ultimate destination or consumption of the goods is outside the local area, there will have to be adequate proof adduced before the authorities before such exemption can be granted. The reason for it is that on the imports into the local areas, the incidence of tax is complete and normally, the correct procedure would be that the party should be required to pay the tax by virtue of having brought the goods into the local area and obtain a refund if it can be demonstrated conclusively that the goods have been taken out. The Court also takes cognizance of the fact that this procedure may lead to numerous problems, both for the tax payer and for the Revenue, and therefore, the law recognises a situation whereby if the tax payer is able to demonstrate conclusively that the goods have been taken out not only from that area, but the ultimate purpose is for supply to a point or to an another party signifying thereby that the goods are for the use and consumption in an area outside the local area, an exemption would be permissible. It is this last aspect of the matter which requires to be emphasised in so far as it is insufficient to merely canvass such a plea because the onus of proof would shift completely to the person claiming exemption who will have to prove that the plea taken is in fact quite correct and justified. It is in this back ground that we are required to deal with the facts of the present set of Appeals.

(3.) The appellant is a partnership firm dealing in textiles and they have their principal place of business at Hubli. According to the appellants, they had procured certain textiles from M/s Jiyajee Cotton Mills, Gwalior and M/s Gwalior Mills both of which Companies are situated in another State, to be precise in Gwalior. The appellant's case is that they have other customers in different parts of Karnataka and that the goods in question were procured for supply to those customers who run the retail counters. According to them for purposes of convenience, they had instructed the consignors to despatch the goods directly to those parties. Due to certain transport problems, a few of these consignments were delivered directly to the appellants at Hubli and according to them they thereafter prepared the necessary invoices and despatched those very consignments to the five different customers. It is in respect of this lot of goods that were re-despatched that the present Appeals are concerned.