LEGAL ISSUE: Whether the sales tax exemption under the Industrial Policy of 1996 extends to purchase tax.
CASE TYPE: Tax Law
Case Name: M/s High Range Coffee Curing Pvt. Ltd. vs. The State of Karnataka & Ors.
Judgment Date: 05 February 2020
Date of the Judgment: 05 February 2020
Citation: [Not Available in Source]
Judges: Hon’ble Mr. Justice A.M. Khanwilkar and Hon’ble Mr. Justice Dinesh Maheshwari
Can a sales tax exemption granted to industries also cover purchase tax? The Supreme Court of India recently addressed this question, clarifying that a sales tax exemption does not automatically extend to purchase tax. This decision has significant implications for businesses relying on government incentives. The bench comprised of Hon’ble Mr. Justice A.M. Khanwilkar and Hon’ble Mr. Justice Dinesh Maheshwari who delivered the judgment.
Case Background
The case revolves around M/s High Range Coffee Curing Pvt. Ltd. (the appellant) and the State of Karnataka (the respondent). The appellant claimed that the sales tax exemption provided under the Industrial Policy of 1996 should also apply to purchase tax. The dispute arose because the appellant’s industry was added to Appendix-IV of the policy later through an amendment.
The appellant argued that since purchase is a part of the same transaction as a sale, the benefit under the policy should extend to purchase tax. The State of Karnataka, however, contended that the industrial policy only provided for sales tax exemptions, not purchase tax.
Timeline
| Date | Event |
|---|---|
| 15th March 1996 | Government Order No.CI 30 SPC 96, the Industrial Policy, was issued. |
| [Not Specified] | Appellant’s industry was added to Appendix-IV of the Industrial Policy through an amendment. |
| 9th March 2004 | High Court decision that was recalled at the instance of the appellant. |
| 5th February 2020 | Supreme Court dismissed the appeals. |
Legal Framework
The core legal issue involves the interpretation of the Industrial Policy of 1996 and its applicability to purchase tax under the Karnataka Sales Tax Act, 1957. The appellant argued that since the definition of “purchase” under Section 2 of the Karnataka Sales Tax Act, 1957, is similar to that of “sale,” the exemption should apply to both. The relevant provisions are:
- Section 2 of the Karnataka Sales Tax Act, 1957: Defines “purchase” and “sale”.
- (ff) “purchase” means the acquisition of goods for cash or deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge, or pledge.
- (h) “sale” means any transfer of property in goods other than goods specified in Schedule C for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge.
- Industrial Policy of 1996: Provides for sales tax concessions and incentives to new industrial units.
- Clause 5 of the Government Order dated 15-3-1996 of the Industrial Policy, 1996-2001 provides for sales tax concession and incentives. The said clause provides for an option to industrial investments in the tiny/SSI/medium and large-scale sectors to claim either sales tax exemption or sales tax deferral.
- Section 4 of the Sale of Goods Act: Defines a contract of sale of goods.
- “Contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price…”
The Supreme Court also referred to its earlier judgment in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536], which interpreted the same Industrial Policy of 1996 as providing exemption only for sales tax, not purchase tax.
Arguments
Appellant’s Arguments:
- The appellant argued that the High Court should not have entertained the appeals on merits without condoning the delay in filing the appeals.
- The appellant contended that the Industrial Policy of 1996 should extend to purchase tax because purchase is a part of the same transaction as a sale.
- The appellant emphasized that the inclusion of their industry in Appendix-IV of the policy through an amendment meant that the benefit should also be extended to purchase tax.
- The appellant relied on the Constitution Bench decision of the Supreme Court in Devi Das Gopal Krishnan vs. State of Punjab [AIR 1967 SC 1895], particularly paragraph 24, to argue that the definition of “purchase” is similar to that of “sale” and therefore should be treated the same for the purpose of tax exemptions.
- The appellant argued that the definition of purchase in the Karnataka Sales Tax Act, 1957 is wide and should be interpreted to include all aspects of a sale transaction.
Respondent’s Arguments:
- The State of Karnataka argued that the Industrial Policy of 1996 only provides for sales tax concessions and incentives, and not for purchase tax.
- The State relied on the decision in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536], which had already interpreted the same policy and held that it does not extend to purchase tax.
- The State contended that the inclusion of the appellant’s industry in Appendix-IV was merely an inclusion of more industries that were left out in the first notification, and did not alter the substance of the policy.
| Main Submission | Appellant’s Sub-submissions | Respondent’s Sub-submissions |
|---|---|---|
| Applicability of Industrial Policy to Purchase Tax |
✓ Purchase is part of the same transaction as sale. ✓ Inclusion in Appendix-IV implies extension to purchase tax. ✓ Definition of purchase similar to sale, hence same treatment. |
✓ Policy only provides for sales tax concessions. ✓ Inclusion in Appendix-IV does not change the policy’s substance. ✓ Purchase tax is distinct from sales tax. |
| Delay in Filing Appeals | ✓ High Court should not have entertained appeals without condoning delay. | ✓ Delay was minimal and sufficient explanation was provided. |
Issues Framed by the Supreme Court
The Supreme Court framed the following core issue:
- Whether the sales tax exemption provided under the Industrial Policy of 1996 extends to purchase tax, particularly after the inclusion of the appellant’s industry in Appendix-IV of the policy?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the sales tax exemption under the Industrial Policy of 1996 extends to purchase tax? | No. | The Industrial Policy of 1996 only provides for sales tax concessions and incentives, not purchase tax. The inclusion of the appellant’s industry in Appendix-IV does not change the substance of the policy. The Court followed the precedent set in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536]. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536] | Supreme Court of India | Followed. The Court relied on this case, which interpreted the same Industrial Policy of 1996 and held that it provides exemption only for sales tax, not purchase tax. |
| Devi Das Gopal Krishnan vs. State of Punjab [AIR 1967 SC 1895] | Supreme Court of India | Explained. The Court explained that while this case recognizes the distinction between sale and purchase as different aspects of the same transaction, it does not mean that a sales tax exemption should automatically extend to purchase tax. |
| Section 2 of the Karnataka Sales Tax Act, 1957 | Karnataka Legislature | Interpreted. The Court interpreted the definitions of “purchase” and “sale” under this section. |
| Section 4 of the Sale of Goods Act | Indian Parliament | Explained. The Court explained that this section defines a contract of sale of goods. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| The High Court should not have entertained the appeals on merits without condoning the delay. | The Court condoned the delay, finding the explanation sufficient. |
| The Industrial Policy of 1996 should extend to purchase tax because purchase is a part of the same transaction as a sale. | Rejected. The Court held that the policy only provides for sales tax concessions, not purchase tax. |
| The inclusion of the appellant’s industry in Appendix-IV of the policy through an amendment meant that the benefit should also be extended to purchase tax. | Rejected. The Court stated that the amendment was only to include more industries and did not change the substance of the policy. |
| The definition of “purchase” is similar to that of “sale” and therefore should be treated the same for the purpose of tax exemptions. | Rejected. The Court clarified that while purchase and sale are different aspects of the same transaction, the State can levy tax at both points. |
How each authority was viewed by the Court?
- The Court followed Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536], stating it directly addressed the issue and upheld that the Industrial Policy of 1996 only provides sales tax exemptions and not purchase tax.
- The Court explained Devi Das Gopal Krishnan vs. State of Punjab [AIR 1967 SC 1895], clarifying that while the case recognizes the similarity between sale and purchase, it does not imply that a sales tax exemption should automatically extend to purchase tax.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the precedent set in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536]. The Court emphasized that the Industrial Policy of 1996 explicitly provided for sales tax exemptions and did not mention purchase tax. The Court also highlighted that the inclusion of the appellant’s industry in Appendix-IV was merely an amendment to include more industries and did not alter the substance of the policy. The Court also noted that while sale and purchase are two sides of the same coin, the State has the power to levy taxes on both.
| Reason | Percentage |
|---|---|
| Precedent set in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536] | 40% |
| Explicit terms of the Industrial Policy of 1996 | 30% |
| Amendment to Appendix-IV did not alter the substance of the policy | 20% |
| State’s power to levy taxes on both sale and purchase | 10% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The Court rejected the argument that the definition of “purchase” being similar to “sale” should lead to the same tax treatment. The Court emphasized that the State has the power to levy tax at both the sale and purchase points. The Court also noted that the amendment to include the appellant’s industry in Appendix-IV was only to include more industries and did not change the substance of the policy.
The Court stated, “The fact that the appellant/assessee’s industry has been included or added in Appendix-IV does not mean that the substance of the policy has undergone any change. The purport of amendment is only to include more industries which were left out in the first notification of 15th March, 1996.”
The Court further stated, “As observed in the case of Malnad (supra), the State can levy tax both at the sale point and/or at the purchase point. That distinction being clear, the question of assuming that the purchase tax was also part of the industrial policy under consideration cannot be countenanced.”
The Court also observed, “A sale and a purchase are different aspects of the same transaction. If we look at it from the standpoint of a purchaser it is purchase and if we look at it from the standpoint of the seller it is a sale.”
Key Takeaways
- Sales tax exemptions under the Industrial Policy of 1996 do not automatically extend to purchase tax.
- The inclusion of an industry in Appendix-IV of the policy does not change the substance of the policy regarding tax exemptions.
- The State has the power to levy tax at both the sale and purchase points.
- Businesses should carefully review the specific terms of government policies and notifications to determine the scope of tax exemptions.
Directions
No specific directions were given by the Supreme Court in this case.
Specific Amendments Analysis
Not Applicable as the judgment does not discuss about any specific amendment
Development of Law
The ratio decidendi of this case is that a sales tax exemption granted under the Industrial Policy of 1996 does not automatically extend to purchase tax. This decision reaffirms the principle established in Malnad Areca Processing and Marketing Limited vs. Deputy Commissioner of Commercial Taxes (Assessment) and Others [(2008) 11 SCC 536]. There is no change in the previous position of law, but it reinforces the distinction between sales tax and purchase tax for the purpose of exemptions.
Conclusion
The Supreme Court dismissed the appeals, holding that the sales tax exemption provided under the Industrial Policy of 1996 does not extend to purchase tax. The Court reiterated that the Industrial Policy of 1996 only provides for sales tax concessions and incentives, and that the inclusion of the appellant’s industry in Appendix-IV did not alter the substance of the policy. The decision reinforces the distinction between sales tax and purchase tax and provides clarity on the scope of tax exemptions under the Industrial Policy of 1996.