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Monday, September 5, 2016

whether “packing materials” which enter the local area for consumption therein, that is for packing tea that is manufactured by the appellant, can be said to be raw material, components, or inputs used in the manufacture of tea.= The appellant is a public limited company having a tea manufacturing unit at Dharwad and various other units which also manufacture tea. The tea manufactured by the appellant is of three types, namely, packet tea, tea in tea bags, and quick brewing black tea. It is claimed that the Dharwad Unit, as opposed to the other units manufacturing tea, is a new unit and is, therefore, exempt altogether from payment of entry tax on packing material of tea under a notification dated 31.3.1993 issued under Section 11A of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as the “Karnataka Entry Tax Act”). Insofar as the other units are concerned, it is the case of the appellant they are covered by Explanation II to a Notification dated 23.9.1998 issued under Section 3 of the said Act, and “packing material” being covered by the said Explanation would entitle them to pay entry tax at the rate of 1% and not 2%. In these appeals, we are concerned with three assessment years 1994-1995, 1995- 1996 and 1996-1997.- We are, therefore, of the view that the High Court was correct in following its own earlier Division Bench judgment in the Nestle case. This appeal is, accordingly, dismissed.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.4003 OF 2007




      HINDUSTAN LEVER LTD.                         …APPELLANT

                                   Versus

      STATE OF KARNATAKA                             …RESPONDENT




                               J U D G M E N T

      R.F.Nariman, J.




   1. The appellant is a public limited company having a  tea  manufacturing
      unit at Dharwad and various other units which  also  manufacture  tea.
      The tea manufactured by the  appellant  is  of  three  types,  namely,
      packet tea, tea in tea bags, and  quick  brewing  black  tea.   It  is
      claimed  that  the  Dharwad  Unit,  as  opposed  to  the  other  units
      manufacturing tea, is a new unit and is, therefore, exempt  altogether
      from payment  of  entry  tax  on  packing  material  of  tea  under  a
      notification dated 31.3.1993 issued under Section 11A of the Karnataka
      Tax on Entry of Goods  Act,  1979  (hereinafter  referred  to  as  the
      “Karnataka Entry Tax Act”).  Insofar as the other units are concerned,
      it is the case of the appellant they are covered by Explanation II  to
      a Notification dated 23.9.1998 issued under Section 3 of the said Act,
      and “packing material” being covered by  the  said  Explanation  would
      entitle them to pay entry tax at the rate of 1% and not 2%.  In  these
      appeals, we are concerned with three assessment years 1994-1995, 1995-
      1996 and 1996-1997.



   2. The question that arises  for  decision  in  this  appeal  is  whether
      “packing  materials”  which  enter  the  local  area  for  consumption
      therein,  that  is  for  packing  tea  that  is  manufactured  by  the
      appellant, can be said to be raw material, components, or inputs  used
      in the manufacture of tea.  In order to answer this  question,  it  is
      necessary to first set out the relevant provisions  of  the  Karnataka
      Entry Tax Act. They are as follows:

           “2. Definitions.- (A) In this Act, unless the context  otherwise
           requires,-

                 (4a) goods means all kinds of moveable property (other than
           newspapers, actionable claims, stocks and shares and securities)
           and includes livestock;

                 (7) “Schedule” means a schedule appended to this Act;

                 (8)   “tax” means tax leviable under this Act;

                 (8a) ‘Value of the goods’ shall mean the purchase value  of
           such goods that is to say, the purchase price at which a  dealer
           has purchased the goods inclusive of charges  borne  by  him  as
           cost  of  transportation,  packing,  forwarding   and   handling
           charges, commission, insurance, taxes, duties and the  like,  or
           if such goods have not been purchased  by  him,  the  prevailing
           market price of such goods in the local area.

                 (B)   Words and expressions  used  in  this  Act,  but  not
           defined,  shall  have  the  meaning  assigned  to  them  in  the
           Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957.)

                 3. Levy of tax.- (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.

           11A. Power of State Government to exempt or reduce tax.-

           (1)  The State Government may, if in its opinion it is necessary
           in public interest so to do, by notification and subject to such
           restrictions and conditions  and  for  such  period  as  may  be
           specified  in  the  notification,  exempt   or   reduce   either
           prospectively or retrospectively the tax payable under this Act,-



                 (i)   by any  specified  class  of  persons  or  class  of
           dealers or in respect of any goods or class of goods; or

                 (ii) on entry of all or any goods or class of  goods  into
           any specified local area.

           (2) The State Government may, by notification cancel or vary any
           notification issued under sub-section (1).

           (3) Where any restriction  or  condition  specified  under  sub-
           section (1) is contravened or is not observed by a dealer  or  a
           declaration furnished under the said sub-section is found to  be
           wrong, then such dealer shall be liable to pay by way of penalty
           an amount equal to twice the difference between the tax  payable
           at the rates specified by or under the Act and the tax  paid  at
           the rates specified under the notification  on the value of such
           goods in respect of which such contravention  or  non-observance
           has taken place or a wrong declaration is furnished:

                 Provided that before taking action  under  the  sub-section
           the dealer shall be given  a  reasonable  opportunity  of  being
           heard.

                            FIRST SCHEDULE

                       (See Section 3 (1))

           66.  Packing materials namely :-

           (i)    fibre board cases, paper boxes,  folding  cartons,  paper
           bags, carrier bags and card board boxes, corrugated board  boxes
           and the like.

           (ii)   tin plate containers (cans, tins and boxes)  tin  sheets,
           aluminium foil, aluminium tubes, collapsible tubes, aluminium or
           steel drums, barrels and crates and the like ;

           (iii)   plastic,  poly-vinyl  chloride  and  polyethylene  films
           bottles, pots, jars, boxes, crates, cans, carboys,  drums,  bags
           and cushion materials and the like ;

           (iv)    wooden boxes, crates, casks and containers and the like;

           (v)    gunny bags, bardan (including batars), hessian cloth, and
           the like ;

           (vi)   glass bottles, jars and carboys and the like ;

           (vii)  laminated pacing materials such as bitumanised paper  and
           hessian based paper and the like;

           80. Raw materials component parts and inputs which are  used  in
           the manufacture of an intermediate or finished product.”




      3.    Under Section 11A of the Act, a  Notification  dated  31.3.1993,
      exempting raw materials, component parts, and inputs entering a  local
      area for use  in  the  manufacture  of  an  intermediate  or  finished
      product, was promulgated.  It reads as under:

           “Entry tax on raw materials, etc.  for  use  in  manufacture  of
           goods by new industrial units – Exemption (Karnataka)

           Notification III No.FD.11.CET 93 dated the 31st March,1993

           [Public in Karnataka Gazette, Extraordinary  No.  201,  Part  4-
           C(ii) dated 31st March, 1993]

           In exercise of the powers  conferred  by  section  11-A  of  the
           Karnataka Tax on Entry of Goods  Act,  1979  the  Government  of
           Karnataka being of the opinion  that  it  is  necessary  in  the
           public interest so to do, hereby exempts with  effect  from  the
           first day of April, 1993 the tax payable under the said act,  on
           the entry of raw  materials,  component  parts  and  inputs  and
           machinery and its parts  into  a  local  area  for  use  in  the
           manufacture of an intermediate or finished product  by  the  new
           industrial units mentioned in column (2)   of  the  Table  below
           located in the zones specified in column (3) and for the  period
           mentioned in Column (4) thereof.

                                    TABLE

|Sl.No.|Type of Industry |Location of Industry   |Period of exemption     |
|1     |2                |3                      |4                       |
|      |                 |                       |                        |
|1.    |Tiny/Small/medium|Situated in Zone-III   |4 years from the date of|
|      |and large scale  |specified in annexure-I|commencement of         |
|      |industrial units |to Government Order No.|commercial production or|
|      |                 |CI/138 SPC/90, dated   |4 years from the date of|
|      |                 |27.9.1990              |commencement of this    |
|      |                 |                       |notification whichever  |
|      |                 |                       |is later.               |
|2.    |Tiny/small/medium|Situated in Zone-IV    |5 years from the date of|
|      |and large scale  |specified in annexure I|commencement of         |
|      |industrial units |to Government Order No.|commercial production or|
|      |                 |CI/138/SPC/90, dated   |5 years from the date of|
|      |                 |27.9.1990              |commencement of this    |
|      |                 |                       |notification whichever  |
|      |                 |                       |is later.               |
|3.    |Tiny/small scale/|Situated in Zone-III   |5 years from the date of|
|      |Medium and large |specified in annexure I|commencement of         |
|      |scale industrial |to Government Order No.|commercial production   |
|      |units in the     |CI/138/SPC/90, dated   |OR                      |
|      |thrust sector as |27.9.1990              |5 years from the date of|
|      |defined in       |                       |commencement of this    |
|      |annexure-II to   |                       |notification whichever  |
|      |G.O. No.         |                       |is later.               |
|      |CI.138/SPC/90,   |                       |                        |
|      |dated 27.9.1990  |                       |                        |
|4.    |Tiny/small scale/|Situated in Zone-IV    |6 years from the date of|
|      |Medium and large |specified in annexure-I|commencement of         |
|      |scale industrial |to Government Order No.|commercial production,  |
|      |units in the     |CI/138/SPC/90, dated   |OR                      |
|      |thrust sector as |27.9.1990              |6 years from the date of|
|      |defined in       |                       |commencement of this    |
|      |Annexure II to   |                       |notification whichever  |
|      |G.O. No.         |                       |is later.               |
|      |CI.138/SPC/90,   |                       |                        |
|      |dated 27.9.1990  |                       |                        |


____________________________________________________________________________
_________

           Explanation – (1) For the purpose of this  notification  “a  new
           industrial unit” shall have the same meaning assigned to  it  in
           Notification No. FD 239 CSL 90(1) dated 19th June, 1991,  issued
           under Section 8-A of the Karnataka Sales Tax Act, 1957.

           (2)   The provisions of the notification shall not  apply  to  a
           unit to which the provisions of  Notification  No.  FD  239  CSL
           90(1) dated 19th June, 1991 issued  under  Section  8-A  of  the
           Karnataka Salex Tax Act, 1957 shall not apply.

           (3)   The procedure specified in Notification  No.  FD  239  CSL
           90(1), dated 19th June, 1991 issued under  Section  8-A  of  the
           Karnataka Sales Tax Act, 1957 for claiming exemption under  that
           notification shall mutates mutandis apply to a  industrial  unit
           claiming exemption under this notification.”




      4.    By a notification dated 31.3.1994, various goods which entered a
      local area  were  charged  at  different  rates  of  entry  tax.  This
      notification was struck down by the High Court as  violating   Article
      301 of the Constitution, and hence, the State Government came out with
      notification dated 23.9.1998 to cure the defects pointed  out  by  the
      High Court, and was for the period dated 1.4.1994  to  6.1.1998.   The
      aforesaid notification reads as follows:

           “SI No.104

               No. FD 112 CET 98, Bangalore, dated 23rd September, 1998

           In exercise of  the  powers  conferred  by  sub-section  (1)  of
           Section 3 of the Karnataka Tax  on  Entry  of  Goods  Act,  1979
           (Karnataka Act 27 of 1979), the Government of Karnataka,  hereby
           specify that with effect from the First day of April,  1994  and
           upto 6th day of January, 1998, tax shall be levied and collected
           under the said Act on the entry of goods specified in column (2)
           of the table below into a local area from any place outside  the
           State of consumption or use therein, at the rates  specified  in
           the corresponding entries in column ; (3), thereof:-

                                TABLE

           Sl.              No.                                   Commodity
           Rate of tax

               1                 2                                 3

            3.            Packing material namely:

                    (i)  Fibre board cases, paper boxes, Folding         2%

                         cartons, paper bags, carrier bags and

                         card board boxes, corrugated board boxes

                         and the like;

                   (ii)  Tin plate containers (cans, tins and            2%

                          boxes), tin sheets, aluminium foil,

                          aluminium tubes, collapsible tubes,

                          aluminium or steel drums, barrels and crates

                           and the like:

                 (iii)   Plastic, polyvinyl chloride and polyethylene
                 2%

                        firms, bottles, pots, jars, boxes, crates, cans,

                        carboys, drums, bags and cushion materials

                        and the like;

                        (iv)  Wooden boxes, crates, casks and containers
           2%

                               and the like;

                 (v)   Gunny bags, bardan (including batars) hessian      2%

                        cloth and the like;

                 (vi)   Glass bottles, jars and carboys and the like;
           2%

                 (vii)  Laminated packing materials, such as bluminised   2%

                         paper and hessian-based paper and the like;

                 4.    Raw materials, component parts and inputs    1%

                       are used in the manufacture of an intermediate

                       of finished product.

           Explanation I – The words “raw materials,  component  parts  and
           any other inputs”  do  not  include  exempted  goods  which  are
           specified  in  the  Schedule,  horticultural  produce,  cereals,
           pulses, oil seeds including copra and cotton  seeds,  timber  or
           wood of any species, newsprint, silk  cocoons,  raw,  thrown  or
           twisted silk, tobacco (whether raw or cured) and  blended  yarn,
           man-made filament yarn, man-made  fibre  yarn,  man-made  fibre,
           woolen yarn and woolen blended yarn, washed cotton seed oil, non-
           refined edible oil, rice bran and oil cake and such other  goods
           as may be notified by the State Government from time to time.




           Explanation II – If any of the goods liable to  tax  under  this
           Act are brought into a local area for use or consumption as  raw
           materials, component parts and inputs in the manufacture  of  an
           intermediate or finished product, the tax payable on such  goods
           shall be at the rate of one percent.”







5.    All the authorities  under  the  Entry  Tax  Act  i.e.  the  Assessing
Authority,  the  First  Appellate  Authority  and  the  Karnataka  Appellate
Tribunal  have  held  that  packing  material  cannot  be  regarded  as  raw
material, component parts or inputs used  in  the  manufacture  of  finished
goods and, therefore, in  the  context  of  the  Entry  Tax  Act  read  with
Schedule I, such packing material is neither exempt nor  chargeable  at  the
rate of 1% on a true construction of the  aforesaid  notifications  of  1993
and 1998.  The High Court in  turn  has  dismissed  the  revision  petitions
filed under the statute by the assessee  following  their  own  judgment  in
Nestle India Ltd. v. State of Karnataka, a Division Bench  judgment  of  the
Karnataka High Court dated 22.3.2006.  This is how the appellants have  come
before us in the present civil appeals.

      6.     Shri  Arvind  Datar  and  Shri  Kavin  Gulati,  learned  senior
      advocates, strenuously argued before  us  that  the  judgment  in  the
      Nestle case, which was followed in the  instant  case,  was  incorrect
      inasmuch as  according  to  them  “packing  material”  is  clearly  an
      “input”, if not a component  part  of  manufactured  tea,  and  would,
      therefore, qualify for exemption and/or lesser rate of tax as the case
      may be.  They also argued that Explanation II to the  Notification  of
      23.9.1998 made the position clear that even  though  packing  material
      may be covered under item 3 of the said Notification, yet, as it is an
      input in the manufacture of the finished  product  tea,  it  would  be
      covered by Explanation II, and therefore would be taxable at the  rate
      of 1% and not 2%. They further argued that words and expressions  that
      are not defined under the Entry Tax Act but which are defined  in  the
      Karnataka Sales Tax Act, 1957  would  have  to  be  borrowed  for  the
      purpose of the Entry Tax Act.  In this  regard,  in  particular,  they
      relied upon Section  5A  of  the  Karnataka  Sales  Tax  Act,  and  in
      particular Explanation  I  to  the  aforesaid  Section  which  defined
      “industrial inputs” as meaning  either  a  “component  part”  or  “raw
      material” or “packing materials”, and argued that packing material has
      been recognized as an input under the Karnataka  Sales  Tax  Act,  and
      should be so recognized under the Entry Tax  Act  read  with  the  two
      notifications aforesaid.  They also cited a large number of  judgments
      of this Court and of the High Court to buttress their submission  that
      packing material would certainly come within  the  expression  “input”
      and would therefore be covered by the aforesaid two notifications.

      Shri Kavin Gulati also specifically  pointed  out  the  Tea  Marketing
Control Order, 2003 made under Section 30 of the Tea  Act,  1953  in  which,
“manufacturer” has been defined as a person who also  produces  value  added
products commercially known as tea, that is packet tea, tea box,  etc.,  and
therefore went on to argue that it is obvious that packing material used  to
market tea would necessarily be included.




7.    Shri Patil, learned senior advocate appearing on behalf of  the  State
of Karnataka, countered these submissions, and stated that  the  High  Court
was absolutely correct in  interpreting  the  Entry  Tax  Act  and  the  two
notifications in the manner that it did in Nestle case.  He argued that  the
context of the Entry Tax Act is most important and that decisions  relatable
to the Central Excise Act and to Sales  Tax  statutes  would  not  therefore
apply.  His primary argument was that  Schedule  I  of  the  Entry  Tax  Act
itself made a clear distinction between packing materials, on the one  hand,
and raw materials, component parts and inputs, on the  other,  the  Schedule
making it clear that they were distinct  and  separate  goods.   He  further
adverted to the definition of the expression “goods” contained in the  Entry
Tax Act and argued that unlike in the Central  Excise Act and in  Sales  Tax
statutes, goods need not be marketable, the definition  confining  goods  to
“movable property” without more.  He also argued that adverting  to  Section
5A of the Karnataka Sales Tax Act would be of no help in the  facts  of  the
present case inasmuch as we are not concerned with “industrial  inputs”  but
inputs as understood by the Entry Tax Act read with Schedule  I.   According
to him all the judgments cited by the  appellants  were  distinguishable  in
that none of them pertain to any entry tax statute but were  all  under  the
Central Excise Act or Sales Tax statutes.



8.    Having heard learned counsel for the parties, it is  important  to  go
back to a few fundamentals. As has been  explained  in  Escorts  Limited  v.
CCE, (2015) 9 SCC 109,  the  definition  of  “manufacture”  in  the  Central
Excise Act is dependent upon  the  definition  of  “goods”  defined  by  the
Constitution in Article 366(12).  This Court has therefore held:-

           “It is clear on a reading of this Entry that a duty of excise is
           only leviable on “goods”  manufactured  or  produced  in  India.
           “Goods” has been defined under Article 366(12) as follows:
              “366.Definitions.—In this Constitution,  unless  the  context
           otherwise requires, the following expressions have the  meanings
           hereby respectively assigned to them, that is to say—
                                     ***
              (12)  ‘goods’  includes  all   materials,   commodities   and
           articles;”


           Each of these three  expressions  has  been  defined  in Shorter
           Oxford English Dictionary as follows:
              “Materials”.—the matter of which a thing is or may  be  made;
           the constituent parts of something.
              “Commodities”.—a thing of use or value; a thing  that  is  an
           object of trade; a thing one deals in or makes use of.
              “Articles”.—a particular item of business.


           Although the definition of “goods” is an inclusive  one,  it  is
           clear that materials, commodities and articles spoken of in  the
           definition take colour from one another. In order to be  “goods”
           it is  clear  that  they  should  be  known  to  the  market  as
           materials, commodities and articles that are  capable  of  being
           sold.


           In the basic judgment which has been referred to in every excise
           case for conceptual  clarity,  namely, Union  of  India v. Delhi
           Cloth & General Mills Co. Ltd. [(1977) 1 ELT 199 : AIR  1963  SC
           791 : 1963 Supp (1) SCR 586] , this Court held that  for  excise
           duty to be chargeable under the constitutional entry  read  with
           Section 3 of the Central Excise and Salt Act, two  prerequisites
           are necessary. First,  there  must  be  “manufacture”  which  is
           understood  to  mean  the  bringing  into  existence  of  a  new
           substance. And secondly, the word “goods” necessarily means that
           such manufacture must bring into existence a new substance known
           to  the  market  as  such  which  brings  in  the   concept   of
           marketability in addition to manufacture. …” [paras 8-11]



9.    However, on  a  perusal  of  the  definition  of  “goods”  in  Section
2(A)(4a) of the Entry Tax Act, the said  definition  is  an  exhaustive  one
including all kinds of movable property and livestock.  It is  obvious  from
a reading of this definition that marketability does  not  appear  to  be  a
sine qua non for something to qualify as “goods” under the  Entry  Tax  Act,
unlike the Central Excise Act, and this basic fact will have to be  kept  in
view while dealing with some of the judgments that have  been  cited  before
us.  This is for the reason that anything that is  tangible,  without  more,
and enters a local area for consumption, sale or  use  therein  is  taxable,
the taxable event being ‘entry’ and not ‘manufacture’ of  goods,  which,  as
has been noticed hereinabove, brings in the concept of marketability in  the
context of a duty of excise, which is absent in the context  of  entry  tax.
We might also add that Section 2(A)(8a) wherein the “value of the goods”  is
defined, also makes a distinction between  “goods”  as  such,  and  “packing
material”, making it clear that  charges  borne  by  a  dealer  as  cost  of
packing would have to be included in the “value of goods”.  In  the  context
of  the  Entry  Tax  Act,  the  difference  between  ‘goods’  used  in   the
manufacture of goods and “packing material” is also brought out by  Schedule
I. Packing materials are separately defined  in  Entry  66.   On  the  other
hand, raw materials, component parts and  inputs,  which  are  used  in  the
manufacture of an intermediate  or  finished  product,  are  separately  and
distinctively given in Entry 80 thereof. The context of the  Entry  Tax  Act
therefore is clear.  When raw materials,  component  parts  and  inputs  are
spoken of, obviously they refer to materials, components  and  things  which
go into the finished product, namely, tea in the present  case,  and  cannot
be extended to cover packing materials of the said tea which  is  separately
provided for by the aforesaid Entry 66.




10.    The  notification  dated  23.9.1998  issued  under  Section  3   uses
identical language as that contained in Entries 66 and 80 of Schedule  I  to
the Entry Tax Act.  Equally, notification dated 31.3.1993  is  an  exemption
notification  issued  under  Section  11A  which  also  uses  the  identical
language of Entry 80 of Schedule I. This being the case, it  is  clear  that
neither notification can be read  to  include  “packing  material”  as  “raw
materials, component parts or inputs used in the manufacture” of tea.

      11.   This brings us to an argument made by learned  counsel  for  the
      appellants on the  correct  construction  of  Explanation  II  to  the
      notification dated 23.9.1998.

      12.   What has first to be seen is  that  packing  material,  and  raw
      materials, component parts and  inputs  are  separately  provided  for
      under the Schedule to the Act.  The same is also true of the aforesaid
      Notification. Packing material is contained in Entry 3  of  the  table
      whereas raw materials, component parts and  inputs  are  contained  in
      Entry 4.  The rate at which they are taxed is also different – packing
      materials at 2%, whereas raw materials, components  parts  and  inputs
      are taxed  at  1%.   This  being  so,  the  reason  for  inclusion  of
      Explanation II appears to be that goods which are liable to tax, being
      finished goods in themselves, may yet be brought into a local area for
      use or consumption as raw material, component parts and inputs in  the
      manufacture of an intermediate or finished product.  It is  only  such
      goods that are liable to be taxed at the rate of 1%.  It is  difficult
      to accept the argument on behalf of the appellants that Explanation II
      makes it clear that though packing materials may be liable to  tax  at
      2%, yet if they fall in Explanation II, they would be liable to tax at
      the rate of 1%.  This would fly in the face of the scheme of  Schedule
      I of the statute which, as has been held earlier, makes it clear  that
      in no case  can  packing  materials  be  said  to  be  raw  materials,
      component parts or inputs used in the manufacture of  finished  goods.
      For  this  reason  alone  we  find  it  difficult  to   construe   the
      notification  dated  23.9.1998  in  the  manner   suggested   by   the
      appellants.

13.   Even otherwise, there is no  such  Explanation  II  contained  in  the
exemption notification dated 31.3.1993.  This being the case, if we were  to
accept the case of the appellants, they would be liable to tax at  the  rate
of 1% under the 1998 notification but would not be  exempt  under  the  1993
notification, thus rendering the same packing material liable to tax at  the
rate of 2% in the case of the Dharwad unit and 1% in the case of  all  other
units.  This would lead to an anomalous situation which can best be  avoided
by not accepting the argument on behalf of the appellants.




14.   Equally, the argument based on Section 5A of the Karnataka  Sales  Tax
Act is fallacious in that it is only for the purpose of “industrial  inputs”
that packing  materials  are  included,  and  forms  a  separate  scheme  of
taxation under the Sales Tax statute. We cannot accede to the argument  that
de hors the context of the Entry Tax Act, we should accept  that  industrial
inputs  include  packing  materials  and  that  therefore,  by   parity   of
reasoning, “inputs” under the Entry Tax  Act  should  also  include  packing
material.  This argument has therefore correctly been  turned  down  by  the
High Court of Karnataka in the Nestle case.




15.   We have now to  deal  with  the  judgments  cited  on  behalf  of  the
appellants.  In Government of Andhra Pradesh v. Guntur  Tobaccos  Ltd.,  [15
STC 240], this Court had  to  decide  as  to  whether  the  use  of  packing
material should be regarded as execution of a works contract and  not  as  a
sale.  This Court held on the facts in that case that packing  material  was
part of the process of re-drying tobacco as it was necessary to pack  it  in
a waterproof material to protect it from heat and humidity, so as  to  store
tobacco for a sufficiently long period to avoid fermentation,  and  to  make
the tobacco mature for use in cigarettes, cigars, etc.  The context  of  the
judgment is entirely different from the facts contained in the present  case
and would thus have no relevance.  Learned counsel for the appellants  tried
to draw succour from this judgment stating that the idea of packing  tea  is
also to keep out moisture.  While that may be so, that  single  fact  cannot
lead to a conclusion that would drive a coach and four  through  the  scheme
of the Entry Tax Act.




16.   Brooke Bond Lipton India Ltd. v. State of Karnataka, 109 STC 265,  was
cited next. This is a High Court judgment  under  the  Karnataka  Sales  Tax
Act, in which it was stated that packaging led to  value  addition  for  the
purpose of excise and sales tax, and  that  it  was  a  possible  view  that
packaged blended tea produced in the industrial unit of the appellant  is  a
manufactured product in which packing materials are inputs. This was in  the
context of exemption notifications under the Sales Tax Act.  As can be  seen
from paragraph 26 of the aforesaid judgment, the questions involved in  that
case were entirely different.  Also, the test of what is  “manufacture”  was
borrowed from the Central Excise Act as can be seen  from  paragraph  48  of
the judgment. The  High  Court  points  to  a  new  dimension  to  the  word
“manufacture” in the context of excise which would therefore include  within
it packing material as well in order that  the  goods  be  made  marketable.
This, as we have seen above, cannot be done in the context of the Entry  Tax
Act.




      17.   In Tata Engineering & Locomotive Co. Ltd. (TELCO)  v.  State  of
      Bihar, (1994) 6 SCC 479, this Court had to deal  with  a  notification
      issued by the State of  Bihar  in  the  context  of  sales  tax.   The
      expression “raw material” and “input” was used  in  the  notification.
      This Court held, following J.K. Cotton Spinning &  Weaving  Mills  Co.
      Ltd. v. S.T.O.,  (1965)  1  SCR  900,  that  the  expression  “in  the
      manufacture of goods” would  normally  encompass  the  entire  process
      carried on by the dealer of converting  raw  materials  into  finished
      products.  The precise question before this Court was whether products
      finished in themselves, such as tyres, tubes,  batteries,  etc.,  when
      purchased by the appellant for use in  the  manufacture  of  vehicles,
      could be said to be inputs.  This Court held that as a vehicle  cannot
      be operative without tyres, tubes, and batteries, obviously they  were
      inputs in the sense of the dictionary meaning of  what  is  “put  in”.
      Both the fact situation and the ratio of this judgment are far removed
      from the facts in the present case inasmuch as  it  is  nobody’s  case
      that without the packing material manufactured tea cannot be  said  to
      exist  as  a  finished  product,  it  being  “moveable  property”  and
      therefore “goods” under the Karnataka Entry Tax Act.  This judgment is
      also therefore of no avail to the appellant.

18.   M/s. Star Paper Mills Ltd. v. CCE, Meerut, (1989) 4  SCC  724,  is  an
excise case in which  an  exemption  Notification  exempted  goods  used  as
component parts in manufacture  of  any  goods  on  which  excise  duty  was
leviable. This judgment defines the word “component” to mean  a  constituent
part. In this context, it was held that paper core is a  component  part  of
paper delivered to the customer in rolls, but not in sheets as  it  was  not
necessary for  manufacture  of  paper  sheets.   This  case  would  have  no
application to the facts of the present case.  It is  obvious  that  packing
material used to pack a product  complete  in  itself,  cannot  possibly  be
included in the word  “component”  as  it  is  not  a  constituent  part  of
manufactured tea.



      19.   Three other judgments under the Central Excise Act  were  cited.
      The first of them, CCE v. M/s. Eastend Paper Industries Ltd., (1989) 4
      SCC 244, was concerned with the marketability aspect of central excise
      which, as has been held by us above, would not apply in the context of
      the Entry Tax Act.  In that judgment, paper wrapping was  held  to  be
      essential to make the concerned goods marketable.  The second of these
      judgments CCE v. Ballarpur Industries Limited, (1989) 4 SCC 566, again
      concerned a completely different fact situation.  The question in that
      case  was  whether  an  admitted  input,  Sodium  Sulphate,   in   the
      manufacture of paper, would not be construed to be a raw material only
      by reason that in the course of chemical reactions Sodium Sulphate  is
      consumed and burnt up.  This Court held that consumption  and  burning
      up would make no difference, as an ‘input’ need  not  always  manifest
      itself in the final product. And in H.M.M. Ltd. V. CCE, (1994)  6  SCC
      594, it was held that a screw cap on a bottle containing Horlicks  was
      a component part of Horlicks, it  being  an  essential  ingredient  to
      complete the process of manufacture to make Horlicks marketable.  This
      judgment again will not apply for the  same  reason  indicated  above,
      namely, that marketability is not relevant  for  the  purpose  of  the
      Entry Tax Act.




      20.   M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales  Tax
      Officer, Kanpur, (1965) 1 SCR 900, is a judgment in which Section 8 of
      the Central Sales Tax Act was  pressed  into  aid  on  behalf  of  the
      appellant.  In this case, the question was whether drawing  materials,
      photographic  materials  etc.  could  be   comprehended   within   the
      expression “in the manufacture of goods for sale” within  the  meaning
      of section 8(3)(b) of the Central Sales Tax Act, 1956.   In  order  to
      determine whether such materials would qualify  as  such,  this  Court
      held that where any particular process is so integrally connected with
      the  ultimate  production  of  goods  that,  but  for  that   process,
      manufacture or process of goods  would  be  commercially  inexpedient,
      goods required in that process would fall within  the  expression  “in
      the manufacture of goods”.  What has been said about the excise  cases
      squarely applies here. The expression used in Section 8 of the Central
      Sales Tax Act is not “in  the  manufacture  of  goods”,  but  “in  the
      manufacture  of  goods  for  sale”,  bringing  in   the   element   of
      marketability.




21.   It only remains to deal with  the  argument  made  on  behalf  of  the
appellant based on the Tea Marketing Control  Order.   Needless  to  add,  a
manufacturer for the purpose of the said Order is specifically a person  who
produces value added products commercially known as  tea.   The  context  of
the said definition is for  the  purpose  of  registering  manufacturers  or
producers and buyers of tea, having relevance therefore to the  sale  aspect
of tea.  As has already been held by us, the  context  of  entry  tax  being
different, we are afraid this argument also does not avail the appellant.



      22.   We are, therefore, of the view that the High Court  was  correct
      in following its own earlier Division Bench  judgment  in  the  Nestle
      case.  This appeal is, accordingly, dismissed.




                                             ..............................J
                                       .
                                             (A.K. SIKRI)




                                             ..............................J
                                       .
                                             (R.F. NARIMAN)
      New Delhi;
      September 2, 2016

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