Kirloskar Power Supply Company Limited, Bangalore vs State of Karnataka

R. Gururajan, J.-Appellant is before this Court praying to set aside the order dated 21-11-2001 passed by the Additional Commissioner of Commercial Taxes.

Appellant is engaged in the activity of generation of electrical energy for sale and is a dealer registered under the provisions of the Karnataka Tax on Entry of Goods Act, 1979. The appellant-Company commenced its activity of generation of electrical energy to be sold to its sister concern, M/s. Kirloskar Ferrous Industries Limited and to other parties in the State of Karnataka through banking and wheeling of energy generated with the Karnataka Power Transmission Corporation Limited. The Government issued a licence to M/s. Kirloskar Oil Engines Limited, in the matter of generation of power. Agreements were entered into and thereafter the appellant started generation of power using high speed diesel and since 1997, it has been using furnace oil as a raw material for the said activity. The furnace oil was initially procured from M/s. Bharath Petroleum Corporation Limited, Chennai and M/s. Indian Oil Corporation Limited, Goa. Besides causing the entry of furnace oil, the appellant has also been causing the entry of goods, among others such as high speed diesel and lube oil etc. The Assessing Authority passed an assessment order for the year 1996-97 subjecting to tax the causing of the entry of furnace oil, diesel, lube oil and diesel engine spares etc., at the rate of 2%. Aggrieved by the same, appellant filed an appeal. The Appellate Authority vide its order dated 29-9-1999 accepted the case of the appellant and ordered that no tax can be levied on the causing of entry of diesel engine spares and further since, diesel and lubricants constituted raw materials for generation of electrical energy, the said commodities are taxable at the rate of 1% in terms of the notification dated 23-9-1998 issued by the State Government. According to the appellant, no tax was payable on the causing of the entry of raw material which are meant for use in producing the products which found a place in the Second Schedule appended to the Act. Hence a rectification application was filed before the rectification authorities. In the meanwhile the Revisional Authority purporting to exercise its power under Section 15(2) of the Act issued a notice in the matter and a reply was obtained. The Revisional Authority, after hearing the parties has chosen to pass the impugned order. Aggrieved by this order, appellant is before us by raising the following questions of law.-

Whether on the facts and in the circumstances of the appellant''s case:

The Revisional Authority was justified in law in dwelling upon a topic which was not the subject-matter of the appeal considered by the First Appellate Authority, whose order was sought to be suo motu revised under Section 15(2) of the Act?

The Revisional Authority was justified in considering the aspect of unjust enrichment especially in the light of the fact that the notice of revision issued by the Revisional Authority under Section 15(2) of the Act did not specify the aspect of unjust enrichment?

The Revisional Authority was justified in considering the aspect of refund of taxes especially in the light of the fact that the application for rectification of mistake apparent on the face of record was pending consideration before the Assessing Authority?

The Revisional Authority was justified in law in coming to the conclusion that the appellant has passed on the element of tax to its customers and therefore hit by the doctrine of unjust enrichment, especially in the light of the fact that the Revisional Authority did not have an occasion to examine the books of accounts maintained by the appellant?

Can it be said that the order dated 29-9-1999 passed by the First Appellate Authority remanding the matter to the Assessing Authority for fresh disposal in accordance with law ''Erroneous and prejudicial to the interest of the revenue for the Revisional Authority to invoke the revisional power vested in him under Section 15(2) of the Act?

The Revisional Authority was justified in law in passing the order of revision under Section 15(2) of the Act, especially after agreeing with the order passed by the First Appellate Authority that diesel and lubricants constituted raw materials in the hands of the appellant which were meant to be used in producing a product which found a place in the Second Schedule appended to the Act?

Notice was issued and respondents have entered appearance.

Sri Prasad, learned Counsel would invite our attention to the power under Section 15 of the Act in the matter of revision. He would say that the Revisional Authority exceeded his power in considering the refund application even before verification of accounts on the principle of unjust enrichment in the case on hand. According to him, the Revisional Authority has not chosen to find fault with the order and he has accepted the order. According to the appellant, it is not open to the Revisional Authority to give a certain finding which is otherwise uncalled for on the facts of this case. Learned Government Advocate supports the order.

After hearing, we have carefully perused the material on record.

Assessing Authority has chosen to levy 2% tax on purchase of diesel oil in terms of an order against the said order, an appeal was filed. The Appellate Authority noticed the material on record and has chosen to tax purchase of diesel from out of State and from registered dealers within the State as raw materials for generation of electricity at 1% and has chosen to tax purchase of lubricants from out of State as raw materials for generation of electricity also at 1%. The Revisional Authority in the light of this order has chosen to issue a notice in terms of the Act and after obtaining the reply, comes to a conclusion that the order of the Appellate Authority has to be accepted in the case on hand. In fact the Revisional Authority notices the judgment of the Tribunal in somewhat identical circumstances and holds that the said judgment is applicable to the facts of this case. After coming to this conclusion he considers unjust enrichment for the purpose of refund in the matter. According to the learned Counsel for the appellant, the Revisional Authority ought to have restricted his finding only with regard to erroneous order or with regard to prejudicial interest of the State, a further finding of unjust enrichment is totally uncalled for in the case on hand, particularly in the absence of verification of any books. We find substance in the argument of the learned Counsel for the petitioner.

In the result, this appeal is accepted. The revisional order is set aside. The questions of law are answered in favour of the assessee. Further, we deem it proper to observe that as and when refund applications are made, liberty is reserved to the authorities to consider the entitlement of refund including the principle of unjust enrichment, if so applicable to the facts of this case in accordance with law and in a manner known to law. No costs.