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Judgment
S. Sujatha, J.—These appeals are filed by the State challenging the order dated 25.2.2011 passed by the learned Single Judge in Writ Petition Nos. 15317-18/2010 and connected matters wherein, it is held that purchase tax includes cess also.
Facts in brief are that the Government of Karnataka issued an industrial policy for encouraging sugar manufacturing units by granting certain incentives and concessions, vide G.O. No. CI14071 dated 06.06.1973, as per which purchase tax payable by the sugar factories shall be converted into interest free loan and it shall be recovered over a period of five years after the expiry of 10 years. By inserting Section 25-B in the Karnataka Sales Tax Act, 1957 (hereinafter referred to as ''the Act'') by Act No. 1 of 1996 with effect from 13.10.1995, in addition to the tax payable on sugarcane, cess was levied for the purpose of improvement of roads in sugarcane growing areas reserved for any sugar factory.
A government order dated 19.3.2002 came to be issued by Government of Karnataka for the purpose of refund of tax under the Act to sugar factories, on purchase of sugarcane, consumed by such units in the manufacture of sugar and exported out of the territory of India. In the explanation to the said Government Order, it has been mentioned, "purchase tax paid" means tax paid under the Act, including cess.
The Assessing Officer for the assessment period 2004-05 has raised a demand on the respondents herein to pay the amount of Rs. 4,03,949 towards road cess against which respondent filed W.P. 18833/2007 before this Court and similar Writ Petitions were filed by other sugar factories. The learned Single Judge of this Court, by a common order dated 8.3,.2008, disposed off Writ Petition No. 7394/2007 along with the other connected writ petitions, remanding the matter for fresh consideration by the Secretary, Finance Department, Government of Karnataka. The Principal Secretary, Finance Department, Government of Karnataka, after hearing the sugar factories and reconsidering the matter, passed an order on 24.3.2010 holding that the incentives given by the Government in respect of payment of purchase tax would not include payment of road cess under Section 25-B(2) of the Act, pursuant to which the 2nd respondent issued a demand notice dated 6.4.2010 calling upon the respondents to make the payment of Rs. 3,53,24,864/- towards cess for the assessment years 2004-05 to 2009-10, which was challenged by the respondent in W.P. Nos. 15317-18/2010 and connected matters. The learned Single Judge, by order dated 25.2.2011, directed the 1st respondent to consider the case of the petitioner on the representations to be submitted by the respondent, however, it has been held that purchase tax includes cess. Aggrieved by the said judgment and order passed by the learned Single Judge dated 25.2.2011, the appellants are before this Court.
Learned counsel Sri Shivayogiswamy appearing for the revenue contended that the learned Single Judge, placing reliance on the explanation to the G.O. dated 19.3.2002, which was not applicable to the facts of the present case, has arrived at a conclusion that purchase tax also includes cess. It was further argued that in view of the said observation, considering the representation of the petitioner would defeat the purport of the Government policy. Thus, prayed for allowing these appeals
The learned counsel Ms. Poonam Patil appearing for the respondents supported the order passed by the learned Single Judge.
After hearing the parties and perusing the material on record, the only point that arises for our consideration is, "Whether purchase tax includes cess as per the Government Orders dated 6.6.1973 and 24.03.2010 issued by the Government of Karnataka read with Section 25-B of the Karnataka Sales Tax Act"?
The Government Order dated 6.6.1973 provides that the purchase tax payable by the sugar factories in Mysore State shall be treated as an interest free loan and it shall be recovered over a period of 5 years after the expiry of the first 10 years (concessional period) in equal annual instalments to be paid before 30th September each year. Section 25-B of the Act was inserted with effect from 13.10.1995 whereby sugar factories, in addition to the tax payable on sugarcane, shall be levied and collected each year by way of cess for the purpose of improvement of roads in sugarcane growing areas reserved for any sugar factories, pursuant to which demands were raised by the authorities levying cess which were challenged by the sugar factories before this Court and in terms of the order passed by this Court in Writ Petition No. 7394/2007 and connected matters filed by the sugar factories, the matter was reconsidered by the 1st respondent and an order dated 24.3.2010 was passed holding that payment of purchase tax would not include payment of road cess under Section 25-B of the Act.
Section 25-B(2) of the Act reads thus:
"25-B Levy of tax on Sugarcane:-1)...............
(2) In addition to the tax payable under sub-section (1) there shall be levied and collected each year by way of cess for the purpose of improvement of roads in sugarcane growing areas reserved for any factory, a tax at the rate of rupees ten per tonne on the purchase of sugarcane by manufacture of sugar (including khandasari sugar).
Clauses (a) to (e) of the G.O. dated 24.03.2010 reads as under:
(a) The provisions for levy and collection of cess was not there in the KST Act when G.O. dated 6.6.1973 was issued and hence, this G.O. cannot be said to be issued considering the position of road for the purpose of conversion into interest free loan.
(b) The provision for levy and collection of road cess was brought under the KST Act with effect from 1.4.1994 mentioning the purpose of levy and collection of road cess in the provision namely, section 25-B of the KST Act.
(c) Even after the introduction of provision for levy and collection of road cess, the G.O. dated 6.6.1973 was continued without any modification and hence its scope and understanding continue to be what it was earlier to 1.4.1994. Government did not modify to G.O. dated 6.6.1973 as it did not conversion of portion of purchase tax relating to road cess into interest free loan.
(d) It is true that in previous years, road cess has been converted to wrongly into interest free loan and such wrong conversion will not make it legal.
(e) Levy of cess is for a specific purpose and the amount collected as cess should only be used for the purpose for which it is collected. If it is converted into interest free loan, then the very purpose will be defeated."
For these reasons, it was ordered that the cess levied and collected on purchase of sugarcane by the sugar factories under Section 25-B of the Act, is not eligible for conversion into interest free loan, in terms of the G.O. dated 06.06.1973. We are of the view that, this G.O. dated 24.03.2010 is justifiable as Section 25-B(2) of the Act which has come into effect from 13.10.1995, providing for the levy of cess, could not have been contemplated in the G.O. dated 06.06.1973.
The Government Order No. FD. 277 CSL 2001 dated 19.3.2002, on which reliance is placed by the learned Single Judge, refers to refund of tax other than turnover tax paid under the KST Act to sugar factories on sugarcane consumed by such units in the manufacture of sugar which are exported outside the territory of India, subject to the conditions and restrictions stipulated therein. Clauses 3 and 4 of the said Government Order reads as under:
"Clause-3:
"Refund of purchase tax shall be limited to purchase of sugarcane which is used in the manufacture of sugar and such sugar is exported out of the territory of India either directly or by sale in the course of export to an exporter in the State". Clause-4:
"Refund under this Government Order shall not be available to any sugar factory which is availing of exemption of purchase tax under any of the package of incentives and concessions offered by the Government of Karnataka to new sugar factories or availing of the benefit of deferment of purchase tax payable on sugarcane". And explanation 1 appended thereto, is reproduced herewith:
1) "Purchase tax paid" means the taxes paid under Karnataka Sales Tax Act, 1957 including cess.
2) "Export" for the purpose of this order means export falling under section 5(1) or 5(3) of the CST Act, 1956."
It is thus clear that refund of purchase tax under this Government Order referred to above, shall be limited to purchase of sugar cane, used in the manufacture of sugar and such sugar being exported out of the territory of India. This Government Order shall not be applicable to any sugar factory which was availing the exemption of purchase tax under any of the package of incentives and concessions offered by the Government of Karnataka. The sugar factory which was availing exemption of purchase tax under the G.O. dated 6.6.1973, as in the present case, was not eligible to avail the benefit of the G.O. dated 19.3.2002 as per clause (4) of the said G.O. As such, placing reliance on the explanation appended thereto to determine the meaning of ''purchase tax paid'' does not arise.
Even otherwise, the demand raised is for the recovery of road cess declared as interest free loan towards purchase of tax collected for the assessment years 2004-05 to 2009-10. By now, 10 years period has lapsed and the respondent shall be liable to pay the purchase tax collected, as per the Government Order dated 06.06.1973. In view of the same, the order passed by the learned Single Judge is not sustainable.
For the foregoing reasons, these writ appeals are allowed setting aside the order passed by the learned Single Judge, upholding the demand notice dated 6.4.2010 issued by the 1st respondent. In the result, appeals stand allowed.