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Hindustan Lever Ltd. v. State of Karnataka - (Supreme Court) (02 Sep 2016)

Packing materials are not raw materials, component parts or inputs used in manufacture of finished goods and are separately defined under enactment.


Sales Tax/VAT

Appellant is a public limited company having a tea manufacturing unit at Dharwad and various other units which also manufacture tea. It is claimed that, Dharwad Unit, as opposed to 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 Karnataka Tax on Entry of Goods Act, 1979 . Regarding other units, it was case of Appellant, they are covered by Explanation II to a Notification dated 23.9.1998 issued under Section 3 of 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%. Authorities below held that, packing material cannot be regarded as raw material, component parts or inputs used in manufacture of finished goods and, therefore, in context of Entry Tax Act read with Schedule I, such packing material is neither exempt nor chargeable at rate of 1% on a true construction of Notifications of 1993 and 1998. High Court dismissed revision petitions filed under statute by Assessee following their own judgment in Nestle India Ltd. v. State of Karnataka.

Definition of "goods" in Section 2(A)(4a) of the Entry Tax Act, is an exhaustive one including all kinds of movable property and livestock. Anything that is tangible, without more, and enters a local area for consumption, sale or use therein is taxable, taxable event being 'entry' and not 'manufacture' of goods. Section 2(A)(8a) wherein "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 "value of goods". In context of Entry Tax Act, difference between 'goods' used in manufacture of goods and "packing material" is also brought out by Schedule I. Packing materials are separately defined in Entry 66. 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 present case, and cannot be extended to cover packing materials of said tea which is separately provided for by Entry 66.

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. Neither notification can be read to include "packing material" as "raw materials, component parts or inputs used in manufacture" of tea. In no case, can packing materials be said to be raw materials, component parts or inputs used in the manufacture of finished goods. High Court was correct in following its own earlier Division Bench judgment in Nestle case.

Relevant : Nestle India Ltd. v. State of Karnataka; Escorts Limited v. CCE [ MANU/SC/0505/2015]: (2015) 9 SCC 109, Section 2(A), 4a, 8a of  Karnataka Tax on Entry of Goods Act, 1979


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