Agarwal Packers vs Commercial Tax Officer, Circle C, Jodhpur

Vineet Kothari, J.—The assessee has filed this revision petition against the order dated January 24, 2011 of learned Tax Board, whereby, the Revenue''s appeal filed against the order of the Deputy Commissioner (Appeals) dated July 23, 2008 came to be allowed and the Tax Board held in favour of the Revenue that the assessee was not entitled to set-off of entry tax paid by it on purchase of corrugated paper while importing the same in the State under the provisions of the Rajasthan Tax on Entries of Goods into Local Areas Act, 1999, since the corrugated boxes manufactured by the assessee out of such paper was not covered by relevant entry "paper products including exercise books", in the relevant notification for giving such set-off. The learned Tax Board relied upon the "Kar-Niti Paripatra 2002-2003/11 (S. No. 1580:f.16(26) Tax/CCT/90/7637 dated January 10, 2003) by which the State Government issued a clarification that the entry "all kinds of papers and paper products including exercise books" does not cover "packing material". The said clarification issued by the Commercial Taxes Department is reproduced hereunder:

S. No. 1580:F.16(26)Tax/CCT/90/7637 Dated: January 10, 2003

Kar-Niti Paripatra 2002-2003/11.

Sub: Regarding entry tax on all kinds of papers.

With regards to ambiguity of ''all kinds of papers and paper products including exercise books'' the Government has clarified that in notification of even Nos. 133 to 136 dated December 13, 2002 (S. No. 1571 to 1574) ''all kinds of papers and paper products including exercise books'' does not cover packing material. Therefore, it is directed to ensure compliance of this clarification to all of your officers.

The Tax Board accordingly held that the assessee was not entitled to setoff of entry tax paid against sales tax payable on the sale of corrugated boxes manufactured by it out of paper purchased by it on which entry tax was paid by him. The relevant Notification S. O. No. 72 dated July 21, 2004 in which under entry No. 12 "all kinds of paper and paper products including exercise books", four per cent entry lax was imposed by the State Government is reproduced hereunder to the relevant extent:

S. O. 72. -- In exercise of the powers conferred by sub-section (1) of section 3 of the Rajasthan Tax on Entries of Goods into Local Areas Act, 1999 (Rajasthan Act No. 13 of 1999), and in supersession of this Department Notification No. R4(4) FD/Tax Div./99-246, dated October 15, 1999 (as amended from time to time), the State Government being of the opinion that it is expedient in the public interest so to do, hereby specifies that the tax payable by a dealer under the said Act in respect of the goods specified in column 2 of the List annexed hereto, and brought into any local areas, for consumption or use or sale therein, shall be payable at such rate as has been shown against them in column 3 of the said List, with immediate effect:

LIST

[F.4(67) FD/Tax/2004-32]

By order of the Governor,

(AJITABH SHARMA)

Deputy Secretary to Government

By annexure 3 notification dated January 3, 2003 S. No. 1669, the State Government allowed set-off of entry tax paid in the State on paper from sales tax payable on the sale of finished goods on the following conditions; (1) That such paper is used as raw material or processing material in the manufacture of paper products including exercise books; (2) That such paper products including exercise books are sold within the State or in the course of inter-State trade or commerce, including export out of the territory of India. The said notification dated January 3, 2003 is also reproduced hereunder for ready reference:

S. No. 1669: F.4(43)/FD/Tax Div/02-Pt-141 dated January 3, 2003 In exercise of the powers conferred by section 9, Rajasthan Tax on Entry of Goods into Local Areas Act, 1999 (Rajasthan Act No. 13 of 1999), the State Government being of the opinion that it is expedient in the public interest so to do, hereby allows set-off of the entry tax paid in the State on paper from sales tax payable on the sale of finished goods on the following conditions:

That such paper is used as raw material or processing material in the manufacture of paper products including exercise books; and

That such paper products including exercise books are sold within the State or in the course of inter-State trade or commerce.

This notification will be effective with effect from August 13, 2002.

The assessing authority disallowed such claim of the assessee and passed the impugned assessment order, annexure 5, dated November 17, 2007. The first appellate authority allowed the assessee''s appeal and held the assessee was entitled to such set-off vide order annexure 6 dated July 25, 2008. The Revenue took the matter further to Tax Board, which appeal came to be allowed by the impugned order dated January 24, 2011 and Tax Board held that the assessee is not entitled to such set-off of entry tax.

Being aggrieved by the same, the assessee is before this court in the present revision petition.

The learned counsel for the petitioner-assessee, Mr. Dinesh Mehta, urged that the clarification issued by the State Government vide annexure 4 dated January 10, 2003 cannot override the notification, annexure 3, dated January 3, 2003 by which the set-off was allowed and, therefore, the corrugated boxes being paper products, said set-off was liable to be given by the authority concerned and the Tax Board has erred in rejecting the said claim. He relied upon the judgment of the Bombay High Court which was cited before the Tax Board also in the case of Commissioner of Sales Tax, Maharashtra State, Bombay Vs. Ajay Industrial Packagings Pvt. Ltd. , wherein, the Bombay High Court dealing with the case of surfane packing paper held that surfane packing paper is not only known as packing paper but is actually used only for packing. Therefore, surfane packing paper would fall under entry 24(2) of Schedule C of the Bombay Sales Tax Act, which is a wide one and covers "paper of all kinds".

Per contra, learned counsel Mr. Lokesh Mathur for Revenue vehemently submitted that Notification S. No. 1669 dated January 3, 2003 issued by the State Government provides for set-off of the entry tax paid on paper against sales tax if such paper is used as raw material or processing material for manufacture of "paper products including exercise books". Therefore, the corrugated boxes, undoubtedly, being packing material are not the paper products of the type envisaged in this notification. He also relied upon the clarification issued by the State Government vide annexure 4 notification dated January 10, 2003 and submitted that the interpretation of term, "all kinds of papers and paper products including exercise books" does not include the packing material. He, therefore, submitted that the learned Tax Board was justified in allowing the appeal of the Revenue and holding against the assessee that the said set-off could not be given.

I have heard the learned counsels at length and perused the material on record and judgment cited at the Bar.

Section 9 of the Entry Tax Act of 1999 empowers the State Government to give exemption from entry tax and provides that, "notwithstanding anything contained in this Act, where the State Government is of the opinion that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt from tax payable under the Act on entry of goods into local area fully or partially, whether prospectively or retrospectively". Power to give set-off of such entry tax against sales tax payable on sale of finished product is not specifically conferred by section 9 of this Act. Power to give such set-off of entry tax against sales tax in fact amounted to exemption of sales tax to that extent and for that, power to exempt sales tax u/s 15 of the Rajasthan Sales Tax Act, 1994 could be invoked and not section 9 of the Entry Tax Act, 1999. However, the relevant Notification S. No. 1669 dated January 3, 2003 has been issued u/s 9 of the Act of 1999 and not u/s 15 of the Rajasthan Sales Tax Act, 1994. Be that as it may.

Under these powers to exempt tax u/s 9 of the Act, annexure 3 notification was issued by the State Government allowing set-off of the entry tax paid in the State on paper from sales tax payable on the sale of finished goods subject to aforesaid twin conditions.

It is true that the clarification issued by the State Government cannot override the statutory notification issued by the State Government. However, the entry which calls for interpretation in the present case is that such paper on which entry tax has been paid by the assessee should be used as raw material or processing material used in the manufacture of paper products including exercise books. The words "all kinds of papers and paper products including exercise books" obviously do not cover the packing material, viz., corrugated boxes.

The set-off of the entry tax against sales tax payable on paper products was intended to be given in terms of notification, annexure 3, dated January 3, 2003 only if the finished product which attracts sales tax falls within the entry, "all kinds of papers and paper products including exercise books" and not otherwise.

The principle of interpretation in the form of contemporanea expositio requires that interpretation to such entry should be given in the manner in which the Department has construed the same during the contemporary period. The "Kar-Niti Paripatra" is merely an interpretative process and cannot be said to be beyond the jurisdiction of the State Government. The corrugated boxes manufactured by the assessee is undoubtedly a packing material and is not covered under the terms, "all kinds of papers and paper products including exercise books" as the notification in hand clearly stipulates that such paper is used as raw material or processing material in the manufacture of paper products including exercise books. It is nowhere established in the present case that corrugated boxes manufactured by the assessee are not the packing material. It may be a paper product but under the conditions stipulated in the notification dated January 3, 2003, the setoff is available only when such paper is used as raw material or processing material in the manufacture of paper products including exercise books, which terms have been interpreted by the State Government in the clarification dated January 10, 2003 to exclude the packing material. Therefore, unless the assessee with some material on record could establish before the fact-finding bodies or authorities below that in common parlance or trade parlance the said product is not packing material, its exclusion from the entry, "paper products including exercise books" cannot be faulted. Therefore, even if the corrugated boxes are paper products, unless they fall outside the purview of packing material, the same cannot be included within the ambit and scope of notification dated January 3, 2003 allowing set-off of the entry tax on paper from sales tax payable on the sale of finished goods. The words "all kinds of papers" are conspicuously absent in the condition No. (1) of the relevant notification dated January 3, 2003 and only the words "paper products including exercise books" are there. This difference in notification dated January 3, 2003 and sales tax levy Notification S. No. 72 dated July 21, 2004 is also significant and supports the case of the Revenue.

The Bombay High Court judgment relied upon by the learned counsel for the assessee relating to surfane packing paper, which was held to be falling within the definition of "paper of all kinds" does not obviously apply to the facts of present case and the same is distinguishable. Neither the relevant entry here is couched in so wide terms as, "paper of all kinds" as it was before the Bombay High Court, nor the surfane packing paper is the commodity involved here in the case in hand before this court. Consequently, this court is of the opinion that the learned Tax Board was justified in allowing the Revenue''s appeal and denying the benefit of set-off to the present assessee. Accordingly, the revision petition filed by the assessee being devoid of merit is liable to be dismissed and the same is hereby dismissed. No costs.