HC admits pleas on denatured spirits

S Shyam Prasad | NT

Bengaluru: The High Court of Karnataka has allowed petitions by the Indian Oil Corporation and the Bharat Petroleum Corporation Limited challenging the Commercial Taxes Department of Karnataka imposing entry tax on denatured spirits.

The Court held that Ethyl alcohol and denatured anhydrous ethyl alcohol are not the same. Allowing the petitions filed by the oil marketing companies in 2014, a recent judgment of the High Court said, “In Notification dated 30.03.2002, the State Government has imposed 4% entry tax on ethyl alcohol. As noticed by us hereinabove, ethyl alcohol contains 8-12% alcohol. Anhydrous alcohol or denatured spirit which is the final product contains alcohol at 99.5% and 99.8% alcohol respectively. Therefore, the contention urged by the Revenue that ethyl alcohol and denatured anhydrous ethyl alcohol are one and the same is untenable.”

The division bench of Justice PS Dinesh Kumar and Justice TG Shivashankare Gowda in their judgment noted the fact that the Department was arguing that two different products were the same.

“We may further record that once the statute specifies that tax can be imposed by issuing notification by the State Government, the notification must be unambiguous. Earlier, the State Government had imposed on denatured spirit and cancelled that notification. In a subsequent notification, denatured spirits has not been taxed. With this factual situation, the Revenue cannot seek to impose tax by canvassing an argument that two different products are one and the same,” the HC said.

The Department’s claim of tax from the two companies is for the assessment year 2007-08. During that year the companies sold petrol blended with 5% denatured spirit. They brought petrol as well as denatured spirit within the local jurisdiction where the blending took place.

The blended petrol was sold to dealers. In addition to Karnataka VAT, petroleum dealers also paid entry tax on the total sale value of petrol at 5%. The Department took a view that denatured spirit brought into Karnataka was taxable under Karnataka Tax on Entry of Goods Act.

Accordingly, tax was levied with interest and penalty. This was challenged before the Karnataka Appellate Tribunal (KAT) which ruled in favour of the Department. (CRP 88/2014 CRP 196/2014)