Intervening in a dispute between the Oil Marketing Companies (OMCs) and the Commercial Tax Department over payment of tax since 2008-09, the Karnataka Appellate Tribunal (KAT) has set aside claims of the department over the imposition of entry tax and tax on denatured anhydrous ethanol that is used to blend with petrol.
The tax authorities had treated the denatured anhydrous ethanol as ethyl alcohol for the purpose of levying tax, which the KAT has held as unsustainable.
Hearing on a batch of appeals by Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd., the KAT bench comprising B.L. Jinaralakar (district judge member) and S.R. Thulasidas (Commercial Tax member) rejected claims of the department and directed the assessing authorities to draw the revised proceedings and issue revised demand notice or refund order.
OMCs’ argument
The OMCs, in a series of appeals to the department, had argued against levying entry tax on purchase value of ethanol; treating denatured anhydrous ethanol as ethyl alcohol and entry tax on the sale value of petrol blended with ethanol.
The OMCs had argued that ethanol cannot be considered as ethyl alcohol and no separate entry tax can be levied since the entry tax paid on the sale value of blended petrol is fully in compliance with the provisions of the Karnataka Tax on Entry of Goods Act, 1979 (KTEG Act).
The order by the assessment authorities in the department, that was based on a 2002 notification, had been challenged under the Karnataka Tax on Entry of Goods Act, 1979.
Incidentally, the KTEG Act has been subsumed under the Goods and Services Act, 2017.
The assessment authorities in the Commercial Tax Department had dismissed the appeals stating that payment of entry tax on the sale value of blended petrol would not absolve the companies from levy of tax on the purchase of ethyl alcohol. Further, it treated the denatured anhydrous ethanol as ethyl alcohol for the purpose of levying tax.
The bench observed that though the denatured spirit had been notified in earlier notifications of 1992 and 1997, but had not been notified in March 2002 by the Karnataka Government.
‘Ethyl alcohol is fit for human consumption’
“Ethyl alcohol is potable and fit for human consumption. The denatured anhydrous ethanol alcohol/ethanol, which is used as admixture to petrol, is non-potable and unfit for human consumption,” the bench said.
It further noted that denatured anhydrous ethanol attracted Central excise whereas the rectified spirit, neutral alcohol and ethyl alcohol attract levy of State excise duty under Karnataka Excise Act, 1965.
The bench also noted that BIS standard specifications and ISI standards are different for each commodity and alcoholic contents.
