Hon'ble Judges/Coram:
A.K. Sikri and Rohinton Fali Nariman

JUDGMENT

Rohinton Fali Nariman, J.

1. The Appellant is a public limited company having a tea manufacturing unit at Dharwad and various other units which also manufacture tea. The tea manufactured by the Appellant is of three types, namely, packet tea, tea in tea bags, and quick brewing black tea. It is claimed that the Dharwad Unit, as opposed to the 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 the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as the "Karnataka Entry Tax Act"). Insofar as the other units are concerned, it is the case of the Appellant they are covered by Explanation II to a Notification dated 23.9.1998 issued Under Section 3 of the 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%. In these appeals, we are concerned with three assessment years 1994-1995, 1995-1996 and 1996-1997.

2. The question that arises for decision in this appeal is whether "packing materials" which enter the local area for consumption therein, that is for packing tea that is manufactured by the Appellant, can be said to be raw material, components, or inputs used in the manufacture of tea. In order to answer this question, it is necessary to first set out the relevant provisions of the Karnataka Entry Tax Act. They are as follows:

2. Definitions.- (A) In this Act, unless the context otherwise requires,-

(4a) goods means all kinds of moveable property (other than newspapers, actionable claims, stocks and shares and securities) and includes livestock;

(7) "Schedule" means a Schedule appended to this Act;

(8) "tax" means tax leviable under this Act;

(8a) 'Value of the goods' shall mean the purchase value of such goods that is to say, the purchase price at which a dealer has purchased the goods inclusive of charges borne by him as cost of transportation, packing, forwarding and handling charges, commission, insurance, taxes, duties and the like, or if such goods have not been purchased by him, the prevailing market price of such goods in the local area.

(B) Words and expressions used in this Act, but not defined, shall have the meaning assigned to them in the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957.)

3. Levy of tax.- (1) There shall be levied and collected a tax on entry of any goods specified in the FIRST SCHEDULE into a local area for consumption, use or sale therein, at such rates not exceeding five percent of the value of the goods as may be specified retrospectively or prospectively by the State Government by notification and different dates and different rates may be specified in respect of different goods or different classes of goods or different local areas.

11A. Power of State Government to exempt or reduce tax.-

(1) The