Retrospective tax clarification upheld where amendment was declaratory and commercial hardship did not make the levy invalid.

The retrospective explanation to the first proviso to section 5(1-A) of the Karnataka Sales Tax Act was upheld as a declaratory clarification of the existing scheme, not as the creation of a new tax burden. The Court held that turnover for the proviso meant taxable turnover and excluded tax, so the intermediary-sale deduction was to be computed without adding the tax component. Retrospective taxation is valid if it is not arbitrary or unreasonable, and commercial hardship from inability to pass on tax does not by itself invalidate the levy. Statutory limits on collecting tax from consumers did not entitle the dealer to relief from a legally payable tax.

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Issues: Whether the explanation inserted to the first proviso to section 5(1-A) of the Karnataka Sales Tax Act, 1957 with retrospective effect from 1 April 1988 was unconstitutional or invalid on the ground that it imposed an unreasonable and harsh burden on dealers who could not pass on the tax for the intervening period.

Analysis: The explanation clarified that, for the purpose of the proviso, the turnover of goods on which tax had been levied meant taxable turnover and did not include tax. On the statutory scheme, tax is levied on the price component and the intermediary-sale deduction under the proviso is to be worked out without adding the tax component. The amendment was therefore treated as declaratory of the true meaning of the provision and not as creating a fresh tax burden. The Court also held that retrospective taxation is permissible if it is not arbitrary or unreasonable, and mere hardship caused by inability to pass on the tax does not invalidate the levy. The statutory prohibitions against unlawful collection of tax under sections 18, 18A and 29 reinforced the conclusion that the dealer could not claim relief from a legally payable tax merely because collection from consumers was restricted.

Conclusion: The retrospective explanation was upheld as valid and constitutional, and the challenge to it failed.

Ratio Decidendi: A retrospective amendment that is merely declaratory of the existing statutory meaning, and that does not impose an arbitrary or unreasonable burden, is valid notwithstanding commercial hardship to the taxpayer.

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