Sales tax competence upheld for additional levy linked to turnover, despite prohibition on passing it to purchasers.

An additional tax imposed under section 6B of the Karnataka Sales Tax Act was examined for legislative competence under entry 54 of List II and for its effect on the character of the levy. The court applied the principle that an additional tax calculated with reference to dealer turnover is, in substance, an enhancement of sales tax rather than a tax on income. It further noted that computing the levy by reference to sales tax payable, and prohibiting recovery from purchasers, does not alter its character as a sales tax. The additional tax and the restriction on collection were held to fall within State legislative competence, and the constitutional challenge failed.

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Issues: Whether the additional tax imposed under section 6B of the Karnataka Sales Tax Act, 1957 was beyond the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution of India, and whether the prohibition on collection of that additional tax altered its character as a sales tax.

Analysis: The levy was examined in the light of the Supreme Court's holding that an additional tax computed with reference to the dealer's turnover is in substance an enhancement of sales tax and not a tax on income. The fact that the amount is determined by reference to the sales tax payable, and the fact that the dealer is barred from collecting it from purchasers, do not change the nature of the levy. A tax on sales may retain its character even where the dealer cannot recoup it from another person.

Conclusion: The impugned additional tax and the restriction on its collection were held to be within the legislative competence of the State Legislature and the constitutional challenge failed.

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