1982 (6) TMI 246 - HC - VAT and Sales Tax

Tax exemption lost for cottage oil industry within city limits due to rule amendment

MS Mudhol Versus State of Karnataka

MS Mudhol Versus State of Karnataka - [1983] 52 STC 128 (Kar) Issues:Challenge to notice issued by Commercial Tax Officer regarding exemption from tax under Karnataka Sales Tax Act based on rule amendment.Analysis:The petitioners challenged the notice issued by the Commercial Tax Officer, II Circle, Gadag, regarding the exemption from tax under the Karnataka Sales Tax Act due to an amendment to rule 25A of the Karnataka Sales Tax Rules. The petitioners contended that as they were recognized as carrying on village industries and their goods were exempt under the Act, the Commercial Tax Officer had no authority to issue the notices and tax their business turnover. The petitioners argued that the amendment to rule 25A should not affect them as they already enjoyed exemption under entry No. 28 of the Fifth Schedule. However, the court noted that the amendment automatically canceled the exemptions granted based on recognition and would only be available as long as the recognition continued. The petitioners, engaged in the business of a cottage oil industry, did not meet the requirements of the amended rule 25A as they were situated within the city limits, thereby losing the benefit of exemption.The court referred to Section 8 of the Act, which exempts specified goods from tax subject to conditions set out in the Fifth Schedule. The Fifth Schedule originally contained 44 entries, including entry No. 28 related to village industries. The amendment to entry No. 28 required compliance with the Rules framed under the Act. Rule 25A specified conditions for village industries to qualify for exemption, including not being situated within city limits. As the petitioners did not meet this condition, the amendment effectively removed their exemption. The court held that the amendment did not prohibit the petitioners from carrying on their trade but only brought their turnover, previously exempt, under taxation.The court rejected the argument that the amendment was invalid or affected the petitioners' trade freedom, emphasizing that it was within the legislative intent to remove the exemption based on the amended rule. As there was no challenge to the validity of the rule amendment, the court found no illegality in the notices issued by the Commercial Tax Officer and dismissed the petitions without issuing a rule. The Government Pleader was permitted to file her appearance within two weeks.