1982 (2) TMI 300 - HC - VAT and Sales Tax

Karnataka Sales Tax Act: Constitutional Validity Upheld with Partial Exemptions

BP. Automobiles Versus State of Karnataka

The court held that Section 6B(1) of the Karnataka Sales Tax Act, 1957, including inter-State and export turnover in the 'total turnover' for selecting ... - Issues Involved:1. Constitutionality of Section 6B(1) of the Karnataka Sales Tax Act, 1957.2. Discrimination under Article 14 of the Constitution.3. Legislative competence under entry 54, List II.4. Restrictions on trade under Article 304(b) of the Constitution.5. Applicability of exemptions under Section 5(3)(a) and (b) to Section 6B.Issue-wise Detailed Analysis:Issue 1: Constitutionality of Section 6B(1) of the Karnataka Sales Tax Act, 1957The petitioners argued that the expression 'total turnover' in Section 6B(1) should exclude inter-State and export turnover to avoid unconstitutionality under Article 286 of the Constitution. However, the court held that the expression 'total turnover' in Section 6B(1) must be read with the statutory definition in Section 2(u-2), which includes inter-State and export turnover. The court concluded that the first part of Section 6B(1) is not a provision for levy but merely specifies the class of dealers liable to turnover tax, and thus, it does not render itself unconstitutional.Issue 2: Discrimination under Article 14 of the ConstitutionThe petitioners contended that Section 6B(1) leads to unconstitutional discrimination by including inter-State and export turnover in the 'total turnover' for selecting dealers for the levy. The court observed that tax laws are subject to Article 14 but enjoy wide latitude in the matter of classification for taxation purposes. The classification based on 'total turnover' exceeding Rs. 1,00,000 is rational and does not result in hostile discrimination. Therefore, the court held that Section 6B(1) does not violate Article 14.Issue 3: Legislative competence under entry 54, List IIThe petitioners argued that the State Legislature lacks competence to levy a tax on 'turnover' as it is not a tax on sale or purchase of goods. The court rejected this argument, stating that a tax on 'turnover' is essentially a tax on the aggregate of sales or purchases of a dealer during a year. The court referred to the Supreme Court's decision in S. Kodar v. State of Kerala, which upheld a similar provision, and concluded that Section 6B(1) is within the legislative competence of the State Legislature under entry 54, List II.Issue 4: Restrictions on trade under Article 304(b) of the ConstitutionThe petitioners argued that Section 6B imposes unreasonable restrictions on the freedom of trade, commerce, and intercourse, violating Article 301 of the Constitution. The court held that the mere imposition of a tax does not imply any restriction on trade unless it directly and immediately restricts the free flow of trade. The court found no evidence that Section 6B(1) violates Article 301 and thus rejected this contention.Issue 5: Applicability of exemptions under Section 5(3)(a) and (b) to Section 6BThe petitioners argued that exemptions under Section 5(3)(a) and (b) should apply to the levy under Section 6B(1) by virtue of Section 6B(2). The court referred to the Supreme Court's decision in State of Mysore v. Yaddalam Lakshminarasimhiah Setty, which interpreted similar provisions in the Central Sales Tax Act. The court held that Section 6B(2) is not merely procedural but acts as a conduit to attract exemptions under Section 5(3)(a) and (b). Therefore, the court concluded that the exemptions provided under Sections 5(3)(a) and (b) are also attracted to the levy under Section 6B(1).Conclusion:1. The writ petitions were allowed in part.2. Writs of mandamus were issued to restrain the respondents from levying turnover tax under Section 6B on turnovers exempt under Section 5(3)(a) and (b).3. Assessments including exempt turnover were quashed, and any tax collected on such turnover was ordered to be refunded.4. Petitioners with deficit court fees were directed to make good the deficit within six weeks.5. A common writ was directed to be issued to the State and the Commissioner of Commercial Taxes.6. Parties were directed to bear their own costs.7. Certificates of fitness to appeal to the Supreme Court were granted as the case involved substantial questions of law of general importance.