Commission agent sales tax liability upheld as valid machinery provision within State taxing power.

Section 11 of the Karnataka Sales Tax Act, as substituted, was treated as a valid levy on sale and purchase transactions effected by commission agents on behalf of resident principals, falling within the State's tax power under Entry 54 of List II. The provision was upheld as a machinery measure to prevent tax evasion and not as a tax on the agent's income; objections under Article 14, Article 19(1)(g), and alleged conflict with the Sale of Goods Act and the Indian Contract Act were rejected. The substituted section 11 was also held to have commenced on 18 November 1983, being the date of first publication in the Gazette.

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Issues: (i) Whether section 11 of the Karnataka Sales Tax Act, 1957, as substituted by the amending Act, was beyond the legislative competence of the State Legislature or otherwise invalid for violating the Constitution and conflicting with the Sale of Goods Act, 1930 and the Indian Contract Act, 1872; (ii) whether the substituted section 11 came into force on 18 November 1983.

Issue (i): Whether section 11 of the Karnataka Sales Tax Act, 1957, as substituted by the amending Act, was beyond the legislative competence of the State Legislature or otherwise invalid for violating the Constitution and conflicting with the Sale of Goods Act, 1930 and the Indian Contract Act, 1872.

Analysis: Section 11, as substituted, made commission agents liable to pay tax on purchases and sales effected by them on behalf of resident principals, and therefore operated within the field of tax on the sale or purchase of goods under Entry 54 of List II of the Seventh Schedule to the Constitution of India. A commission agent was treated as a dealer under section 2(1)(k) of the Act, and the provision was also characterised as a machinery measure designed to prevent tax evasion. The Court further held that the provision did not tax the income of the agent, but only the taxable transactions of sale or purchase carried out by him as agent. The challenge based on Article 14 failed because commission agents formed a distinct class and were treated uniformly. The challenge under Article 19(1)(g) failed because the provision did not take away the right to carry on business nor confer immunity from taxation. The contention that the section destroyed the principles of agency or conflicted with parliamentary legislation under the Sale of Goods Act, 1930 and the Indian Contract Act, 1872 was rejected because the statutory liability was imposed on the agent as a taxable person without negating the legal incidents of agency.

Conclusion: The challenge to the validity of section 11 failed and the provision was upheld as within legislative competence and constitutionally valid.

Issue (ii): Whether the substituted section 11 came into force on 18 November 1983.

Analysis: The amending Act was first published in the Karnataka Gazette (Extraordinary) on 18 November 1983, and under section 5(3) of the Karnataka General Clauses Act, 1899, commencement followed first publication rather than the date of assent alone. The tentative view taken in the demand notice that the provision commenced on 7 November 1983 was therefore incorrect.

Conclusion: The substituted section 11 came into force on 18 November 1983 and not on 7 November 1983.

Final Conclusion: The writ petitions failed on merits, and the impugned provision was sustained while the commencement date was regulated to the date of first publication.

Ratio Decidendi: A provision imposing tax liability on commission agents for transactions effected on behalf of principals falls within the legislative field of tax on sale or purchase of goods, may operate as a valid machinery provision to prevent evasion, and does not become unconstitutional merely because it affects agency relationships or business activity.

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