Karnataka HC: Sales to Kalbhavi are Local Sales, Not Subject to Purchase Tax

The Karnataka High Court held that the sales made by the assessee to Kalbhavi were local sales within Karnataka and not subject to purchase tax under Section 6 of the Karnataka Sales Tax Act. The court emphasized that Section 5(3) of the Central Sales Tax Act does not alter the situs of the sale but only provides a tax exemption. Relying on the precedent set by the Supreme Court in Murli Manohar & Co. v. State of Haryana, the court allowed the revision petition, setting aside the assessment order under Section 6.

---

---

Issues Involved:
1. Applicability of Section 6 of the Karnataka Sales Tax Act, 1957.
2. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956.
3. Identification of the situs of the sale.
4. Relevance of the Supreme Court's decision in Murli Manohar & Co. v. State of Haryana.

Detailed Analysis:

1. Applicability of Section 6 of the Karnataka Sales Tax Act, 1957:
The primary issue was whether Section 6 of the Karnataka Sales Tax Act, 1957, applied to the purchases made by the assessee. Section 6 imposes a purchase tax on dealers who purchase taxable goods without paying sales tax and either consume or dispose of them in a manner other than by sale within the State or dispatch them outside the State. The State argued that since the assessee's sales to Kalbhavi were deemed to be in the course of export, the dispatch of goods to a place outside the State fell within the ambit of Section 6(ii). However, the court disagreed, stating that the sales to Kalbhavi were local sales completed within the State and did not constitute the assessee dispatching goods outside the State.

2. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956:
Section 5(3) of the CST Act deems the penultimate sale preceding the export as a sale in the course of export, thereby exempting it from sales tax. The court noted that this provision does not alter the situs of the sale but only provides an exemption from tax. The sale by the assessee to Kalbhavi, though protected under Section 5(3) of the CST Act, remained a local sale within the State of Karnataka, and thus, the assessee did not dispatch the goods outside the State.

3. Identification of the situs of the sale:
The court held that the situs of the sale is determined by where the sale transaction is completed. Since the goods were sold by the assessee to Kalbhavi within Karnataka, the sale was local. The court emphasized that Section 5(3) of the CST Act does not change the location of the sale but merely provides a tax exemption for the penultimate sale in the course of export.

4. Relevance of the Supreme Court's decision in Murli Manohar & Co. v. State of Haryana:
The court referred to the Supreme Court's decision in Murli Manohar & Co., which dealt with a similar issue under the Haryana General Sales Tax Act. The Supreme Court had held that penultimate sales, though deemed to be in the course of export under Section 5(3) of the CST Act, are local sales for the purposes of the State Act. The Karnataka High Court applied this reasoning, concluding that the assessee's sales to Kalbhavi were local sales and not subject to purchase tax under Section 6 of the Karnataka Sales Tax Act.

Conclusion:
The court concluded that Section 5(3) of the CST Act does not affect the identification of the situs of the sale, and the penultimate sale by the assessee to Kalbhavi was a local sale within Karnataka. Therefore, the levy of purchase tax under Section 6 of the Karnataka Sales Tax Act was not applicable. The revision petition was allowed, and the assessment order under Section 6 was set aside.

---