General State tax exemption for imitation jewellery excluded Central sales tax on inter-State sales

An exemption notification under the Karnataka Sales Tax Act for imitation jewellery was treated as an exemption from tax generally, because it was not confined to specified circumstances or conditions. That brought the goods within section 8(2A) of the Central Sales Tax Act, under which Central sales tax is nil where the relevant State law grants a general exemption. On that basis, inter-State sales of imitation jewellery were held not liable to Central sales tax, and the assessment and consequential demand notices were quashed.

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Issues: Whether the exemption granted under the Karnataka Sales Tax Act, 1957 for imitation jewellery amounted to an exemption from tax generally so as to attract section 8(2A) of the Central Sales Tax Act, 1956 and eliminate liability to Central sales tax on inter-State sales.

Analysis: Section 8(2A) of the Central Sales Tax Act, 1956 provides that where the sale or purchase of goods is exempt from tax generally under the sales tax law of the appropriate State, the tax payable under the Central Sales Tax Act shall be nil. The explanation excludes exemptions operating only in specified circumstances or under specified conditions. The State notification issued under section 8-A of the Karnataka Sales Tax Act, 1957 exempted imitation jewellery from tax generally and did not limit the exemption to specified circumstances or conditions. On that footing, the State exemption was sufficient to attract section 8(2A).

Conclusion: The inter-State sales of imitation jewellery were not liable to Central sales tax, and the assessment and consequential demand notices were quashed.

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