Deeming fiction for inter se oil-company sales bars resale tax where the first sale is excluded in law.

Inter se sales of petroleum products between the specified oil companies were excluded from the first-sale point by the deeming fiction in the second proviso to section 5(3)(a) read with Explanation II. Because section 6-B of the Karnataka Sales Tax Act applies only to a true subsequent taxable sale, resale tax could not be levied where the initial transfer was not treated as the first sale in law. The petitioner's purchase from MRPL and onward supply to other named oil companies therefore fell outside the scope of resale tax, and the petitioner was not liable under section 6-B on the impugned transactions.

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Issues: Whether the petitioner was liable to pay resale tax under section 6-B of the Karnataka Sales Tax Act, 1957 on sales of petroleum products made by it to other oil companies, in the light of the second proviso to section 5(3)(a) and Explanation II.

Analysis: The statutory scheme shows that petroleum products in the relevant schedule are ordinarily taxed at the first or earliest point of sale, but the second proviso to section 5(3)(a) creates a deeming rule for sales between oil companies named in Explanation II, under which such inter se sales are not treated as sales by the first or earliest dealer. Section 6-B levies resale tax only on a dealer who is in law a subsequent seller, and its operation depends on there being a taxable first sale followed by a resale. Because the transfer from one oil company to another oil company is excluded from the first-sale point by the deeming fiction, the petitioner's purchase from MRPL and its onward supply to other named oil companies could not be treated as the kind of purchase and resale contemplated by section 6-B. The provision must be construed in the context of its own heading and purpose, namely levy on resale, and the legal fiction must be given its full effect in consequence.

Conclusion: The petitioner was not liable to resale tax under section 6-B on the impugned transactions.

Ratio Decidendi: Where a statutory deeming provision excludes inter se sales between specified oil companies from being treated as the first sale, a subsequent levy of resale tax cannot be imposed under a provision that applies only to a true second or subsequent taxable sale.

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