Court upholds tax exemption denial for new industrial units under Karnataka Sales Tax Act

The court held that the notification issued by the State Government under section 8A of the Karnataka Sales Tax Act, 1957, was not at variance with the industrial policy decision for 1993-98. The notification, which exempted tax on goods manufactured and sold by new industrial units, was found to align with the industrial policy's provisions for sales tax concessions. Consequently, the petitioners were not entitled to tax exemption on purchase turnover, and the assessing authority's decision to levy purchase tax was upheld. The writ petitions were dismissed, with each party bearing their own costs.

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Issues Involved:
1. Whether the notification issued by the State Government under section 8A of the Karnataka Sales Tax Act, 1957, dated September 23, 1993, is at variance with the industrial policy decision of the State Government for the period 1993-98.

Issue-wise Detailed Analysis:

Issue 1: Whether the notification issued by the State Government under section 8A of the Karnataka Sales Tax Act, 1957, dated September 23, 1993, is at variance with the industrial policy decision of the State Government for the period 1993-98.

The court examined whether the notification issued by the State Government was in conflict with the industrial policy for 1993-98. The petitioners, registered dealers under the Karnataka Sales Tax Act (KST Act) and Central Sales Tax Act (CST Act), claimed tax exemption based on the Government Order No. CI 140 SPC 93, dated July 12, 1993, which provided for sales tax exemption or deferral to new industrial units. The petitioners argued that the notification issued by the Finance Department limited the sales tax exemption only to goods manufactured and sold, which was not authorized by the Government Order and thus contrary to the policy decision.

The court referred to Clause 5.0 of the industrial policy, which provided for sales tax concessions, allowing industrial investments in tiny/SSI/medium and large-scale sectors the option of either sales tax exemption or deferral. The notification dated August 28, 1993, issued under section 8A of the KST Act, exempted tax payable on goods manufactured and sold by new industrial units. The petitioners contended that this should include purchase tax as well, citing rule 20C of the Karnataka Sales Tax Rules and previous court decisions.

The State Government, represented by the learned Additional Government Advocate, argued that the industrial policy spoke only of sales tax exemption or deferral under the KST and CST Acts, which referred specifically to the tax leviable under section 5 of the KST Act, not including purchase tax under section 6 or other sections.

The court considered the Supreme Court's decision in State of Bihar v. Suprabhat Steel Ltd. [1999] 112 STC 258, which held that a notification issued by the State Government must carry out the purpose and objectives of the industrial policy and should not be repugnant to it. The court also examined the dictionary clause of the KST Act, which defined "tax" as the tax leviable under the Act, and noted the various charging sections, including sections 5 and 6.

The court concluded that the industrial policy's use of the expressions "sales tax exemption" or "sales tax deferral" referred specifically to tax on sales turnover under section 5 of the KST Act. The notification issued by the State Government was consistent with the industrial policy, as it exempted tax on goods manufactured and sold by new industrial units under section 5. Therefore, the notification was not at variance with the industrial policy for 1993-98.

In light of this conclusion, the court upheld the assessing authority's decision to levy purchase tax on the petitioners' purchase turnover, as the petitioners were not entitled to the benefit under the notification dated August 28, 1993. The writ petitions were rejected, and each party was directed to bear their own costs.

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