Central sales tax exemption survives KVAT transitional provisions and later rule changes cannot retrospectively deny the benefit.

Dealers who paid Karnataka sales tax on stock acquired during the transitional period remained entitled to exemption from Central sales tax under the notification issued under the Central Sales Tax Act. Section 18 of the Karnataka Value Added Tax Act, 2003 governed only transitional relief on stock in hand and did not override or reduce the separate exemption granted by the Central sales tax notification. The later amendment and omission of rule 166, including sub-rule (5A), could not retrospectively remove that exemption or deny the benefit because transitional relief under the KVAT regime was available. The revisional order refusing the exemption was therefore unsustainable.

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Issues: Whether dealers who had paid Karnataka sales tax on stock purchased during the transitional period were entitled to exemption from Central sales tax under the notification issued under the Central Sales Tax Act, and whether section 18 of the Karnataka Value Added Tax Act, 2003 and rule 166 of the Karnataka Value Added Tax Rules could be used to deny that exemption.

Analysis: The exemption notification operated under the Central Sales Tax Act and granted relief where goods such as arecanut had already suffered tax under the Karnataka Sales Tax Act, 1957. Section 18 of the Karnataka Value Added Tax Act, 2003 dealt only with transitional relief on stock in hand and did not abrogate or dilute the independent exemption created by the Central sales tax notification. The subsequent amendment and omission of rule 166, including sub-rule (5A), could not retrospectively take away an exemption that flowed from the earlier notification, nor could they be used to deny the benefit merely because transitional relief under the KVAT regime was available.

Conclusion: The assessees remained entitled to the exemption under the Central sales tax notification. The revisional order denying that benefit was unsustainable.

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