1992 (11) TMI 257 - SC - VAT and Sales Tax

Validity of various provisions of the Karnataka Sales Tax Act, 1957, as amended by Amending Act No. 27 of 1985 and the Karnataka Sales Tax Rules, 1957 challenged Held that - Appeal dismissed. As in prescribing different rates of tax for particular types of works contract in the Sixth Schedule, the State Legislature has contravened the provisions of article 14 of the Constitution. We may, in this context, mention that the High Court while upholding the validity of the rates fixed in the Sixth Schedule has held that while under the Second Schedule tax on pipes, tubes and fittings of iron, cement and asbestos not falling in the Fourth Schedule is to be levied at 8 per cent, the tax on the corresponding item under item No. 20 of the Sixth Schedule is levied at the rate of 10 per cent. The High Court has held the fixation of rate of tax in respect of item 20 in the Sixth Schedule as being discriminatory and has struck it down. The said part of the judgment of the High Court has not been challenged by the State and we do not wish to say anything on the same. During the course of arguments before us, the learned counsel for the appellant sought to challenge the validity of section 19A of the Karnataka Sales Tax Act which provides for deduction of tax at source. We find that the said provision was not challenged by the appellant in the writ petition before the High Court and was also not challenged in the additional grounds which were submitted by the appellant in the High Court after the decision of this Court in Builders Association case 1989 (3) TMI 356 - SUPREME COURT OF INDIA . It has also not been challenged by the appellant in the special leave petition filed before this Court. In these circumstances, we have not permitted the appellant to raise this question.

Issues Involved:
1. Validity of Explanation (3)(c) to Section 2(1)(t) of the Karnataka Sales Tax Act.
2. Validity of Section 5B read with the Sixth Schedule of the Karnataka Sales Tax Act.
3. Challenge to the rates of tax prescribed in the Sixth Schedule.
4. Validity of Section 19A of the Karnataka Sales Tax Act (raised during arguments but not permitted).

Issue-wise Detailed Analysis:

1. Validity of Explanation (3)(c) to Section 2(1)(t) of the Karnataka Sales Tax Act:

The appellant contended that Explanation (3)(c) to Section 2(1)(t) fixes the situs of the sale, converting an inter-State sale or sale outside the State into an inside sale, thereby subjecting it to tax under the Act, which is beyond the legislative competence of the State Legislature under Entry 54 of the State List read with Article 366(29-A)(b). The High Court rejected this contention, and the Supreme Court upheld the decision, stating that Explanation (3)(c) should be read with other provisions of the Act, including clauses (a) and (b) of Explanation (3), which expressly exclude a sale in the course of inter-State trade or commerce and a sale in the course of import or export. Therefore, the Legislature has not included a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export while fixing the situs in respect of deemed sales resulting from the transfer of property in goods involved in the execution of a works contract.

2. Validity of Section 5B read with the Sixth Schedule of the Karnataka Sales Tax Act:

The appellant challenged Section 5B on two grounds: (1) the tax is levied on the basis of the value of the contract irrespective of the value of the goods involved in the execution of the contract, and (2) different rates of tax have been prescribed for different types of contracts. The Supreme Court found no merit in the first ground, as Section 5B imposes tax on the taxable turnover of transfer of property in goods involved in the execution of works contracts. The taxable turnover is determined after deducting expenses incurred by the contractor towards labor charges and other services from the value of the works contract. The Court also upheld the second ground, stating that it is permissible for the rule-making authority to categorize works contracts into different categories and prescribe a different percentage of the value of the contract for the purpose of deduction of amounts towards labor charges and other charges.

3. Challenge to the rates of tax prescribed in the Sixth Schedule:

The appellant argued that the rates of tax prescribed in the Sixth Schedule were fixed with reference to the nature of the contract and not with reference to the goods involved in the execution of a works contract, which contravenes Article 14 of the Constitution. The High Court upheld the validity of the rates, relying on the decision in Twyford Tea Co. Ltd. v. State of Kerala, which allows the Legislature a wide range of selection and freedom in appraisal in determining the rate or rates applicable. The Supreme Court concurred, stating that it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract, which may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article. The Court also noted that the High Court had struck down the fixation of the rate of tax in respect of item 20 in the Sixth Schedule as discriminatory, and this part of the judgment was not challenged by the State.

4. Validity of Section 19A of the Karnataka Sales Tax Act:

During the course of arguments, the appellant sought to challenge the validity of Section 19A, which provides for deduction of tax at source. However, this provision was not challenged in the writ petition before the High Court, in the additional grounds submitted after the decision of the Supreme Court in Builders Association case, or in the special leave petition filed before the Supreme Court. Consequently, the Supreme Court did not permit the appellant to raise this question.

Conclusion:

The Supreme Court dismissed the appeal, upholding the validity of Explanation (3)(c) to Section 2(1)(t) and Section 5B read with the Sixth Schedule of the Karnataka Sales Tax Act. The Court found no merit in the appellant's contentions and confirmed that the provisions of the Act were within the legislative competence of the State Legislature and did not contravene the provisions of the Constitution. The appeal was dismissed with no order as to costs.

← Previous Next →