1998 (9) TMI 546 - SC - VAT and Sales Tax

Tax payable by a dealer under section 5 of the Act on television sets and components manufactured in Karnataka - Held that - These writ petitions are allowed and the respondent-State is directed not to collect the amounts of sales tax that have become payable only by reason of the order quashing the notifications under section 8-A of the Karnataka Sales Tax Act, 1957 issued on June 20, 1986 and March 28, 1987 fixing reduced rates of sales tax payable by dealers in television sets and components manufactured in Karnataka.

Summary

Issues:
Challenge to notifications reducing tax rates on television sets and components in Karnataka under Karnataka Sales Tax Act, 1957. Application of doctrine of prospective invalidation under Article 226. Recovery of differential tax amounts from manufacturers post-quashing of notifications. Comparison with similar cases like West Bengal Hosiery Association v. State of Bihar and Indian Cement Ltd. v. State of Andhra Pradesh. Concerns regarding potential impact on other television manufacturers in similar situations.

Issue 1: Challenge to Notifications on Tax Rates

The case involved a challenge to notifications issued by the State of Karnataka under the Karnataka Sales Tax Act, 1957, reducing the tax payable by dealers on television sets and components manufactured in Karnataka from 4% to 2%, and later to 3%. These notifications were challenged by a company manufacturing television sets outside Karnataka, leading to legal proceedings and subsequent quashing of the notifications.

Issue 2: Application of Doctrine of Prospective Invalidation

The appellants, manufacturers of television sets in Karnataka, received notices post-quashing of the notifications, calling for payment of sales tax at normal rates instead of the reduced rates. The appellants challenged these notices and the enforceability of the judgment quashing the notifications against them. The court held that the doctrine of prospective invalidation could not be applied under Article 226 in this case, leading to the dismissal of the writ petitions.

Issue 3: Recovery of Differential Tax Amounts

The court considered precedents like West Bengal Hosiery Association v. State of Bihar and Indian Cement Ltd. v. State of Andhra Pradesh where notifications granting concessional tax rates were quashed. In those cases, the courts directed that arrears of sales tax should not be collected to avoid undue hardship on dealers. The court noted the concerns raised by the manufacturers in this case regarding the recovery of differential tax amounts post-quashing of the notifications.

Issue 4: Concerns for Other Manufacturers

The court addressed concerns raised by the respondent-State regarding the potential impact on other television manufacturers in similar situations as the appellants. Despite the absence of those manufacturers in the proceedings, the court decided to pass an appropriate order to ensure justice and equity, following similar judgments in related cases.

In conclusion, the Supreme Court allowed the appeals, setting aside the judgment and directing the respondent-State not to collect the additional sales tax amounts due to the quashing of the notifications on reduced tax rates for television sets and components manufactured in Karnataka. The decision was based on principles of justice, equity, and precedents from similar cases to prevent undue hardship on manufacturers affected by the change in tax rates.