2002 (5) TMI 639 - SC - VAT and Sales Tax

Whether sub- section (6) of section 17 of the Karnataka Sales Tax Act, 1957 as amended by Act No. 5 of 1996 is unconstitutional? Whether the amendment brought in clause (i) of sub-section (6) of section 17 of the Act by Act No. 7 of 1997 retrospectively is also unconstitutional? Held that - Appeal dismissed. Having held that the retrospective operation of the amended provision is constitutional, and having noticed that the assessees are at liberty to opt for regular assessment under section 5-B of the Karnataka Sales Tax Act, it would not be appropriate to make such a direction on considerations of equity particularly while dealing with a taxing statute.

Issues Involved:

1. Constitutional validity of sub-section (6) of section 17 of the Karnataka Sales Tax Act, 1957 as amended by Act No. 5 of 1996.
2. Constitutional validity of the retrospective amendment brought in clause (i) of sub-section (6) of section 17 by Act No. 7 of 1997.
3. Legislative competence of the State to levy tax on total consideration of works contracts.
4. Impact of retrospective operation on rights guaranteed under articles 14, 19(1)(g), and 265 of the Constitution of India.

Detailed Analysis:

1. Constitutional Validity of Sub-section (6) of Section 17 as Amended by Act No. 5 of 1996:

The primary issue was whether sub-section (6) of section 17, as amended by Act No. 5 of 1996, was unconstitutional. The Court referred to the legislative history and amendments of section 17, particularly the introduction of section 5-B by Act No. 27 of 1985, and subsequent amendments in 1987, 1992, 1996, and 1997. The appellants argued that the tax under the Act should only be levied on the transfer of property in goods involved in the execution of works contracts, as per entry 54 of List II of the Seventh Schedule read with sub-clause (b) of clause (29-A) of article 366 of the Constitution. They contended that the State lacked legislative competence to levy sales tax on the total consideration of works contracts, which included non-taxable components like labor and services. The Court, however, upheld the validity of sub-section (6) of section 17, referencing the decision in State of Kerala v. Builders Association of India (1997) 2 SCC 183, which supported the constitutionality of a similar provision under the Kerala Act. The Court emphasized that the composition scheme was optional and provided a simplified method of taxation, which did not breach any constitutional provisions.

2. Constitutional Validity of the Retrospective Amendment by Act No. 7 of 1997:

The second issue was the constitutionality of the retrospective amendment to sub-section (6) of section 17 by Act No. 7 of 1997. The appellants argued that the retrospective operation violated their rights under articles 14, 19(1)(g), and 265 of the Constitution, as it imposed an additional tax burden on those who had opted for the composition scheme before April 1, 1996. The Court dismissed this argument, stating that the Legislature had the competence to enact laws with retrospective effect, provided they were consistent with constitutional provisions. The Court noted that the retrospective amendment aimed to clarify legislative intent and remove any ambiguity in the existing provision. The State had also offered an option for regular assessment under section 5-B to mitigate any hardship caused by the retrospective amendment.

3. Legislative Competence to Levy Tax on Total Consideration of Works Contracts:

The appellants contended that the State lacked legislative competence to levy tax on the total consideration of works contracts, including non-taxable components. The Court, however, upheld the legislative competence of the State, referencing the decision in State of Kerala v. Builders Association of India, which validated a similar provision under the Kerala Act. The Court reiterated that the composition scheme was an optional, simplified method of taxation, which did not violate the constitutional provisions or legislative competence of the State.

4. Impact of Retrospective Operation on Constitutional Rights:

The appellants argued that the retrospective operation of the amended provision violated their rights under articles 14, 19(1)(g), and 265 of the Constitution. The Court dismissed this argument, stating that the retrospective amendment did not breach any constitutional provisions. The Court noted that the appellants had voluntarily opted for the composition scheme and were not compelled to do so. The State had also provided an option for regular assessment under section 5-B to address any potential hardship caused by the retrospective amendment. The Court concluded that the appellants were not prejudiced by the retrospective operation of the amended provision.

Conclusion:

The Supreme Court dismissed the appeals, upholding the constitutional validity of sub-section (6) of section 17 of the Karnataka Sales Tax Act, 1957 as amended by Act No. 5 of 1996 and Act No. 7 of 1997. The Court affirmed the legislative competence of the State to levy tax on the total consideration of works contracts and rejected the argument that the retrospective amendment violated constitutional rights. The appeals were dismissed without any order as to costs.

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