1983 (7) TMI 295 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Section 6B(1) of the Karnataka Sales Tax Act, 1957.
2. Legislative competence to enact a Validating Act.
3. Impact of judicial decisions on legislative amendments.
4. Scope and interpretation of "total turnover" and its implications.
5. Alleged discrimination and arbitrariness under Article 14.
6. Alleged unreasonable restriction on trade under Article 19(1)(g).
7. Validity of Section 18(3) of the Act.

Detailed Analysis:

1. Constitutional Validity of Section 6B(1) of the Karnataka Sales Tax Act, 1957:
The petitions challenged the constitutional validity of Section 6B(1) as amended by Karnataka Act No. 13 of 1982, which levies a turnover tax of one-half percent on dealers whose total turnover exceeds one lakh rupees. The Court upheld the validity of Section 6B(1), stating that the term "total turnover" includes inter-State and export-import turnovers only for identifying liable dealers, while the actual levy is on intrastate turnover. The classification of dealers based on turnover exceeding one lakh rupees was deemed rational and non-discriminatory.

2. Legislative Competence to Enact a Validating Act:
The Court acknowledged the Legislature's power to enact a Validating Act with retrospective effect to neutralize judicial decisions. The validity of such an Act can be challenged based on legislative competence, removal of judicially identified defects, and consistency with Part III of the Constitution. The Court found that Karnataka Act No. 13 of 1982 met these criteria by clarifying the legislative intent and validating past assessments and collections of turnover tax.

3. Impact of Judicial Decisions on Legislative Amendments:
The Court rejected the argument that the Legislature cannot override a judicial decision issued under Article 226. It distinguished between the facts of the present case and those in Madan Mohan Pathak v. Union of India, where the Supreme Court held that a legislative act could not nullify a specific judicial mandamus. The Court noted that Section 3 of Karnataka Act No. 13 of 1982 expressly validated past assessments and collections, rendering the previous judgment ineffective.

4. Scope and Interpretation of "Total Turnover":
The Court reiterated that "total turnover" in Section 6B(1) includes inter-State and export-import turnovers for identifying liable dealers, but the actual tax levy applies only to intrastate turnover. The proviso to Section 6B(1) excludes inter-State, export-import transactions, and other specified exemptions, ensuring compliance with Article 286 of the Constitution.

5. Alleged Discrimination and Arbitrariness under Article 14:
The Court rejected the contention that Section 6B(1) is discriminatory and violative of Article 14. It held that the classification of dealers based on turnover exceeding one lakh rupees is rational and non-arbitrary. The Court cited the Supreme Court's decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar, which upheld similar provisions under the Bihar Finance Act, 1981, as non-discriminatory.

6. Alleged Unreasonable Restriction on Trade under Article 19(1)(g):
The Court dismissed the argument that Section 18(3) of the Act, prohibiting dealers from collecting turnover tax from customers, imposes an unreasonable restriction on trade. It cited the Supreme Court's decisions in S. Kodar v. State of Kerala and Hoechst Pharmaceuticals Ltd. v. State of Bihar, which upheld similar provisions as valid exercises of legislative power.

7. Validity of Section 18(3) of the Act:
The Court upheld the validity of Section 18(3), which prohibits dealers from collecting turnover tax from customers. It reiterated that a sales tax does not necessarily require the right to pass on the tax to consumers and that legislative competence is not affected by such provisions.

Conclusion:
The Court dismissed the petitions, upholding the constitutional validity of Section 6B(1) and Section 18(3) of the Karnataka Sales Tax Act, 1957, as amended by Karnataka Act No. 13 of 1982. It found no violation of Articles 14, 19(1)(g), or 301 of the Constitution and rejected the contention that the Legislature lacked competence to enact the amendments. The Court also refused a certificate for appeal to the Supreme Court, stating that the case did not involve a substantial question of law of general importance.

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