1985 (1) TMI 284 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the State Legislature to enact Section 11 of the Karnataka Sales Tax Act.
2. Alleged violation of Section 64-A of the Sale of Goods Act, 1930, and Section 182 of the Contract Act.
3. Alleged violation of Article 19(1)(g) and Article 14 of the Constitution.
4. Whether the tax levied under Section 11 is a tax on income or on purchases/sales.
5. Validity of the proposition notice issued by the Assistant Commissioner of Commercial Taxes (ACCT).

Detailed Analysis:

1. Legislative Competence of the State Legislature:
The petitioners argued that Section 11 substituted by the Karnataka Sales Tax (Second Amendment) Act, 1983, was beyond the legislative competence of the State Legislature. The Court analyzed the scope and ambit of Section 11, noting that it makes agents liable for payment of taxes under the Act. The Court emphasized that the power to legislate is derived from Article 246 and other articles of the Constitution, and the entries in the legislative lists are fields of legislation rather than powers of legislation. The Court concluded that the State Legislature was competent to enact Section 11 under Entry No. 54 of List II (State List) of the Seventh Schedule to the Constitution, which pertains to "Taxes on the sale or purchase of goods other than newspapers." The Court cited precedents from the Supreme Court and other High Courts to affirm that a commission agent engaged in buying or selling is a "dealer" within the meaning of the Act, and hence, the State Legislature was competent to legislate Section 11.

2. Alleged Violation of Section 64-A of the Sale of Goods Act, 1930, and Section 182 of the Contract Act:
The petitioners contended that Section 11 violated Section 64-A of the Sale of Goods Act, 1930, and Section 182 of the Contract Act. The Court examined the true scope and ambit of Section 11 and the role of a commission agent. The Court held that Section 11 does not destroy the principle of agency and is not in conflict with any parliamentary legislation. The Court rejected this contention, stating that the provision does not violate the aforementioned sections of the Sale of Goods Act and the Contract Act.

3. Alleged Violation of Article 19(1)(g) and Article 14 of the Constitution:
The petitioners argued that Section 11 violated Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession or to carry on any occupation, trade, or business. The Court noted that Article 19(1)(g) does not guarantee immunity from taxation and that the right of the petitioners to carry on their business is not affected by the provisions. The Court also addressed the challenge based on Article 14, which guarantees equality before the law. The Court found that commission agents, with their special characteristics, have been treated uniformly and that the classification is reasonable. The Court cited Supreme Court rulings to support its conclusion that the provision does not violate Article 14. Both contentions were rejected.

4. Whether the Tax Levied Under Section 11 is a Tax on Income or on Purchases/Sales:
The petitioner in Writ Petition No. 17117 of 1984 contended that the tax levied under Section 11 was a tax on income and not on purchases or sales, making it a colorable piece of legislation. The Court clarified that what is taxed is not the income of a commission agent but the sales or purchases effected by him qua as agent. The Court referred to the doctrine of colorable legislation and concluded that it has no application in this case. This contention was rejected.

5. Validity of the Proposition Notice Issued by the ACCT:
The petitioner in Writ Petition No. 17117 of 1984 also challenged the proposition notice issued by the ACCT, which stated that the petitioner was liable to pay turnover tax from 7th November 1983. The Court clarified that the Amending Act was first published on 18th November 1983, and therefore, Section 11 came into force only on that date. The Court directed the ACCT to regulate the demand notice accordingly, ensuring that it reflects the correct date of enforcement.

Conclusion:
The Court dismissed all the writ petitions, finding no merit in the contentions raised by the petitioners. The rule issued in all cases was discharged, and the parties were directed to bear their own costs.