1985 (1) TMI 286 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Scope and ambit of section 6-A of the Karnataka Sales Tax Act, 1957.
2. Whether section 6-A violates article 286 of the Constitution and section 15 of the Central Sales Tax Act, 1956.
3. Validity of rule 26(9)(a) of the Karnataka Sales Tax Rules, 1957.
4. Burden of proof under section 6-A(2) of the Karnataka Sales Tax Act.
5. Legislative competence of the State Legislature in enacting section 6-A(2).
6. Violation of article 19(1)(g) of the Constitution by section 6-A(2).
7. Correctness of assessments and proposition notices challenged.

Detailed Analysis:

1. Scope and Ambit of Section 6-A of the Karnataka Sales Tax Act, 1957:
Section 6-A(2) is a machinery provision designed to ensure effective tax collection. It places the burden on the dealer to prove that the goods have already been subjected to tax under the Act. If the dealer fails to prove this, they are deemed the first purchaser and are liable for tax. This provision is intended to prevent tax evasion by dealers claiming to be subsequent purchasers without proof.

2. Violation of Article 286 of the Constitution and Section 15 of the Central Sales Tax Act, 1956:
The petitioners argued that section 6-A(2) contravenes article 286 and section 15. However, the court held that section 6-A(2) does not impose a tax on sales or purchases outside the State or in the course of import/export. It merely provides a rule of evidence to determine the nature of the transaction. The provision ensures compliance with article 286 by regulating the process to ascertain if a transaction falls under its purview. Section 6-A(2) does not violate section 15 of the C.S.T. Act, as it only regulates the burden of proof and does not impose tax at more than one stage or exceed the prescribed rate.

3. Validity of Rule 26(9)(a) of the Karnataka Sales Tax Rules, 1957:
Rule 26(9)(a) requires dealers to furnish a declaration in form 32 if they are not the first sellers or purchasers. The court found that this rule falls within the scope of section 38(2)(j-2), (k), and (1) of the Act, which empowers the government to make rules for carrying out the purposes of the Act. The rule is intra vires and valid as it aids in the enforcement of the Act.

4. Burden of Proof Under Section 6-A(2) of the Karnataka Sales Tax Act:
The court discussed the concept of the burden of proof, noting that section 6-A(2) shifts the burden to the dealer to prove that the goods have already been taxed. This aligns with general principles of burden of proof in law, where the party asserting a fact must prove it. The provision is designed to prevent evasion by requiring dealers to substantiate their claims of being subsequent purchasers.

5. Legislative Competence of the State Legislature in Enacting Section 6-A(2):
The petitioners contended that section 6-A(2) was beyond the legislative competence of the State Legislature. The court rejected this argument, stating that the power to levy taxes includes the power to enact incidental and ancillary provisions for tax collection. Section 6-A(2) is a machinery provision within the legislative competence of the State.

6. Violation of Article 19(1)(g) of the Constitution by Section 6-A(2):
The petitioners argued that section 6-A(2) violated their right to trade under article 19(1)(g). The court dismissed this claim, stating that article 19(1)(g) does not guarantee immunity from taxation. The power to tax includes the power to enact necessary machinery provisions, and section 6-A(2) does not infringe on the right to trade.

7. Correctness of Assessments and Proposition Notices Challenged:
The court found no substantial grounds to interfere with the assessments completed against the petitioners. For the proposition notices challenged in certain writ petitions, the court allowed the petitioners to present their objections to the assessing authority, except on matters concluded by the court's order.

Conclusion:
The writ petitions were dismissed, and the rule issued in all cases was discharged. The court granted three weeks for the petitioners in certain writ petitions to file objections to the proposition notices. The applications for a certificate of fitness to appeal to the Supreme Court and for a stay of the order were rejected, as the questions raised were deemed to be concluded by the Supreme Court and did not involve substantial questions of law of general importance.