1986 (7) TMI 359 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 5(4) read with Item 2 of the IV Schedule and Explanation II of the Karnataka Sales Tax Act.
2. Alleged violation of Article 304(a) of the Constitution of India.
3. Discrimination in the rate of tax on sales of M.S. rounds manufactured within and outside the State.

Detailed Analysis:

1. Constitutionality of Section 5(4) read with Item 2 of the IV Schedule and Explanation II of the Karnataka Sales Tax Act:

The primary issue was whether Section 5(4) read with Item 2 of the IV Schedule and Explanation II of the Karnataka Sales Tax Act is unconstitutional. The petitioner, a registered dealer, argued that the provision discriminates against items of iron and steel manufactured outside Karnataka and brought into the State for sale. The State contended that the same rate of 4% tax is applied uniformly to both locally manufactured and imported items of iron and steel.

The court examined the relevant constitutional provisions and the Central Sales Tax Act, 1956, which impose restrictions on the State's power to levy sales tax on declared goods. The court noted that the State Act's provisions align with the Central Act's restrictions, ensuring a single-point levy and a maximum tax rate of 4%.

2. Alleged Violation of Article 304(a) of the Constitution of India:

Article 304(a) of the Constitution allows States to impose taxes on goods imported from other States, provided there is no discrimination between imported goods and similar goods manufactured within the State. The petitioner argued that the provision in question violated Article 304(a) by imposing different tax burdens on locally manufactured and imported M.S. rounds.

The court clarified that the provision ensures a uniform tax rate of 4% on both locally manufactured and imported items. The explanation provided in the State Act allows for a deduction of the tax already paid on the raw materials used in manufacturing the final product to avoid repetitive taxation. This mechanism ensures that the final tax burden remains 4%, thus not violating Article 304(a).

3. Discrimination in the Rate of Tax on Sales of M.S. Rounds Manufactured Within and Outside the State:

The petitioner claimed that the tax burden was higher on M.S. rounds manufactured outside the State due to the lack of a deduction mechanism for tax paid on raw materials. The court found this argument to be based on a misinterpretation of the provision. The court explained that the deduction mechanism is intended to prevent repetitive taxation and ensure that the final tax burden remains 4% on the sale turnover of the manufactured goods.

The court referred to several Supreme Court decisions to support its conclusion. In particular, the court cited the case of V. Guruviah Naidu and Sons v. State of Tamil Nadu, where the Supreme Court upheld a similar provision, stating that there is a clear nexus between raw materials and the finished product, and the deduction mechanism does not constitute discrimination.

Conclusion:

The court concluded that Section 5(4) read with Item 2 of the IV Schedule and Explanation II of the Karnataka Sales Tax Act is not violative of Article 304(a) of the Constitution. The provision ensures a uniform tax rate and prevents repetitive taxation, thereby not discriminating against goods manufactured outside the State.

Order:

(i) Rule discharged.
(ii) The writ petitions are dismissed with costs. Advocate's fee Rs. 1,000.

Writ petitions dismissed.