1988 (6) TMI 325 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of Section 5(4) of the Karnataka Sales Tax Act in relation to item 2 of the Fourth Schedule and Explanation II thereto.
2. Alleged discrimination under Article 304(a) of the Constitution due to differential tax treatment between locally purchased and imported raw materials.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 5(4) of the Act:
The petitioner challenged the constitutional validity of Section 5(4) of the Karnataka Sales Tax Act, particularly item 2 of the Fourth Schedule and Explanation II, arguing it violated Article 304(a) of the Constitution. The Court noted that for the period subsequent to April 1, 1978, similar provisions had been upheld by the Court in Mangalore Metal House v. State of Karnataka [1986] 63 STC 482, a decision approved by the Supreme Court. The Court confined its attention to the challenge to the constitutional validity of these provisions for the period prior to April 1, 1978, as requested by the petitioner.

2. Alleged Discrimination under Article 304(a):
The petitioner contended that Explanation II to the Fourth Schedule was not an exemption clause but a proviso to the charging section, leading to discrimination between goods manufactured from locally purchased raw materials and those from imported raw materials. The argument was that the sale of finished products manufactured from locally taxed raw materials was exempt from further tax, whereas those manufactured from imported raw materials were not, violating Article 304(a) of the Constitution. The petitioner relied on the decisions in Firm A.T.B. Mehtab Majid Company v. State of Madras [1963] 14 STC 355 (SC) and Hajee Abdul Shukoor and Co. v. State of Madras [1964] 15 STC 719 (SC).

The Court examined the scheme of taxation under the Act, noting that tax was levied on items of iron and steel if the raw material had not been subjected to tax. The Court found that the provision was in the nature of an exemption, arising only on proof that tax had been paid at an earlier stage on the raw materials. The Court held that there was no discrimination in the rate of tax between imported and locally purchased items of finished goods. Any variation in the quantum of tax was due to the scheme of taxation working differently for different dealers, which was an indirect result and not a direct or immediate impact.

The Court referred to the Supreme Court's decision in Associated Tanners v. Commercial Tax Officer [1986] 62 STC 1, which dealt with a similar issue under the Andhra Pradesh General Sales Tax Act. The Supreme Court had upheld the validity of the taxation scheme, noting that any differential impact was not a violation of Article 304(a). The Court also considered the decisions in Firm Mehtab Majid's case and Abdul Shukoor's case, noting that their true effect had been repeatedly considered by the Supreme Court, most recently in Associated Tanners, and did not need further discussion.

Conclusion:
The Court found no substance in the contentions of the petitioner regarding the constitutional validity of the provisions and the alleged discrimination. The writ petitions were dismissed. The Court also noted that the petitioners had other grievances related to the show cause notice issued by the Commissioner of Commercial Taxes, which could not be addressed until the authorities had examined the matters. The petitioners were given 30 days to file objections to the notices and instructed to appear before the Commissioner of Commercial Taxes on July 15, 1988, for further proceedings.

Judgment:
Writ petitions dismissed.

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