1993 (1) TMI 260 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of Section 6(ii) of the Karnataka Sales Tax Act, 1957.
2. Applicability of Section 6 of the Karnataka Sales Tax Act to the turnover in question.

Detailed Analysis:

1. Validity of Section 6(ii) of the Karnataka Sales Tax Act, 1957:
The petitioners challenged the validity of Section 6(ii) of the Karnataka Sales Tax Act, 1957 ("the State Act"). They argued that the purchase tax under Section 6 was not attracted for two reasons:
- The silk fabrics were purchased from handloom or power-loom weavers whose establishments did not fall within the definition of a "factory" under the Factories Act, 1948. Thus, these transactions fell outside the definition of "sales" for all purposes of the State Act in view of Section 5(3)(c) read with its proviso.
- The purchased goods were despatched to a place outside the State in the course of inter-State trade or commerce, which should exempt them from the purchase tax under Section 6.

The court examined the proviso to Section 5(3)(c) of the State Act, which states that the sale by a handloom or power-loom weaver of silk fabrics manufactured by him in Karnataka shall not be deemed to be a sale for purposes of the Act. The court concluded that the transfer of silk fabrics by the weavers under the specified circumstances is not a sale at all for the purposes of the State Act. Consequently, the petitioners cannot be considered as purchasers of those silk fabrics, and thus, Section 6 is not attracted.

The court emphasized that the legislative intention was not to burden silk fabrics with taxes under the Act to the extent those fabrics were manufactured by weavers. Therefore, the consideration paid by the petitioners cannot be considered a sale price, and the main part of Section 6 is not attracted.

2. Applicability of Section 6 of the Karnataka Sales Tax Act to the turnover in question:
The second issue involved the applicability of Section 6 to the turnover in question, specifically in cases where the petitioners had purchased goods like handicrafts and sold them to dealers outside Karnataka. The petitioners contended that these sales occasioned the movement of goods from Karnataka to other States, making them inter-State sales and thus exempt from purchase tax under Section 6(ii).

The court referred to the relevant provisions of the Central Sales Tax Act, 1956 ("the Central Act"), particularly Section 5(3), which deems the last sale or purchase preceding the export of goods out of India as being in the course of such export. The court assumed that the petitioners' sales to outside purchasers fell within Section 5(3) of the Central Act, making them sales in the course of export rather than inter-State trade or commerce.

The court held that Section 6 of the State Act is attracted when:
1. A dealer purchases taxable goods in circumstances where no tax under Section 5 is leviable on the sale price.
2. The dealer despatches the goods to a place outside the State, except as a direct result of sale or purchase in the course of inter-State trade or commerce.

The court concluded that the petitioners' sales to outside purchasers were sales in the course of export, not inter-State sales. Therefore, the despatch of goods was not as a direct result of inter-State trade or commerce, and Section 6(ii) of the State Act was applicable.

The court emphasized that the concepts of "sale in the course of inter-State trade or commerce" and "sale in the course of export" are distinct and independent. Section 5(3) of the Central Act integrates the penultimate sale with the course of export, making it part of the "course of export." Consequently, the penultimate sale cannot be treated as an inter-State sale for the purposes of Section 6(ii) of the State Act.

Conclusion:
The petitioners succeeded on the first issue, as the court held that the transactions in question were not sales for the purposes of the State Act due to the proviso to Section 5(3)(c). However, the petitioners failed in their contention regarding the interpretation of Section 6(ii) of the State Act. The court directed the assessing authorities to investigate the relevant facts and make an appropriate order in light of the observations contained in the judgment. The writ petitions were disposed of accordingly without any order as to costs.

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