1993 (11) TMI 210 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of Explanation VIII in the Second Schedule to the Karnataka Sales Tax Act, 1957.
2. Applicability of turnover tax under Section 6-B of the Act.
3. Legislative history and its impact on the interpretation of Explanation VIII.
4. Validity of the Commissioner's clarification dated November 5, 1990.

Detailed Analysis:

Interpretation of Explanation VIII in the Second Schedule to the Karnataka Sales Tax Act, 1957:
The primary issue revolves around the interpretation of Explanation VIII in the Second Schedule to the Karnataka Sales Tax Act, 1957. The explanation states: "Where tax has been levied under this Act, in respect of raw silk referred to in SI. No. 7 of the Third Schedule, and out of such raw silk, silk yarn is manufactured, no tax shall be levied on such silk yarn to the extent it is manufactured out of such raw silk." The petitioners argue that the term "tax" in the explanation is comprehensive and includes all types of taxes levied under the Act. Conversely, the Revenue contends that the term "tax" refers only to the tax levied under the Second Schedule, read with Section 5(3)(a) of the Act. The court concluded that the explanation should be read as: "no tax leviable under the provisions of this Act shall be levied on such silk yarn to the extent it is manufactured out of such raw silk."

Applicability of Turnover Tax under Section 6-B of the Act:
Section 6-B of the Act provides for the levy of "turnover tax" based on the total turnover of a dealer, irrespective of whether the turnover is liable to tax under other provisions of the Act. The court noted that "tax under the Act" includes the tax levied under Section 6-B. The legislative history and the comprehensive language of Explanation VIII suggest that the exemption from tax provided by the explanation also covers the turnover tax under Section 6-B. The court ruled that the explanation envisages exemption from the levy of turnover tax under Section 6-B, apart from other levies under the Act.

Legislative History and its Impact on the Interpretation of Explanation VIII:
The court examined the legislative history and noted that prior to April 1, 1990, raw silk was exempt from tax under the Act. From April 1, 1990, to March 31, 1991, twisted silk was subject to tax, but subsequent notifications again exempted it from tax. The court emphasized that the language of Explanation VIII does not restrict the exemption to any particular section or item, thereby supporting the petitioners' claim that the exemption from tax provided by the explanation is comprehensive and not limited to the tax under Section 5.

Validity of the Commissioner's Clarification Dated November 5, 1990:
The court addressed the petitioner's challenge to the Commissioner's clarification, which stated that the purchase value of raw silk and the sales turnover of twisted silk should be included for the purpose of turnover tax, regardless of whether the twisted silk is manufactured from tax-suffered raw silk. The court declared that the clarification, to the extent it is opposed to the scope of Explanation VIII, is illegal and ultra vires, and therefore unenforceable.

Conclusion:
The court concluded that Explanation VIII to the Second Schedule should be interpreted to mean that no tax of any kind leviable under the Act shall be levied on silk yarn manufactured from raw silk that has already been taxed. Consequently, the impugned notices and orders were quashed, and the petitions were allowed. The court made the rule absolute and did not award costs.

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