1995 (1) TMI 357 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of the Commissioner's clarification under annexure A.
2. Validity of Notification No. S.O. 1707, dated November 25, 1989 (annexure B).
3. Interpretation of the first proviso to section 5(1-A) of the Karnataka Sales Tax Act, 1957.
4. Inclusion of sales tax in the term "turnover" under section 5(1-A).
5. Authority of the Commissioner to issue statutory clarifications.

Detailed Analysis:

1. Validity of the Commissioner's Clarification under Annexure A:
The petitioners challenged the clarification issued by the Commissioner, which sought to narrow down the extent of "turnover" by excluding the sales tax component paid by the intermediary dealer. The Court held that the word "turnover" as used in the first proviso to section 5(1-A) includes the amount of sales tax collected by the selling dealer. The Supreme Court's precedents in George Oakes (Private) Ltd. v. State of Madras and Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Sales Tax were cited to support this interpretation. Consequently, the Commissioner's view that the tax component forming a part of the turnover will not qualify for deduction was found to be erroneous.

2. Validity of Notification No. S.O. 1707, dated November 25, 1989 (Annexure B):
The notification exempted the tax payable by a dealer holding a distributor license on the turnover of sale of alcoholic liquors to wholesale dealers. The Court found that the notification did not affect the ultimate tax liability of the petitioners. The tax liability was merely shifted from the point of purchase to the point of sale. The latter part of the notification, which stated that the turnover of sales shall not be deemed to be the turnover on which tax has been levied, was deemed inconsequential. The notification was held to be valid as it did not alter the petitioners' ultimate tax liability.

3. Interpretation of the First Proviso to Section 5(1-A) of the Karnataka Sales Tax Act, 1957:
The Court analyzed the first proviso to section 5(1-A), which provides a special mode of arriving at the taxable turnover for sales other than at the first and last points. The taxable turnover of the intermediary dealer is to be arrived at by deducting the turnover of such goods on which tax has been levied at the immediately preceding point of sale. The Court concluded that the entire turnover, including the sales tax component, should be considered for deduction purposes.

4. Inclusion of Sales Tax in the Term "Turnover" under Section 5(1-A):
The Court held that the term "turnover" includes the sales tax component collected by the selling dealer. This interpretation aligns with the Supreme Court's rulings, which state that the entire amount paid by the purchaser, including tax, constitutes the consideration for the sale and should be treated as part of the turnover.

5. Authority of the Commissioner to Issue Statutory Clarifications:
The Court observed that the Commissioner's office had issued clarifications in response to individual queries without statutory authority. The Court emphasized that such clarifications should be issued only in a manner provided under section 3-A of the Act. The Commissioner and its office were advised to refrain from sending replies to individual queries and communicating them as guidelines to assessing authorities unless done under the statutory framework.

Conclusion:
The Court allowed the writ petitions to the extent that the sales tax paid will form part of the turnover for computing taxable turnover under the first proviso to section 5(1-A) of the Act. The assessments of the petitioners should be completed or rectified accordingly. The writ petitions were allowed with no order as to costs.

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