1997 (12) TMI 599 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of sub-section (6) of section 17 of the Karnataka Sales Tax Act, 1957.
2. Validity of the retrospective amendment by Act No. 7 of 1997.
3. Alleged violation of Articles 14, 19(1)(g), and 265 of the Constitution of India.
4. The nature of the transaction as a contract and the State's deviation from it.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sub-section (6) of Section 17 of the Karnataka Sales Tax Act, 1957:
The petitioners challenged the constitutional validity of sub-section (6) of section 17 of the Karnataka Sales Tax Act, 1957, as amended by Act No. 5 of 1996 and Act No. 7 of 1997. They argued that the tax under the Act should be levied only on the transfer of property in goods involved in the execution of a works contract, not on the total consideration received or receivable for the works contract. The court referenced the Supreme Court decision in State of Kerala v. Builders Association of India [1997] 104 STC 134, which upheld the validity of similar provisions in the Kerala Sales Tax Act. The Karnataka High Court concluded that sub-section (6) of section 17 is an alternate method of taxation provided under the Act, which is optional for the assessee. Therefore, the provision was held constitutional as it did not compel any contractor to opt for the method of taxation provided under sub-section (6) of section 17.

2. Validity of the Retrospective Amendment by Act No. 7 of 1997:
The petitioners contended that the retrospective amendment by Act No. 7 of 1997, which made the provision retrospective from April 1, 1988, was unconstitutional. They argued that it violated their rights under Articles 14, 19(1)(g), and 265 of the Constitution. The court noted that the Legislature has the power to make laws retrospectively, provided they do not violate constitutional rights. The court found that the retrospective amendment was intended to cure a defect pointed out by the court in an earlier judgment (Gounder and Company v. State of Karnataka). The court held that the retrospective amendment was reasonable and did not violate the petitioners' constitutional rights, as the tax payable under the composition scheme was less than that under the regular assessment.

3. Alleged Violation of Articles 14, 19(1)(g), and 265 of the Constitution of India:
The petitioners argued that the retrospective amendment violated their rights under Articles 14, 19(1)(g), and 265 of the Constitution. The court rejected this argument, stating that the retrospective amendment was not arbitrary or unreasonable. The court noted that the State intended to levy tax on the total consideration for works contracts under the composition scheme, and the retrospective amendment was necessary to rectify the defect in the law. The court also observed that the tax payable under the composition scheme was less than that under the regular assessment, and the petitioners were not subjected to any serious prejudice or hardship.

4. The Nature of the Transaction as a Contract and the State's Deviation from It:
The petitioners contended that the acceptance of the composition scheme by the State resulted in a concluded contract, which the State could not deviate from. The court rejected this argument, stating that the levy of tax is made by virtue of the provisions of the Act, and the composition scheme is an enabling provision or a choice given to the assessees to opt for composition. The court held that the transaction could not be termed as a concluded contract and that the State was not deviating from any contract.

Conclusion:
The Karnataka High Court dismissed the petitions, upholding the constitutional validity of sub-section (6) of section 17 of the Karnataka Sales Tax Act, 1957, and the retrospective amendment by Act No. 7 of 1997. The court found that the retrospective amendment was reasonable and did not violate the petitioners' constitutional rights. The court also rejected the argument that the acceptance of the composition scheme resulted in a concluded contract. The court reserved liberty for the petitioners to opt for regular assessment under section 5-B of the Act within 12 weeks from the date of the judgment.

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