1998 (3) TMI 638 - HC - VAT and Sales Tax

Summary

Issues:
Constitutional validity of Explanation II to Schedule IV to the Karnataka Sales Tax Act, 1957 and section 5(4) of the Act.

Analysis:

The petitioner, a private limited company owning a re-rolling mill in Tamil Nadu, challenged the assessment by the first respondent taxing them at 4 per cent for purchasing iron scrap in Karnataka, rerolling it in Tamil Nadu, and selling it back in Karnataka. The petitioner argued that Explanation II to Schedule IV to the Act is discriminatory under Article 304(a) of the Constitution, as it only allows tax exemption if goods are manufactured within Karnataka. The government advocate defended the explanation, stating it aims to boost industrial growth in Karnataka. The Court examined the explanation, which links tax reduction to goods manufactured within Karnataka, and referred to the Supreme Court's interpretation of Article 304(a) in previous cases.

The Court cited the Supreme Court's rulings in cases like Firm A.T.B. Mehtab Majid & Co. v. State of Madras and Andhra Steel Corporation v. Commissioner of Commercial Taxes in Karnataka, where discriminatory tax provisions were struck down as unconstitutional under Article 304(a). They also mentioned the judgment in Loharn Steel Industries Ltd. v. State of Andhra Pradesh, where a similar notification was deemed violative of the Constitution. Applying these precedents, the Court found the petitioner's case aligned with the principles established by the Supreme Court.

In light of the above, the Court decided to strike down the part of Explanation II that required manufacturing within Karnataka, deeming it unconstitutional. Following the Supreme Court's guidance on striking down only the unconstitutional part of a provision, the Court held that the words "in Karnataka" in the explanation should be deleted, while the rest of the explanation remains valid. Consequently, the Court allowed the petition filed by the petitioner, granting them relief from the tax assessment based on the amended explanation.

In conclusion, the Court's judgment focused on the constitutional validity of Explanation II to Schedule IV of the Act, finding it discriminatory and unconstitutional under Article 304(a) of the Constitution. By aligning with previous Supreme Court decisions, the Court struck down the problematic part of the explanation, providing relief to the petitioner and upholding the principles of non-discrimination in taxation laws.