1997 (8) TMI 464 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of notifications issued under the Karnataka Tax on Entry of Goods Act, 1979.
2. Effect of the expiry of Karnataka Ordinance Nos. 2 of 1992 and 10 of 1992 on the notifications.
3. Validity of the second notification for not specifying the rate of tax.
4. Validity of the third notification issued as a corrigendum to the second notification.
5. Applicability of the Act to industrial units within an "industrial area" under the Karnataka Industrial Areas Development Act, 1966.

Issue-wise Detailed Analysis:

Ground (a): Validity of Notifications Post-Expiry of Ordinances
The appellants argued that the notifications ceased to be operative after the expiry of Ordinance No. 10 of 1992 on February 11, 1993. The court examined the legislative history and amendments to Section 3 of the Act. It was held that the amendments made by the Ordinances did not create a vacuum in the charging section. The court relied on Supreme Court judgments to conclude that the process of substitution in the Ordinances was a single integrated step. Therefore, the notifications did not become inoperative post the expiry of the Ordinances. The court also noted that the Karnataka Act No. 3 of 1995, which was retroactive from May 1, 1992, validated the notifications.

Grounds (b) and (c): Validity of Second and Third Notifications
The second notification was challenged for not specifying the rate of tax, making it ineffective. The third notification, issued as a corrigendum, specified the rate of tax retroactively. The court held that the second notification was not void but ineffective until corrected by the third notification. However, the court ruled that the third notification could not have retrospective effect as the State Government lacked the power to issue notifications with retrospective effect at the material time. The court upheld the validity of the third notification prospectively from August 19, 1992.

Ground (d): Inconsistency with Entry at Serial No. 80 of the First Schedule
The appellant in W.A. No. 3020 of 1997 argued that newsprints used for publishing newspapers, which are exempt under the Second Schedule, should not be taxed. The court interpreted the entry at Serial No. 80 of the First Schedule to mean that raw materials used in the manufacture of products specified in the Second Schedule are exempt from tax. Therefore, the entry at Serial No. 81, as inserted by the second and third notifications, was held ultra vires to the extent it included raw materials for products specified in the Second Schedule.

Ground (e): Applicability to Industrial Areas
The appellants contended that the Act does not apply to industrial units within an "industrial area" as defined under the Karnataka Industrial Areas Development Act, 1966. The court examined whether an industrial area qualifies as a "local area" for the purposes of the Act. It was held that an industrial area is not a local area as it lacks the attributes of a local self-government. Therefore, the appellants are liable to be taxed on the entry of goods into local areas as defined under the Act.

Conclusion
1. The impugned notifications did not cease to be operative due to the expiry of the Ordinances.
2. The second notification was not void but ineffective until corrected by the third notification, which is valid prospectively from August 19, 1992.
3. No tax can be levied on raw materials used in the manufacture of products specified in the Second Schedule.
4. The laying clause in Section 31 of the Act is directory, not mandatory.
5. An industrial area is not a local area for the purposes of the Act.

Final Judgment
The appeals were allowed in part, directing the authorities under the Act to act in accordance with the law laid down. The appellants were permitted to file objections to proposition notices or appeal against completed assessments within two weeks. Appeals were partly allowed with no order as to costs.