1997 (7) TMI 639 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of the Karnataka Taxation Laws (Amendment) Act, 1988.
2. Legislative competence of the State Legislature to amend Section 6 of the Karnataka Sales Tax Act, 1957.
3. Retrospective effect of the amendment to Section 6.

Issue-wise Detailed Analysis:

1. Constitutional validity of the Karnataka Taxation Laws (Amendment) Act, 1988:
The petitioner challenged the constitutional validity of the Karnataka Taxation Laws (Amendment) Act, 1988, which amended Section 6 of the Karnataka Sales Tax Act, 1957, by adding an explanation retrospectively from April 1, 1970. The amendment aimed to include goods consumed for ancillary purposes in or for manufacture under the scope of taxable goods. The petitioner argued that this amendment was beyond the legislative competence of the State Legislature.

2. Legislative competence of the State Legislature to amend Section 6 of the Karnataka Sales Tax Act, 1957:
The petitioner contended that the addition of the explanation to Section 6 by the amending Act was beyond the legislative competence of the State Legislature. The argument was based on the premise that the amendment taxed the consumption of goods, which fell outside the purview of entry 54 of the Second Schedule. The court, however, held that the amendment did not alter the nature of the tax. The levy continued to be on the purchases of goods in circumstances where no tax under Section 5 was leviable. The explanation merely extended the meaning of "consume such goods in the manufacture of other goods" to include ancillary purposes. Thus, the amendment was within the legislative competence of the State under entry 54 of List II of the Seventh Schedule to the Constitution.

3. Retrospective effect of the amendment to Section 6:
The petitioner argued that the retrospective effect given to the amendment was unsupported by any reason and therefore unsustainable. The court noted that the power to enact retrospective laws is well-recognized, especially in fiscal matters. The necessity for the retrospective amendment arose due to the Supreme Court's decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen & Co. Ltd., which interpreted an analogous provision in the Kerala General Sales Tax Act, 1963. The Supreme Court had held that goods used as fuel did not fall within the taxable category under Section 5A(1)(a) of the Kerala Act. To avoid the financial burden of refunding taxes already collected, the Karnataka Legislature added the explanation to Section 6 with retrospective effect to clarify the legislative intent and validate past assessments and recoveries. The court found this justification sufficient and upheld the retrospective amendment.

Conclusion:
The court dismissed the petition, holding that the addition of the explanation to Section 6 by the Karnataka Taxation Laws (Amendment) Act, 1988, was within the legislative competence of the State Legislature and the retrospective effect given to the amendment was justified. The petition was dismissed without any order as to costs.