1999 (9) TMI 935 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the explanation to section 5(1-A) of the Karnataka Sales Tax Act, 1957, as inserted by Act No. 1 of 1996 with retrospective effect.
2. Competence of the State Legislature to enact laws with retrospective effect.
3. Reasonableness and impact of retrospective taxation on fundamental rights.
4. Legislative power to validate actions retrospectively.
5. Judicial review of administrative and legislative actions.

Issue-wise Detailed Analysis:

1. Validity of the Explanation to Section 5(1-A):
The explanation to section 5(1-A) of the Karnataka Sales Tax Act, 1957, was challenged on the grounds that it retrospectively altered the interpretation of "turnover" to exclude the tax element. The Court noted that the explanation was added to clarify that "turnover of such goods on which tax has been levied" means "taxable turnover and shall not include tax." This amendment was intended to nullify the Court's earlier interpretation in the case of Sri Vinayaka Agency v. State of Karnataka, where it was held that the sales tax collected by the dealer could be included in the sale price and deducted while arriving at the taxable turnover. The Court upheld the validity of the explanation, stating that the Legislature has the plenary power to define taxable turnover and the computation thereof.

2. Competence of the State Legislature:
The Court affirmed that the State Legislature has the competence to enact laws with retrospective effect, including amendments to the charging sections of tax statutes. It was emphasized that the Legislature can retrospectively validate actions, assessments, and collections made under the principal Acts, provided it removes the defect or lacuna pointed out by the judiciary. The Court referenced several precedents, including Amaravathi Wines v. Deputy Commissioner of Commercial Taxes and Empire Industries Limited v. Union of India, to support the legitimacy of retrospective legislation.

3. Reasonableness and Impact of Retrospective Taxation:
The petitioners argued that the retrospective amendment imposed an unreasonable burden on dealers who could not recover the tax from buyers, thus violating their fundamental rights under Article 19(1)(f) and (g) of the Constitution. The Court, however, held that retrospective taxation is not per se unreasonable and does not necessarily impose an unreasonable restriction on the right to carry on business. The Court cited the decision in Empire Industries Limited v. Union of India, which upheld the validity of retrospective fiscal legislation.

4. Legislative Power to Validate Actions Retrospectively:
The Court reiterated that the Legislature has the authority to enact validating Acts to cure defects in previous laws and validate past actions, assessments, and collections. The validation must comply with constitutional requirements and remove the defect identified by the judiciary. The Court referenced the principles laid down in Indian Aluminium Co. v. State of Kerala, which delineate the tests for the validity of validating Acts, including legislative competence, removal of defects, and consistency with constitutional rights.

5. Judicial Review of Administrative and Legislative Actions:
The Court emphasized judicial restraint in reviewing administrative and legislative actions, particularly in fiscal matters. It was noted that the judiciary's role is to ensure that administrative decisions are free from arbitrariness and bias, but it should not substitute its own decision for that of the Legislature or administrative authorities. The Court cited Tata Cellular v. Union of India to underscore the limitations of judicial review in matters involving government contracts and fiscal policies.

Conclusion:
The Court dismissed the appeals, upholding the validity of the explanation to section 5(1-A) of the Karnataka Sales Tax Act, 1957, as inserted by Act No. 1 of 1996 with retrospective effect. The Court affirmed the competence of the State Legislature to enact retrospective legislation and validate past actions, provided it complies with constitutional requirements and removes judicially identified defects. The retrospective amendment was not considered a fresh levy but a clarification to nullify the Court's earlier interpretation and validate assessments made under the principal Acts.