1997 (2) TMI 536 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of proviso to section 5(3)(a) of the Karnataka Sales Tax Act and its impact on the turnover tax liability under section 6-B of the Act.

Analysis:
The judgment pertains to a group of writ petitions heard together due to a common legal question. The petitioner, a manufacturer of electrical goods, including transformers, claimed exemption from turnover tax under section 6-B of the Act for certain assessment years based on the proviso to section 5(3)(a) of the Act. This proviso deals with the sale of branded goods by the manufacturer to the brand name holder, deeming it "not a sale" by the first dealer liable to tax under the Act.

The main dispute in the petitions revolves around whether the exemption from sales tax under the proviso to section 5(3)(a) extends to exemption from turnover tax under section 6-B of the Act. The petitioner argued that the turnover of branded goods should not be included in the total turnover for turnover tax calculation, citing legal precedents and the Commissioner's clarification. On the other hand, the revenue contended that the turnover tax is applicable on branded sales under section 6-B.

The court analyzed the provisions of section 5(3)(a) and section 6-B of the Act. It highlighted that the proviso to section 5(3)(a) creates a fiction deeming the sale of branded goods not taxable under that section but does not exempt it from the Act altogether. The court referred to the distinction between exemption from tax and non-liability to tax as explained in legal precedents, emphasizing that the turnover of branded goods must be included in the total turnover for turnover tax computation.

Ultimately, the court held that the petitioner is liable to pay turnover tax under section 6-B of the Act as the exemption under the proviso to section 5(3)(a) only applies to that specific provision and does not exclude the transactions from the Act entirely. The court dismissed the petitions, directing each party to bear their own costs.

In conclusion, the judgment clarifies the interplay between the proviso to section 5(3)(a) and section 6-B of the Karnataka Sales Tax Act, affirming the inclusion of turnover from branded goods in the total turnover for turnover tax calculation despite the exemption from sales tax under the proviso.