2001 (8) TMI 1365 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of Section 5-C of the Karnataka Sales Tax Act, 1957.
2. Interpretation of Section 5-C of the Act.
3. Validity and effect of circulars dated April 12, 1996, and October 23, 1999, issued by the Commissioner of Commercial Taxes.
4. Consequential orders of assessment, proposition notices/show cause notices issued by the assessing and revisional authorities.

Detailed Analysis:

Re: Point No. (i): Constitutional Validity of Section 5-C
The petitioners argued that Section 5-C is unconstitutional due to the absence of the President's prior sanction under Article 304(b) of the Constitution. They contended that Section 5-C imposes restrictions on trade, commerce, and intercourse within the State. However, the court upheld the validity of Section 5-C, referencing the earlier decision in India Equipment Leasing Ltd. [1998] 111 STC 403. The court noted that tax laws do not inherently violate Article 301 unless they directly and immediately impede the free flow of trade and commerce. Since the petitioners failed to demonstrate that Section 5-C imposed such a burden, the court concluded that the amendment did not require the President's prior sanction under Article 304(b).

Re: Point No. (ii): Interpretation of Section 5-C
The court referred to the Supreme Court's decision in 20th Century Finance Corporation v. State of Maharashtra [2000] 119 STC 182 to clarify the power of the State Legislature to tax the right to use goods. Section 5-C was introduced to address the transfer of the right to use goods, distinct from absolute sales governed by Section 5. The court emphasized that Section 5-C is an independent charging section, and the principles applicable to absolute sales under Section 5 cannot be imported to Section 5-C. The court noted that the first part of Section 5-C imposes a multi-point levy, meaning that each transaction of leasing the same goods attracts tax. The court concluded that the interpretation of Section 5-C in the circular dated October 23, 1999, was correct, while the interpretation in the circular dated April 12, 1996, was erroneous.

Re: Point No. (iii): Effect of Circulars Dated April 12, 1996, and October 23, 1999
The court analyzed the binding nature of circulars issued by the Commissioner of Commercial Taxes. It noted that circulars favoring the assessee, even if at variance with the true intent of the law, are binding on the assessing authorities. The court cited several Supreme Court and High Court decisions to support this position. Consequently, the circular dated April 12, 1996, would apply to assessments for the periods April 1, 1996, to March 31, 2000. However, for the periods before April 1, 1996, and after March 31, 2000, the circular dated October 23, 1999, would apply.

Consequential Orders:
1. The validity of Section 5-C of the Karnataka Sales Tax Act, 1957, is upheld. Section 5-C does not apply to deemed sales (leasing transactions) outside the State, in the course of import or export, and inter-State.
2. The circular dated October 23, 1999, correctly interprets Section 5-C, while the interpretation in the circular dated April 12, 1996, is erroneous.
3. The instructions in the circular dated April 12, 1996, will bind the assessing authorities for the assessment periods April 1, 1996, to March 31, 2000.
4. Assessments for the period April 1, 1986, to March 31, 1996, will be concluded with reference to Section 5-C as interpreted in the circular dated October 23, 1999.
5. For the assessment year April 1, 2000, to March 31, 2001, onwards, the circular dated October 23, 1999, will not apply due to the proviso to Section 5-C effective from April 1, 2000.
6. The question of whether a particular transaction amounts to a transfer of the right to use goods is left open to be decided by the authorities based on the facts and circumstances of each case.
7. Petitioners aggrieved by any order may file appeals within 30 days from the date of receipt of this order, and such appeals will not be rejected on the ground of limitation.
8. Petitioners challenging notices are given four weeks to file objections, which the concerned authority shall consider in light of this judgment.
9. The circular dated October 23, 1999, will not enable the assessing authority to reopen assessments that have attained finality in accordance with law.
10. Parties will bear their respective costs.

Conclusion:
The petitions are allowed in part, affirming the validity of Section 5-C, clarifying its interpretation, and specifying the binding nature of the circulars for different assessment periods.