2003 (5) TMI 490 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the retrospective amendment to Entry 31-B of the Fifth Schedule of the Karnataka Sales Tax Act, 1957.
2. Interpretation of the term "sugar" in the context of the Karnataka Sales Tax Act and its exemption status.
3. Constitutionality of the retrospective amendment under Article 19(1)(g) of the Constitution of India.

Detailed Analysis:

1. Validity of the Retrospective Amendment:

The petitioner's main grievance was the insertion of the words "produced and manufactured in India" after the word "sugar" in Entry 31-B of the Fifth Schedule to the Karnataka Sales Tax Act, 1957, with retrospective effect by the Karnataka Taxation Laws (Amendment) Act, 2001. The amendment aimed to levy tax on imported sugar retrospectively, which was previously exempt under the Fifth Schedule.

The court noted that the purpose of the amendment was to clarify that only sugar produced or manufactured in India was exempt from sales tax, aligning with the Union Government's power to levy additional duties of excise on goods produced in India. However, the court found that the retrospective amendment imposed a new tax burden on imported sugar without clear legislative intent or express provision, violating the principle that taxation cannot be imposed by implication.

2. Interpretation of the Term "Sugar":

The court examined the historical context and legislative changes to Entry 31-B, noting that sugar was initially exempt from tax in all its forms except for specific exclusions. The confusion arose when the Commissioner of Commercial Taxes issued a circular in 1998, stating that imported sugar attracted sales tax, leading to assessments and reassessments by tax authorities.

The court referred to the Supreme Court's decision in State of Kerala v. State Trading Corporation of India Ltd., which held that the definition of sugar in the Additional Duties of Excise Act, 1957, incorporated in the state sales tax law, included imported sugar, exempting it from sales tax. The court applied this principle to interpret Entry 31-B, concluding that imported sugar was exempt from sales tax under the Karnataka Sales Tax Act as it existed before the amendment.

3. Constitutionality of the Retrospective Amendment:

The court considered whether the retrospective amendment was reasonable and constitutional under Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession or carry on any occupation, trade, or business. The court emphasized that retrospective taxation must be clearly expressed in the statute and should not impose an unreasonable or arbitrary burden on taxpayers.

The court found that the retrospective amendment imposed an unexpected and unforeseen tax liability on transactions that were previously exempt, creating an unreasonable burden on dealers of imported sugar. The court held that the amendment was unconstitutional and violated Article 19(1)(g), as it imposed a fresh tax burden without clear legislative intent or express provision.

Conclusion:

The court allowed the petitions, set aside the impugned orders, and struck down the retrospective amendment to Entry 31-B of the Fifth Schedule as unconstitutional. The court declared that imported sugar was exempt from sales tax under the Karnataka Sales Tax Act as it stood prior to April 1, 2001. The parties were directed to bear their own costs.