2006 (6) TMI 473 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 6-B of the Karnataka Sales Tax Act, 1957.
2. Liability of the petitioner to pay tax under Section 6-B of the Karnataka Sales Tax Act on inter-company oil sales.
3. Interpretation of the second proviso to Section 5(3)(a) of the Karnataka Sales Tax Act.
4. Applicability of resale tax under Section 6-B of the Karnataka Sales Tax Act.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 6-B of the Karnataka Sales Tax Act, 1957:
The petitioner initially sought to challenge the constitutionality of Section 6-B of the Act, arguing that it violated Articles 14, 19(1)(g), 301, and 304(b) of the Constitution of India. However, during the proceedings, the petitioner's counsel submitted that they do not press this main relief. Consequently, the court did not address this issue further and proceeded to consider the other reliefs claimed by the petitioner.

2. Liability of the petitioner to pay tax under Section 6-B of the Karnataka Sales Tax Act on inter-company oil sales:
The petitioner, a public limited company engaged in the manufacture, sales, and distribution of petroleum products, contended that it should not be liable to pay tax under Section 6-B of the Act for sales made to other oil companies. The reassessment order dated July 29, 2004, and subsequent penalty order were challenged. The respondents argued that the petitioner was liable for payment of tax under Section 6-B on the sales of furnace oil and bitumin to other oil companies at the rate of 1.5% ad valorem.

3. Interpretation of the second proviso to Section 5(3)(a) of the Karnataka Sales Tax Act:
The court examined the second proviso to Section 5(3)(a) of the Act, which states that sales between oil companies listed in Explanation II are not deemed to be sales by the first or earliest of successive dealers in the State. The petitioner purchased petroleum products from Mangalore Refinery and Petrochemicals Limited (MRPL) and sold them to other oil companies like IOCL, BPCL, and IBP. Since these transactions were between oil companies listed in Explanation II, they were not considered sales by the first or earliest of successive dealers, and thus, no tax could be levied on these transactions.

4. Applicability of resale tax under Section 6-B of the Karnataka Sales Tax Act:
The court analyzed Section 6-B, which pertains to the levy of resale tax. It concluded that resale tax applies only if the petitioner is a reseller of the goods, meaning the petitioner must be a second or subsequent seller. Due to the deeming provision in the second proviso to Section 5(3)(a), the sales by MRPL to the petitioner and the petitioner's sales to other oil companies were not considered sales in the eyes of the law. Consequently, the petitioner could not be deemed a purchaser or reseller, and therefore, was not liable to pay resale tax under Section 6-B.

Conclusion:
The court quashed the impugned orders and demand notice, concluding that the petitioner was not liable to pay resale tax under Section 6-B of the Act. The writ petition was allowed, and the rule was made absolute. The court emphasized the importance of interpreting fiscal legislation based on the explicit language used and the legal fiction created by the second proviso to Section 5(3)(a).