2005 (10) TMI 511 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Constitutionality of Section 5-C of the Karnataka Sales Tax Act, 1957.
2. Interpretation and effect of Section 5-C of the Act.
3. Effect of the Commissioner's circulars dated April 12, 1996, and October 23, 1999.

Issue-wise Detailed Analysis:

I. Constitutionality of Section 5-C of the Act:

The primary issue was whether Section 5-C of the Karnataka Sales Tax Act, 1957, was unconstitutional and void due to the failure to obtain the previous sanction of the President under Article 304(b) of the Constitution. The court upheld the validity of Section 5-C, stating that it does not apply to deemed sales (leasing transactions) outside the State, in the course of import or export, and inter-State transactions.

II. Interpretation and Effect of Section 5-C of the Act:

The court examined the true effect of Section 5-C and whether it was correctly interpreted in the Commissioner's circulars dated April 12, 1996, and October 23, 1999. The court declared that the circular dated October 23, 1999, correctly interprets Section 5-C of the Karnataka Sales Tax Act (as it stood prior to April 1, 2000), while the interpretation in the earlier circular dated April 12, 1996, was erroneous. The court noted that Section 5-C is an independent charging provision, levying tax on the transfer of the right to use any goods mentioned in the Seventh Schedule to the Act for any purpose at the specified rates. The court clarified that the circular dated October 23, 1999, correctly pointed out that goods subjected to tax under Section 5(3)(a) are not excluded from the purview of Section 5-C, and the levy under Section 5-C is multi-point in nature.

III. Effect of the Commissioner's Circulars:

The third issue pertained to the effect of the Commissioner's circulars dated April 12, 1996, and October 23, 1999. The court observed that the circular dated April 12, 1996, erroneously mixed up Section 5(3)(a) and Section 5-C, assuming that what could be deducted under Section 5(3)(a) could also be deducted under Section 5-C for arriving at the taxable turnover. The court noted that the circular dated October 23, 1999, correctly interpreted Section 5-C, indicating that the levy under Section 5-C applies even when the same goods are leased repeatedly by the same dealer to the same lessee or different lessees for different periods. The court held that the circular dated April 12, 1996, would apply to the assessment periods April 1, 1996, to March 31, 1997, April 1, 1997, to March 31, 1998, April 1, 1998, to March 31, 1999, and April 1, 1999, to March 31, 2000, while the circular dated October 23, 1999, would apply from April 1, 2000, onwards.

Separate Judgments Delivered:

The court delivered a comprehensive judgment addressing all the issues raised. The appeals filed by the assessees were rejected, while the appeals filed by the Revenue were allowed. The court set aside the declaration made by the learned single Judge that the circular issued by the Commissioner of Commercial Taxes dated April 12, 1996, is binding on the assessing authorities for the assessment period April 1, 1996, to March 31, 2000. In all other aspects, the impugned order passed by the learned single Judge was affirmed. The court directed the parties to bear their own costs.