2005 (12) TMI 547 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Tax liability determination under Section 5B of the Karnataka Sales Tax Act, 1957.
2. Applicability of Section 5(4) of the Karnataka Sales Tax Act, 1957 concerning declared goods.
3. Jurisdiction of the High Court to entertain the writ petition despite the availability of an alternative statutory remedy.
4. Interpretation of the provisions of Section 5B and Section 5(4) of the Karnataka Sales Tax Act, 1957.
5. Applicability of the Supreme Court's decision in Gannon Dunkerley & Co. v. State of Rajasthan and Builders Association of India v. Union of India.

Detailed Analysis:

1. Tax Liability Determination Under Section 5B of the Karnataka Sales Tax Act, 1957:
The petitioner, a dealer registered under the Karnataka Sales Tax Act, 1957, and engaged in executing works contracts, was aggrieved by the assessment order dated September 27, 2002, which levied a 10% tax on the value of steel used in the execution of works contracts. The petitioner contended that steel, being a "declared goods" under Section 14 of the Central Sales Tax Act, 1956, should be taxed at 4% as per Entry 2 of the Fourth Schedule to the Act.

2. Applicability of Section 5(4) of the Karnataka Sales Tax Act, 1957 Concerning Declared Goods:
The petitioner argued that Section 5B, which is the charging section for works contracts, is subject to Section 5(4) of the Act. Section 5(4) stipulates that declared goods should be taxed at the rate specified in the Fourth Schedule, which is 4%, overriding any other provisions, including Section 5B. The court noted that Section 5B explicitly states that it is subject to Section 5(4), thereby supporting the petitioner's contention.

3. Jurisdiction of the High Court to Entertain the Writ Petition Despite the Availability of an Alternative Statutory Remedy:
A preliminary objection was raised regarding the maintainability of the writ petition due to the availability of an appellate remedy under Section 20 of the Act. However, the court decided to entertain the writ petition as it involved pure questions of law and no disputed facts, making it appropriate for writ jurisdiction.

4. Interpretation of the Provisions of Section 5B and Section 5(4) of the Karnataka Sales Tax Act, 1957:
The court examined the interplay between Section 5B and Section 5(4) and concluded that Section 5(4) controls the levy of tax on declared goods, even when involved in works contracts. The court emphasized that the provisions of Section 5B are subject to Section 5(4), which mandates a 4% tax rate for declared goods like steel.

5. Applicability of the Supreme Court's Decision in Gannon Dunkerley & Co. v. State of Rajasthan and Builders Association of India v. Union of India:
The court referred to the Supreme Court's decisions in Gannon Dunkerley & Co. v. State of Rajasthan and Builders Association of India v. Union of India, which clarified that the tax on works contracts should exclude components like labor and service and should comply with constitutional limitations under Article 286. These decisions supported the petitioner's argument that declared goods should be taxed at the rate specified in the Fourth Schedule.

Conclusion:
The court found that the assessing officer's view that Section 5(4) was irrelevant to the levy under Section 5B was incorrect. It held that the petitioner was entitled to the benefit of the 4% tax rate for steel used in the works contract, as per Section 5(4). Consequently, the assessment order dated September 27, 2002, was set aside, and the matter was remanded for re-determination of the tax liability in accordance with the clarified legal position. The writ petition was allowed, and the rule was made absolute.