2008 (12) TMI 703 - HC - VAT and Sales Tax

Whether petitioners entitled to tax exemption under the Karnataka Sales Tax Act, 1957 ? Held that - The appellants were justified in issuing the endorsement to them stating that they are not entitled for the benefit of exemption from payment of tax exemption that was impugned in the writ petitions and the learned single judge has erroneously quashed the same by wrongly applying the Government order which has no application to the fact-situation and further the observation of the learned single judge that the State Government estopped from taking the plea that the exemption notification not applicable after the notification issued under the provisions of the KVAT Act, suffers from error in law. The learned single judge is not correct in holding that in the absence of implied or express repeal of the 1993 notification issued under section 8A(1) of the KST Act, the State Government is estopped from contending that the respondents are not entitled to claim tax exemption. Such a contention of the respondents is contrary to the decision in the case of Mathra Parshad and Sons v. State of Punjab reported in 1961 (12) TMI 63 - SUPREME COURT OF INDIA relied upon by the learned Additional Government Advocate to contend that there is no promissory estoppel against the Government and the exemption notification applied to the respondents/hotels is not legal and valid. For this reason also the impugned order is liable to be set aside.

Summary

Issues:
1. Entitlement to tax exemption under the Karnataka Sales Tax Act, 1957 for new tourism units.
2. Application of Government order to extend tax exemption to hotel industry.
3. Justification of applying the Government order to declare tourism as an industry.

Analysis:

(i) Entitlement to Tax Exemption:
The case involved a dispute over tax exemption for new tourism units under the Karnataka Sales Tax Act, 1957. The State and its officers challenged a single judge's order that granted tax exemption to petitioners based on the definition of "industry" under the Act and existing notifications. The State contended that the exemption notification was not applicable to the respondents as they were not registered as new industrial units under the KVAT Act. The court held that the respondents must be registered as industrial units to claim exemption, which they were not, leading to the dismissal of the writ petitions.

(ii) Application of Government Order:
A key issue was the application of a Government order to extend tax exemption to the hotel industry. The State argued that the order was not legally permissible under the KST Act and did not apply to the respondents as they were not new industrial units as defined in the relevant notifications. The court agreed with the State's contention, emphasizing that the executive order for financial assistance to the tourism industry could not be used to claim tax exemption under the KVAT Act. The learned judge erred in applying the Government order in this context, leading to the dismissal of the writ petitions.

(iii) Declaration of Tourism as an Industry:
Another issue was the justification for declaring tourism as an industry based on a Government order. The respondents argued that the State was estopped from denying tax exemption based on the existing notifications. However, the court held that the respondents were not entitled to exemption as they did not meet the criteria of being registered as new industrial units. The court dismissed the writ petitions, emphasizing that the Government order declaring tourism as an industry did not apply to tax exemption under the KVAT Act.

In conclusion, the appeals were allowed, and the single judge's order was set aside, leading to the dismissal of the writ petitions. The court emphasized the statutory requirements for tax exemption under the KVAT Act and clarified that the Government order for financial assistance could not be used to claim tax exemption. The judgment highlighted the importance of meeting the criteria for being considered new industrial units to avail of tax benefits under the relevant Acts.