2010 (7) TMI 949 - HC - VAT and Sales Tax

Whether the third proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957 is attracted to the facts of this case? Held that - The transactions referred to are neither sham or unreal. Though we could see that these three companies are floated with the intention of avoiding payment of tax, as long as the said act is within the frame work of law and is not a sham transaction, the benefit of the law or the loopholes in the law would enure to the benefit of the assessee. After seeing how this loophole has been exploited within the four corners of law, the Parliament has promptly now amended the law plugging the loophole. Therefore, by any judicial interpretation we cannot read it into the section which was not intended by the Parliament at the time of enacting this provision. Therefore, the order passed by the Tribunal is in consonance with the law of the land. The substantial question of law raised in this appeal is answered against the Revenue and in favour of the assessee. In so far as the assessment year 1991-92 is concerned, the Tribunal without proper application of mind has held the said assessment order is barred by limitation. It is not in dispute that there was an order for deferment under section 12(6) of the Act which saved limitation and, therefore, that portion of the order of the Tribunal is liable to be set aside and in favour of the Revenue. As the Tribunal has remanded the matter back to the assessing officer for reassessment after carefully scrutinizing the factual aspects of the case, in doing so the assessing officer shall not take into consideration the third proviso to section 5(3)(a) of the Act again and is at liberty to pass appropriate orders excluding the said portion.

Summary

Issues Involved:
1. Applicability of the third proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957.
2. Validity of the assessment order for the year 1991-92 on the grounds of limitation.

Issue-wise Detailed Analysis:

1. Applicability of the Third Proviso to Section 5(3)(a) of the Karnataka Sales Tax Act, 1957:

Facts and Contentions:
- The respondent-assessee, a private limited company, engaged in the manufacture and sale of electronic goods, claimed exemption as a second and subsequent dealer on sales tax suffered goods.
- The assessing authority rejected this claim, treating the sales as first sales under the third proviso to section 5(3)(a) of the Act.
- The Tribunal set aside this order, holding that the proviso was not attracted as the assessee was not the proprietor of the trade mark.

Legal Analysis:
- The third proviso to section 5(3)(a) stipulates that if goods are produced or manufactured by a dealer using the trade mark of another dealer and sold to the trade mark holder, the subsequent sale by the trade mark holder is deemed the first sale.
- The Tribunal found that the assessee was not the trade mark proprietor but a selling distributor. The manufacturers sold goods to the assessee, not the trade mark proprietor, thus the proviso was not applicable.
- The court examined the legal interpretation, referencing the case of McDowell & Company Ltd. v. Commercial Tax Officer, emphasizing the distinction between tax avoidance and tax evasion. It concluded that as long as the arrangement is within the law, it cannot be faulted.

Conclusion:
- The Tribunal's decision was upheld, confirming that the third proviso to section 5(3)(a) was not applicable as the assessee was not the trade mark holder. The substantial question of law was answered in favor of the assessee.

2. Validity of the Assessment Order for the Year 1991-92 on the Grounds of Limitation:

Facts and Contentions:
- The Tribunal held that the assessment order for the year 1991-92 was barred by limitation.
- The Revenue contended that there was an order for deferment under section 12(6) of the Act, which saved the limitation period.

Legal Analysis:
- The court noted that the Tribunal did not properly apply its mind regarding the limitation issue.
- It was established that the deferment order under section 12(6) of the Act indeed saved the limitation period for the assessment year 1991-92.

Conclusion:
- The Tribunal's finding on the limitation issue was set aside. The matter was remanded to the assessing officer for reassessment, excluding the consideration of the third proviso to section 5(3)(a).

Final Orders:
- The appeal by the Revenue was dismissed concerning the applicability of the third proviso to section 5(3)(a).
- The Tribunal's order on the limitation issue for the year 1991-92 was set aside, and the matter was remanded for reassessment, excluding the third proviso to section 5(3)(a).