2011 (4) TMI 1252 - HC - VAT and Sales Tax

Whether in the facts, figures and circumstances of the case, the Tribunal is justified in law, sustaining the finding of the first appellate authority that sole distributor does not mean one person in the State and there may be several number of sole distributors for the same company and all such distributors are coming under the purview of the sixth proviso to section 5(3)(a) of the said Act? Held that - the sale transactions which are carried on under a product name, exclusively by a certain dealer are covered, does not contemplate that exclusive right to deal with the said goods should be given to a particular dealer or sole dealer. The contention of the learned advocate for the petitioner that one more dealer is also dealing, the proviso is not attracted is an incorrect approach. In view of the section covering the specified class of the transactions, the material particulars of the transactions of the petitioner, fall within the ambit of the section as the petitioner is dealing with the RAJPHOS, as an agent of the manufacturer M/s. Rajasthan State Mines and Minerals Limited. Exclusively used cannot be given a meaning according to geographical boundaries. Exclusively has to be understood authorising the one, excluding other or a group. Court holds that there is no merit in the submission of the learned advocate for the petitioner, so it is rejected. Appeal dismissed.

Summary

Issues:
Interpretation of proviso to section 5(3)(a) of the Karnataka Sales Tax Act, 1957 regarding exclusive distribution rights and subsequent tax liability.

Detailed Analysis:

1. Facts and Assessment Order:
The petitioner, a dealer under the Karnataka Sales Tax Act, was assessed for the year 2003-04, with a notice issued regarding transactions covered under the proviso to section 5(3)(a). The petitioner's case involved the distribution of "RAJPHOS" rock phosphate fertilizer. The assessing authority highlighted discrepancies in profit margins leading to revenue loss for the state.

2. Petitioner's Contention:
The petitioner argued that since another dealer, Indian Potash Limited, also distributed the same product, the application of the proviso was incorrect. The petitioner sought to set aside the demand raised and the assessment order, emphasizing the presence of multiple dealers for the product.

3. Government's Submission:
The Additional Government Advocate contended that the proviso's application should be based on the legislative intent, emphasizing the creation of a distinct class of transactions. The government sought dismissal of the petition.

4. Court's Analysis of Proviso to Section 5(3)(a):
The court analyzed the proviso's elements, emphasizing the exclusive distribution of goods under a brand name to a marketing agent or distributor. The court found that the proviso did not require sole distribution rights but covered transactions where goods were exclusively dealt with by a specific dealer.

5. Interpretation and Rejection of Petitioner's Contentions:
The court rejected the petitioner's argument that the presence of another dealer negated the proviso's application. It clarified that exclusivity did not pertain to geographical boundaries but to authorization to deal with the goods, excluding others. The court dismissed the petitioner's submission, stating that the proviso intended to cover specific transaction categories.

6. Final Judgment:
Based on the above analysis, the court found no merit in the petitioner's contentions and rejected the petition, upholding the applicability of the proviso to the petitioner's transactions involving the distribution of "RAJPHOS" fertilizer.