2019 (3) TMI 1483 - SC - VAT and Sales Tax

Applicability of the turnover tax - scope of total turnover - inclusion of turnover which is not liable to tax - Section 6B (1) of Karnataka Sales Tax Act, 1957 - main thrust of the submission of Mr. Mohit Chaudhary, learned counsel for the appellant is that Courts below have manifestly erred in appreciating that the total turnover as defined under Section 6B (1) for the purpose of levy turnover tax can in no event include the turnover with reference to which the State has no power to levy tax under the constitutional scheme and the submission proceeds that the levy of tax under Section 6B can be on the taxable turnover alone. Held that - In the instant scheme of the Act of which reference has been made in detail, the expression total turnover has been referred to for the purpose of identification/classification of dealers for prescribing various rates/slabs of tax leviable to the dealer and read with first and second proviso to Section 6B( 1), this makes the intention of the legislature clear and unambiguous that except the deductions provided under the first proviso to Section 6B( 1) nothing else can be deducted from the total turnover as defined under Section 2(u2) for the purpose of levy of turnover tax under Section 6B of the Act - The submission of learned counsel for the appellant that the total turnover in Section 6B( 1) is to be read as taxable turnover and the determination of the rate of the turnover tax is to be ascertained on the taxable turnover on the face of it is unsustainable and deserves outright rejection. The appeals are without substance and the same are dismissed.

Issues Involved:
1. Applicability of turnover tax under Section 6B(1) of the Karnataka Sales Tax Act, 1957.
2. Interpretation of 'total turnover' versus 'taxable turnover'.
3. Legislative competence of the State to levy turnover tax on total turnover.
4. Constitutional validity of Section 6B(1) in light of Article 286 of the Constitution of India.
5. Relevance of judicial precedents in interpreting Section 6B(1).

Issue-Wise Detailed Analysis:

1. Applicability of Turnover Tax under Section 6B(1) of the Karnataka Sales Tax Act, 1957:
The appeals were filed against the High Court of Karnataka's judgment concerning the applicability of turnover tax as defined under Section 6B(1) of the KST Act. The appellant, a manufacturer and registered dealer of cashew kernels and cashew shell oil, contested the assessments made for the years 1990-91 to 1999-2000, arguing that the tax should be levied on the 'taxable turnover' rather than the 'total turnover'.

2. Interpretation of 'Total Turnover' versus 'Taxable Turnover':
The primary argument from the appellant's counsel was that the term 'total turnover' should not include turnover that the State cannot constitutionally tax. The counsel asserted that Section 6B should be interpreted to levy tax only on the 'taxable turnover'. The respondent State, however, maintained that 'total turnover' as defined includes all turnovers, and deductions are specified under the first proviso to Section 6B(1).

3. Legislative Competence of the State to Levy Turnover Tax on Total Turnover:
The appellant argued that the State's interpretation would allow indirect taxation on turnover not subject to intra-state sales tax, exceeding the State's legislative competence. The respondent countered this by citing the Supreme Court's decision in M/s. Hoechst Pharmaceuticals Ltd. and Others Vs. State of Bihar and Others, which upheld the inclusion of interstate export and import turnover for identifying dealers but not for levying tax.

4. Constitutional Validity of Section 6B(1) in Light of Article 286 of the Constitution of India:
The appellant's counsel suggested that the provision should be read down to avoid conflict with the constitutional scheme. The respondent referred to previous judgments where the constitutional validity of Section 6B was upheld, emphasizing the provision's purpose for dealer identification and rate prescription, not for taxing interstate transactions.

5. Relevance of Judicial Precedents in Interpreting Section 6B(1):
The judgment referenced several precedents, including Indra Das Vs. State of Assam and Rakesh Kumar Paul Vs. State of Assam, to support the argument for reading down the provision. However, the Supreme Court found these precedents irrelevant to the current issue. The principle of economic superiority for levying turnover tax, as discussed in M/s. Hoechst Pharmaceuticals Ltd., was reaffirmed, emphasizing strict interpretation of taxing statutes.

Conclusion:
The Supreme Court dismissed the appeals, affirming that the term 'total turnover' in Section 6B(1) is intended for identifying dealers and prescribing tax rates/slabs. The Court held that the legislature's intention was clear and unambiguous, and no further deductions beyond those specified in the first proviso to Section 6B(1) are permissible. The Court rejected the appellant's argument to interpret 'total turnover' as 'taxable turnover' and upheld the legislative competence of the State in this context. The appeals were found to be without substance and were dismissed with no costs. Pending applications, if any, were also disposed of.

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