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TMI Blog1998 (7) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in sub-section (1) of section 5-B or section 5-C a tax under this Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Schedule at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said Schedule on the dealer liable to pay tax under this Act on his taxable turnover of sales or purchases in each year relating to such goods. 3.. It is not in dispute between the parties that iron and steel is taxable at single point which is first point and 4 per cent rate of tax is specified under entry 2 of the Fourth Schedule of the Act. Since April 1, 1978 if iron and steel in any form is used for manufacture of iron and steel in other form and sold in Karnataka, the tax paid on the raw material was to be reduced from the liability on the sale of finished product. 4.. The disputed amendment is by Act No. 5 of 1996 with effect from April 1, 1996, which is as under: Explanation II.-Where tax has been levied under this Act on goods specified in any item of serial number 2 and out of such goods, different goods specified in any other item of serial number 2 are ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinct and the two cannot be clubbed together for the purpose of overall limit of 4 per cent. It is also stated that the proviso has not classified the same class of dealers or same class of goods differently. Nowhere the tax liability is fixed on such new unit or on the purchaser which purchases the input goods from the new unit. Like dealers or like goods are not discriminated and placed in different classes for the purpose of taxation. The benefit of tax exemption under section 8-A comes to an end when the manufactured product is sold and treating the commodities subsequently in a different manner would not amount taking away the benefit which has been given to the new industrial unit. It is submitted that tax exempted new units are still capable of competing with others since the total tax burden on the commodity subsequently manufactured and sold by using the input goods which have already suffered tax levy is 6 per cent, whereas the total burden of tax on the manufactured commodities where input goods used in such manufacture were exempt from tax is only 4 per cent. The tax exemption granted under the notification issued under section 8-A or 19-C is not illusory. The proviso d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished product manufactured therefrom, the price is bound to be affected as no person would purchase the commodity at the same rate if there is ultimately higher burden of tax. 8.. In Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 it was observed by the apex Court as under: The components which enter into the concept of a tax are well-known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed, and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity. 9.. From the above observations of the apex Court, it has to be seen whether there is any uncertainty or vagueness in any of the elements for valid levy of tax. In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. 11.. In the case of Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552 while considering scope of article 14 of the Constitution it was held: ..........if the Legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, article 14 will not be in the way of such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought it fit to grant relief to the seekers of probates, whereas plaintiffs in civil suits were thought deserving of such an upper-limit. The discrimination is a piece of class legislation prohibited by the guarantee of equal protection of laws embodied in article 14 of the Constitution. 14.. In Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346 (SC) it was observed that it is open to Legislature to select different rates of tax for different commodity. But where the commodities belong to the same class or category, there must be a rational basis for discrimination between one commodity and another for the purpose of imposing tax. 15.. It may be observed that taxation laws are not an exception to the doctrine of equal protection. The only thing which has to be seen is as to whether there is reasonable basis behind the classification. If the basis could be considered reasonable, then it will be within the power of the Legislature or the delegated authority to treat the commodity differently. But, if there is no reasonable basis for such classification, then it has to be struck down. 16. In Sri Virupaksha Enterprises v. Commercial Tax Officer [1990] 77 STC 28 (Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he context of a particular statute may mean ought to have been paid and (2) Nil assessment may mean assessed to duty . It has referred to a judgment of the Court of Appeal in the case of Allen v. Thorn Electrical Industries Ltd. (1968) 1 QB 487 and has held: The literal meaning of the expression paid as actually paid in cash has again not been adopted by the Court of Appeal in the case of Allen v. Thorn Electrical Industries Ltd. (1968) 1 QB 487. Having regard to the context in which the said expression appeared in the particular provision which came up for interpretation, the Court of Appeal construed the expression to mean contracted to be paid . 19.. The Supreme Court in the case of Assistant Collector of Central Excise, Calcutta v. National Tobacco Co. of India Ltd. AIR 1972 SC 2563 observed: The term levy appears to us to be wider in its import than the term assessment . It may include both imposition of a tax as well as assessment. The term imposition is generally used for the levy of a tax or duty by legislative provisions indicating the subject-matter of the tax and the rates at which it has to be taxed. The term assessment , on the other hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sense that the new unit which have the benefit of tax exemption on the sale of raw material would not be interested to come in the State of Karnataka. (2) The point of tax under section 5(4) is the first point and if the point has already been exhausted in the hand of some earlier dealer then there is no liability of tax on subsequent points. Since there is no obligation to keep separate account by record of subsequent dealers, the finished product manufactured therefor cannot be treated differently. (3) The raw material manufactured by different units, i.e., new unit, having the benefit of deferred payment of tax and new unit having the benefit of exemption of tax cannot be considered differently as similarity is to be examined in the nature of the quality and kind of goods and not with respect to whether the raw material was subjected to tax or not. There is hostile discrimination in the product of two types of new units. Thus there is discrimination inter se as the produce manufactured are the same. (4) The object of the Government to collect tax on the raw material was that the Government should receive 4 per cent tax in total as pointed out by the learned High Court Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted a class in the class. If in order to encourage industrialisation statutory exemption is given, it cannot be made illusory subsequently. (6) An uncertainty and vagueness is created with regard to the point of tax, because if there is no liability on second or subsequent point, then the ultimate manufacturer of finished product cannot be asked to prove the source of origin of such goods which have passed in the hands of number of registered dealers. (7) The raw material manufactured by the new unit which is exempt and which is availing benefit of deferment of tax belong to the same class. Subsequent treatment of the product result in inequality and the effect/impact of such inequality is directly on the business of the petitioner and the like. The discrimination in the rate of tax on similar goods is violative of article 14 of the Constitution. The basis cannot be considered reasonable. 21.. In view of the above, the proviso to explanation II as inserted by Karnataka Act No. 5 of 1996 is declared discriminatory and therefore struck down as violative of article 14 of the Constitution. Writ petition is allowed. Writ petition allowed. - - TaxTMI - TMITax - CST, VAT & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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