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TMI Blog2009 (4) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be worked on such premise for persons who have opted for payment of tax by way of composition and who are dealers, on and after April 1, 2007 onwards. In this view of the matter, all reassessment orders for levy of additional burden on the premise of the liability under section 3(2) of the Act for the period prior to April 1, 2007 and also any penalties levied under section 72(2) of the Act and the consequential levy of interest and penalty including any prosecution launched covering the period only on the premise that the tax paid by the petitioners by way of composition falls short of the amount indicated in the reassessment order, stands quashed by issue of a writ of certiorari. In this view of the matter, the show-cause notices issued in the case of petitioners in W.P. No. 2416 of 2008 at annexure D stand quashed by issue of a writ of certiorari. The petitioners having confined their challenge to the assessment orders up to the period March 31, 2007 and with the declaration of law that the provision of section 15(5)(e) of the Act as it operates from April 1, 2007 is a valid provision, other consequences in law follows. Section 4(3)(d) of Act No. 6 of 2007 is decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only such of those registered dealers who fulfil the requirements of the provisions of section 15 of the Act, who are given option to pay tax by way of composition and the option once so exercised, will be available to the dealers so long as the dealer concerned is fulfilling the requirements of section 15 of the Act. The petitioners who had exercised such an option and who were paying the composition amount of tax as understood by them, are aggrieved that either due to some legislative changes brought about by the Legislature to the provisions of section 15 of the Act or because of an erroneous understanding of the provisions of the Act by the assessing authorities, the taxes as paid by the petitioners, particularly for the period commencing from April 2005 to March 31, 2006 as also for the following year, i.e., commencing from April 2006 to March 31, 2007, having not been accepted by the assessing authorities and the assessing authorities having re-assessed and re-determined the liability of the petitioners for payment of tax even by way of composition under section 15 of the Act and such revised assessments having resulted in additional tax burden on the petitioners and in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision for payment of tax by way of composition tax, having indicated that this mode of payment of tax is an alternative mode of payment of tax by the dealers, who opt for payment under this provision, is generally understood by all dealers that it is in substitution of the total liability of a dealer under the provisions of the Act and once the dealer who has opted for composition of tax pays the stipulated amount as envisaged under section 15 of the Act, such a dealer is totally rid of all his responsibilities and liabilities for payment of tax under any other provision of the Act. The petitioners have approached this court seeking for relief basically in the context of the reassessment orders and levy of penalties which, according to them and even as understood in some cases by the authorities, as a result of the legislative changes brought about in section 15 of the Act, particularly by the amending Act (Karnataka Act No. 6 of 2007) in terms of section 4(3)(d) of the Act 6 of 2007, whereunder a new clause clause (e) has been introduced in sub-section (5) of section 15 of the Act and that also being indicated as it is operative from April 1, 2006, though the Act itself was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners have all therefore directed their fury towards the provisions of section 15(5)(e) of the Act and have sought for a declaration that this provision is bad in law, unconstitutional and all consequential actions should be quashed. While the main plank of attack on the provisions of section 15(5)(e) of the Act is because it is made operative with effect from April 1, 2006, though it was notified on March 30, 2007, and even conceding that the Legislature has the power to amend the laws having retrospective effect and even by way of amendment to an existing Act, the provision is sought to be invalidated mainly on the plank that it is an unreasonable, irrational provision, when it is sought to be implemented from an earlier date, particularly in the context of working of a scheme for payment of tax by way of composition; that the provision is a provision which works to the detriment of the petitioners, after having induced the petitioners to opt for payment of tax by way of composition on the terms and conditions, as it existed at the time of opting, being varied to the disadvantage of the petitioners after they have effected and altered their position and by altering the tax li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the registered dealer, as the registered dealer is required to make payment of purchase tax at the purchase point and while the goods are utilized in the execution of the works contract and sold as part of the works contract, they are again subjected to tax at the sale point, though the goods are the same and the value of purchase and sale is the same and therefore the provisions are which seek to impose an additional burden for payment of the tax under section 3(2) of the Act as purchase tax, which was otherwise not contemplated in the scheme and therefore is a provision which is lacking in legislative competence beyond the permitted limit of entry 54 and as such to be declared as unconstitutional, is the argument. The petitioners have questioned the legality of the provisions on many other grounds, which can be referred to later. All these petitions being admitted for examination by issue of rule and the State and its officers being put on notice, the State has entered appearance through Sri K.M. Shivayogiswamy, learned Government Pleader, and has filed statement of objections. The validity of the provision is sought to be defended by the State contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir tax liability under the Act is not in any way altered, only because they have opted to pay tax by way of composition; that the amended provision seeks to achieve this object, that having regard to the concept of net tax payable under the provisions of the Act, it was the intention and understanding of the State and the Legislature that even dealers who opted for payment of tax by way of composition are nevertheless liable to pay tax payable in terms of sub-section (24) of section 3 of the Act, which is a tax which is always borne by the dealers who purchase goods, whether the tax so paid reaches the coffers through the medium of another registered dealer when the purchases are from a registered dealer or directly from the buying dealer when the dealer purchases from an unregistered dealer and to maintain parity and to ensure that a dealer opting for payment of tax by way of composition is not placed at an advantageous position; that the intention was all along clear that a person opting for payment of tax under section 15 of the Act, should nevertheless meet the liability under section 3(2) of the Act and such intention is only made explicit, as is now done under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enior Counsel and ably supported by good number of learned counsel appearing on behalf of the petitioners. I have heard Sri G. Sarangan, learned Senior Counsel appearing for Smt. Vani, learned counsel for the petitioner in W.P. Nos. 14728 of 2007, 4792 of 2008, M/s. Vikram and Atul K Alur learned counsel for the petitioners in W.P. Nos. 8801 of 2008, 8803 of 2008, 8802 of 2008, 14034 of 2007, 2976 of 2008, 5685 of 2008, 8788 of 2008, 8790 of 2008, 8792 of 2008, 8794 of 2008, 8795 of 2008, 8796 of 2008, 13489 of 2008, 8789 of 2008, 8791 of 2008, 8798 of 2008, 8793 of 2008, 8797 of 2008, 8800 of 2008, W.P. Nos. 5529, 5571, 5719, 13999, 6886 of 2008, Sri M. G. Kumar, learned counsel for the petitioner in W.P. No. 16030 of 2007, Sri Rabinathan, learned counsel for the petitioner in W.P. Nos. 9757 of 2007, Sri Keshava Murthy, learned counsel appearing for writ petitioners in W.P. Nos. 2416 of 2008, 4999 of 2008, 5397 of 2008, 6080 of 2008, Sri A. Satyanarayan, learned counsel for the petitioners in W.P. Nos. 10880 of 2008, 8807 of 2008, 5038 of 2008, 5240 of 2008, Smt. Shalini Patil, learned counsel for the petitioners in W.P. Nos. 2285 of 2008, 2417 of 2008, 2418 of 2008, 2672 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposition period by which time the petitioners had already worked out their tax liability, filed their returns, paid taxes and fulfilled the entire obligations under the Act and to put the clock back and make the petitioners rework by digging into their old records which was otherwise avoided for the petitioners in the wake of composition scheme and expecting the petitioners to make good the details of purchases, etc., made from unregistered dealers, is virtually asking the petitioners to perform the impossible and therefore the provision is a most unreasonable provision and falls foul of article 14 of the Constitution of India as it amounts to an irrational legislative provision with no object or purpose to achieve but only to fasten an additional burden and even consequential penalties on the petitioners and therefore the provision is bad. Sri Sarangan, learned Senior Counsel would submit that the petitioner a works contractor had opted for payment of tax by way of composition and so paying the tax for the past three or four years is hard hit by the retrospective operation of the provisions of section 15(5)(e) of the Act as inserted by section 4(3)(d) of Act No. 6 of 2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme of composition as no additional levies are permitted and being in the nature of charging section in a composition provision cannot be sustained. Another ground urged in support of invalidating section 15(5)(e) of the Act even prospectively is that it has the effect of creating a tax liability twice on the same goods in the hands of the same dealer; that there cannot be a levy of tax both at purchase point and at the sale point on the same goods in the hands of the same dealer; that it is opposed to the scheme of levy of tax on the sale of goods as envisaged under entry 54 of List II of the Seventh Schedule to the Constitution of India; that the attempt on the part of the State Legislature to levy such a tax both at the purchase point and the sale point on the very goods in the hands of the same dealer is not permitted for the State Legislature as it amounts to taxing the same transaction twice in the hands of the same dealer and in support of such submission has placed reliance on the following two decisions of the Supreme Court, namely, in the case of Devi Dass Gopal Krishnan v. State of Punjab reported in [1967] 20 STC 430 at page 443 in which it is submitted that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in section 15(5)(e) of the Act as worked in the reassessment orders would virtually amount to subjecting the petitioners to undue hardship, particularly, as the petitioners have no way of opting out of the composition scheme at this point of time; that the provision operates oppressively on the petitioners if it is to be understood in the manner as is contended on behalf of the State and as is sought to be implemented in terms of section 15(5)(e) of the Act. It is submitted that entry 54 envisages levy of tax in a transaction of sale either at the sale point or at the purchase point and not both; that the significance of the disjunction or cannot be lost sight of and in support of the submission has referred to the dictionary meaning of the word or as indicated in Stroud's 2008 Edition and Ramanath Iyer's 'The Law Lexicon'. Sri Vikram, learned counsel for the petitioner in W.P. No. 14034 of 2007, who is a registered dealer carrying on the business of executing works contract and has opted for payment of tax under the provisions of the Act by way of composition as enabled under section 15 of the Act submits that so far as the works contractor is concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner would also submit that the provisions of section 15(5)(e) of the Act cannot even be read down to provide an option to a dealer to opt out of the scheme from the date of its operation, i.e., with effect from April 1, 2006 is not an option open to the court for the reason that even if the section is to be read down in that manner, so as to provide option to a dealer like the petitioner to opt out of the scheme of composition, consequence being rather serious, exposing a dealer like the petitioner to arduous or impossible compliances to be met, particularly, as the petitioner if opts out of the composition scheme has to file his return, indicate his total turnover which has never been kept track of by the petitioner as the entire liability of works contractor opting for composition was only to pay composition rate of tax on the sale consideration he receives from his client and not on the total turnover and therefore it is no way of saving the provision by providing an option to the petitioner to opt out for the earlier period; that the provision is not only unreasonable but also violative of article 14 of the Constitution of India. Sri M.G. Kumar, learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had opted for payment of tax by way of composition and based on the liability as it existed at the time of opting has now been altered subsequently after opting and to the detriment of the petitioner and therefore it is bad in law and in support has placed reliance on the decision of the Supreme Court in the case of Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector and E.T.I.O. reported in AIR 2007 SC 1984. It is submitted that when the benefit given under an earlier piece of legislation is held to be subsisting under a corresponding provision of a successor legislation, such ratio should be a fortiori made applicable to the situation where under the very provision of the Act a variation or amendment is made to the detriment of a dealer so as to subjecting the dealer to additional burden, by way of amendment and on the basis of the law declared in Southern Petrochemical Industries case AIR 2007 SC 1984 and submits that the present amendment for foisting an additional liability in terms of section 3(2) of the Act on a dealer who has opted for composition is not sustainable and should be declared as unconstitutional. Sri Keshava Murthy, learned counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be declared as unconstitutional on the strength of the authorities relied upon by the earlier learned counsel for the petitioners. Smt Shalini Patil, learned counsel for the petitioner in W.P. No. 2285 of 2008, has submitted that the scheme of the Act for payment of tax in the normal scheme, particularly, even in respect of works contractor as can be culled out with reference to sections 1(4), 2(34) and 2(36) of the Act giving the definition of total turnover and turnover and when once the liability for payment of tax by way of composition with reference to the total turnover and at four per cent of the total turnover including the part of the total turnover which is attributable to the purchases from unregistered dealer is fixed, a further levy under section 15(5)(e) of the Act is nothing short of levying tax twice on very turnover, i.e., the total turnover once by way of composition and again by way of purchase tax under section 3(2) of the Act and therefore submits that the provision is bad and also adopts the submissions of other learned counsel for the petitioners. Sri Shankar, learned counsel for the petitioner in W.P. No. 8850 of 2008 a works contractor, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f principles of natural justice and for the reason that it has the effect of placing an additional burden and in support of the submission, reliance is placed on the decision of the Supreme Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India reported in [2003] 260 ITR 548; [2003] 5 SCC 23. The learned counsel also submits that even in the understanding of the officials of the Commercial Taxes Department, a person like the petitioner a works contractor a dealer who has opted for payment of taxes by way of composition was not required to pay taxes in terms of section 3(2) of the Act is demonstrated by the manner in which the forms had been provided for to work the provisions of section 15 of the Act read with rules 143 and 144 of the Rules and wherein a form did not provide for a column to indicate the tax liability in terms of section 3(2) of the Act even for the year April 1, 2006 onwards, but the form has now been amended retrospectively and even the forms have been modified in the year 2007 by giving effect to the modified form from an earlier date; that the modification of the form was only alter April 1, 2007 but the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed on the decision of the Supreme Court in the case of Reliance Energy Ltd. v. Maharashtra State Road Development Corpn. Ltd. reported in [2007] 8 SCC 1. It is submitted that the doctrine of the State providing a level playing field to all businessmen/traders situated alike is Constitutional obligation in terms of the judgment of the Supreme Court in Reliance Energy Ltd.'s case [2007] 8 SCC 1; that commitment to rule of law and legal certainty as observed by Lord Goldsmith and quoted by the Supreme Court in this judgment is the heart of Parliamentary democracy and that article 14 of the Constitution of India equally applies to the Government policies and if the policy or act of the Government even in contractual matters fails the test of reasonableness, it becomes unconstitutional as being violative of article 14 of the Constitution of India and it is submitted that in the present case it is a fortiori so as the State by an Act of Legislature has ushered in an era of uncertainty by making an amendment operative from an earlier date and consequentially altering the burden of tax on such of those dealers who had opted for composition in terms of section 15(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission is that the retrospective amendment of law having the effect of increasing the tax burden is bad in law unless is for a specific sustainable purpose. Sri Shankar, learned counsel for the petitioner, would also submit that the provisions of section 15(5)(e) of the Act even if it is to be taken to be operative from April 1, 2007 is nevertheless bad in law for the reason that the provision seeks to place an additional burden on dealers like the petitioners who are engaged in execution of works contract; that the composition amount as stipulated in section 15(1) of the Act payable by the dealers who had opted for the alternative mode of payment of tax by way of composition had already been taken into account, as the possible loss of revenue under section 3 of the Act including the loss attributable to the levy under section 3(2) of the Act and having already been provided for as the possible tax liability of a dealer in the normal scheme being known and such possible loss having been factored while stipulating the rate of composition at four per cent in respect of the entire value of the turnover of the dealer, which is inclusive of many components which are otherwise not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason that such additional burden as under section 15(5)(e) of the Act amounts to levy of tax both on purchase and sale of the same goods in the hands of the very registered dealer who has opted for payment of tax by way of composition; that even in terms of entry 54 of the List II of the Seventh Schedule to the Constitution of India and read with definition of tax on the sale or purchase of goods as it occurs in sub-article (29A) of article 366 of the Constitution of India enables the State Government to levy tax only on either a sale or purchase and not on both; that by subjecting a dealer like the petitioner who has opted for payment of tax by way of composition to a liability at the purchase point of the goods purchased from unregistered dealers and also subjecting the very goods when sold as forming part of the works contract executed by the dealer at the composition rate as sales tax and in the hands of the very dealer and not allowing any input-tax credit in the hands of the first dealers amounts to levying of tax both on purchase and sale of the same goods in the hands of the same dealer and therefore is unconstitutional. It is pointed out that in the case of registered de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of composition should be worked out, i.e., such dealers' purchase turnover is excluded from the total turnover it is only in the case of dealers like the petitioners who are works contractors such exclusion is not provided for and it is for this reason that the provision not only transgresses the limits of entry 54 but also is discriminatory as between dealers like the petitioners visa-vis dealers who are mentioned for concession under section 15(5)(d) of the Act. Sri Thirumalesh would also submit that making the levy operative from April 1, 2006, i.e., making it retrospective in terms of section 15(5)(e) of the Act is unreasonable as it virtually eats into the profits of the petitioner and partakes the character of levy of tax on income and is therefore not only violative of article 19(1)(g) of the Constitution of India but also unconstitutional as it goes beyond the scope of entry 54 of List II. Last submission of Sri Thirumalesh is that the levy of penalty under section 72(2) of the Act in respect of the petitioner being a direct consequence of the introduction of the provisions of section 15(5)(e) of the Act and even when the petitioner is not at fault, in the sense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wasji Co. v. State of Mysore reported in [1985] 58 STC 1; [1985] 19 ELT 5. Sri Shivayogiswamy, learned Government Pleader appearing for the State, countering such submissions has stoutly defended the validity of section 15(5)(e) of the Act both retrospectively and prospectively. In this regard, learned Government Pleader has taken me through the relevant statutory provisions such as definition sections, charging section 3, section 4 providing for rate of tax on different commodities, normal scheme of levy of tax under the Act as indicated in sections 9, 10 and 11 of the Act, provisions of section 15 which are an alternative mode of payment of tax under the scheme, an optional scheme, which is enabled to opt for payment of tax by way of composition, the relevant rule for the purpose of section 15 of the Act such as rules 135, 136, 138, 139, 142 and 143 of the Rules and submits that the so-called additional levy or additional burden of tax under section 15(5)(e) of the Act as inserted by Act No. 6 of 2007 is not really any additional levy; that it is only a levy which was very much in existence as per section 3(2) of the Act which is a provision since the inception of the Act; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of net amount of tax payable by dealer for the purpose of section 15 of the Act; that it was never the intention of the Legislature to provide a concession or exemption to a dealer opting for payment of tax by way of composition in respect of the liability contemplated under section 3(2) of the Act and therefore the stand of the petitioners and the submission by learned counsel for the petitioners that the dealers who opted for payment of tax by way of composition are not liable to pay tax leviable under section 3(2) of the Act is not tenable and is to be rejected. The learned Government Pleader in support of his submission that the amendment under section 15 of the Act by way of insertion of section 15(5)(e) of the Act by Act No. 6 of 2007 does not amount to a retrospective amendment for the reason that no new liability is being created by this provision, has placed reliance on the Division Bench decision of this Court in the case of Kanthi Enterprises v. Deputy Commissioner of Commercial Taxes reported in [2001] 121 STC 478. It is submitted that the amendment is more in the nature of a clarificatory amendment and not as though some provisions have been made to create an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax is when a sale takes place or purchase takes place. The argument is that levying tax both at the time of purchases and also at the time of sale on the same goods virtually alters the scope of the entry by reading as though the entry is tax on the sale and purchase of goods. While it is not necessary to go into the question as to what could have been the scope of the entry if it was tax on sale and purchase, the phrase tax on sale or purchase in entry 54 is good enough to indicate that the State Legislature has the competence to levy tax whenever there is a purchase or whenever there is a sale. The argument also proceeds on the wpremise that in the hands of dealers who are works contractors and who have effected purchases from unregistered dealers while the State collects tax from their hands at the purchase point of the said goods, when the very same goods are forming part of works contract executed by the dealer and the goods passes on the execution of the contract, that very value is taxed at the sale point at the rate as provided for composition and it is therefore urged that it is a levy both at the purchase point and sale point as goods are the same and the dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions are one creating an additional liability. Though learned counsel for the petitioners have placed reliance on the various authorities of the Supreme Court, it is not as though the sale and purchase of the same transaction are subjected to tax in the present situation. However, I find some force in the argument that if the burden in terms of section 15(5)(e) of the Act is made known at much later point of time, it could virtually transform into a levy on the profit and not necessarily levy on the transaction of sale as the liability when once was made known even to a dealer opting for composition if it is in any way altered later to the detriment of the dealer such that the dealer is not in a position to take corrective measures, etc., and the levy may not partake a levy on the transaction of sale or purchase. But in the case of the petitioners, as the petitioners are totally prevented from collecting any tax when once they opt for composition, this argument may not also be available to the petitioners except that if the position should have been known earlier, perhaps the petitioners could have suitably worked their business transaction with regard to the end price, et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him. (B). Section 15 of the Act by Karnataka Act No. 32 of 2004 amended with effect from April 1, 2005: 15.. Composition of tax. (1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, liable to pay tax as specified in section 4 and, (a) whose total turnover in a period of four consecutive quarters does not exceed fifteen lakh rupees; or (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer; or (d) who is a mechanised crushing unit producing granite metals; may elect to pay in lieu of the net amount of tax payable by him under this Act, by way of composition, an amount at such rate not exceeding five per cent on his total turnover or on the total consideration for the works contracts executed or not exceeding two lakh rupees for each crushing machine per annum as may be notified by the Government. (2) For the purposes of sub-section (1) a quarter shall mean any period ending on final day of the months of March, June, September and December. (3) Any dealer eligible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount as may be notified by the State Government which shall not exceed fifty lakh rupees, and who is not a dealer falling under clause (b) or (c) or (d) below; or (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer, or dealer running a sweetmeat stall or an ice cream parlour or bakery or any other class of dealers as may be notified by the Government; or (d) who is a mechanised crushing unit producing granite or any other metals may elect to pay in lieu of the net amount of tax payable by him under this Act by way of composition, an amount at such rate not exceeding five per cent on his total turnover or on the total consideration for the works contracts executed or not exceeding two lakh rupees for each crushing machine per annum as may be notified by the Government. (2) For the purposes of sub-section (1) a quarter shall mean any period ending on final day of the months of March, June, September and December. (3) Any dealer eligible for composition of tax under sub-section (1) may report, to the prescribed authority, the exercise of his option and he shall pay such amount due and furnish a return in such manner as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (E) Section 15 of the Act by Karnataka Act No. 6 of 2007 with effect from April 1, 2007. 15.. Composition of tax. (1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a dealer who purchases or obtains goods from outside the State or from outside the territory of India, liable to pay tax as specified in section 4 and, (a) whose total turnover in a year does not exceed an amount as may be notified by the State Government which shall not exceed fifty lakh rupees, and who is not a dealer falling under clause (b) or (c) or (d) below; or (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer, or dealer running a sweetmeat stall or an ice cream parlour or bakery or any other class of dealers as may be notified by the Government; or (d) who is a mechanised crushing unit producing granite or any other metals; may elect to pay in lieu of the net amount of tax payable by him under this Act by way of composition, an amount at such rate not exceeding five per cent on his total turnover or on the total consideration for the works contracts executed or not exceeding two lakh rupees for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 4 and such value shall be deducted from the total consideration of the works contracts executed on which an amount as notified is payable under sub-section (1) by way of composition in lieu of the tax payable under the Act; (b) in the case of a dealer executing works contracts and opting for composition of tax under sub-section (1), no tax by way of composition shall be payable on the amounts payable or paid to a sub-contractor as consideration for execution of works contract whether wholly or partly and such amounts shall be deducted from the total consideration of the works contracts executed on which an amount as notified is payable under sub-section (1) by way of composition in lieu of the tax payable under the Act subject to production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that such amounts are included in the return filed by such sub-contractor; (c) in the case of a dealer executing works contracts, after opting of composition of tax under sub-section (1), who effects sale of any goods liable to tax under the Act other than by transfer of the property in such goods (whether as goods or in some other form) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax payable on his turnover relating to any or all of such types of business subject to the condition that, (a) such dealer maintains separate account of each type of his business; (b) the total turnover in a year in respect of all types of business of such dealer falling under clause (a) of sub-section (1) does not exceed the amount as may be notified under the said clause; (c) the amount payable by way of composition by such dealer on his total turnover or the total consideration in respect of each type of such business shall be as may be notified for such type under subsection (1); (d) the total turnover of such dealer from all his types of business shall be reduced to the extent of the total turnover or total consideration in respect of each such type, for calculating the amount payable by way of composition for such type of business under subsection (1); and (e) in respect of such type of business for which, he has not exercised his option or is not eligible, for composition under sub-section (1), then on the taxable turnover as determined from the balance total turnover after reduction as specified in clause (d), he shall be liable to tax as specified under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which tax is leviable under sub-section (2) of section 3 shall be deducted from the total turnover on which an amount as notified is payable under subsection (1) by way of composition in lieu of the tax payable under the Act; (e) a dealer executing works contracts and opting for composition of tax under sub-section (1), shall be liable to pay tax, if any, under sub-section (2) of section 3, in addition to tax by way of composition on the total consideration for the works contracts executed. There is no dispute that payment by way of composition of tax under section 15 of the Act made available to the identified dealers and liable to pay tax as specified in section 4 of the Act is a payment in lieu of net amount of tax payable under the Act. While there are legislative changes effected for identifying the type of dealers and conditions subject to which they are provided option for composition, the tax by way of composition being in lieu of the net amount of tax payable has remained the same all along. This is also found in sub-sections (1), (2), (3) and (4) of section 15 of the Act which also since inception have undergone several changes and sub-section (5) of section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability in terms of section 15(1) of the Act as it existed their vows were over. It is also because of this additional burden the provision is sought to be projected as a charging section and that it ill-fits in a composition scheme, etc. The further argument is that having regard to the scheme of the Karnataka Value Added Tax Act, 2003, the levy of sales tax is sought to be made a single point levy, in the sense that the same goods would not suffer tax repeatedly but if there is a value addition to the goods it is only the additional value which suffers tax and permitting section 15(5)(e) of the Act to operate from an earlier date runs counter to the scheme and therefore also the provision is bad. This was one of the arguments called in aid to submit that the provision also becomes unconstitutional. While it may be true that some of the provisions in the Act even including section 15 of the Act could be demonstrated as not necessarily in alignment with the general scheme of the Karnataka Value Added Tax Act, that by itself cannot be an argument to submit that it is also unconstitutional. Likewise, when once section 15 of the Act is indicated to be an alternative mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition amount is independent of the liability under section 3(2) of the Act. Though an argument is addressed that the introduction of section 15(5) of the Act by way of Act No. 4 of 2006 with effect from April 1, 2006 and as indicated in clause (d) of sub-section (5) of section 15 of the Act there was a mention of liability under section 3(2) of the Act, an incisive reading of clause (d) of sub-section (5) of section 15 of the Act indicates that it was in no way linked to the bearing of the burden of the tax under section 3(2) of the Act by a dealer opting for composition but a provision which was one to further relieve some burden in favour of dealers covered under clause (a) or (c) of sub-section (1) of section 15 of the Act. But for the introduction of clause (e) of sub-section (5) of section 15 by way of Act No. 6 of 2007, there is no clue in the provisions of section 15 of the Act that a dealer who had opted for payment of tax by way of composition was in addition liable to pay taxes as contemplated under section 3(2) of the Act. This position can hold good even in the case of a works contractor but for section 15(5)(e) of the Act. As to whether the provision is merely clari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoided only on the principle of promissory estoppel perhaps this principle would automatically apply. But in the instant case, it is not merely the operation of the statutory provision that brings about an adverse result on the petitioners but the manner in which and the purpose for which it is so provided. The legislative scheme of payment of tax by way of composition though offered by the Legislature is nevertheless an assurance given to a dealer. It is because of this reason that the principle of no estoppel against the statute stops at this point as the statute itself is providing an option to a dealer to opt for payment of tax by way of composition on certain premise and on certain basis and indicating the tax liability for a dealer who opts for payment of tax under the scheme. If the fulfilment of the conditions to a dealer who has opted for payment of tax by way of composition is kept on being altered subsequently to the disadvantage of the person exercising the option, whether it is by way of legislation or otherwise the principle of estoppel does operate as the promise/option was offered by way of legislation and in a statutory provision and in favour of only those who o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the payment of tax under the scheme of composition is an alternative mode of payment and no doubt the liability for dealers opting for payment of tax by way of composition is indicated in sub-section (1), in so far as dealers who are works contractors are concerned, section 15(5)(e) of the Act acts as a rider to the provisions of sub-section (1) of section 15 of the Act. Though arguments are addressed on behalf of the petitioners that the insertion of section 15(5)(e) of the Act is not only contrary to the scheme of composition but also contrary to the scheme of payment under the Act and that by itself constitutes a ground for declaring the provision as unconstitutional, the declaration can only be if the statutory provision turns out to be an unreasonable, arbitrary or irrational provision which may fall foul on article 14 of the Constitution of India and can be declared unconstitutional. In the present case, by the operation of the amended provision, the best, the liability so far as a works contractor for paying taxes by way of composition is concerned, it gets altered because of section I5(5)(e) of the Act. Though learned counsel for the petitioners have urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position tax having regard to the overall object of retaining the revenue level to the State notwithstanding composition scheme being offered to some of the dealers. The argument of learned counsel for the petitioners that even the authorities under the Act all along were under the impression that there was no liability on the part of the dealers opting for composition to pay any additional tax by way of section 3(2) levies and with reference to the rules and the forms in which such dealers should have filed their return for payment of tax by way of composition, that by itself is not substantial argument to pronounce on the validity of the provision and it is also pointed out by learned Government Pleader that in some situations the authorities by their conduct have indicated that there was such liability also, the precise liability, in the sense, the amount payable by the dealer opting for composition is only as indicated in section 15(1) of the Act unless it is controlled by any other sub-section or clause of any other sub-section of the same section. Change is brought about in the liability as indicated in section 15(1) of the Act only in the case of works contractors and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question of enabling provision of section 15(5)(e) of the Act bringing about a discrimination between dealers who are works contractors vis-a-vis who are petty dealers, hoteliers or restaurateurs is one not tenable for the very reason and logic as indicated above while rejecting the argument of additional burden only on dealers executing works contract. That still leaves the question of the assessment orders in respect of some of the dealers having been modified on the premise that such petitioners are liable for payment of tax under section 3(2) of the Act even from the April 1, 2005 also which is the case in the case of petitioners in W.P. Nos. 8850 of 2008, 8212 of 2008. In the view taken above, when once it is held that the scheme of composition and payment of tax under section 15 of the Act being in lieu of the total tax liability under the Act, there is no question of levy of an independent tax on dealers who have opted for composition under section 3(2) of the Act as it is opposed to the provisions of section 15(1) of the Act. In fact, the principle of promissory estoppel having been indicated to be attracted to a situation of the present nature as what the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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