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TMI Blog2014 (9) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... he order being to relieve the respondent of its tax liability under section 6B of the Karnataka Sales Tax Act, 1957 (for short, "the Act") and at the relevant point of time as to what was known as resale tax and the State losing considerable revenue is in appeal contending that the order passed by the learned single judge is not proper, not on a proper understanding of the provisions of section 6B; that it is not sustainable and is liable to set aside and on such grounds. 2. The brief facts leading to the above appeal are as under: The respondent/writ petitioner, M/s. Hindustan Petroleum Corporation Limited, is an oil company dealing in oil and petroleum products. It is a registered dealer under the provisions of the Karnataka Sales Tax Act, 1957. The writ petitioner/company buys the petroleum products from other oil companies and has stock transfers from its other branches and from out of the State. It is having its regional office at K.R. Puram, Bangalore. The period with which we are concerned is the assessment years 2002-03 and 2003-04 and the liability or otherwise of the turnover of the assessee which is to be taxed under section 6B of the Act. 3. The returns filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 6B of the Act for the reason that levy of tax under this provision is only on resale; that there was no resale in the hands of the petitioner/dealer; that the petitioner effected sale in favour of other oil companies; that the entire sale of the writ petitioner/corporation was in favour of other oil companies; in respect of turnover nil tax liability was claimed under section 6B of the Act; that in the light of the provisions of section 6B of the Act saying that this is a resale tax and having the heading or caption as resale tax and also in the light of the second proviso to section 5(3)(a) to the Act that sale by an oil company to other oil companies being deemed to be not a sale in respect of transaction by the first or the earliest successive dealers in the State but the subsequent sale by the oil company to a non-oil company be deemed to be the first sale, shall be deemed to be the first sale by the first or the earliest of such dealers in the State, liable to tax under section 5(3)(a) of the Act and because of such a deeming provision, the sale from one oil company to another oil company not in the nature of a sale, for the purpose of section 5(3)(a), the transaction w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g levied, the only significant change that has been brought about in section 6B resale tax is to enable a dealer to pass on the liability under section 6B whereas earlier the turnover tax under section 6B as it stood earlier was to be borne by the dealer and was not permitted to be passed on to the purchaser. The other contentions urged on behalf of the assessee were all unfounded and therefore he has prayed for dismissal of the writ petition. 11.The arguments relating to the effect that the Explanation to section 5(3)(a) of the Act has over the matter in question found favour with the learned single judge. 12. However, learned single judge did not elaborate on this aspect of the matter but nevertheless thought it proper to accept the contention of the assessee on the question of the liability under section 6B to be only in respect of a resale and noticing that it was not a resale as contended by the assessee and for the reason that there was exemption under section 5(3)(a) of the Act and more so for the reason that the scheme of the section is not to levy tax on the first sale, that is only on "resale", the meaning of the word "resale" has to be gathered from not only the captio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer who had occasion to supply rubber tubes to Ceat Company which was brand holder of the Ceat and the product being marketed under this brand name, i.e., the assessee/dealer is a supplier of part of a product in respect of which M/s. Ceat Tyres holds the manufacturing brand and the product is marketed under their brand name. A fiction having been created under the third proviso to section 6B in respect of a sale by manufacturers/suppliers of a brand holder as in the case of the second proviso in respect of the oil companies and therefore, except for the difference that the deeming provision of the fiction being under different provisions for the assessee in the writ petition and this assessee, all other arguments are one at the same. 18. STA Nos. 11 and 12 of 2008 are also appeals and they are linked along since they too raise the question of the taxability of the assessee/dealer under section 6B of the Sales Tax Act. In this case the assessee is a manufacturer and seller of electrical motors which is supplied to Kirloskar Electric Company-the brand holder's name is affixed and sold by the assessee/ dealer and therefore is also a dealer who is covered under the 3rd provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Madhur Trading Co.'s case [1993] 90 STC 537 (Karn) which was the case interpreting the proviso to section 5(3)(c) of the Act and the language employed therein. Proviso makes it clear about the scope and the applicability of the fiction for the purpose of the entire Act and that sale by handloom or powerloom weaver is not covered by a definition of "factory" under the Factories Act who produce fabric in the State of Karnataka was by a fiction, not deemed as a sale by the proviso for the purpose of the entire Act and the fiction operated throughout the Act insofar as such a dealer was concerned but it is pointed out that in the present case, the second and third proviso to section 5(3)(a) is only for the purpose of this section 5(3)(a) and such a fiction cannot be extended to other provisions and cannot be telescoped into provisions of section 6B nor for understanding or interpreting section 6B of the Act. A very obvious distinction has been lost sight of by the learned single judge and learned single judge being of the view that the present case on facts and law is on par with the facts and law as prevailed in Madhur Trading Co.'s case [1993] 90 STC 537 (Karn), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are in the nature of a first sale transaction in the State by a dealer. There was also a reference to the entry tax in paragraphs 170 and 171 and what was mentioned was abolition of multiple levies and simplification of measures. It is submitted that the expression that the proposal to introduce and collect resale tax at 1.5 per cent was to distinguish it from the earlier turnover tax and except for this nothing more was elaborated in the budget speech on the scope of resale tax, etc. But what is vehemently argued is that the heading under the budget speech assuming the mention of a resale tax; that in itself is not a decisive or concluding factor; that in a taxing statute, the liability is created only by the charging section and the language and the meaning of the charging section is what is to be looked into and if there is any scope or interpretation in view of the lack of proper expression or ambiguity in the charging section, then alone there can be scope or resort to interpretation by taking aids either from budget speech or from marginal notes or headings and in the present case, it is urged that there is absolutely no ambiguity or scope for misunderstanding in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee in the case of (Morris) Leventhal v. David Jones Ltd. reported in AIR 1930 PC 129 and as it was noticed in this case that the subject-matter of tax is not "water" though it is called water tax, in that it is not levied on its production and following this it was held that the nomenclature used or chosen to christen the levy is not really relevant or determinative of the real character or the nature of levy, for the purpose of adjudging a challenge to the competency or power to legislate or impose a levy. What really has to be taken is the pith and substance or the real nature or the character of levy which has to be adjudged, with reference to charge, viz., the taxable event and the incidence of levy. The levy known as dharmada was held to be in the case of Delhi Cloth & General Mills Co. Ltd. [2001] 123 STC 49 (SC) was in the nature of octroi and it was upheld reversing the decision of the High Court wherein the assessee's view had been favoured. 30. Based on the ratio of this judgment of the Supreme Court, it is submitted that the substance in the taxing statute is an ingredient of the charging section and not merely the heading is what is held in this case and thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and third proviso to section 5(3) is attracted to a dealer. 33. It is also submitted that the assessee and dealers in the present case are not governed by the provisos 1 to 11 and particularly 10th proviso to section 6B to take them out of the purview of levy of tax under section 6B for the simple reason that none of the assessees is liable to pay tax when their goods are sold whether in favour of another oil company in case of the writ petitioner and to a brand holder as in the case of review petitioner and the appellant in STRP and the STA. 34. It is also submitted that the taxability of a particular product under the taxing enactment is dependent on the scope of the charging section, the subject-matter of charge and the happening of an event which attracts the liability for payment of taxes and the nature of transaction of the present respondent, for the payment of taxes. If such possibilities are made clear in a charging section, the charge operates and takes effect and therefore submits that the levy under the provision of section 6B bearing as it does, all the characteristics of a charging section operates to its full and cannot be curtailed or restricted in its scope or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded and for that purposes that marginal notes and heading will be relevant and assumes importance, etc. 40. It is also submitted that if as mentioned during the budget speech on the Finance Bill and as per the law made under the provisions of section 6B of the Act, resale tax was put into motion by substituting or replacing the earlier turnover tax and the Legislature would not have substituted that provision unless it is a new type of levy different from the earlier turnover tax, as a mere amendment would have sufficed. He has drawn our attention to the definition of the word "substitution" as given in Advanced Law Lexicon edited by justice Y.C. Chandrachud and reads at page 4531 as under: "Substitution. The word 'substitution' does not connote two severable steps, one of repeal and another of a fresh enactment, but it means adding by way of amendment to remove an existing anomaly. Bhagat Ram Sharma v. Union of India AIR 1988 SC 740, 747. Punjab State Public Service Commission (Conditions of Services) Regulations, 1958, Regn. 8(c) (as substituted in 1972)." 41. Sri Rabinathan has also drawn our attention to the statutory provisions of section 5(3)(a) of the Act in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel in fact seeks to rely on the question of fact of budget speech. He submits that budget speech having impact on the language of section and the scheme of the Act being and the other charging section of the Act only on the first sale or first purchase in the State and section 6B of the Act being only a provision under which a subsequent sale is sought to be taxed, the resale heading is appropriate and therefore unless there is resale in the sense that the transaction is in respect of a goods which has already underwent a sale transaction, resale tax is not attracted. 44. Sri Keshavamurthy, learned counsel appearing for the petitioner in STRP No. 112 of 2008 which relates to the assessment years 2002-03 and 2003-04 of the revision petitioner/dealer also raises similar question, viz., as to the liability of a dealer, who is covered by the proviso to section 5(3)(a) of the Act particularly in this case the assessee being covered by the third proviso to section 5(3)(a) of the Act as the revision petitioner is a dealer, who is supplying what is known as butyl rubber tubes to M/s. CEAT who is a trademark brand holder and the sale being the first sale from the dealer to the bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators manufactured by the appellant/assessee is supplied to this brand holder and therefore is covered by the third proviso to section 5(3)(a) of the Act. Apart from adopting the submissions made on behalf of the respondent in writ appeal by Sri Rabinathan also submission made by Sri Keshavamurthy, learned counsel appearing on behalf of revision petitioner in STRP No. 112 of 2008, Sri Surendran Thumbhoochetty supplements the submission by placing reliance on the judgment of the Supreme Court in the case of Dipak Chandra Ruhidas v. Chandan Kumar Sarkar reported in [2003] 7 SCC 66 on para 10 at page 71 that it was held that an exemption provision to establish to be given for the benefit of the assessee under any enactment which should be given its full play and in this case though the matter arose under the provisions of the Representation of the People Act, 1951 the court was examining the legal fiction created under the Explanation to section 86(1) of this Act treating that such an order to be an order under section 98(a) and as a final one for the purpose of that Act by means of legal fiction and it was held by this court that the Explanation under which the fiction was created sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, which are totally exempt from tax on their second and subsequent sales, however, are proposed to be exempt from this new levy. This collectable new levy should induce the entire trade to issue bills on all their sales." 52. The Budget speech of the Finance Minister no doubt says that it is for preparing the assessee for a switch over from the scheme of single point levy under the assessee's dealers who are accustomed to single point levy under the Karnataka Sales Tax Act to the scheme of levy on every sale transaction but only in respect of value added tax, etc. 53. While that may be introductory to the introduction of the Karnataka Value Added Tax Act, 2003 and the Finance Minister had an occasion to mention that in the background of introduction of resale tax under section 6B of the Act, a perusal of the relevant paragraph in the budget speech, namely, paragraph 177, as noticed above, the preparation as noticed is for introduction of equitable resale tax at 1.5 per cent and at the same time, care is being taken to ensure exemption enjoyed in respect of commodities which are so exempted earlier and their transaction and subsequent sales and also for inducing the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B or 6 of the Act. Therefore, the only condition is that, that part of the turnover which is liable to tax or taxed under any of the provisions of sections 5, 5A, 5B or 6 of the Act is not to be included in the turnover liable to tax under section 6B of the Act and is further regulated by the proviso. The language of the section does not necessarily indicate that the liability of resale tax is only on second or subsequent sale and not on the first transaction. 57. On a reading of section 6B of the Act, it is obvious that the liability under this section is on all registered dealers and those who are liable to get registered in respect of their total turnover but excluding such part of the turnover in respect of which the dealer is liable to pay tax under sections 5A, 5B, 5C or 6 of the Act. That means the turnover which is liable for tax in these sections is kept out of the purview of the resale tax under section 6B of the Act. The argument on behalf of the assessee-dealers is that though they enjoy exemption either under the second proviso to section 5(3)(a) of the Act, as in the case of the writ petitioner, or under the third proviso of section 5(3)(a) of the Act, as in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other dealer and which are not used by the latter as raw materials, component parts or packing materials as defined under the Explanation to section 5A, the sale of such goods by the dealer who has produced or manufactured to the dealer who is the brand name or trade mark holder, shall not be deemed to be, but the subsequent sale of such goods by the dealer having the right either as proprietor or otherwise to use the said name or the trade mark, either directly or through another, on his own account or on account of others shall be deemed to be the sale by the first dealer liable to tax under this section. ..." makes this position very clear. 59. The further question is only as to whether the instant dealers in the case of writ petition being a dealer who is known as Oil Corporation in Explanation (2) to section 5(3)(a) of the Act and in the revision petition and the appeal, the dealers being assessees who are covered by the third proviso, are liable to tax or not is an independent question which can be examined. But, if there is no liability under any of these statutory provisions, there is no gainsaying that liability under section 6B of the Act is attracted. 60. Insofar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have a limited application and was determinative factor so long as charging section is clear and unambiguous and spells out the nature of liability, event, person, place or levy point person on whom levy is hoisted and the rate at which the levy is to be provided and therefore mere heading "levy for resale tax" cannot be conclusive. 65. We notice that the learned single judge has placed strong reliance on the Division Bench decision of this court in the case of Madhur Trading Co. [1993] 90 STC 537 (Karn). 66. The learned Additional Government Advocate has distinguished this case by pointing out that in this decision, the liability under section 6 of the Act what is known as "purchase tax" was not attracted in the case of sale of goods which are covered by the proviso to section 5(3)(c) of the Act. It is pointed out that under section 5(3)(c) of the Act, levy of tax in respect of silk fabrics at the rate of four per cent at the point of last sale in the State by a dealer is liable to tax under the Act and on his taxable turnover relating to such goods in each year was subjected to a proviso and under the proviso, a sale by a handloom or powerloom weaver, factory of silk fabrics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly held that section 6B turnover tax being an independent charging section and containing a rate and taxing event and therefore it is only exemption or benefit that are given under section 6B of the Act alone that can matter and not exemption under section 5(3)(a) of the Act that matters. In the present case, the principle is the same and in fact in respect of the assessees in the sales tax appeal and the revision petition, it is an identical situation though in respect of the writ petitioner-assessee it is only the second proviso which is attracted, but effect is the same. 73. In fact, learned Additional Government Advocate has placed reliance on the decision of the Division Bench of this court in the case of Food Corporation of India [2004] 138 STC 235 (Karn) to submit that distinction made by the learned single judge in the case of Universal Transformers [2003] 133 STC 356 (Karn) and situation applied in the case of Madhur Trading Co. [1993] 90 STC 537 (Karn) is noticed in this judgment by the Division Bench and distinction was for the purpose of section 5(3)(c) of the Act and proviso to section 5(4) of the Act; that the question was also one in the circumstances as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. 78. In this case, the exemption had been notified by a separate provision of the Act which enabled such exemption. In the instant case, what we notice is that second and third proviso are not provisions which provides for exemption, but for which assessee would have continued to be liable under section 5(3)(a) of the Act. Submission of learned Government Advocate is that this is not the case of exemption, but this is a case of creation of no liability or extinguishing liability by a fiction of law. A perusal of the provisions of section 5(3) (a) and second and third provisos indicates that the liability under section 5 of the Act is taken away by creation of a fiction, namely, that it is deemed not the first sale. 79. The so-called exemption though cannot be termed as precise exemption is because of the language of the second and third provisos and which is very much part of section 5(3)(a) of the Act. That means, because of the second and third provisos, there is no liability under section 5(3)(a) of the Act which is the charging section, and in the hands of the assessees who are dealers of the type referred to in the second and third provisos. It is not a mere exemption bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the turnover cannot be included for tax under section 6B of the Act. Here also we find that the argument principally proceeds on the premise that fiction as found in the provisos to section 5(3)(a) of the Act operate for the purposes of section 6B the Act also. 82. We have already noticed that the ratio of the decision of this court in the case of Madhur Trading Co. [1993] 90 STC 537 (Karn) is not applicable to the present case and distinction noticed earlier in the case of Universal Transformers [2003] 133 STC 356 (Karn) is equally applicable to the present case also to conclude that a fiction created for the purpose of section 5(3)(a), levy on a dealer cannot be telescoped for the purpose of section 6B of the Act also, and therefore we reject this submission. 83. If the fiction created under the proviso to section 5(3)(a) of the Act cannot be extended, then we notice that for the applicability of tenth proviso to section 6B of the Act and on the language of the tenth proviso, no case is made out for the assessee-dealer either about the amount paid or payable by the dealer as consideration for purchase of any of the goods in respect of which tax is leviable at the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable under section 6B of the Act, though the nomenclature is "levy of resale tax", which by itself cannot convey a precise meaning as is sought to be contended on behalf of the assessees and there being justification mentioned in the assessment order for levy of penalty under section 12A(1A) of the Act and having recorded a finding that it was a clear case of wilful non-disclosure on the part of the assessee and having levied penalty, we think in this writ appeal, we cannot examine such contentions as though court of appeal on the order of the assessment passed and levy of penalty is part of the same. In fact, the learned single judge had not gone into this question and therefore we think there is no need for us either to go into the merits of the submissions made by learned counsel for the assessees any further. 88. Though a request is made by the assessee to file an appeal, we think that it is not possible for us to permit the assessee to take this course of action as assessee took its chances by approaching this court invoking writ jurisdiction which the assessee is aware is not appellate jurisdiction. Therefore, we do not go into this question any further, but the consequenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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