Karnataka High Court
Shashtha Industries vs Additional Deputy Commissioner Of ... on 15 November, 1994
Equivalent citations: ILR1995KAR65
Author: R.V. Raveendran
Bench: R.V. Raveendran
JUDGMENT R.V. Raveendran, J.
1. Mr. S. A. Nazeer, the learned Government Pleader, takes notice on behalf of the respondent.
2. The petitioner is a manufacturer of footwear (Hawaii chappals) and registered dealer under the Karnataka Sales Tax Act, 1957 and the Central Sales Tax Act. 1956 ("the KST Act" and "the CST Act", for short). In regard to the period April 1, 1992 to March 31, 1993, an assessment order dated January 13, 1994 (annexure A) was passed by the assessing authority determining the KST and CST liability of the petitioner. For determining the taxable turnover under the KST Act, the assessing authority (respondent) exempted the turnover relating to the sale of Hawaii chappals costing less than Rs. 30 per pair (for the period July 4, 1992 to March 31, 1993). But for determining the taxable turnover under the CST Act, the assessing authority did not exempt the turnover relating to Hawaii chappals costing less than Rs. 30 per pair. Feeling aggrieved by the non-grant of such exemption from July 4, 1992 under the CST Act, the petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals), Malnad Division, Shimoga in CST Appeal No. 38/93-94, contending that the assessing authority having allowed exemption in regard to footwear costing less than Rs. 30 per pair in regard to the KST turnover, ought to have granted a similar exemption in regard to the CST turnover. The appellate authority set aside the assessment relating to CST and remanded the matter to the assessing authority for fresh disposal on two grounds : (a) that the assessing authority had exempted a turnover of Rs. 11,66,710.50 as inter-State transactions, while dealing with KST assessment; but had not referred to the said figure in the CST assessment; and (b) the notification relating to exemption, dated April 3, 1992 under section 8-A of the KST Act, applied only to KST turnover and not CST turnover and there was no speaking order in that behalf. In the light of the directions contained in the remand order of the appellate authority, the respondent-assessing authority has issued a notice dated September 30, 1994 under section 9(3) of the CST Act read with rule-18(3) of the KST Rules proposing to assess a turnover of Rs. 11,60,676 to tax under the CST Act (that is Rs. 1,32,885 being sale of footwear and scrap covered by "C" forms at 4 per cent and Rs. 10,27,791 being the sale of footwear without "C" forms at 10 per cent) and calling upon petitioner to file objections within 7 days.
3. The petitioner feels aggrieved by the said notice under section 9(3) of the CST Act. According to him, the turnover relating to Hawaii chappals costing less than Rs. 30 per pair should also have been exempted for the purpose of determining the taxable turnover under the CST Act. Therefore he has filed this petition seeking a declaration that inter-State sales of footwear (Hawaii chappals) costing less than Rs. 30 per pair are exempted from tax having regard to the notification under section 8-A of the KST Act and seeking a direction to respondent to tax such sales at nil rate.
4. The Government of Karnataka has issued notification dated July 30, 1992 (No. FD. 150 CSL 92) under section 8-A of the KST Act, exempting the tax payable on the sale of footwear costing less than Rs. 30 per pair. The said notification is extracted below :
"In exercise of the powers conferred by section 8-A of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the Government of Karnataka hereby exempts with immediate effect, the tax payable by a dealer under section 5 of the said Act, on the sale of 'footwear costing not more than thirty rupees per pair'."
5. Section 6(1A) and section 8(2A) of the CST Act are relevant to determine whether the aforesaid exemption granted in regard to footwear costing less than Rs. 30 per pair, under the KST Act, is also applicable to the turnover under the CST Act. The said sections are extracted below for ready reference :
"6(1A). A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State."
"8(2A). Notwithstanding anything contained in sub-section (1-A) of section 6 or in sub-section (1) or clause (b) of sub-section (2) of this section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods, the sale or, as the case may be, the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally or subject to tax generally at a rate which is lower than four per cent (whether called a tax or fee or by any other name), shall be nil or, as the case may be, shall be calculated at the lower rate.
Explanation. - For the purposes of this sub-section a sale or purchase of any goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law the sale or purchase of such goods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the turnover of the goods."
6. The learned counsel for the petitioner contended that under the notification dated July 30, 1992, issued by the Government of Karnataka under section 8A of the Karnataka Sales Tax Act, the tax payable by a dealer on the sale of footwear costing not more than Rs. 30 per pair has been exempted; and having regard to section 8(2-A) of the CST Act, the tax on such goods under the CST Act should also be nil. He relied on two decisions in that behalf.
In International Cotton Corporation (P.) Ltd. v. Commercial Tax Officer, Hubli [1975] 35 STC 1, the Supreme Court held :
"............ Reading section 6(1A) and section 8(2A) together along with the explanation the conclusion deducible would be this : Where the intra-State sales of certain goods are liable to tax, even though only at one point, whether of purchase or of sale, a subsequent inter-State sale of the same commodity is liable to tax, but where that commodity is not liable to tax at all if it were an intra-State sale the inter-State sale of that commodity is also exempt from tax. Where an intra-State sale of a particular commodity is taxable at a lower rate than 3 per cent then the tax on the inter-State sale of that commodity will be at that lower rate. A sale or purchase of any goods shall not be exempt from tax in respect of inter-State sales of those commodities if as an intra-State sale the purchase or sale of those commodities is exempt only in specific circumstances or under specified conditions or is leviable on the sale or purchase at specified stages. On this interpretation section 6(1A) and section 8(2A) can stand together."
He next relied on the decision of the Patna High Court in Pradeep Rubber Industries v. State of Bihar reported in [1986] 61 STC 402 in which the facts were as follows : The State Government had issued a notification exempting newly established small-scale industries from payment of sales tax for a period of five years from the date of commencement of production. In view of the said exemption, the assessee contended that it was exempted from paying Central sales tax also having regard to section 8(2A) of the CST Act. The department denied such exemption from payment of CST, on the ground that the exemption was couched with a specified condition and was under specific circumstances and therefore there was no general exemption. The Patna High Court, applying ratio of the decision of the Supreme Court in Indian Aluminium Cables Ltd. v. State of Haryana and the decision of the Madhya Pradesh High Court in Commissioner of Sales Tax, M.P. v. Kapoor Dori Niwar and Co. reported in [19681 22 STC 152, held as follows :
"Applying the ratio as enunciated above to the case of the petitioner it is clear that there is no condition imposed upon the petitioner the non-performance or non-existence of which would render the exemption inapplicable, because the condition here was only related to the fixation of a period of exemption, the sale being entirely without any condition."
The Madhya Pradesh High Court had, in K. D. Niwar's case [1968] 22 STC 152 held that expression "in specified circumstances or under specified conditions" refer to such circumstances or conditions the non-existence or non-performance of which precludes the grant of exemption; so that if those circumstances do not exist or those conditions are not performed, then the sales of goods cannot be exempted from tax even if they are effected by a class of dealers to whom exemption is granted and during the period for which exemption is granted; in other words, the generality of section 8(2A) is destroyed by the explanation only it the exemption is dependent upon non-existence or non-performance of any circumstance; and as the sale of a particular item was exempted for a specified period from the State sales tax, the fixation of the period of exemption was held to be outside the ambit of the specified condition or circumstances within the meaning of the explanation.
These decisions relied on by the petitioner do not help the petitioner to contend otherwise. The observations in International Cotton Corporation case are genera] in nature and are of no assistance. The decision of the Patna High Court dealt with a general exemption for a period and not an exemption subject to any specified conditions.
7. Footwear is taxable under entry 10(i) and 10(ii) of Part F of the Second Schedule to the KST Act. Under entry No. 10(i), footwears sold under brand names are subject to tax at 10 per cent. Under entry No. 10(ii) footwears other than those covered under entry 10(i) are subject to tax of 8 per cent. The Government of Karnataka issued a notification dated July 30, 1992, under section 8A exempting the tax payable in regard to sale of footwear costing not more than Rs. 30 per pair. Thus, if a dealer sold any footwear for a sum of more than Rs. 30 it was liable to tax either under entry 10(i) or 10(ii) as the case may be, but if it was sold at a price of less than Rs. 30 per pair, it was totally exempted from payment of tax. Thus the exemption was dependent on the performance of a particular act by the dealer, that is selling the footwear at a price of less than Rs. 30 per pair. In other words, the exemption is given only in specified circumstances or under specified conditions.
Section 8(2-A) read with the explanation thereto makes it clear that for the purpose of extending the exemption granted under the KST Act, to the transactions covered under the CST Act, the exemption under the KST Act shall be a general exemption and not exemption under specified circumstances or under specified conditions.
8. What are "specified circumstances" and what are "under specified conditions" are explained in the decision of the Supreme Court in Indian Aluminium Cables Ltd. v. State of Haryana . The Supreme Court held that section 8(2-A) of the Central Sales Tax Act exempts goods from inter-State sales tax where a tax law of the State has exempted them from sales tax. But the explanation to section 8(2-A) of the Central Sales Tax Act takes away the exemption where it is not general and has been granted under specified circumstances or under specified conditions. The Supreme Court held "general exemption" means that goods should be totally exempt from tax under the State Act before similar exemption from the levy of Central Sales Tax Act can become available. Where the exemption from taxation is conferred by conditions or in certain circumstances there is no exemption from tax generally within the meaning of section 8(2A) of the CST Act. The goods should be totally exempt from tax under the State Act, before similar exemption from the levy of Central sales tax can become available.
9. If the said test is applied it would be seen that the chappals or footwear costing not more than Rs. 30 per pair will not be entitled for exemption under the CST Act. If the exemption under the KST Act was in regard to the footwear in general, then such exemption would have extended in regard to tax under the CST Act also. But, the exemption notification under section 8A of the KST Act a does not give exemption to footwear in general but gives exemption only under a specified condition or circumstance, that is the cost of the footwear being not more than Rs. 30 per pair. Thus the exemption is dependent on the act of the dealer in selling the footwear at a price of not more than Rs. 30 per pair. In other words, the exemption under the State Act is conditional and is available only in a special circumstances, when the sale price is less than Rs. 30 per pair. As the exemption is not general but subject to a specified condition, the benefit of the exemption cannot be extended to the turnover relating to such footwear under the CST Act having regard to the explanation of section 8(2A).
For the reasons stated above, it will have to be held that the assessing authority is justified in issuing notice under section 9(3) of the CST Act holding that the exemption under section 8A notification is available only in regard to the turnover under the KST Act and not in regard to the CST Act. Consequently, this petition has to fail and it is dismissed accordingly.
10. Petition dismissed.