M/S New Taj Mahal Cafe Pvt Ltd vs The State Of Karnataka on 26 March, 2009

[Cites 14, Cited by 0]

Karnataka High Court

M/S New Taj Mahal Cafe Pvt Ltd vs The State Of Karnataka on 26 March, 2009

Equivalent citations: AIR 2009 (NOC) 2987 (KAR.)

Bench: D.V.Shylendra Kumar

'rm 1 wpwu-up-. "-

'I  OF KARNATAKA HIGH LUUH_§ U!' !\MiuVHil-\l\I~\ l"!E\.7I"I uvunr vn Iv-II\II-It-I-v1 - -

IN THE HIGH COIIRT OF KARNATAKA AT BANGALORE
DATED T2113 THE 257" BAY OF MARCPI, 

8 EFDRE:

THE I-IONPBLE MR. JUS"i'ICE mi. sHYLE:rInR§L' 

Wm Pez1"£:r"{;rr; Na. 2'.i"}1.§5m<)f":;?r:§0::§    
Writ       
3 {3,.:::.gW ;;?gi?a;';s23:.:.  'E $793 2658;'  . ~ 
2 «rs  ':?f_-R23.5:)
nv:%tp.No.;<2: ;;5  ' V 'V  

EETWEEN:

M/5:5 NELW "£'£1xJ_M'_AH'?:.§q"{;££.§57E; ::?%_%'':*'= ;::''--:''3'--  
CAP? SW1-.=":1§:':"Vv"'      
§viANG£&'E,A1')§-2Eg- E;7f:w".:i:>£>':i.-1   %   .

§5;:¥1':':e: EZ}{EC',LZi'§"W'E1Ej.;>,E§f3}§,-aZif1"*:f>}¢'E~_  "

}«;JAC§AE>iSE~§ 31-4I§;N::Y ._ '  «

AG-3:: Fr? YE£&i?S «._< . .  "   I->}3:'mfwN§:I~2

'A {?;:'2}" 551$  §?$a1':smga;11, S1'. (TZm;11'1st:*.1 fax"
' 2  T N E§€§é§}1za;v'a1111.A11"t.l1}r", Adv.,_]

ig' %

':"H;;«: ST'A-'Tf'_E §i')"§7 :"i:¢{4'(g:%V'RgVV~ﬁVv'T.£T':.1%«'E':}ﬂ'h:

' " .13?' ms PRENEZEE*A'L.éEiE}{Z1RE'i"AEY

TC: <3-<3'VfEi'f~aN?\r1E£§s:T 

 .__§§1i~':.;azxI<t',E; r3:s:P_;M%TM BENT,
' " ~ ..'i;'EE>H~AN'A S<;'>E}l§3'HA
; --..A:;m,.~;%<:':;,.&;:;a:*:1_:;E ~ saw (>02  REsPc:N'mENT

[By Sri. K M $1'1iVE.i}i0giSEV€:i1}1}', I-{CGP]



 

0'1

IN 'WZP. ND. 6493 OF 2009:

BETWEEN:

'TRz'%..C1T{.73RS E35 FARMS EQUEPMENT L,iMI'FEI}
P03'? BQX NO. 112, MUSEZUM RQP&E}
R§'2HEJA CHAMBERS,

EBANGALOREMI

REF' 3? GENERAL MANAGED}?

EN§Ts§R"'E(I',i'T' TAXATYGN

SEE.  GURUSWAMY

SK 0 S. E-{RISE-iNPa}\iN..JI«?'"§'I'"§'Y

9s.C§ED ABOUT 57 YEARS

X! . V  . ..E9'E;'«'x's$1*i;<::$   *'

[By  R, A¢:v,,}"~ 

2 THE DEP{,IT'Y c:<:>MAz:~..,I;;:':_:.*,v::és§€:,"'».:.*~»z;.f-",r:: ';i';;~;;9 ' ; .. 
<::aMME'r::@:::.A1., '1';-ix}\*;§$,%'g ' L - ~

'§'F'S--1  ;M>fis5€:;'-- 1... §éA2:g;A:,£}'§::_i§j  V' 
2 , .c:QMi~«¥.:'S§;1:3_NE:2_ isIa?-'V<:o2ax.MVE,€é:c:A:., TAXES
 VANI&1{7A T:~:v'§::.;:::;c;E.g~:A F2Y£%i,AYA
 MAIN, 'c;;+;~:;:x§m",s~:,1z'"».*ss,<?:+:»x._:*«'<* -
BANG-AL.(3R}§}55QQC3€3<' 
3 sféntg <3? mRN}xT.A§};A

 B? Ws-S:§';<;:R'E,Tg&.R¥
» {LLEe1P£aI?<3'§'1"siiVEE'$If'jI_':_A{f»§' FINANCE
?--Rﬂ§i'1?iANA SOUEDHA
 _ _ ;s«M3E+:'£>KAR VEEEHI
" _ V *13Ais.¥<;;;31;z:s'§:E~560061

REIS?"C.¥NF)E-NTS

.   [£~3y' Sri. H. M Sfi:1ivay0g.isWamy, HCG-P}

.V .. THIS WEEK'? PETETEQN £8 FILED UNDER ART}€;1LES 226 AND
 A ".227 €2.E?" THE; CC3NST§T'U'§'iC)N O-F' INDEXL PRAYING TC} QECILARE
 A SECTICJN "}'12{Q] C313' THE KARNNFAKA VALUE AQDE9 TAX ACT 2003
_ UNCQN§3'?I'?UTfONAL I-ENE} ViC!LA°T'IVE OF' PRINCIPLES OF
 EWLTURAL JUSTICE EN SO FAR' AS THE PETITIONS}? IS
 CZCJNCEFSNED AME} E}TC.,

THE-SE WRIT PETITEQNS CQMING ON FOR HEARENG-, 'T'Hl$

DAY. THE COURT MADE THE F'(f.3LL(I)WiNG:-

5"'! LE£'\ll._l Inl'\lI-III:-l'|I'\lbJ\l ...lf\ iunru-5 llﬁllk \.l\u...uI...Inu.na\: nix I\l!\.l\l\ 1



RbER
Wrigz pe%£i{io1'xers are sfiealc-:~1's assessable to fax 'L11"1d{~:1*

the provisions of {he Karilataka Vzﬂtze  . Act,

.2{_3{}3 {for short 'the Act.']. T113 ACE is £3.  

providing Ibr levy of tax on 'sa?.éM61*'p1;r-chases'Cf gO0{1s'_;'. at: 

expression as 1*: occurs i1'1jV:»3L1b--ai1?'£i<'fi1§: 29-A_*v_Qf A1*~t.iC}.¢' '~36(§x of
the Clonstimtioll 01'II1d1'a.
.2. Under this A<::':.,. ";3e%1*é§€:i11.%»%:'jh:é;v:i;1g t£:ar;sacti01'1 in the

rxattzxe of 'salts: or p:1rc.E1at%€:v ﬁx? who are deale1's zauld

a1'e,:4€Q1;1iI*e:;E_Vt.o  mgiﬁizalfefi {I:1<:-1z1se1ves as 'deaiers' which

enables then1.VV€{;:.}_:x3Iie§§'t»«tax. on sale of goods; at the rate as

}_")1fOViCAi€C§'4f01fV 141111614"-tixé pr0ViSi0I1s <31" 1T1'?t€3 Act and pass it on

 _ i:: tﬂé:~'A Siam. '"}VT"'}'ié registetmi cieaiem acélg  a.ge.111:$ for tbs

 V .Af.E,'1:2A,i'i,é. 5'aI;" g,;8:;'{1'ieri1"1g and r°e1.11i't1:i11g the tax. Such cfiealcarss.

25:1? rfscgzxiréd to maintain {hf} citztails of the sales eﬁf'(:"r<:%t:<-xi 1:3}:

 _ Tthemﬁ "alliount of tax (..'.O11f3Ct{i'(;1 t'm1'11 !:1"3.ei1* cust.o.m:::rs;, ﬁle':

 :;11::>:3.tl13}I ret:u131s in the pI"€tSCI'ib€d fonn and pay E116 tax so

: collected to the Siam,



8

3. The: Act .'r1as a. f':'»C1'1€]TIL1€ who-re uxzdrzr the gocncls or
coznmodity which are Eransactecl mpetatodlv .4 or
pL11'c}o1ase<;i w11£<:}1 would othe1wi$e :_€fao11
transactiorz, @065 not slgffer $1_,1,<::3:3__ '1*ep_:4:£;1ii.é3;';".3;V  
stafftars tax o.11£y on time: a(§{iiti:o:1}&iﬁ_"' 13}? ':
s.eﬂ.i11g deraler with 1*efe1*e:io§$'-  so loilgﬁs
other natxme of the gcnods; Wlj,€;'oipLu'*Q}1aoé(i' é1_1d_r§.o1d ren1a;£1'1s
the same. It 53  L1;{ti1na3:e1_y' "£21.13
goods suﬁeyzoga.   of transactions

0111}; o11g:.€ .__ai£;1v-::1:7_Vé1£:.j_!;§ic:._ V-'£93.11.-é,¢:'~. at whirrh it 1*<iac11es the

Con:;§u.11iéI*;~ f7 _ 7? V'
4. V"-3711:? 1"a!:<3'vo;€  1:za;¥:"~..:)31 diﬁerent goods or commodity

VE;I_'i§iS    pi'~3viﬁed urxdor Ciiﬁ'e:1'er1t s{:1'"1e3dules to the

V'  . Act. if ctoxnzﬁociity is not. covered by any of the speciﬁed

 _r.::i1:e$f.13;1<:£::t.i€§;1e{i in the sclleciules, the general residual

Arate of 53% $h01_1}c1 be levied on the goods or coi1111'1ociity.

 _ To. ' -._.'";'{'he Act. also envisageo 3. soh¢:111e of not tax iiabiligv

"  the ciealers, whisk: is anfivecl at by dzitductizag 1:116 tax

 paid on the i11pu1:.s from out of the tax collected on the

W



9

o1..1Iput$. A deaier, for arriving at this 1161:. tax liability, 1.1213
to necesgarilv maintain ztletaiig of 't:11e rraz1saQ§i<§:§;1:§;,.jaooks
of accoLmt.s reﬂecting s.-:uc:.h '€I'{:l.}§1SéE1CI.i(j)i"1S '.'_=+1{ic:;i"' r.-¢:":,_>ff.:T_1§:1~
'par£icu1a1*s anal }'.1:"1f<)I'1nat:i0n a-1..z;;Ma>1f'<:  'i;1'1§~
Act and tile: }:3L11('2S t'ra11:1€d.  .4 M H

6. In lieu mi" {)«C3.§fIi1€I1i {:.):£,-I!-ﬂﬁvx.' ii"1r1j<:z;:t;<§:;i,é:  s;i1"1€:i :;+;s
per the Sec-tjo1'1s 9, .16 :;)€,Vf::31e"   Ijl1e::v Act p1~.c:Vic1c5s~3
far an aiteirxzative    tax as per Secﬁion
15, whicll  §(11o:i*1"x' %i;*3  of tax'. 'I'.h<~2
conxposiﬁioigx    a mugh aml yaaciy

I11€Iih()d-- of  tax 1iabi1:i'{.y of a dealer" with

 

m~.:£"<;';:'"e_:_:-      -* ~ '=2 ~=a;.:ea:* ;;3erce:nt.age of

 

  {M §_w:..;:E 'f;z':;*:10ver i1'1*espe:C1;iv€: of the

' . '<;_*°<.:¢:.":_2;..}e%'.s::iéé:%;'§%' . =:.>f" ?"v.:e;_: 1:16: tzurlzover being .i11e::h.1siv6 of 111311}?

" .k'rmwIi:  §'rL;;91}:-taxable comporzerits Lirlder the Act, smch as

va'1ué.of V the servicess, iabmll' Charges, and even exen1pted

~  'gt.-nods or goads I.'€C111iI'€d to be taxed at a lower rate,

 forming part of the tium<:sveI'. This; is an 0pti011 :2%;:<:I'.e}:1<;i€(1

to a deale1"for pa3r111e11't of {ax in lieu of the manna} ss(:%11<:21:z1e

of tax L113.d€1" t:.It16: .Act., W}'1ich £'acilit;atE:ss i.".i'1("3 dealer 'by



10

relieving the clealer :31' £116 rec1_L11'remer1t oi' the mai1"1tenanr::'::
of regular £iCC(}L1I1tit?. araci filing 1.'et+um1s wit'.?:;VT'-.£4'u1V1 and

detailed particulars of the mrrlover.

'E'. Writ. §)6t.iEiOI1(:'J'S are c:o1n;j?1a1i31i11g.*tI1a;t'=Ei5.e "+:(:.}§;e1:i;e"t>,f 

pa§2"m6::11t of tax by Way of cQ.:11f3osi$:i:3:£1 aS'.¢At:vi.~3g1g+$§€1. _ tiJf1.c:16:1" " '

Stitction 15 of tha Act is   01' 
Inam'1t:r; that c;'<31*t:3Li;:1  'bVt*0.11.g§E1t about by
cieI1Vh1g the :f's3.c"i;'I.'1'1:é'x'_h*"    in certain
(3iI'{3¥_}.I11St£3I1.£vZ'.€:'.':,,D    r€:aso11a'b1c:e a1'1d
'{hE31'\E'fO1'ff;  the: faciiitgv Lulcier [I16
'§{iP:?;1:att?fi  as illegal, L111C0I1stimt..i011ai.
}?'e1:it:i<'::A1'Ici:_iu's  this court. for relief praying

ftﬁléf' '§:Ie:r:1a1~i1:};gV._ 1.f1VV1c: iiinvalieiiiy of {I16 provisions of Sect1o11

»  32(1) of  in sucrh .21 Inazlner 813,: while the .faCﬁi'£i';V is

'-A1*(:.Ez-a_i1V1t-.'~ﬁ'_L,-.. the discrixnixiatjng part. of the pmvisioaus is

séarefad  I§'c.>r11 the maiza 'p1*0\.risai<i>1"1.

"  AA  in writ pe1;iI:i011 N0.10135 of 2006, the pet:iti01":u3~1' ~--~ .21

 Hoxelier who is; a dealcér asssessabie to  Lmder tile

pI'(}ViSi(}11S of r116: Act has quastioned the legality of t.1"1e



 

11
provisions of section }:3§§,§ of the Act as bei:1g
Llnconstimtionai an the @"<;>Lmc1 that it is; '4z1V»-§;;fr<)visio1":

violating A;rt:i<:1e ~-- 14 of t.h<=: Co:1stit'13.tie>3?1_..é§i'"Ir:€"i:Ea; i-Byééing

{1iSCI'i111i}C1éi{0I'§v' in 11ature:: aljugln _ 111a}_<:;i3:*1g--- fTat'i"'~. iIra:ioi1a}"'

ciassiﬁcation of dealers wha W§:re;"c3xie1"icicd.  i:hé5 bf:j;i§;~<%i'1t 1:0". "

opt for com.positi<)3:1 xv%ht)'§s{€;('§  
pxlrclzases within me  dealers like
the pemiorler w*h0Vh.:;d --  eﬁ"ect,ed or xnade
from caut.$id§:   because of which

reastm. __11'a.$IiQt;'. mgrgeljg Izisiif the: facility of opting for

pay:,iiéfit'   of déiﬁposition tmder section 15 of
ma Ac: but   denied this facility which had

already aulﬁegétn'  and by denyhzg, 1: has been

 = A a:5SeE;;'Se{i' to t,:«1:<"'iii 1;€I'1'.I1S 0:' the provisiens of sectitm 4 of

  V' .ii~}"1é ' "¢<§;:1§éec1uent upon which the iiability for payment

GE   gone up and as a result has alsso suifered

 x p€Ii.1.3i'}i§§a' leviable Lllldfil' sec'!;i0z1 7;2[2} of the Act. Because of

'  Such consequezzcte, the petitioner in this writ petition has

i also questioxzeci the legality of the provisiens of section

7;2[2j| of the: Act.



12
9. Writ: petitioner' in WP NQASLZ8 of 2008 is also 21
deaier and who is a catersr, in the sense, su;;}p'1i €é:r{se11r31'
cf food items who has also suffered an adjiéxss _by

Way of reassessment oxrier tmcier the provisjio;is.:ofA se;étiozi'~-

3941] of the Act and because (53? wmc.131   '1iégbi1isv_AAhas"*~. 5

gone up.
10. Such conssqusnces l"19.§§::..13efa]leii"t11¢A pétitioner only
for the reason théit ftlie'    has made (:e1'%:a.i:1

purchasss  olixtsidet  Kaxmataka which

_ of for the month in question
whi¢h«§1a.s gens inks 1'z1a_ki1'1g of the taxable turnover in

respect   {ha ﬁxétritiener had opted for the facility of

 A p.s._¥}I£i'€nt' of tax  way of COIHPOS-i'€i0I1 I.l11d61' section 15 of

    u had been extended :0 E3516 pet:it:ioz1e1: on

 appliéation but which has now been canceﬂed and the

 _ Vspetitioiaer assessed to tax on the regular basis of charging

V"ssCtioI1 i.e., uJ:1de;' sectisns 3 and 4 of the Act.



3.3
1.1. Writ petitioners in WP Nos. 103129 / 2008,
11279/2008, 14595/2008 are petitioners whomkaéamem

under the provisions of the Act and who 3i;:av¢.At}eé1'1;i¢;vi'c:;_1

with penalty under section 72[;;]"sf--t1";eii1VI.t31é <:;C;,u1'seu0:'  

reassessment proceedings passei} zoil tin:-.1~"!.1s «. ._the A

prsvisions cf section 39[1] 'isfthe Ass... . '    

12. Pemionser in  No~;%1::":3s% 2006 a sate1'e1' had it
appears opted for pay_IVii1sV11'a.: __Vc){'_ t2;>;.v.§;u§i(;3.c-Er the provisions of
the Act: in "Qf é;¢<:?ﬁ_i6i1 'i'5._6'f;'ti1eV':Ac£. Section 135 01;'tI1<-.:
AC3: x:sr11ic§i<2V.Vri:%z§.:;3Vs   

 "L41.'.'S¢&tion""i:S'=.af"the Act by Karnataka
'Act §_'__.'_§'9f'3C_}Q4 w.e.f. 19.1.goo5:

M   1s."cornposiaén of tax» (1) Subject to such

 V uC'ORdifiOiT.SV__ﬂ1d in such circumstances as may be
"'~"Lp.rés_c1'iI3ed, any dealer other than Cl dealer who

  or obtains goods from outside the
"  ;~3t¢z£é.s'sr-'Nﬁvm outside the territory eflndia, liable

repay tax as speciﬁed in Section 4 and,
.. ';_§a) whose totai turnover in a period of four
 consecutive quarters does not exceed
ﬁﬂeen lakh rupees; or

(b) who is a dealer executing works contracts;
or

('(2) who is a h,oteZier, restczurczteur, caterer; or

$/



14

{d} who is at mechcmised crushing unit

.......... .4... ,. .......'-... ..

p: uuuuu g'i"""zh

may eiect to pay in Zieu of the net czmoug;%-- oj'-'-f§ax"A.
payabie by him under this Act  may  .
composition, an amount at such§mt_e.. "not;
exceeding ﬁve per cent onftis totcii"t*.1ffee2:er' _or_. 
on the totat cen.sidemtion" '_fe's'7 the" «.1,zzerks 
contracts executed or net e2':ceeding"~t_wo" 
rupees for each crushing machine  V
may be prescribed. '9   ' =  

(2) For the pur'pose;e-_of3 sub-'5*ee_ttQti (1) C1,
quarter shall V    ending V on ﬁnal
day of the rrmhthe  fM-szreh; June, September
and December."  T 2  

{3} %_fAi£g;.t:.de;i3er€ ;ei€gx'5'.£e' f?)7'v-cerrzposition of tax
un§ie.**" v$:éb--js'e@--:'_eJ'rz.._ V {-1 report, to the
preeeribed (i:tth0r*ity," 't?1e'gVexerc-ise of his option.

 "£2£?v'.d i"§.'E? Site}! pe::y._5t:e?2~e3t:ount due and ﬁxmish
 <2_ret1m2e i3§,~sueh"mg1nn_er as may be prescribed.

{4} " /°§iriy_  epting for composition of tax

. _, under' s'e,b~seet2k5n (1) ehail not be permitted to

' 5»-.':'A':.im_

"eiaim a'ny__inp?.tt tax on any purchases made by

H  15 of the Act by Karnataka Act
H6-._ gear 3004 amended w.e.f. 1.4.3005:

 Composition of tax.» (1) Subject to such
" .___eonditzZon.s and in such etneumetanoes as may be
prescribed, any decider other than ct 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,

§/



15

((1) whose total turnover in a period of four
conseezmve quarters does not exceed
ﬁfteen iakh mpees; or v "

(19) who is a dealer executing   _

(c) who is a hotelier, reéiatirateitr, ~Cat:ere_-:r,f '04? 

(e) who is a mechanised * unit "

producing gra2:iite- 1neta£:~=.' .   
may elect to paye.iﬁo»!ieu of. .aet'amount
of tax payable V_bgj:"h_z'm,_vu:1de'r.this_&4ct by
way of eompositioraz, .,amoun"t at such
rate not e;toeediz;§;.fwe;§er'Mo.ent on his total
{umover or "on the: tctalxégzzts-ideration for
tfﬁge' ,_,wozfics" ' contracts 7 executed or not
?_exoeediﬁg fake "'Zakh"v-ntpees for each

1   az_*asI:i;1g«;1:ae1';;3*£--e 'ﬁver' annum as may be

 réoii_1fﬁea"b:;'T't.he Government".

 (22) e e:3:;é'*.pr:;arposes of sub-section (1) a

'c};¢ar_:er' .3h4::El iézearfany period ending on final
day of the 'mongths of March, June, September

* » _and'Dec'ember.

«.   Anyaeaier eligibie for composition of tax
 '»__u'n'_z:iei' -._sub-section (1) may report, to the
 presrjﬂbed authority, the exercise of his option

 fie shali pay such amount due and ﬁzmish

'a refant in such manner as may be prescribed.

Z  Any dealer opting for composition of tax

under sub-section (1) shali not be permittecl to
claim any input tax on any purchases made by
him.

@



16

[C]. Section 15 of the Act in; Karnataka Act
H6. 27 af 2065 w.é.;"l '.'«".5.26£:'5.=

15. Composition of tax.» (1 } Subject to" 
conditions and in such oircun1stc;.ft;:2s-  jc1,_$~..
may be prescribed, any dealer othgzr'  _
dealer who purchases or obtailﬁv ji§0Ge'is 

(66)

(79)

(C)

territory of fndia,
speciﬁed in Section 4'»g1ngi; .. 

whose total timagver in 'ca Vﬂfbur

consecutive   'viaxceed
ﬁﬁeen lcpkh gr ,3 5

who is a'dééaieffe£§:e3:L£'iitzg:wprks contracts;
or --  1    V

;zv}':;;»V1'is a1._hc:_=r€:Eier;1f§eS'taut£itteu7; caterer; 93'

"'~V.V:_:Vi'».~§c':1'.+;.?..ve2'_ m§":.21i::.g «<:1.::f:,efeet77:eczt stczii or an ice
 ~ I:2.?_.&'€1?n.z;a_f"£é>,1£1  

% wad  mechanised crushing unit
% producf;ig.graJ:ite metals may elect to pay

 ' in 'i£e*u. of the net amount of tax payable by

}1iin.zg_;r.2le:r this Act by way of composition,

  an amount at such rate not exceeding ﬁve
 "per cent on hi3 total turnover or on the

V"T~§;2z'~.al consrideration for the works contracts

'A faxecuted or not exceeding two Zakh rupees

 for each crushisng machine per annum as

may be zzotifieﬁ by the Govenzment.

H (2) For the purposes atrf sub-section (1 ) (.1

quarter shall mean any period ending on final
day of the months of March, June} September
and December.

(3)

under sub-sectiorrz (1) may

Any dealer eligible for composition of tax
report, 2:: the

from outside the S'tat¢pr ﬁI2:n"o1{.tsiai.'«: the  
zzabze « go, pay_"  



1.7

presmibed authority; the exercise of his option
and he shall pay such anwunt due and ﬁufmeh
a return in such manner as may be 

(4) Any dealer opting for  _
under sub-section (1) shall not be pezjmitied to 
claim any input tax on dny_A>_p§zrch;;z;eee--.f_§IadeV'l2y  ' "

him, V '

[D] Section 15 of theh'A¢}t._ gg  ' 

Act 1%. 4 of goats aa:.ef. 1.e4i2oo6;e  

I5. Composition of) subjeetfb such
conditions a11d__iﬁo.sueh oirczgmstdzzces as may be
prescribed,  Ci,-9'. erfe£heree.i;k-par: _a dealer who
purchases or obtains  f'.'§".fom' outside the
State orfmm outside :h,e..'terr£to'z';_;" of mdia, liable
to pay?    semen 4 and,

 _   mmoyer in a period of four

 = wé:a:zseeurz've ﬁudﬂers does not exceed cm
-- ,a'momit.  rem; be notiﬁed by the State
" % Goveri'ameni"'z2}hich shall not exceed fiﬁu
 [_r,z}c}*'z  ognd who is not (1 dealer
'V fdiiiiiq under clause (19) or /C} or {d} below;
or 

'»__{iﬂ_'~. Tuzho is :1 dealer executing works contracts;

for"

{C}.  who is a hotelier, restaurateur, caterer; or

dealer mrmirzg ca sweetmeat stall or an ice
cream. parlour or bakery or any other clase
of dealers as may be notiﬁed by the
Government' or

 

(d) who is ca mecrhcmised crushing unit
producing granite or any other metab may
elect to pay in lieu of the net amount of tax
payable by him under this Act by way of



18

oomposiaon; cm, amount at such rate not

exceeding five per cent on his total
tumover or on the total consideration for

the works oontracns executed   _':f_zo'iEt_
exoeeding two Iakzh rupees _j"o:= .. ;e.a__ch_._v 
crushing machine per annum no-.f" ~ be  '

notzﬁed by the Govemment. _. ~~ . "

(2) For the purposes; of Z - s';w;sge:¢n% '{ ha, .'
quarter shall mean any  erzdingon.  "

day of the months =o_f'«.Mareh,_ J'ane;'v"Sept_emberA

(3) Any deoief eligibée ojor"".::ompos'itiori of tax
under submseetion {(1 V' ff:a'y '*:r_eporf, to the
prescribed authority,  e:cei*é:§$e'_'_of his option
and he shall pa3;'»sieoh' a;'r_z.ou'1_=.téV azie and ﬁzmish
a ret1;~;*?:'izi' such mariner "czs be prescribed.

to  composition car tax
 uyzdeziisubéseottori {1} ohali not be permitted to
'r..Aclai:o2<. din; on any purchases made by

'him

 " {5} Nonoizhstarzamq anything eontagnea in sub-
'  3_._$eot:k2rzo"{i1}.o;ad{4}~

 :'a3--a"dea£er executing works contracts and who

 V Tgufschases or obtains ooods from outside
 ﬂge State or ﬁrom outgide the territory of
. gfnciia shail be eiigﬂvle to opt for composition

' under subsection '11 1. and if thewpropeﬁuﬁl
such goods {whether as goods or in some
other form} is trzgnsferred in a_z_1y works
contract executed by him, the dealer shall
be liabie to pau tax on the value of such
goods at the rate speciﬁed in section 4, and
such value shall be deducted from the total
eonsideratiori of the works contracts
executed on which an amount as notiﬁed is



19

aoczuabie under subsection {1} by way of

c
115$-yuan ...- .-. .-. -. W...'

.:4..'... 11.... ....l' 4.1.... 4,.-- ..............."t..1.. .....:. '...~'E....
L-UIl£ﬁJUb'£L£Uf£ Ell. db'!-L U} U'{«('.."«' MAJ. LIL£f.{L{I)f.(5' (.£3"LL£€'L'f
the Act'  " "

{bi in the case of o, deager e.«.*.c.£::'.c_Lt_t:tjz-?1g_:L_i<:;;?:.iC_.§i--. _
contracts and optima for wrvzpositjon. of 
under sub-section {I),Hmno tax"'b11'j~V.w'ou'--of
oomgosition ghall be any «@Ic___ 'on V  
amounts mid to  314$?-cc:-ntractor' :3
consideration for ercecutrbn pf" - was  "
contract whethe-r_;g:fzo1ly'
amounts shtglj be c§.}gd__1__x.cte'd fruit: ﬁg gotal
consideration of -the wo'1'1a:s_ contracts
executed  g§"no't_@ ' d is
gayable under 'su__j;~séa2t;;nn~o {1} 19!! way of
conrposjzzion in 'Zisa:;'o?'th,e;§_i;3g_g,12g1yable unger
the  sub;'a(:t- to» pavfoductiori of proof that
sm:h_ ;*::ul9%s_c:o72_.§__2:§s':;ot<:3I"'vz';S>%. c; zéoistered dealer
4._h3.'1bl:é_V to ~1*.¢L':;*.=c____;:__e1'zdse7' "-me Aot and that such

 azoouhio :33: the retugm ﬁled bl;

 

 """  . _;§'_:toh"l&z.:b~<:-o7'r,tfaI:torr.. 

 Io! -- iri'--"ii}1¢34V'mp:i___§_g«3 'of[ 'ct dealer axecutina works

. 4. oonirootgg va1¢i§g,.opﬁng for oomposition of tax
 under S1xZ9--S¢crion (I }, eﬂiects sale of any
'4';&OVod$.*A£iablé"'io tax under the Act other than
by troinsfer of the property in such goods
 ..{1vhet?ié%* as oooés or in acme other form} in
  works contract executed bu ﬁzirn, the
 " degzier shall be liable to pay tag: on the
--. gains of Such qoocis at the rate speciﬁed in
~ _ fsection 4, without any deduction for input
tax on purchase of such goodg made by
mm
id} in the oase of a dealer coring for
composition of tax under clause fa) or (C) of
sub-section (1). the turnover on which tqg_c______'z.__9_
lezziable under suI:>--sect£on {.2} of section 3
shall be deducted from the total tygmovgr on
which an amount as notgﬁed is Egyable

$/



20

under sub-section /1 I by way of composition

J. 1.'..... .....£"4.1.....4....-....,.....-.....1..1...-......:l.......4'£...... A..;.¢
5.7!. £H'.'§£-l- U} hilt' H.-(Xe £__}_(_._&_IJLLiJ£-B5 lzLfLL£€'5f («H5 ALL.

[E] Section 15 of the Act by Karnatakajzct
No. 6 of2007 w.e.f. 1.4.2007: ~  

15. Composition of tax.- (1) Subjeeé to ~
eondiﬁons and in such   be  
prescribed, any dealer otk2er..t_han a cieci£er"zoho V
purchases or obtains goods_'Ajror'n_  j
State or from outside the territory of frgdia, s.li::§1:1e"' -.

to pay tax as specaﬁeci'_in  4 o,no£,. V

(61)

}9e(oa:;,' or

.or.. 

whose total turricaoer in an zgexzr does not
exceed an "as" bevmrgﬁed by
the State""«.Go:igem;rriert!_ '*whn'ch shall not
exoeedﬁﬂy _5ak}1rapeee:,  who is not a
deaier failingurader czaussra; or (C) or (d)

" * A.   works contracts,'

" wi/i'o_  a fiotelien restaurateur, caterer; or

"' dealer runizing a sweetmeat stall or an ice

cream: parlour or bakery or any other class

  of dealers as may be notﬁﬁed by the
 'G_ovemment,' or

 is a mechanfsed crashing 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 talc}: rupees for each
crushing machine per annum as may be
notzﬁed by the Government.



21

£2) Nomﬂthgtandggg anything contained ._ in
subwsection /1 I. a dealer whose nature "of
business is of ca type fajlmg under more"'!?'mri*
one clause of subsection 1'1], shall be eii2:H1i2le;_;c*§;:_;_.__' 
opt for composition under the said suI:2¥.S'ec,'tion' in  1 "
resnect of tax payable on his "tumozaer.felatina. to 
am: or all of such types Vof"b'usin'es$4.-§uhieet--.to 
the condition that -- 7  * '   ~

fa] such deaier $e;§2arate §11e:§o§tn1§L§ of

each tyge ofh£s'._ .  

[[9] the total mmove'r"in.V:£1 tjeczr in respect of all
gypes of .o}'?.eu%:h.» dealer falling:
exceed the-.q._mozLnt  #32:)' be notified
ezaeiermmthe  V' e 

fcii  .;2at;able by wan; of

 ";":»i;« ..s1;_c-F2 deem? on he totai

~_._1:1'"..4zmc3r;er_"'c.2r' the total consideration in

_ 6:'-feach type of Such Business

« V '  may be notﬂied for such type
 _¢ " under euimeectiort/1 I.

   V  At.C.>_I_..¢.'».1.3- turnover of such dealer ﬁom all

  tapes of business shall be reduced to
  extent of the total turnover or total
 in respect of each such type,
 for calculating the amount payable by
 wau of composition for such tyne of
business under sub-section 1'1}; and

{e} in respect of such type of business for

which, he has not exerciseci his option or
is not eigqrble, for oomposition under sub-
section [11, then on the taxable turnover as
determined ﬁom the balance total turnover
after reduction as speciﬁed in clause id],



(79)

0

Ad

2

{.3} Any dealer eligible for oompositiq?3"*Qf' to
under sub-section (1) may report,3__ toﬁf _
prescribed authority, the exercise of " option  
and he shall pay such ainouflt d1._t'é"ctrttiv,ﬁ,ir?1i.'3h 

ct return in such manner   be prescribed;  

(4) Any dealer opting fl;    "

under subsection (13 Shall not be per'rztit'ted': to
claim any input tax ortzctrty  mode by

(5) Nottuithstattdittg egntamed in sub-

(a} ct étieczgter. executing _wcr3c.:- contracts and who
   goods from outside
 3»SVt6if£.?_' 'or",¥"ror(i outside the territory of

' " eiitdia   to opt for composition
._ -- un'o'er_ettb-;s,e'ction (1), and if the property in
. - such"gjoocls__'l('aolr;ether as goods or in some
  othet fonrt} "is transferred in any works
"'contro;ct executed by him, the dealer shall
bel1't;tble to pay tax on the value of such
 ..goods'2it' the rate epeciﬁed in section 4, and

_  value shall be deducted from the total
 " conjsizierattlon of the works contracts
 executed on which an amount as notiﬁed is

~ gpayable under sub-section (1) by way of
V composition in lieu of the tax payable under

the Act;

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
cz.m.ozmts payable or paid to a sub-
contractor as consideration for execution of

M llllll 



(<3)

" him; ' '

  A um)'

23

works contract whether wholly or partly
and such arnounts shall be deducted 
the

and that such c.jzo1ounts'* ore  in 
return ﬁled by suofi-$ub--cottt7*aotog:""~.,1"'  

in the case of a "dealer  Eworks
contracts, '"c;,fi'er o;5ti:'1§ffot*~:§on1po.§itwi1 of tax
under subsection {(1 ),"'g§,_4hg;_e_ﬂ'ects sale of
any goods liable to §ox~.1.tm;jle3r'§'_the Act other
than by ifrarazgfer *of_the_ pfopeny in such
 (wh_etk.e--.r'  goods___or in some other

__ .fo171:}V_V_i,n 'any toorice' . contract executed by
3' hi;m',_,.  dec{£er'sh:1u"§3e' liable to pay tax on
. _  iérajzte --oj'-.$izoi2 at the rate speciﬁed '
"'z7.1.':» SeC€?iOil_f4,'«.18l:ﬂ'?0ut any deduction for input
' tajcvim  of such goods made by

u the  of a dealer opting for

composition of tax under clause (a) or (o) of

 sub-seotion (1), the turnover on which tax is
. *.._l"eu_iable under sub-eeotion (2) of section .3
" 5-hall be deducted from the total turnover on

 -. which an amount as notiﬁed is payable
f:u,nder sub-section (1) by way of composition

.' in lieu of the tax payable under the Act;

lie;

(11. dealer exeC'l«£_£'_iPl€l works contracts o_g_z_1__c;_i
opfigga for comoosition of tax under sub-
section [1], shall be liable to pay tax, if only
under sub-section {2} of Section 3, in
addition to tax Egg way of composition on
the total consideration for the works
 tecL

total consideration of the ._'wo7*ks«_
contracts executed on which an ar;iou::t_'_a;€,_ A' 
notiﬁed is payable under subwseojtion )e.by»"a '
way of composition in Zieu_....of tax  ._
payable under the Act oar.-.'.:>je<:e"§ to proctuotiott  
of proof that such} subecxzﬁtrootoré'  ﬂak f
registered dealer liable to tax under the Act .



~ t$¥t'tz't<s:% wj}''s:';we'.%; : 

24
{E1 Section 15 of the Act by Karnataka Act

He. 5 of 2663 w.e.£ 2.3.2638:

15. Composition of tax» (1) Subject to such

conditions and in such circumstances  be 2

prescribed, any dealer other than a dealer» " _

purchases or obtaine goods from outsicie. the  
-- '-' ' '=~'5"fr:--oIte, iiafzie  "'

 ' '-A ' .;

I it} Jtl__i&,s_'§:4_; ?r_:;i=: 2"-' --5'   ﬁt*§'{;i   aftdgv 'V  , V "

_ for.) whose feta! 2.umover'.. year' doesv  'V

exceed an amgmng as maybe' _not'§ﬁed by
the State Government w.hiohf.= shall not
exoeed ﬁfty Iakhrizpeee, an&«IU?10 is not ct
deaier folitrtg tinder ¢3C.ii¢~'3€ (17) or (G) or (:1)
below; of ~  1  }  .. " 

(b; wtmts aI"CVﬂéVaa'l'x'\.\V.é-Vi)?' extcgcuttézgizzérks contracts;

 {C} " ' ~  ahhotelieﬁwrestaurateuzr, caterer; or

.d'e~:iierr.*fm"zz}i7tg' at sweetmeat stall or an ice

' % cr'eorzt'pdr£our"or bakery or any other class

 h of 'c:iea*;le"rs_"..'o'as may be notified by the
" Gove'mrheIit_; er

 i.,"'e{<,;i)"t'   Ct mechaniseol crushing unit

 'producing granite or any other metals may
a fjelect to pay in lieu of the net amount of tax
j_ payable by him under this Act by way of
 oomposttion, an amount at such rate not
exceeding ﬁve per cent on his totai
turnover or on the total consideration for
the works contracts executed or not
exceeding two lakh rupees for each
crushing machine per armum as may be
notiﬁed by the Government.

(:2) Notwithstanding anything contained in
eub-section {E}, a dealer whose nature of



25

business :3 of a type falling under more than
one crime cfsub-secztion {E}, shail be eligible to
opt for composition under the said sub-section in
respect of tax payable on his turnover relatﬁiag to
any or ail of such types of business suE:'geot;'to'v».,
the condition that -  " »

{a} such dealer maintains separate account of__ 
each type Ofhis  .,   "  V

[19] the total tumover in ayear in resp'ecz'~of:_aE£A "
types of busiaess of ;s.uch, devaier'v.faZling
under clause sub-sections [1] does not
exceed the  as may be ziottﬁed
under    

[C] the aznoaiio  way of
coegoositiofi' 'E33; sage}: ciealer on his iota!
;_t1Lff3:sGver:3--_ or '"the" _toia£._....€x>nsideration in

 ....  _  --.of.__Veach..,VV§yf,7e of such business

= may be notiﬁed for such type
. u%Laji:e;f's1:b~.section[1].

{eff VA me tozal" tgenoeer of such dealer from all
'V hiisiypes of Easiness shazl be reduced to

_ the « extent of the total turnover or totai

"  consideration in respect of each such type,
  calculating the amount payable by

A  .ju..=ay of composition for such type of

f_ business under sub-section [ 1]; and

' ~  fejy in respect of such type of business for

which, he has not exercﬁed his option or
is not eiigibie, for composition under sub-
section [1], then on the taxable turnover as
determined from the balance total turnover
after reduction as specgﬁed in clause [:2],
he shall be liable to tax as speciﬁed under
section 4.



26

{.3} Any dealer eligible for contposinbn of__tax
wzaer sub-seotiaz {1} may report, a 
prescribed authority, the exercise of his~._'
and he shall pay such amount due mt;f'ﬁl:nis};__ 

a return in such manner as may be  .  "

{4} Any dealer opting fcf   
under this section ehall=.__ not a be 
claim any input tax on any. rnade--Jbg% '

(5) Notwithstanding aa,y.tl1.tn;--3_ containeciin §__a_Zg-_-
section (1),- '     
(a) a dealer 5' wo_rksf..oontract.s and
who ..purchaces= or aobtain$'*goods from
outside". the Staate, 'eigfroia outside the
te:3ritofy._.of India shzs£?VbeV'eligible to opt for
i'cor_ripo§ition"::';3.d7er efubgsection (1), and if the
V ____  pzrope;-:tyVin3_'e"l1eh*  (whether as goods
' 'crtn sofafne _ctf:'erferhi) is transferred in any
, uxorlzee-oon_trc;¢g...;hemouted by him, the dealer
-. shall'  pay tax on the value of
  the rate specified in section
it, V_and.'--s1lch"vaZue shall be deducted from
the " '~.}fQta1 V consideration of the works
'a "~contractS"'executed on which an amount as
  noaﬁed is payable under sub-section (1) by
 "zoa_.y_j.. of composition in lieu of the tax
' Ygaayable under the Act;

 Z   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 ﬁom
the total consideration of the works





(0)

' (cij.

27

contracts executed on which an amount
as notiﬁed is payable under sub--sectio:ft
(1) by way of oorrwsition in lieu of the 
payable under '

tax under the Act and that such' amotxnis

are included in the:retuhtoI"i1€d<bys:,tch«' 

sub-contractor;

in the case of on 'elealer'v-execuiingV.i.worke
contracts, after opting; for"'oor1'a;:2osit;f<Jn of
tax under sub-seotioit__(1~}{ who ejects' sale
of any goods liablel $9.  under the Act
other than"--l:y-- .tr:;rVi;sfer"-of..the_ property in
such goods  a-s.,good_s7~ or in some
other  forth)" ' its .' any V-works contract
eicecated by  theldealer shall be liable

1.. to .p¢'zy.';'--tox«.:oti' volue»of such goods at
' ._th;e §*ateV"epectjied'in section 4, without any
i. - _tied1iL:ft.iort'--.ifor inptai  on purchase of
_ sachet 9 'made by him,'

  of a dealer opting for

composition of tax under clause (a) or (c) of
sub'~section {I}, the turnover on which tax is

 leviable under sub-section (2) of section 3

 '_*..s'hoIl be deducted from the total turnover on

which an amount as notiﬁed is payable

V A j tinder sub-section (1) by way of composition

' -.  lieu of the tax payable under the Act;

,, 

a dealer executing works contracts and
opting for composition of tax under sub-
section [I], 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. "

the Act subject j *  " ».,
production of proof that  "    _
contractor is a registered dealer"-«.liab_ie. to - '



28

had extended a facility of option to category of ciealers
mentioned in the section to opt for payment 'under
the provisions of section 15 of the Act  
liable to pay tax as speciﬁed "in---    vflge
Section 4 of the Act is the   Act  (
providing for coliection  fcom  ttiﬁefent
rates on the goods specﬁied'   111 8:3 IV to
the Act and if it didaenot  the schedules at
the rate of   forming part: of
the toteﬁi    The dealers executing
works   the rate as indicated in
V1 sczaedme [Zj  e

133;' 'V The coznposition scheme as an option enables the

  of dealers identified in section 15 of the Act, to pay

 ~.  iii:  rate not exceeding 5% in general in lieu of

ti§e..1'ie.t".smotmt of tax payable by a dealer, the State

  " {3~ove;tnment by issue of Notiﬁcation dated 23.3.2005 for

 stich purpose had stipulated 4% to be the rate for dealers

H opting for composition. Signiﬁcance of opting for

composition was that such dealers were relieved of the

6./



'.29
need for maintaining detailed books of accounts and also

filing a I'€t1.lI'I1 in Form No. 109 which required' a:eie.a1er to

f1.lI',i1flSh elaborate cietails of the turnover etcg; Veilacility

was at a price, in the sense, the dealer was  _A

the tax at the rate of 4% ix": respeetroi'  4]

irrespective of the fact as-to veheﬁzer  of 
t.ur13,ever was liable to  'I'iiae facility of
composition was   class of dealers
such as petty' deeiersfé or  whose total

turnover_    amount as notiﬁed

but  Vgenerai or to those class of
dealers Who'  works contract and who are

dealers  t1ie'n;?a.tti1'e.'oi'zesta1:rantier, hotelier or a dealer

  ""1'1g"'  (cream parlour, bakery or even a

  it  unit producing granite or any other

ixatctassc any other class of dealers who can be aeeed to

 _ theiicbi-ss of dealers by issue of the notiﬁcation by the State

'  (-Eevemment.

 14. There was one oveztriding condition or i'6SU'iC1IiO}C1 as

contained in section 15-[1] of the Act that all such dealers



30

should not be dealers who are making purchases from
outside the State or from outside the comiufyg' Such
purcthases acted as a disqualiﬁcation for  the
beneﬁt of Composition. 3 ii i V' V.

15. The controversy in these-Iwrit.    r;«;-;;-* as» 2
Writ petition No.1{)135 of 200}; 3
period reiatmg 3:0 assessiiieiﬁ yeai'  fafas
writ: petition No.43V98._ ef it is for the
assessment: year :20i§6é'-_D'£'; No. 10329 of

12008 is corioefned,   '_aeee;<.:~eme:1t years 2005-06

8?; ;éooa~t3i,"'kv;;o1.dio'soi'e'§é.:;ead as WP No. 11279 of 12008 is
eo11ce1'f1'ed; it  _foi9.'c§1ie_.'oassessment year 2005-06, in so far

 Nod  of 2008 is concerned, it is for the

» years 2005-06 & £2006-O7.

H '-   petitioners had cleared their tax liability

ori iglieéobaeis oi' the liability as can be computed in terms of

2 » AA Seotioii 15 of the Act and were rest comen.t. However, the

 assessing authorities appear to have been activated by the

audit; department who had taken up some cases for



 V 17;'

31

S€I"LitiI'1_V and having noticed that the petitioners were
dealers who had eifeeted purchases fmm outsideiiizze State

also the petitioners were not eligble  the

benefit of section 15 of the Act and theiefofeoy 

not only to canoe} the faeiiity of  also-_ I

proceeded to reeompute ti1e__.tax'Vii;f;iiijiiiVt;y  
independent of section 153 leis ojoder section
4 of the Act. The   having raised the
demand on such pij   the petitioners

to pay  ~oi'  ..9_..--:1{_i.  muleﬁng them with

penziitieys' *    7'2[2] of the Act, the
petitioziersi  v.é,I)}ii'0ﬁC§1€d this court foregoing the

apageliateiéieixiediee'-qiiestioniiig the constitutional validity

- '~  ., _<5i' section 15[1] of the Act and for a. good

    also roped in the validity of section 72[2] of

the get wiiere under consequential penalties have been

 _ ievieci-on the petitioners.

The attack on the validity of section 15[1] of the Act

 is mainiy on the ground that the provision is a

discriminatory provision. making are invidious



32

classiﬁcation of the dealers who were extended the facility
of composition; {hat denying the facility to such 'of those

ciealers who are zievertheless pmvided the fa;Ciii_ty ﬁémtts

a

of clauses [21], [b], {C} 8:; [C1] of section 15.{.:¥.l4_ ¢f 

011 the ground that they had nziadei.pi711'(fi1aé.¢s--.fr01"n_'V<§1§t€4id€' 4]

the State while such of the-3? déaltﬁfs gveﬁ" (:iaL1§¢s
[a], [b], [C] 85 [(1] of section Inade such
purchases are   facéﬁy; that this
classiﬁcation    j4,.1%tVi11'easoI};a.b1e and

therefore    :1J"11gj14§c}1a' t'::':u  "c;»'i' Articie 14 of the
Consgfiiiitiéii       should be declared as

uncor1stitutioné;1;_fV' . T' " --~ 

18, _ ~ WI'.i1;  having been admitted for

  eﬁéminatipn 15y"'issue of rule: and the State having been

4.

 ~ n_<:)t_i.<';€, the State Goverxaunent has altered

 through. Sri. K M Shivayogswamy, learned
 A Gcverﬁment Pieader and has alse filed its statement of

A'  " Qhéécﬁons.



 

33

19. The State Gcvemmerzi has sought to defend the
validity of section 1.3[3i] oi" the Act by cirawing ati;e21tio11 :0

the change over of the scheme of levy of saiesj §__;I_iideT

the Karnataka Sales Tax Act, 1957, the  of  _

tax under the Karnataka W303' 

which virtually seeks to has'-'1;u1o:1;i;2e_'the   
though it is a single  tﬁat sézheme is so
felmulated that   suffered tax once
does not suﬁ"r:',~r the    and it is only on

the additic;na}? x?a11ie,   V 'might. to be levied and

co11ee1';eEi"    vai1_'1'eW Vadciition at each point of
transaction a'{j1.(iA:.LjV§1}aiv";f:};'g'. regard to the net liability of the

reg,istcre§i" aiadéfhe concept of net tax payable by a

 " .V:;eg§sEtere€i. .(1eale,?5i;i1é1der the provisions of section 15 of the

 V v.t§-ct;  'pr§Jv.:ision for pmviding composition has been

s'a1ita§:l}*.,.:}31terec1 vis_«-£1-vis a iike provision which was

 x ava:f_1ai§1e under the provisiens of the Kazuataka Saies Tax

 that the practical effects of maintaizling accounts,

 ﬁling detailed I'E.*{1}}'1}S were all taken into consicieration in

identifying the class of dealers who were proviéed with the



34
facility of colmposition and in respect of dealers who had
im1ume1'ab1e inputs as tbrming part of their oacttpcut and

therefore I"1l.3,iI3.6I'€}l.1S transaction of pLn'c11ase:s'~a:1)ut3._'__jsél_e' and

the consequential eomp1ieati011 or pracf.tc'a1V  

111a2'nt;ai;ni31g the accounts  ': .the=._ 'I

transaction to be mentiozimw-.i__h1 tfie f-etursxéc,  
ready methed of paying  by  ':f0.'1' }COI}1pOSitiO§1
was extended to suci§;j%'--de2f1eI;e-L'.the State Government

2

had identiﬁed,Such el:,as$v.oI"--.dea1ei's étsxigentioned in class

[a], [*9], {C1  tie  1:5[V1V}'ei"the Act and even While
exteiitiiiigee  tléetleﬁislature had bestewed its
a1tteI1tie11- fer'    parity of burdexx of levy on the

dealers  page   the normal scheme of the Act i.e.,

.  _ti1e fiéibility as «cfeétted under sections 3 and 4 of the Act

     Vttvtto paid tax by way of composition; that the

Afaci}ity'ot'f~Cemp0eiu'on being provided as an exception and

 _ not tasa genera} 1'neas:.u'e and the need to ma:intai11 parity
' "'_VVOf*'f3.'l€ burden of levy and having regard to the fact that the

 deaiers who eﬁect ptlrchases from outside the State witiclz

forms part of their input into the output that is subjected

by

/"



35

1:0 levy tax in the State being not liable to pay axiy tax on
the input and other dealers; who effect, theizf
witlxin the State are being made liable   
they make pumiiases and t:1"ie1r:ei'(>:"e   'i:l}ie1'xiE
being a littie higher and  we-.;1§ °;~;h§*  of" '
maintaining its 1'evem.1e ._%i"1o'ti."keei2  
part of the 1'evenueVl:nii.t até..the.. vvitbslhe object of
extending the benefit '  favour of some of
the deaiere...   but who were all
required?   'accounts other than the
eiase of   outside the State but
Caliriiifi be  the facility of opting for

Compositiori. as "an"-opvtion; mat such class of dealers are

 - iweieiailjg ideguszeabiei and distinguishable from the class of

I    fact purchase Within the State; that the

eiassiiioaéion is not only reasonable but sub-serving the

 .A purpoaaée of extending the facility of composition without

'  2133: substantial loss to the exchequer, has nexus to the

 object. of providing faciiity of composition and therefore



36

have sougit; to defené the ciassiﬁcation as reasonable and
gmssixig the tee: of Article 34 of the Constitution ei'--India.

£20. The State Government has ﬁled n0rn;ei-- of
objeceens on 4.11.2006 arid on    
additional statement of objecﬁiene,4ei1""--3f?  
23.3.2009. AM   i. . A

2}. It is basically    versions,
submissions are   the  and the
1'espondent--- State.    A» Z A»

22.  liavieviiiieiazifdi  Safangan, learned senior eoimsel
appeaiingforiilieeiiviﬁjgietitierier in WP No.10135 of 2006

iviiistrueteeii  _5:"3r1. Keshava Muzthy, learned counsel

y 4:415:10 ..T_h§1'34.§|;:pp}emented the arguments all along and Sri.

 '-  counsel for the petitioner in W? 310.4328

of   Sri. Shivayogiewamy, learned Government

 ., " Fieader appearing for the respondent --- State.

23. Submission of Sri. G Sarangan, learneé senior counsel appearing on behalf of the petitioners proczeeds on 37 the premise that the eiaesifuzation attempted in terms of the main provisioii of section 15 of the Act: hase:1:}ii'>oiutely no reason or rhyme; that when once the State to provide or extend the facility of identiﬁed eiass of deaiers as fa]; if [b], [C] & [<1] of section 15.m._9r e1eAc: etisoluteiy no justiﬁeatioii to keep otitsiitiiie -<ieaiereiV:e:1vfjen:iamongst the identiﬁed class of' the facility of Composition 4t'"*.3'i.-@311 class of dealers only to .$iJ.hO--._"h"ii£l(i1€:'i5i.1I'ChaSeS outside the State'iie"si* I1or_'t}'1Ve classiﬁcation is made on any jtistiiiahgg ~.t~iiat the classiﬁcation virtually dieerimiriatee tlealers like the petitioners who may * 'Viheidentéﬂy haveweome ptnrehaees from outside the State; ~ of this nature to keep out the eiass of ideaieee have effected purchases from outside the AA State..fivit11out taking note of their business requirements it the ease of the petitioners some of the inputs are either not available readily within the State or business expediency compels the petitioilers to procure it ﬁ'om 38 outside the State and without any regard or consideration for such business compulsions, to deny the ~jfeei1ity of composition by 111ai<ing such highly arﬁﬁcia1~~--c1gts_sifeetjo11 directiy infririges the equality clause 1 uo'1'_ the Constitution of India and :t.t4;eJ;*e:£':;):*:e_' 'thee. 4f should be necessarily at;

:24. In this rega.1'd.,ﬁ_ leelned senior counsel appearing is' that the denial of beneﬁt: to 011%? 'the the identiﬁed groups from outside the State "part violatirzg Artie1e-- 14 of the C0nst'tt¥;1t't01} of it is not the object of the petitiotzzers to 'fer invaiidaeloatz. of the very provision of ' ;'e~ompoeiti.oi1 itself; that the petitioners are only éesirotzs of " " of eomposition but are irked or affected iaeeeﬁee 'it is not only denied to the petitioners because of " ~ the purchases effected. by them from outside the State but has come as a rude shock in the form of the impugieci orders wherein the assessing e.ut1:1orities have not only caneeiieci the composition facility under section 15 of the 39 Act but have even the earlier period proceeded _1:_e assess the liability otherwise Iesmting in an ade:niei<1:s1%' tax burden on the petitioners end also to levy-eéef all such eoneequences have }:.j~ef'e'i1enﬂ because of the ciiscrimillatory of ﬁne Act; that the offending Aet which is one of denying éﬁ*ecm1[g purchases or obtaining goods 'Vei1Vt:;§i§ie or from outsiée the texrito;jv*'::.gQ§'« ' from the main provieio1%i,j'V not only become purpose of extending the facﬁi}i}* * identiﬁed class of dealers and theref0re"'i1es that to save the entire previeion . deeiefed tmconstitutional, only the oﬁendmg V' n tjrxe eection (Iran be rendered ineffective by readijeg ﬂown section 15 3:) £13 to remove the oifendhlg AA portio1"i from the section and retain the provision which is A' =. 'r:ef only not falling foul ef the C{')l"1Stit1.2{iOI1a} scheme but also at the $513136 time achieves the object of section 15 of the Ac: namely of extending the composition. 40 :25. It is the submission of learned senior counsel appee:-zring for the petitioner that it is a v§feii:'*i<.11oW11 principle of imerpreta£ion to read provision if the provision compiises u an offeriding part to road iz down ?

what remains is the be11iig'1i..__pa:;t" aiozic provision constitutional die' part: even if it amounts to 'oi"L'iogis1aﬁon.

:26. Lsarriecijsonioi""coiiifiséi...';2.:.ppea§*if1g for the petitioner has pissed: Jucigient; of the division Boriciii of tile High Court. in the case of ooxsmoczrosrs vs. oovzitwzvtr or A.1=. _§1§niioiss,m'orrn:1z* :%eporced in 2007 [101 vscr 362 [AP] "£4§1t::,:'?,*2ivisio11 Bench of the Andhia Pradesh High A<;"$oL1rpi1.sii occasion to examine the constitutional vaiiciity AA of sociion 5G[4_] of the Ancihra Pradesh General Saies Tax 1957, an analogous provision simiiar to the provisions of section 15m 01' the Act, also providing for composition but exciizdiiig the facility in respect of very 41 type of dealers havillg outside the State purchases etc, and the A11d;'nra. Pradesh High Court; having found the classiﬁcation of this 1f:at13.re and denial of of faciﬁty of composition only to deazers mgn;;ea% their purchases from outside:

classiﬁcation disexinxingioey " * . A d€.'T.{_'i§€:%%" 'W->4." js:::'s..:a.'? ~ . ''~".V_'. equelly =

1.

z N for t:1"Aie"same reascm

-- E3 =_...€"i"%:-;:_:§iI':.g VpoI*tioI;_ the Act could be declared as" 13ne'on$§;itu1:ii§11a'1 eeetioxz 1'e¥,aiJ;1e<t1 without the K attention is drawn to the J 1.:dgn1ent of the Andhra Pratiesh Iu-£1311 Kloufi. .

Wt the submission of learned senior oounsei the petitioners that the principle of in.ierpre{e£ti0n to read down the section to remove the .. oifendiilg portion and to retain the benign portion is 3:2 principle of interpretation well reeognizeci in Law and 'T should be necessarily applied to the present: case to save the entire provieion. from the vice of Lineo11stitutior1ality 42 and themtbre only the Qifending part may be d§:_(;1arc*d to be bad in Law and section read down a.(,'cordi31g1§?.4 :28. It is also pointed {mt by 1eam.sci.-- appearmg for the petitioner 111_-2aJg.i*1.1 gaa? Aéiassitfiﬁaiioiz of'-_ I dealers who have their }T#E:.'}l"¥.3:.1.'1:':l$t':'3'.t'"3-. '(V'3i.I1ZSi€1L{%VS?:;E:l.Tui3 dealers who have t1j1.ei1* p11:1€§i'f§$e.$_v and a provision having __a higher iiability on dealers who have t13ei:v"<$L1tside the State is a. previsihonii of the manciate of {sf Inciia; that it virtually i111p:€s;ies ' "tm.ci'e and commerce; that the p1'0visid11'_4 4c4.i§scourag,z'11g outside the state p~'.j--1fch::1ses iS"--v€i_i_;{'§C'£1§f infrirxgilg upou the provision of ' 1_ of {he Constitution of India and for this offendirlg part Shouid be declared as uxicofxstitutjonal.

* 2'33}, In suppozi of the submission that the offendixlg part of a statutory provision can be removed by reading down the prevision in such a way ihat the provision is read Without the Gifezlding part, Sri. G Sara11ga.:1, lear11ed . :' r//.'' t.

43 senior C1(){l1}S6:3 agocaziiig for the petitioner has placed reliance or} the following decisions of the [a] 'STATE or T.N. AND 1°.

KRISHNAMURTHY AND --. _ [2oo614scc 517. i F' [b] 'SATYAWACCI SHARMA Bi' J or INDIA AND x%epon:ed.m«§gsLR. 235008 3148. 'xi "i""i L

30. Countering sub1I1<jissic:1v5;'S1'i. Sliivayogswainy, ieameci GoveI;~1men:"'?~}tiarier_"ap;icaiirig on behalf of the State a11_d--. vséoiilci with I'6f6I'€'IlC6 to the a;d§iition§éiiVV'$tatcI11cr1t of objections filed on of Pztzvernment that the provision of sec-t3'.oLn. 15 of me Act is a provision providing or extenéing " .$."' ii-iciiitjék' to somiéii of the deaiers; that it is nlcre like an vtoﬁhe general scheme of the Act. of levying tax in cf,' sections 3 and 4 of the Act; that while .o tile p-Lirposc and object of section 15 of the Act 13 to V' ' --::<5v*ide facﬂity to facilitate ccmain ciass of dealers who could have geat diﬁiculiy in maintaining reguiar accounts and ﬁling the reulrns g'vi.Ii1g fuil particulars of the 44 turnover, input tax, output tax, net tax liability etc.,; the Government did not want to lose any revemreroby the extension of the facility to such class of 'were otherwise fmding it extremely difﬁc11}t__t:o. rial 1_i;1e_:

the general scheme; that s:.1chldea.1ers» ividezgtiﬁed 4] and as it was found that-..__exter1dii1g med to ﬁne identiﬁed class of dealers ax elasexwae found to be detrimental to the 1'e3}erru=;e, i;;:.l'ti:e~..sense, the revenue was likely to loseif eeefioe. :15--of VAii::t".WaS implemented without aziy a__.. has been struck in suelfiv lalllrnarlaerlviitilail'iehile total revenue generated in the i§1;ate-- the facility of section 15 of the-Act islmt seestaﬁtiany aeecxee.

" .31 3"-Slibrnaissioxﬂris that While the classiﬁcation of dealers for.'-extending the facility of section 15 of the Act age. de.aiers' who have purchased from outside the State and .. fromeixtside the country as one class who are kept out of 'the scheme of composition and others as a class who can "Claim benefit of section 15 of the Act; that it, is a reasonable classiﬁcation, it has a nexus to not only the 45 object of providing the facility but also taking into account; the overall object of the Act to raise the reveVnz'io'»oax1d to ensure {he zovenue to the State is 11912" «ap;§14€:oi2ib1y affected, in the ssnso, it does not go down. .. If-. is submitted that the present[xnerslaairtisiiiz._a;c;h.iev¢su:.mess I twin objects and UT1€I'€fOi'§3. "

limits of reasonable classiﬁostion ivvithe test of Article ---- 14 of the and therefore the Provision is» not ii declared as l_1ﬂC0I1Sti.1§].1I§;7f£{)Iii;'§--:33.7-_'_ - 1

32. smvayéggswégiay, learned Government Pisatier in this regazfci aisé:w.s4Vu1)j:i:I.i;i$s that the provision of section 15 of Aot is not-:a..,.P¥I!visio11 aka: to a chargiizg section; that ' ,Vii;..is optional p1"OViSiO11, in the sense, being an " a.1té::t';1Va' of assessxnolit and paymeni of tax is an opitiofxlopen to the assessses; that it is not thrust: on the " iAVVé{sscssees $113!: a person who has opted for payment of tax §by compositioii cannot 1a.t;e£' turn around and complain that it is discriininatory or violative of Article 14 of {he Constitution of India.

313. In this regard, Srti. Shivayogswamy, Iearned Government Pleader would place reliance on tft1ei d.eeisio11 of the Supreme Court in the ease of 35 ANOTHER vs. BUILDERS ASSOCMM.-'ﬁe! orrmns' reported in 104 1:34;. fttiattithe petitions at the '1:1:st.ance.ef.__the 'petitione1fe' entertained for the reason the gaze persons who had sought oteotxlpositiolx as it steed earlier w}:1e;1_ '-p1wovision' was well known t.t_i:*1:1"2$i'oL'2i1z:i and question the legajitffof under whi_e11 they had e1ain:§ed't21e 'et{i(i.:'t;i1erefore they are estopped from the4"'*p1§esex:%t 'faetitions to question the iegality of A ti?-éap1*ovi;°3ioI1s'of"'5§eetion 15 of the Act. _ " Govexnment Pleacier would also drew "e1.tteI1t;ioI.ijt11e factual details furnished in the additione} steteiaeet of objections dated 17.3.2009 and 23.3.2009 V% n_ﬁ1e;1 in we No.4328 of 2008 providing the dotaiis of the ;nat1zre of outside purchases effected by this petitioner, the possible tax liability if the same should have been ,r>/ "

4'7 "purchased witzhin the State and the possible ___reduceci revenue to the State because of the omsicie by this petitioner.

35. It is also pointed out thai:"'i11--.so C_le'a1eI'sVL'whe are in the business of is much more than mere hm been making pmehegses of éistlachﬁirleries from outside which part: of their products that the capital machmefies;-<4" of;€i€;::sf "i1?i:sti*L;r11ents in the nature of capital -is lmiseci-.. wring or leasing to generate fmtherVV"revenLie " petitioner and it is taking into aeeouixte sueh"-Veepects ef the partzicuiar trade or industry ' jzecuiier the dealers in the business of catering and "feeta£1réiifi;£]1§Vusi1";ess and having regard to the need for the revenue to the State even after providing the ~ of composition, the classiﬁcation has been made fend it is a "reasonable classiﬁcatiozu passing the test of Article 14 of the Colzstitution of India. 48

36. The following two tables as found in the additional statement of ob3'ec:£ior1s dated 17.3.2009 to WP M45328 of 2008 for the purpose of showing the maxnlgw--ot"V'1'§?§iij;§étion of some of the purchases effected by _ outside the State and the Ixtnaniqaer of 'tl1é'v13u_;'ol3aseci' f items as per statement dated i23V[3,Q0(Z}9 u1')Vt:;f.'o:J'>e the court.

SE. NO. Name of the goods § Rate of fholbpotitionor --- E I .] } Ufa. 4 o§V_t1;'e_ , 'VAT Act' '1..c0rnr-any .. ~ 1 [Coffee stirrors " § 'E;2_.i°P.t6 E'.

vaEo_:3§ with coffee, i~.1,».a by 1o..5o.;.

3.. oto,., without charging «-

=§ Mali; powcief 3 t"

-.1 ' Coffee

1. «F» _.---vo315:li:*:§g { 112:i;;;E§~% "

machines T 3

2.55? ' . loss by 8.5% ;' 4'''2€:v»...Eo%.s lay 8.5% 1 _ Hiring received for' hiring?

out coffee vandmgj machines .2 ' charges? ' ..} 4% - was by 8.5% S ' rofrigmfatorga, _ 2- _ooovko'1'3. v€:tJ-3-,'? W Capital A. goods 13326:; E l§?.4:3'?/o.'- airvooolor, E furoitum. ";)ressi.:1_fe K E E These: ptarchass: tumovers E are not declaroci at all by a hotelier or oatoror for the reason that these goods are used as capital goods and they would not be sold.

Hence there is 21 loss to the 1 State by £2.59-6 4 ,m.,..m.. _ _ _._......_.._ -_..._ . ,,.,_.,.. Any ir1..ghedir,---htsg 4% or l:2.5°/o .re.quired .. in the as the case 1Ex1a.nufacturo" of may be "é"1.§£{;&'é2i;1"}'.'\-'??;S and drinks based on « ' goods purchased 'These goods are used in the é process of manufacture of} eatables and drinks and therefore no tax would be payable by the hoteliersfoaterers, because E may are not sold goneraliy ; as it is.

@/o 50 are purehaseci from outside the state, the second table is to demonstrate the actual state of affairs i.e., the. posei¥:)3e reduceti revenue to the State etc.,. > _

38. With reference to these factual d.etai1£;::,:*-it':

be submitted that the keepi11:g'**outA purchases frem outside the J cou11:I'y ﬁrom availing the»--§§Cé1ity "or éic21ieve's the object of prevezagng _1_fevei1A1;:e~ E-eeses by the ope1'atio11 of s<:11e111e' '_V_.th€ AC'? and 3130 achieves {11e«of_j)ject of the tax burden on dealers wi1s":f-3";'9.vee'€;1§;ei.1"purelaases from inside the state alone ai1c_1"t}.1o§ése 4Vv..;1r1oé:'_3.1ave their purchases from outside the state.

' is also placed on the single Bench decision 4 cf. in the case of 'CAUVERY TIEATRE AND AA erases vs. UNION or I1\H)IA AND OTHERS' rendered 'A.V_V'o:1f5i7.9.20O8 in WP No.19802 of 2007 upholding the validity of eectioxl (3-0 of the KaI'r1a£a1-Ia EI1t.erta1'm11en£s Tax act, 1958 which had also been attacked on the gound 52 actions of the State are required to pass the test, of equaiity and fairpiay. It is only for this reascsti' 'sifgfiﬂzent of the learned Government Piesder persons who have availed the i)ei1e£it;_ Act and only because they 'sdve1i~'?se.A.o"i'ﬂer now csrmot mm} axotmdi "qu€.stiQii'€iiit3 of ii1e provision. is not ooi.11*s,s"Vexan'iine the constitutional vaiiditfii of or legisiation, it is not so":ixVij1_-;ch::A__' or loss that an iiidividuééiii -is the criteria, but the 'of Wfiiie legislsiive provision in gez1e1;s3_VVi "'z=i§_ii'1eu*:i1ser the provision answers the eo:osritution_s1'requireﬁf1ent. It: is not even the iridividuafs ' that are iiiii so much examiried, but a person violation of Article 14 of the Constitution of iIi_éia,__v'dei'i;1iitely has locus to question the validity of the _ prwision. It is not so much {hat the petitioners' right as ' 'sash which is involved and examined but the acﬁon of the

--'State whether in the exercise of legislative power or executive power, the State is acting in a fair manner, in a 54

42. Section 15 of the Act as noticed is not a charging section but a provision providing a facility scheme for payment and collection of 'ttlfze liability under the chzarging seotgiotl.

for creating any additional Iit§.'o.i:§Lit&'.1,: ' 1 also is not one of ¥)urde11' ,cou1t)1at¥t1t is only in the mattetof classiﬁtstttion oftéesttetsiwho get the facility. H A W .

43. Whenever a stat:¥_1f;or;t: is challenged as the persons, the questiort the persons with whom the eompat'i'so11 icientical or simiiarly situated. 'I'1:.é$;:'et'*is 11o"abso_1Hu3:e equali'ty not all persons are alike. ' LT'hCI"€:fO1T€' _differential treatment having regard to the "differently Vfsituated persons is not one resuiting in diseriiniriation.

A' '4-'$3 The oniy I'€q'L1i1'€II1€1'1t when diﬂerentiai treatment is

-Vibeing meted out to ditfererlt types of persons is that the difference or the distinguishing features between the two 56 difficulty in adhering to the procedural requirements, particularly, in respect of persons like dealers' have turziover less than R315 lekhs i.e., small riot; big busineesmeri, dealers who connect or dealers who caterers or dealers ruizeiirig siiaf¥e.e'ti;1eza.t.'Vf$£éf:;;1il,_V ilee sense, who are selling edib1ei'ii;ezn.s or' erjmecliaxiized crushing unit other metals. The general scheme as these dealers is that t;hei1'4_Vi;epLi§tls__.:s1re. iiigznereus in small quantities. _V0f"3:j;:i1e_:€le'_faiie Such purchases and inpur taxeslimay be and as at alternative scheme of taxetiori by ._,eo1n'pesit.i£>n is extended to them as a rough . _ A ready. inetho€ll;>1.1t at the same time not losing sight of V' 'Elie qegee: of the Act of raising revenue, i%: cannot be eaid t__1*1a!:Vi'ft:i'ie provision does not pass the test of Ar1:icIe 1.4 x of tliefioiéstjtuﬁon of India.

Therefore, an attempt; to balance the £wo..exter1dii1g J the facility of composition ﬁor facilitating such dealers who may face hardship if are required to strictly comply with we r n 57 the procedumi requiremeI1ts of maintaixﬁng the .£_iCCO1.]1"it{-3 and fiing returns and at the same time t}::e"' not wiiling to forego its reverme appreciably, ax; object and if this object is to be.--s;ehi.eved i,e.';'Te41z-issiiicéaioig of dealers amongst the idez1t.:if1e°c1Vd:es1ers as Le wlie"'s§ieglé "

be provided the facility ai"1(i.,LW}1o s}'1ou1&..A1§etVV'1§e"'110$ achieve this object of extexjriipg t1f:e"f.*37,¢Li]_it§.?_.a11d« 3:11:31: "(iiII1iXliSh the revenue to the State,' 'eani5be Vvtixagt classﬁieation in such a u1231';::mjij2.as La 11e)§:':;1s'£e"vi:._i1r:.V 4'7'. '7£'11c}1f1g},} ';.~_1:11e"" filed by the State in the couziterss 'and ;:id(1itiei1a }" '-counters is with reference to one single jﬁetitisrler 2sf1t1..._':'s not neeessariiy an example for gei';e1js.1i*zjng tI':e_s._a:me, it is more syrnptomatie of the kind ' ;e'f which pessibiy the persons like the " pet'.i'tio:ieé%e,..eeaterers/mstauratemvs have been doing and 1:0 dem.oi1strate the consequences sf such persons 1'1avi1'1gj " jiilrehases outside the state arid me possible resuits on ' iI'("':.'V€Il U6.

59 object; of provicii11g facility and retaining the purpose of the Act. Even hero, the doptlii of scrutiny is proportioziate to the affectation in tho sonse, greater the ét19icteI' the examination. The complaint is _11oI:_:'ft:hat:: --. _ aifectatioh, compiaint is that the ":3 .'I'h€:' if affoctatioiti being present: in-rgize of a different matter because which they had inviiied ﬁ1en2seii(€:'3_ the test to examine the the provision as €30333}93»ai|71¢Ci§*--.., hj€€"t11e:., also of 1'€2}(3Va1}.C€ to iiotioo h'I_ii"1';'s:;£;?V7!;iI_v":.oééfgiéziiiioiicrs Vtliemselves form a class of cieaiors who eaifoviicientﬁiod for extendixig the facility a11d_VwitI14}i1V_iti"1vs,*1i1 fiiftlier siityclassiﬁcation i.e., in the 51fiES{'£-1.IA1ClE34H'théAVp€:t1t10I}€I'S are identiﬁed as class of :_j..aio11e get. the facility and not others in being £116 nature of the provision, a further AA subéciiéissiﬁoatiori to time tune the provisions cannot be characterized as discriminatory as the object. of folassiﬁcation is only in f1;:.r't.it1era11ce of the main purpose of extending the facility and at the same time retaining the 60 revenue to the State at more or less the some level. So long as the provision is achieving this object thepmvision passes the test. of A1't;ie3.e :4 of the and that is what is found in the p1ese11t.Vsito:atioe£iVie.._. t:21e1'efo1'e to be declared AV infringe Article --- 14 of the %oo:gse§ueon boI3A.Zi1dia'V ~ discﬁmmaiory. V. V V' «V ' 'V

49. 'I'hough Sri. eouﬁsei appearing on behaif of the itgazwxm a provision is found to be §b:a'..:;_ 1:113; '--t_},1e_ p:it)vision which is found to be V1V')eV_V:ideI17£::§Afies:1 and principle of reading down can be emféloyed by {he benign part and quashing the oﬁeuéing seek situation does not arise. "another argument advanced by Sri. Gr Sarangan, ._ 1ea1i1ed:""-:senjo1="eounsel appearing for the petitioners to impugn {he of section 15{1] of the Act is that the provision AA the facﬂity of payment of tax by way of composition to "d_6e1e1's who have purchased goods ﬂrom outside the State or fﬁom outside the country is in the teeth of the provisions of Articie -- 301 of the Constituiion of India, being in the nature of 62 of section 15 of the Act having been so arranged that the state has endeavoured to not only maintain t:h_e__ overall revenue to the state from the imposition of the Act: but also to the extent possibie it is same ievel whether a dealer hasi'op'te_d'i--«efor' ﬁ$e;;€1;_1er1:t AV by way of normal 1:t1etho<i or provision cannot be said to"'s4iie»oneV. eeidiﬁoiial bL1rde11 on dealers

53. In fact, the Artieie ---- 301 of the the denial of facility to dealers the state purchase of goods and not " the veiy premise is not availabie 1_1e111e_i§x ﬁhati' ":i1e:_1_fe.is no (iiSCI'iI}Clil'l&3iiOI1 by making such ' ,.V{iisti:1_<§ti.on:"az:1d aiso that there is no additional b¥J.1'(}.CI1 on i' are denied the facility of payment of tax by Way iof Composition the srgunient that the provision is " jvielative of Article 301 of the Constitution of India and therefore uneonstitutioxial, fails and is eecoidingly rejected.

63

534. That still leaves the question of challenge to the validity of section 72[2] of the Act as has been the case of writ petitioner in WP No.10135 of the other writ petitions though it is not chaliengeri effect of levy of penaity under::..:seetion '4*?2.[2']"'of' '2"3e't 4-:

the context of cancellation of of iixitiiier section 15(1) of the Act i_ four Writ.

petitions, namely, 11279 of zoos, 14595 of Qiiosgmi 649?:i:efsQi€?.'?;~tiie".ciiailenge is again to the Act the petitioners section 7i2[2] of the Act eit11ei*'«ss'-- the of availment of composition or eth_m'Wi.,.., 'the vsiiciity required to be examined. i _5:'t~..' ~the qiiéseon of the constitutional validity of the Act, submission of Sri. G Sararzgan, Tiesrneci senior counsel appearing for the petitioners is that o the provision seeks to impose a penalty on a dealer just ' '~_''m-eause the authorities when notice a difference of more 5% between the tax paid by the dealer and the actual liability to tax, which ciiiference is noticed as a result of 64 the actual tax paid by the deaier falls short due to the subsequent reassessment: of the liability of the dealer on cazlceliation of C€>I11pOSiti02T1; that the penalty 'iznder this provision varied from 10% to 20% es. the point of time when the proﬁsien {;yas« ﬁperaitiée; H3113': AV the penalty being levied not of the A part of the dealer but becs§use=of tf1e*~r_1e1zis} cxﬂjeeinspositien and t11erefere the levy of a "pi'o"\ViVisioI2 of this natugre am both bad in »

56. Seeticm' of the ﬁﬁderz :'a_A"72'. to returns and

- [1] A dealer who fails to furnish a return 97' who fciii-a~":V§q__pay the tax due on any return 3»'Aj'uﬁaished as required under the Act shall be _ no pay together with any tax or interest ' (£346 L' penalty ofﬁfty rupees for each day of defauit and where such default is for more than five days [19] (1 further penalty equal to.'-

[i] ﬁve percent of the tax due; If the default is for more than ten days;

fig! [9] [3] 65 ten percent of the tax due; 13'' the default is for more than ten days A dealer who for any return V "

to .- :__ _ .

period futmishes a understates his liability overstates his entitlement to Na credit by ore than ﬁve pereentor his aetjual credit, as the may' z~,»e,_ shall" f being given the opportunity of cause in the imgiéositton {of ' a penalty, be lzlﬂite to a penalty to ten percent of the 'a,maunt-- aofsucgh tax unaer or;.o_verstated;_'--.

A deaier jfetum which is incomplete .. .Q?"~. inoozfreet, in any material particular as _}Znfom:ed inla notice issued H to be penaity of j"§ﬂy . ' rupeeS___fo3'ﬁ--each'' day the return remains

--.._iIetc=o1np?ete V02' inoorreict. in where a dealer who has "failed to ﬁgifaish a return has been issued " wt'.'thFan- assessment showing less than ptctual Zrlczbility to tax and he pays suchutax as assessed, such dealer, after "being given the opportunity of showing 'cause in writing against the imposition of

---- penaity, shah', be liable to a penalty of ten per cent of the amount ef the tax $51' under wesseci.

A dealer who fails, within the time specified, to get regﬁtered though liable to do so, after being given an opportunity of showing cause in writing against the imposition of a penaity, shall be liabie to pay penalty of thirty per cent of the amount of tax payable by him as 66 assessed under section 38 or re-

assessed under section 39.

[6] The power ta Zevy the above ,, shall be vested in the pfescnieeﬁ _ authority to which returns are fequ-:?fedL' to "

be ﬁtmished or the prf-38C?'i»')éd"

making an as.:sess'mefat -3 --<.3_i"=. V?e'-'~ assessment." 1 " V'

57. As can be noticed, ..pe1*ees§age at 20% at the of 's$§3ﬂte;torys._AAp;j:rfjtvision upto 31.3.2006 and ﬁ1efe'ee§;er Mi5¢e::i:ms_V1o°/5.

58. The che11e11ge:ise:1:'~f:1ie_;e1feeij.se". iiiet a pe11alt:_v of this nature or not there is any the part of the petitioners ezld even Vsfxep is attributable to no fault of the (_1e's1e§" but ¥:o"-a31y_«et}1e1' reasons not within the control of ' ;"{}3.e Submission is that penalty being a levy in the " .ziatm'e of <;1et;er1*e11ce it s§1ou1ci visit; only those who are cem1i1§_tti11g vioiation with some iI1t€I"1f.iOI1 or e'esig1, so * ;that they are dissuaded from repea.t.i:x1g the same; that the autematie ievy of penalty under the statute works at CI'(}SS purposes to the very object of levying penalty on erring persons, particularly, the person who errs consciously and 67 is opposed to the princiyies of punishing a person as 21 measwe of €leter:re11t.

59. It is also submitted that just becazéeev egexe 'ag infraction it need not nemseagﬂgi resglll; in _-afgxenaltyg '~t1'1a:

it is always necessmgﬁ _%:o = circumstances before "order. a11c'¥Vin support of this A' on the law declared by V the the case of *I1I.na3Us1:;a.1s§1e*1as1.§:L v.;s..T.7S'TA1*£3 or cmrssm' reported? 211 and therefere it is sub};x3itt.e<iAlAVet;iia;:;- penalty statutorily Without: giving an dealer to explain before the etighdﬁty Ieia-gi:f;g_Aépe11a1ty as to why a penalty is not ' ;'j»21sii.ﬁed'aeinounts to denial of an opporizunity and the '*.p1*ovisiei;: iieeomes arbitmry and is therefore violative of Auftieie. of the (3o:1stit13.t:ion of Xndia and it is on such " ~ 'Tg"reuIH1ds, the provisiens sf section 72['2] of the Act are questioned and sought to be declared as unconstitutjona}. 68

60. Learned senior counsel appemmg for the petitioners would draw attention to the existence of 0therV.re1:»eratory provisions under the Act; such as :o1u1iy levy of interest, but also other pena} rhe provision for p1'{T)S€':C"f_lti(:)I} Act and would subnzii. that-xafherirtgflere provisions, providing for levy of penalty is not 1'eaSer£z11)1e:La;eri ":rrefei'ore provision is bad in law etc:;,. é x A

61. In reliance is placed on {he 4.? Supreme Court in the case of 'Tim ea. or 11mm LTD. as use CQWWSSIONER OF SALES TAX, INDORE e kfVe;:zsI12r(;meE2-as' reported in 45 size 197.

" such subrmissions on behalf of the State, Sijiﬁayogiewmuy, learned Government Pleader would " eiiemit. that the levy of penalty under the statutory provisions, particularly in fiscal statutes has now been a . weli recognized means of ensuring statutory adherences 69 and tax payments; that a penalty can be levied even for statutory violations and the requirement of an element of mensrea has long been given a go by in tlr;-':""prov.isVio_1is of providing for levy of penalty under the. that it is also a well accepted=.A:legisl;é.nlVe"prilicigle slam? f that ievy of penalty is incitieifitallltolthe _lloiltal<s.s and so iong as the iegis1attii*e:'ii,:3ts legislstivelficompetence to levy tax it can provisions in the e11actment toser1sz.1re- that providing for penalty oftllis 3. ditfemnce of more peﬁfﬁiezlt and actual tax liability, is a Aprovisioiif' is provided for ensmting better eomgnlianoe the gﬁayment of taxes; that the provision

- A ensures the dealers do not err iiberaliy, as the scheme of it v':.he'ni"s to provide for payment of tax voluntarily by the dealers and is the norm excepting the cases which are x ohosezi for scrutiny arid reopening of assessment and l therefore the provision of this nature ensures dealers by themselves to comply with the tax liability promptly and has the object of achieving such compliance and submits t/A 70 that levy of penalty at 10% or even 20% is Ieasonable rate of levy, particuiariy, whezx penaities at such higiiilfaﬁes as 30% penalty levied under the anaiogous pIjgjifi~.§i{;;;1._e:"'!:1_1e other states has been uphelcyand "

submission has placed re}ie.::1ce.1on:_'the fd110wijag"deeieien.s: -A [1] 'sum or MJASTIQN Di p 15m'1'ALs' reported in 124 smL%e_1A1.e [21 GUZJAG commmm mx OFFICER' repoi*€e_cl 1:} .{i'£)O?}:.S§ jiefz' [1] Se.

63. The zr;eeis1'ee}"»'}:ieiI;1§g;.§éz1ot a material factor in a in ﬁscal statutes is an aecepte:'i'1eeéi1i1;1it:e some time. The above two decisioimé ef Court does aiﬁrm this view. jivigeﬁlef' dealers intended to create a diﬁemnce ' {Sf Vmaxe 5% or oiherwiee is not a criteria any more .' t1_9xe'V'?;ieiia1ty is attracted the moment: in reality there is dﬁiélfﬂce of more man 5% in the payment: and the acme} V' , liability. So loﬂg as there is a ciiﬂ'ere1"::ee which is payable by the dealer and can be collected by the State and it camaol: be denied that but for the order that wouid 71 have gone umiodced, fprovidixig for penalty in tine ease of whether it is so actually noticed cannot "-to be unreasonable p1'ovision. The rate of 10% and even 20% as was earlier cannot Lgu very unreasonably high as mnounéiiig ton pe1ia1ty~..in~.the A nature of eonfiseatory penalty is with reference to" it which had not reached state and at a percentage§..;,1:iti:Vj' [to fact that penalty is meant to that an eieinent of etettntoly penal provisions, that puroose 'stili by levy of penalty, it cannot said ~Vthe."-veiiy levy makes it unreasonabie or " _ i;¥neo:E1stit1,itioz1eiVi'.' V"~pirovision also provides for an opportunity thotigii with regard to the aspect of either the rate of AA ;perzce.2itage of penalty or whether to levy or not but on the i 'aspect as to whether there is justiiieation, in the sense, a it diiference of more than 5% if it exists or otherwise. To that extent, the ievy being not automatic but only in cases 72 where there exists dﬁiexense of more than 5% in the actual tax iiabiiity, levy of penalty cannot be charactexized as quite very Lmreasonabie levy.

66. However, an aitemative argument sm;.g::t:i advanced on behalf of the gmtitioners ¥.su}3:Ix1:it¥;§_=';gi":t1"1éét§; the case of petitioiwrs who under the composition sciigme Hdsisclosed their turnover as turnover transacted by the for paymetut of additional vsbeieatise the facility of composition _}jee'z3.-. 'withdrawn or cancelled and Conseqﬁentiailjr _the "assessing oﬁicer having assessed the without t?£iS..__f§i.Ci1itY tlnder the provisions of section 4 ' _o;{'.. the 'Act, It is therefore submitted that in such cases, " tiiere vis«*.ii;pV.s£:ope for levy of penalty under section 7'2['2] of the .. 'and if the provision should be declared as ~ tiiieonstitutioiial, penalty orders are not sustaiilable and sfiould be quashed.

7 3

67. Loarneci Government Ploader appearing for __t:he state points out that this qusstriori having not been as it is now contended by the petitioners, is .gi:*m2iijtof--sths authorities to examine and I1oti:o:1s4iI1vo1viii'g'I.thé ({LleStiOIi of validity of the statiutorg provisioiis 'A ' petitioiisrs should be toiho' so for as this aspect €ho..ixia:ift_;ofVVis_ooiioerrzecii

68. in the light. of I deem it fit to permit. the fjof V stzamizory roiiiediss only in soot L1-ndel' section 7232] of me As: is or>i'ioo1*s<-f:d'_'as "tifiiis-.Court will not be in a position to examincé-x__ths i*iVsi ooigitsiitioiis in mess petitions while tiie~-rsoiistitutioxzal vaiidity of section '?:2[2] of the ' ;A~o£ W_i'1io3ii'was an izidependsnt question and which was "eXamiz1s§i-1 air-xii aiiswerod against the petitioners, €39. .. Si; also pointed out by learned counsel for the V» oetitioners that so far as levy of penalty is concerned, the Vfassessirig authority did not give an opportunity of showing cause in writing against the proposition of imposiition of psnaity under swoon ?"2[2§ of the Act after the authority J V 2"' 74 had actually eietermined difference of 5% of H the tax iiabiiity by the petitioners but had merely ~§i101}g with the proposition notice for _:'tiie possibility of levy of penalty etc_._,... A 7t"). A11 examinatioiz of the 3 indicates that before levywiofi the Act, an opportunity" l.ZS»T, aI".'t('1i' 'thatetoo enabiing the dealer to show _

71. To t1}ifs.e;:f;te13t;j:' iridieated in the St£1{Zi.1€(}I'§§' forniality but one totvitéoinpﬁazice. The Show cause iiotioe 1Ve\2*§,ifV'.' sfiould clearly recite mat there iI1R.1'eiiif?I1t.s 7's':_ioh was the actual determination of the i _1intief'Ast5ztemezit"of the liability by the dealer is indicated V in eei1eii;deci.1~~ assessment order and it is only thereafter is't1e11,.__vie*.rjz:'~"eii' penalty Ujlidﬁi' section 7:2[2] of the Act can be x taken top and if a penalty is imposed even befoie going i through these procedures and opportunities? the._1evy of penalty will be bad for wamﬂof not gving an opportuliity .5-i:t'iz'i bf'fi37E}g in violation of section '72'[2} of the Act itself. 75

"I2. Though learned Government Pleader we1;L}<_:'_1_ suggest that the matter can go back to the appellate to adjudicate the matter, 3 am of the View thsfas is ievieci even Without pr0vic¥iz1g""p1*epere oppe1*t_Lif1ity.» tigtlie petitioners and Without it: is only necessary that t0'.Vfi1'e Written explanation gage t3 1e essessieg aut:h0rity' may examine the " be affording an opgportunityv to orders and t11ez*efore part of the orders axe eone"ei'i1e(1; by issue of a writ of cerme1*efi~ as mdicated earlier can be iakenau prepesitiezi and peﬁtioners are perrnitted to . A ti1'ei1""ob}eetieiis&wit11in six weeks from today before the I ~.. " eonce'i*z1e<:1Vassessi11g authority. A'?-3. pet.itions are ailowed in part. Rule issued only x to iimited extent.

Sd/-

Judge Anx-

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Karnataka High Court