2003 (7) TMI 665 - HC - VAT and Sales Tax

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment of the Karnataka High Court primarily revolved around two core legal questions:

• Whether the pronouncement of law in Associated Cement Companies Ltd. regarding the levy of sales tax on works contracts prevails over the decision in Rainbow Colour Lab.
• Whether the authorities under the Karnataka Sales Tax Act can proceed on the basis that entry 25 of the Sixth Schedule is reinstated or restored to the statute, thereby subjecting the turnover relating to the transfer of property in goods involved in processing and supplying of photographs, photo prints, and photo negatives to tax under section 5-B of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Precedence of Legal Pronouncements

• Relevant Legal Framework and Precedents: The judgment examined the implications of the Supreme Court's decision in Associated Cement Companies Ltd. on the earlier decision in Rainbow Colour Lab. The court analyzed the constitutional amendment under Article 366(29A) and its impact on the interpretation of works contracts.
• Court's Interpretation and Reasoning: The court noted that the decision in Associated Cement Companies Ltd., although related to customs duty, specifically addressed the issue of whether there is any sale of goods in contracts for supply of services. The court emphasized that the principle of dominant intention was no longer relevant post the Forty-sixth Amendment.
• Key Evidence and Findings: The court identified that the Associated Cement Companies Ltd. decision explicitly stated that the conclusion in Rainbow Colour Lab ran counter to the constitutional provisions and the decision in Builders' Association of India.
• Application of Law to Facts: The court applied the legal principles from Associated Cement Companies Ltd. to determine that the decision in Rainbow Colour Lab was not binding.
• Treatment of Competing Arguments: The petitioners argued that the observations in Associated Cement Companies Ltd. were obiter dicta and not binding. The court, however, concluded that the observations were binding as they were intended to be a decision on the issue.
• Conclusions: The court held that the pronouncement in Associated Cement Companies Ltd. prevailed over Rainbow Colour Lab, thereby allowing the state to levy sales tax on the material involved in the execution of works contracts.

Issue 2: Restoration of Entry 25

• Relevant Legal Framework and Precedents: The court examined the constitutional validity of entry 25 of the Sixth Schedule, which was previously declared unconstitutional in Keshoram Surindranath Photo-Mag (P) Ltd.
• Court's Interpretation and Reasoning: The court reasoned that a provision declared unconstitutional for want of legislative competence is a nullity and void. The court distinguished between temporary and permanent invalidity, emphasizing that entry 25's invalidity had attained finality.
• Key Evidence and Findings: The court found that the decision in Keshoram was affirmed by the Supreme Court, and there was no subsequent reconsideration of entry 25's validity.
• Application of Law to Facts: The court applied the principle that a statute or provision declared unconstitutional cannot be revived without re-enactment unless reconsidered by a larger bench or the Supreme Court.
• Treatment of Competing Arguments: The state argued that entry 25 was revived by the Associated Cement Companies Ltd. decision. The court rejected this argument, stating that the decision did not automatically restore entry 25.
• Conclusions: The court concluded that entry 25 was not restored to the statute book, and the authorities could not levy tax based on it.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: The court stated, "The enunciation of law and pronouncement by the three-Judge Bench of the Supreme Court in Associated Cement Companies Ltd. is law declared under article 141 and will prevail over the principle laid down in the two-Judge Bench of the Supreme Court in Rainbow."
• Core Principles Established: The court established that the principle of dominant intention is not relevant post the Forty-sixth Amendment, and a provision declared unconstitutional for want of legislative competence cannot be revived without re-enactment.
• Final Determinations on Each Issue: The court quashed the circular issued by the Commissioner of Commercial Taxes, declared that entry 25 was not restored, and directed that all proceedings initiated based on the circular be quashed.