1998 (4) TMI 520 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Entry 21 of the Sixth Schedule appended to the Karnataka Sales Tax Act, 1957.
2. Validity of the clarification dated August 3, 1989, issued by the Commissioner of Commercial Taxes.
3. Legitimacy of the assessment orders and demand notices issued under Section 28(6) of the Act.

Issue-wise Detailed Analysis:

Re. Issue 1: Constitutionality of Entry 21 of the Sixth Schedule
The petitioners contended that Entry 21 of the Sixth Schedule, which pertains to the levy of tax on the full service and maintenance of instruments, equipment, appliances, or plant and machinery, is ultra vires Section 5-B of the Karnataka Sales Tax Act, 1957, and Article 366 of the Constitution of India. They argued that the maintenance contracts involved no transfer of property in goods and thus should not be subject to sales tax.

The Court held that the tax under Section 5-B of the Act is levied on the taxable turnover of transfer of property in goods involved in the execution of works contracts. The Court clarified that Entry 21 must be read in conjunction with Section 5-B, which means tax is only levied where there is a transfer of property in goods. The Court also emphasized that the nature of each contract must be examined to determine if there is a transfer of property in goods. Therefore, the Court found no merit in the contention that Entry 21 is ultra vires and upheld its constitutionality.

Re. Issue 2: Validity of the Clarification Dated August 3, 1989
The petitioners challenged the clarification issued by the Commissioner of Commercial Taxes, which stated that maintenance of computers involving the transfer of goods falls under Entry 21 of the Sixth Schedule and is liable for tax.

The Court found that the clarification was in conformity with the provisions of Section 5-B and Entry 21 of the Sixth Schedule. The clarification merely reiterated that contracts involving the transfer of property in goods during maintenance are subject to tax. Thus, the Court held that the clarification was valid and dismissed the petitioners' challenge.

Re. Issue 3: Legitimacy of the Assessment Orders and Demand Notices
The petitioners sought to quash the assessment orders and demand notices issued under Section 28(6) of the Act, arguing that they were beyond the authority of the assessing officers and not in compliance with the law.

The Court noted that the petitioners have an alternate remedy of appeal against the assessment orders. The Court did not find any justifiable ground to examine the merits of the assessment orders in its extraordinary jurisdiction under Articles 226 or 227 of the Constitution. The Court directed that all contentions regarding the merits of the assessment orders could be urged before the appropriate appellate authorities. The Court also provided the petitioners with the liberty to file appeals and directed the appellate authorities to consider the pendency of these petitions while deciding on any applications for condonation of delay.

Conclusion:
The petitions were dismissed, and the Court upheld the constitutionality of Entry 21 of the Sixth Schedule, validated the Commissioner's clarification, and directed the petitioners to pursue alternate remedies through appeals against the assessment orders.