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TMI Blog2007 (4) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Karnataka High Court holding that the circular dated October 23, 1999 (Circular No. 31/1999-2000) is valid and Circular No. 5/1996-97 dated April 12, 1996 was inoperative. Background facts in a nutshell are as follows: Appellants are dealers registered under the Karnataka Sales Tax Act, 1957 (in short, "the Act"). Their business activities, inter alia, include business of leasing machinery, equipment and motor vehicles. Section 5-C of the Act deals with levy of tax on transfer of the right to use the goods which is treated as a transfer for the purpose of levy of sales tax within the State. Originally the levy was on "taxable turnover". An amendment was brought in 1992 to the said provision substituting the expression "total turnover" for "taxable turnover". The same was questioned by several assessees. A division Bench of the High Court by its judgment in Shetty Leasing (India) Pvt. Ltd. v. Union of India [1996] 100 STC 533 (Karn), struck down the provision. On April 1, 1996, section 5-C was again amended with retrospective effect restoring the original position, i.e., substituting the expression "taxable turnover" for "total turnover". On April 12, 1996, a circular was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two opinions were expressed in the two circulars it is nothing but a change in the opinion and it is impermissible for the Revenue to reopen the complete assessment on the basis of the subsequent circular. The fact that the proviso was by way of a clarification is clear from the fact that at the first instance only 12 days after section 5-C was amended, the circular was issued. In essence, the principle of contemporaneous expression applies to the facts of the case. The circular dated October 23, 1999 is in essence review of the earlier circular which is impermissible in law. The circular itself states that those are "revised instructions" and, therefore, cannot have any retrospective force and in any event cannot permit reopening of complete assessment either by way of reassessment proceedings or by exercise of revisional powers. In response, learned counsel for the Revenue submitted that the true nature of the proviso has been kept in view. The High Court's conclusions are irreversible. There is no question of proviso being clarificatory in nature. According to him, the proviso can be applicable with effect from the date of introduction because that would determine the taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss the dealer affected has had a reasonable opportunity of showing cause against such imposition. (2) In computing the period of limitation for assessment for the escaped turnover under this section, the time during which an assessment has been deferred on account of any stay order granted by any court or other authority in any case, or by reason of the fact that an appeal or other proceeding is pending before the Appellate Tribunal or the High Court or the Supreme Court, shall be excluded: Provided that nothing contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to an assessment or reassessment made on the assessee or any person in consequence of, or to give effect to, any finding, direction or order made under sections 20, 21, 22, 22A, 23 or 24 or any judgment, or order made by the Supreme Court, the High Court, or any other court. 21.. Revisional powers of Joint Commissioners.-(1) The Deputy Commissioner may of his own motion call for and examine the record of any order passed or proceeding recorded under the provisions of this Act by a Commercial Tax Officer subordinate to him for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are relevant and they read as follows: "11. According to the appellant, the disqualification imposed by section 13-A(1)(c) of the First Amendment remained in operation only for a period of one year and would have in ordinary course ceased to operate on the expiry of the period of one year from April 5, 1994. The citizens were justified in arranging their affairs including the enlargement of their families keeping in view the provision of law as it stood. However, the Second Amendment Act effective from October 14, 1994 made a difference. On that day, the Legislature specifically provided that a person having more than two children on or after expiry of one year shall stand disqualified. This period of one year, in the submission of the appellant, should be calculated from October 4, 1994 and not April 5, 1994 and if that be done the birth of the child on August 13, 1995 would not attract the disqualification. 12.. This plea of the appellant raised a few interesting questions, such as, the nature of the amendment, i.e., whether it is at all retrospective in operation, and if not, whether the provision as amended by the Second Amendment applies to the appellant. 13.. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressly given, the courts may be called upon to construe the provisions and answer the question whether the Legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former State of the law; and (iv) what it was the Legislature contemplated (p. 388). The rule against retrospectivity does not extend to protect from the effect of a repeal a privilege which did not amount to accrued right (p. 392). 16. Where a statute is passed for the purpose of supplying an obvious omission in a former statute or to 'explain' a former statute, the subsequent statute has relation back to the time when the prior Act was passed. The rule against retrospectivity is inapplicable to such legislations as are explanatory and declaratory in nature. A classic illustration is the case of Attorney General v. Pougett [1816] 2 Price 381 (p. 392). By a Customs Act of 1873 (53 Geo. 3, c. 33) a duty was imposed upon hides of 9s 4d, but the Act omitted to state that it was to be 9s 4d per cwt., and to remedy this omission another Customs Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent to give retrospectivity to an enactment. A validating clause coupled with a substantive statutory change is only one of the methods to leave actions unsustainable under the unamended statute, undisturbed. Consequently, the absence of a validating clause would not by itself affect the retrospective operation of the statutory provision, if such retrospectivity is otherwise apparent'. 19.. The Constitution Bench in Shyam Sunder v. Ram Kumar [2001] 8 SCC 24 had held: (SCC p. 49, para 39) 'Ordinarily when an enactment declares the previous law, it requires to be given retroactive. The function of a declaratory statute is to supply an omission or explain previous statute and when such an Act is passed, it comes into effect when the previous enactment was passed. The legislative power to enact law includes the power to declare what was the previous law and when such a declaratory Act is passed invariably it has been held to be retrospective. Mere absence of use of the word 'declaration' in an Act explaining what was the law before may not appear to be a declaratory Act but if the court finds an Act as declaratory or explanatory it has to be construed as retrospective.' (p. 2487). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place once. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins v. Treasurer of Survey [1880] 5 QBD 170 (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha AIR 1961 SC 1596 and Calcutta Tramways Co. Ltd. v. Corporation of Calcutta AIR 1965 SC 1728), when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule. "If the language of the enacting part of the statute does not cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the amendments effective from April 1, 1996-Reg. Ref: 1. Govt. Notification No. DPAL 15 LGN 96, Dated March 21, 1996 published in Karnataka Gazette, Extraordinary, Part IV, section 2B, dated March 21, 1996. 2.. Govt. Notifications No. FD35 CSL 96 (1 to 25) dated March 30, 1996. 3.. Govt. Notifications No. FD 85 CET 96 (1 to 3) dated March 30, 1996. 4.. Govt. Notifications No. FD 4 CRC 96 dated March 30, 1996. As per the Karnataka Taxation Laws (Second Amendment) Act, 1996, amendments are effected to provisions of the below mentioned Acts: (i) Karnataka Tax on Luxuries Act, 1979. (ii) Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976. (iii) Karnataka Entertainments Tax Act, 1958. (iv) Karnataka Agricultural Income-tax Act, 1957. (v) Karnataka Sales Tax Act, 1957. 2.. Salient features of the amendments are explained hereunder for guidance and compliance. (Specific mention is made about the amendments which are introduced with retrospective effect and in all other cases, the amendments take prospective effect, i.e., with effect from April 1, 1996): . . . Amendment of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 5-C of the Karnataka Sales Tax Act, 1957 as amended by the said Amendment Act was stated to be as follows: "16. Section 5-C in force prior to this amendment prescribed 'total turnover' as the basis for levy of tax. The honourable High Court of Karnataka in the judgment rendered in the case of Shetty Leasing (India) Ltd. v. Union of India [1996] 100 STC 533, had struck down section 5-C as beyond the competence of State Legislature. The amendment now introduced substitutes the whole of section 5-C with retrospective effect from April 1, 1986 so as to overcome the aforesaid judgment. The newly substituted section prescribes 'taxable turnover' as the basis for levy of tax. Assessments, if any, completed adopting the basis of 'taxable turnover' for levy of tax, stand automatically validated by the validation clause at section 7 of the Amendment Act. In all such cases, it would be in order for the assessing authorities to pursue action for realisation of the taxes levied by issuance of simple notices, without going in for rectification, reassessments or revisions. 17.. Computation of taxable turnover for the purpose of section 5-C now substituted, would have to be in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall be liable to tax under section 5-C. In other words, the goods which have suffered tax under section 5 are not excluded from the purview of section 5-C when right to use of such goods is transferred. In view of the above, the following revised instructions are issued: (i) Section 5-C was substituted retrospectively with effect from April 1, 1986 by amending Karnataka Taxation Laws (Second Amendment) Act, 1996. The newly substituted section 5-C provides for levy of tax on the 'taxable turnover' in respect of transfer of the right to use any goods specified in Seventh Schedule to the Act for any purposes (whether or not for specified period). (ii) The tax under section 5-C shall be levied on taxable turnover in respect of transfer of right to use any goods specified in the Schedule notwithstanding that such goods have already been subjected to tax under any of the provisions of the Act including section 5-C. (iii) In determining the taxable turnover for the purposes of section 5-C the amounts for which the goods whose right to use is transferred has been purchased from another registered dealer liable to pay tax under sub-section (1) or sub-section (3) of section 5, shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants. Particular reference may be made to paragraphs 22 and 25 (paras 15 and 18 in STC) which read as follows: "22. In Ahmedabad Manufacturing & Calico Printing Co. Ltd. v. S.G. Mehta, Income-tax Officer AIR 1963 SC 1436 See [1963] 48 ITR 154 (SC). in its assessment to income-tax for the year 1952-53, the appellant, a company, had been granted under the provisions of the Finance Act, 1952, a rebate on a portion of its profits of the previous year, that is, 1951 which it had not distributed as dividends to its shareholders. In the next assessment year 1953-54, the appellant used a part of the aforesaid undistributed profits for declaring dividends. As the law then stood, nothing could be done by the revenue authorities to withdraw the rebate earlier granted on the ground of the profits being utilised in declaring dividends in a later year. From April 1, 1956, however, there was a change in the law as sub-section (10) of section 35 of the Income-tax Act, 1922 was brought into force then. By an order made on March 27, 1958, under that sub-section, the aforesaid rebate was withdrawn and the appellant was called upon to refund it. The appellant then applied to the High Court at Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the cases. The grant of rebate having been stopped after March 31, 1956, there was no occasion to provide for cases of such grant thereafter. All these circumstances lead me to the view that the intention of the Legislature was to penalise the cases of utilisation of amounts on which rebate had been granted in payment of dividends which had happened before the sub-section came into force. The remedy which the sub-section provided would largely fail in any other view. The general scope and purview of the sub-section and a consideration of the evil which it was intended to remedy lead me to the opinion that the intention of the Legislature clearly was that the sub-section should apply to the facts that we have in this case." 25.. The two decisions in the cases of Ahmedabad Manufacturing Calico Printing Co. Ltd. v. S. G. Mehta, Income-tax Officer [1963] 48 ITR 154 (SC) and Commercial Tax Officer v. Biswanath Jhunjhunwala [1996] 5 SCC 626 are more close to the issue involved in the present case before us. They laid down that it is the language of the provision that matters and when meaning is clear, it has to be given full effect. In both these cases this court held that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isation by the Commissioner of Sales Tax and its service on the assessee is not a condition precedent to reopen the assessment. It is not disputed that a fiscal statute can have retrospective operation. If we accept the interpretation given by the respondents, the proviso added to sub-section (2) of section 21 of the Act becomes redundant. Commencement of Act can be different than the operation of the Act though sometimes both may be the same. The proviso now added to sub-section (2) of section 21 of the Act does not put any embargo on the Commissioner of Sales Tax not to reopen the assessment if the period, as prescribed earlier, had expired before the proviso came into operation. One has to see the language of the provision. If it is clear, it has to be given its full effect. To reassure oneself, one may go into the intention of the Legislature in enacting such provision. The date of commencement of the proviso to section 21(2) of the Act does not control its retrospective operation. Earlier the assessment/reassessment could have been completed within four years of that particular assessment year and now by the amendment adding proviso to section 21(2) of the Act it is eight yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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