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TMI Blog2009 (4) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... re executing the works contract, which is a transaction in the nature of sale in respect of goods, attracts liability for payment of tax under the provisions of the Act as envisaged under section 3 of the Act, which is the main charging section levying tax on every transaction in the nature of sale of goods and at the rate stipulated in respect of different goods as indicated in section 4 of the Act, which is the normal scheme of levy and collection of tax under the provisions of this Act. This Act has provided an optional scheme of paying tax to such of those dealers who opt for the optional scheme known as payment of tax by way of composition as envisaged under section 15 of the Act and by exercising the option, the petitioners have all opted for payment of tax or to discharge their tax liability by making payment in terms of the provisions of section 15 of the Act. Payment of tax by way of composition as per section 15 of the Act, while it is offered as an option to registered dealers liable for payment of tax under the Act, it is subject to fulfilment of certain conditions and is not necessarily offered to all registered dealers. It is only such of those registered dealers who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ypes of business. A common condition stipulated in respect of all those dealers, when the Act came into force, is that they should not have any transactions in the nature of purchase or securing goods they were transacting, from outside the State or outside the territory of India. As regards the liability for payment of value added tax, while it is essentially to be found in terms of sections 3 and 4 of the Act, the significance of "registered dealer" is that the registered dealer alone is enabled to collect tax from the consumers, and not otherwise. If a dealer is not a registered dealer, he is prevented or prohibited from collecting any tax from any consumer or buyer. The mechanism of determining the tax liability of a registered dealer, particularly the net tax payable by the registered dealer in respect of the turnover with reference to each month, which is the total transactions of buying and selling of the products or goods by each dealer for the month, is arrived at by a combined reading of the provisions of sections 10, 11 and incidentally the provisions of sections 12, 13 and 14 of the Act. Section 15 of the Act, the provision for payment of tax by way of composition ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax by way of composition and a dealer to whom the provisions of clause (d) of sub-section (1) of section 15 are applicable and who had opted to pay tax as notified by the State Government which is a lump sum amount payable per crusher per annum with reference to the crushing capacity of the crusher, but nevertheless even such petitioner also having been issued with a reassessment notice under section 39(1) of the Act proposing to re-determine the liability of the petitioner for the period beginning from November 1, 2005 to March 31, 2007 and also proposing levy of penalty in terms of section 72(2) of the Act, as also interest under section 36 of the Act, called upon the petitioner to show cause as to why it should not be done as per the notice dated November 24, 2007 (copy at annexure D to the writ petition), the petitioner has approached this court with the understanding and impression that the proposal is only a direct sequel to section 4(3)(d) of Act No. 6 of 2007 and on such premise has sought for invalidating the provisions of section 15(5)(e) of the Act, as introduced by section 4(3)(d) of Act No. 6 of 2007. The petitioners have all therefore directed their fury towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or composition and more so when in comparison to the dealers who had not opted for composition, in the sense, the liability for dealers who pay their taxes in the normal scheme remains the same, the provision has the effect of enlarging the tax on dealers who had opted for payment of tax by way of composition by altering the scheme midway after the dealers have chosen to pay the tax by way of composition. A feeble and halfhearted attempt is also made to impugn the validity of section 4(3)(d) of the Amending Act and the provisions of section 15(5)(e) of the Act, as it stands now in the main Act, on the premise that it has the effect of levying tax both on purchase and sale of the same goods taking it beyond the limits of entry 54 of List II of the Seventh Schedule to the Constitution of India; that the State Legislature cannot levy tax twice on a dealer both on the purchase and on the sale and the manner in which the provisions of section 15(5)(e) of the Act are being implemented demonstrates that if the very goods that was purchased by a registered dealer had been purchased from an unregistered dealer, and subjected to tax in the hands of the registered dealer, as the registered d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us; that the provisions of section 15 have been amended/ modified only to ensure that the liability for payment of tax by the dealers who opt for composition is on par with the liability for payment of tax under the normal scheme by other dealers; that while the amendment is by way of clarification, it is more an attempt to ensure parity in the liability between the dealers who do not opt for composition and persons like the petitioners who have opted for payment of tax by way of composition; that certain anomalies which worked in favour of persons who have opted for payment of tax by way of composition are set right by the amendment; that having regard to the concept of net tax payable by the dealers in the normal course and having regard to the fact that the dealers opted for payment of tax by way of composition are not allowed any input credits, the provision of section 15 has been suitably fine-tuned to ensure that the dealers who opted for payment of tax by way of composition are provided certain facilities such as not being required to maintain regular or systematic books of account and other details, nevertheless their tax liability under the Act is not in any way altered, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the contention of the petitioners that section 15(5) creates an additional charge or burden in itself is fallacious; that the provision is more clarificatory in nature and it only refers to the existing charging section under which the tax is levied in respect of the transactions of purchases from unregistered dealers and therefore the provision is well within the competence of the State Legislature to enact a law of this nature; that the challenge to the like provisions once earlier has been repelled and such provision has been upheld by the Supreme Court in the case of State of Kerala v. Builders Association of India reported in [1997] 104 STC 134 and therefore the argument that the provision is unconstitutional, while is totally untenable, being an optional scheme and an alternative mode of payment of tax, the provision should be declared to be valid by applying the law as declared by the Supreme Court in the case of Builders Association of India [1997] 104 STC 134. It is in the background of such rival contentions, submissions are made by the learned counsel for the petitioners led by Sri G. Sarangan, learned Senior Counsel and ably supported by good number of learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. State of Karnataka reported in [2002] 127 STC 105 the provision of a legislation which is given retrospective operation can be sustained if it has a purpose to serve and to make the provisions work reasonably; that in the present case, the operation of the provision from an anterior date has while no purpose to serve at all also works unreasonably by placing an additional burden on persons who had opted to pay tax by way of composition; that the provision being not a charging section meant to retain or save earlier levy and collection which has been invalidated and being not a provision to obviate the State to tide over the obligation of refunding taxes collected and spent, such being not the position in the present case, retrospective operation of the provision cannot be sustained on settled principles of validity and operation of retrospective legislation and therefore submits that the retrospective operation of the provision cannot be sustained, particularly, in the wake of the petitioners having acted on the premise of the law as it existed prior to March 30, 2007 which is virtually the fag-end of the composition period by which time the petitioners had already worked ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e declared bad and inoperative for the earlier period; that section 15(5)(e) of the Act can never be understood to be operative from April 1, 2005 as understood by the assessing officer in the case of the petitioner that there was such a levy even on dealers opting for composition ever since the Act came into force and the amendment is only by way of clarification; that the stand of the State Government that the insertion of section 15(5)(e) of the Act is only a clarificatory provision is disputed. In so far as the validity of the provision even operating prospectively is concerned, submission of Sri Sarangan, learned Senior Counsel, is that the provision is virtually in the nature of a charging section by creating a liability in terms of section 15(5)(e) of the Act; that it is not envisaged in the scheme of composition to create additional liabilities; that section 15(5) of the Act being a provision introduced for the first time in the year 2006 by Act No. 4 of 2006 from April 1, 2006 the liability is sought to be created if at all by way of the provision and not otherwise and therefore does not fit into the scheme of composition as no additional levies are permitted and being in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Devi Dass Gopal Krishnan's case [1967] 20 STC 430. For the same proposition, reliance is also placed on the decision of the Supreme Court in the case of Malnad Areca Processing & Marketing Ltd. v. Deputy Commissioner of Commercial Taxes (Assessment) reported in [2008] 13 VST 581 at page 583 and submits that the provision should be declared as unconstitutional as it is beyond the competence of the State Legislature to levy such a tax yet again purporting to be under section 3(2) of the Act when once the tax by way of composition as envisaged under section 15(1) of the Act has already been paid. Emphasis is to submit that sale and purchase are two different aspects of the same transaction. Whether sale or purchase, it will have the same ingredients, whether it is a transaction so identified under the provisions of the Sale of Goods Act, 1930 or even under the provisions of the Karnataka Value Added Tax Act, 2003 and on such premise, the provision cannot be sustained as valid. The learned counsel would also submit that implementation of the provisions in the manner as indicated in section 15(5)(e) of the Act as worked in the reassessment orders would v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should be strong and exceptional circumstances to warrant such levy and it should be a reasonable levy only for the purpose of validating an earlier levy which has failed due to some technical reasons, etc. The learned counsel would submit that though the amendment is said to be clarificatory and as urged in the statement of objections filed by the State, it is pointed out that under the scheme of legislation a levy under section 3(2) of the Act on a dealer like a works contractor was never contemplated until introduction of section 15(5)(e) of the Act by Act No. 6 of 2007 and notified on March 30, 2007 but sought to be given effect to from April 1, 2006. The submission is that the amending provision is neither clarificatory nor a valid provision and with the State failing to satisfy that the retrospective amendment was inevitable and in fact there being no justification or necessity at all for such a levy, the retrospective insertion of section 15(5)(e) of the Act is to be declared as unconstitutional being violative of article 14 of the Constitution of India. The learned counsel for the petitioner would also submit that the provisions of section 15(5)(e) of the Act cannot eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme; that it is not so envisaged under the scheme of composition as provided under section 15 of the Act and therefore the provision should be declared as unconstitutional as otherwise it amounts to subjecting the petitioner to harassment; that levy of tax should not amount to subjecting the citizen to harassment or uncalled for misery; that affecting the business in an awkward manner after the transaction is over is nothing short of violating the fundamental right of carrying on the trade or business of one's choice coming in the way of the petitioner's right guaranteed under article 19(1)(g) of the Constitution of India; that the provision cannot be said to be saved by any reasonable restriction or method justifying the petitioner to suffer such an ordeal; that levying such tax from an earlier date is clearly opposed to the ratio of the decision of the Supreme Court in the case of State of Kerala v. Kurian Abraham Pvt. Ltd. reported in [2008] 13 VST 1; [2008] 3 SCC 582. It is also submitted that the provision is also opposed to the principles of promissory estoppel as person who had opted for payment of tax by way of composition and based on the liability as it existed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the principles of promissory estoppel as dealers who had been given the option on stipulated conditions and the stipulated liability, are now being asked to shoulder additional burden after the dealers had exercised their option and had changed their position; that there is no way of dealers like the petitioner providing for details of their purchases from unregistered dealers as it was never the requirement under the Act or the Rules for persons like the petitioner who had opted for payment of tax by way of composition; that the very premise on which the notice is issued is fallacious, unreasonable and it should be quashed. Sri Satyanarayan, learned counsel for the petitioner in W.P. No. 10880 of 2008, has also submitted that addition of tax payable under section 3(2) of the Act even on a dealer who has opted for payment of tax by way of composition under section 15 of the Act is only heaping misery on the dealers; that the policy of the State should be to tax without tears and not by subjecting the citizens to misery and hardship and has therefore submitted that the provision should be declared as unconstitutional on the strength of the authorities relied upon by the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 53 ITR 231, at page 240 and submits that until and unless the legislative provision expressly mentions that it operates from particular date it can only be taken to be prospective and cites this as an authority in support of invalidating the assessment for the period prior to April 1, 2006; that even for prospective operation two other authorities for the same purpose are in the case of J.P. Jani, ITO, Circle IV, Ward G, Ahmedabad v. Induprasad Devshanker Bhatt reported in [1969] 72 ITR 595 (SC) and another in the case of Sales Tax Officer, Ward-II, Moradabad v. Oriental Coal Corporation reported in [1988] 68 STC 398 (SC). One another attack on retrospective amendment being not justified is that unless it is a validating levy, it cannot be for levying a fresh tax or fresh levy and that too by an express provision and not by mere implication. Reliance is placed on the decision of the Supreme Court in Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1; [1985] 155 ITR 144. It is also urged that the retrospective amendment is also bad for being violative of principles of natural justice and for the reason that it has the effect of placing an additional burden and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of section 15(5)(e) of the Act creating such liability fails so far as dealers who had opted for composition is concerned and therefore submits that section 15(5)(e) of the Act should be declared as an ineffective provision having failed to achieve its object in a cogent or concise manner. To support this submission, reliance is placed on the decision of the Supreme Court in the case of Commissioner of Income-tax, Bangalore v. B.C. Srinivasa Setty reported in [1981] 128 ITR 294. One another facet of the argument is that asking the dealers like the petitioners to go back to the earlier transactions to provide information as to the purchases from unregistered dealers is virtually an impossible and unrealistic requirement foisted on persons like the petitioners who in the wake of opting for composition would not have maintained such details and subjecting dealers like the petitioners to such unreasonable requirements could affect the business and life of the petitioners violative of article 21 guaranteed under the Constitution of India and in support of the same, reliance is placed on the decision of the Supreme Court in the case of Reliance Energy Ltd. v. Maharashtra State Road ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided by the Government when the Bill for amendment of section 15 of the Act was introduced in the Assembly and points out that except for saying that the provisions were as part of rationalization measures sought to be introduced in the Karnataka Value Added Tax Act, 2003 and indicating that it was "clarification regarding tax liability of dealers under composition on their purchases from unregistered persons", nothing else is forthcoming in the Budget speech of the Finance Minister while introducing the State Budget for the year 2006-07 and the proposal for amending the provisions of the Act being as part of the Finance Bill and in the absence of any specific object or purpose with which the Act was amended, particularly, for giving retrospective effect to the Act, it should be declared that the provision if is to be taken to be operative from April 1, 2006 itself it will be unconstitutional. In this regard, reliance is placed on the decision of the Supreme Court in the case of D. Cawasji & Co. v. State of Mysore reported in [1985] 58 STC 1; [1985] 19 ELT 5. Submission is that the retrospective amendment of law having the effect of increasing the tax burden is bad in law un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en opting for composition by dealers like the petitioner does not make any difference to the liability for payment of taxes under section 3(2) of the Act and for this reason also it is submitted that the impugned provision is discriminatory. The learned counsel for the petitioner would submit that it is not open to the State to adopt a policy of take it or leave it by contending that the composition scheme is an optional scheme as the State cannot adopt such an attitude which is more arbitrary in nature and in this regard would place reliance on the decision of the Supreme Court in the case of Hindustan Times v. State of U.P. reported in [2003] 1 SCC 591. Sri Thirumalesh, learned counsel for the petitioner in W.P. No. 8212 of 2008, apart from adopting the submissions made by the earlier counsel would also submit that levy of tax in terms of section 15(5)(e) of the Act as inserted by Act No. 6 of 2007 and with retrospective effect from April 1, 2006 is clearly violative of entry 54 of the List II of the Seventh Schedule to the Constitution of India for the reason that such additional burden as under section 15(5)(e) of the Act amounts to levy of tax both on purchase and sale of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that only in the case of registered dealers who is a works contractor and who has opted for composition who has made purchases from unregistered dealers not only tax is levied in his hands under section 3(2) of the Act even when he has opted for composition but also is asked to pay taxes on the entire turnover inclusive of such purchases and at the common composition rate but at the same time is not allowed any input-tax credit for the tax paid by this dealer at purchase point from unregistered dealers and it is therefore submitted that tax is levied on the very goods both at purchase and sale and therefore it is a levy beyond the scope of entry 54 of List II of the Seventh Schedule to the Constitution of India. Sri Thirumalesh, learned counsel for the petitioner, also submits that while section 15(5)(d) of the Act allows deductions of the value of purchases made by dealers opting for composition under clause (a) or (c) of section 15(1) of the Act, purchased from unregistered dealers from out of the total turnover with reference to which tax at the rate of composition should be worked out, i.e., such dealers' purchase turnover is excluded from the total turnover it is only i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nature after the event, namely, the sale or purchase is over and creating an additional burden would virtually be in the nature of levy on the profit being not at the time of transaction and is therefore unconstitutional being beyond the competence of the State Legislature to levy a tax of this nature. Sri Chidanand Urs, learned counsel, would place reliance on the decision of the Supreme Court in the case of Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Co. Ltd. reported in [1996] 83 ELT 3 (SC) to submit that the levy under section 15(5)(e) of the Act is virtually a levy not on transaction in the nature of sale or purchase but on something else such as profit of the petitioner and is therefore unconstitutional. The learned counsel for the petitioner submits that increasing the tax burden when the event is over amounts to levy on a transaction other than the sale or purchase and therefore is beyond the competence of the State Legislature. Reliance is also placed on the decision of the Supreme Court in the case of D. Cawasji & Co. v. State of Mysore reported in [1985] 58 STC 1; [1985] 19 ELT 5. Sri Shivayogiswamy, learned Government Pleader appearing for the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of composition; that the scheme being an optional scheme, it is open to the petitioners to stay in the scheme or opt out and to pay taxes in the normal course; that on the ratio of the judgment of the Supreme Court in the case of State of Kerala v. Builders Association of India reported in [1997] 104 STC 134 at page 139, the provisions have to be held to be valid and constitutional and therefore there is no merit in the writ petitions and the writ petitions are to be dismissed. The learned Government Pleader has taken me through the statement of objections and submits that the stand of the State Government is that the liability under section 3(2) of the Act is a liability which is envisaged on all dealers effecting purchases from unregistered dealer and is uniformly levied; that having regard to the language of section 15 of the Act indicating that the amount of tax by way of composition being in lieu of the net amount of tax payable by the dealer, the liability under section 3(2) of the Act had always been kept out of this computation of net amount of tax payable by dealer for the purpose of section 15 of the Act; that it was never the intention of the Legislature to provide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from earlier date or prospectively is required to be examined. Let me first examine the question of the provision being unconstitutional on the premise that section 15(5)(e) of the Act takes the levy beyond the scope of entry 54 of List II of the Seventh Schedule to the Constitution of India. Stress is laid on the scope of levy under the entry in the context of the definition of the phrase "tax on the sale or purchase of goods" as it occurs in sub-article (29A) of article 366 of the Constitution of India and the use of disjunctive proposition "or" indicates that the levy can be either on a sale or on a purchase and not on both. Dictionary meaning and authorities in support of this expression being a tax on either sale or purchase are relied upon by learned counsel for the petitioners. The language of entry 54 having been incorporated, the words from the definition of sub-article (29A) of article 366 of the Constitution of India and it being very clear that the tax is on the sale or purchase of goods, it can only mean that the tax is when a sale takes place or purchase takes place. The argument is that levying tax both at the time of purchases and also at the time of sale on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale is part of another transaction. Under the Constitutional scheme there can be a levy of tax every time there is a transaction of sale or purchase. The sale of the goods though the goods may be the same is as part of another transaction and can attract levy for payment of tax. The purchase of goods from unregistered dealer is one transaction and the sale of may be the very goods in favour of person for whom works contract is executed is another transaction and in one transaction levy is at the purchase point and in another transaction levy is at the sale point but that does not mean that the levy is in respect of the same transaction. It is not as though both the purchases and sale of the same transaction are subjected to tax but purchases and sale of the same goods as forming part of two different transactions are subjected to tax. That is not frowned upon by entry 54. It is for this reason, the provisions of section 15(5)(e) of the Act cannot be faulted as bringing about unconstitutionality assuming that the provisions are one creating an additional liability. Though learned counsel for the petitioners have placed reliance on the various authorities of the Supreme Court, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer; or (d) who is a mechanised crushing unit producing granite 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 lakh rupees for each crushing machine "per annum as may be prescribed. (2) For the purposes of sub-section (1) a quarter shall mean any period ending on final day of the months of March, June, September and December. (3) Any dealer eligible for composition of tax under sub-section (1) may report, to the prescribed authority, the exercise of his option and he shall pay such amount due and furnish a return in such manner as may be prescribed. (4) Any dealer opting for composition of tax under sub-section (1) shall not be permitted to claim any input tax on any purchases made by him. (B). Section 15 of the Act by Karnataka Act No. 32 of 2004 amended with effect from April 1, 2005: 15.. Composition of tax.-(1) Subject to such conditions and in such circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) For the purposes of sub-section (1) a quarter shall mean any period ending on final day of the months of March, June, September and December. (3) Any dealer eligible for composition of tax under sub-section (1) may report, to the prescribed authority, the exercise of his option and he shall pay such amount due and furnish a return in such manner as may be prescribed. (4) Any dealer opting for composition of tax under sub-section (1) shall not be permitted to claim any input tax on any purchases made by him. (D) Section 15 of the Act by Karnataka Act No. 4 of 2006 with effect from April 1, 2006: 15.. Composition of tax.-(1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a 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, (a) whose total turnover in a period of four consecutive quarters does not exceed an amount as may be notified by the State Government which shall not exceed fifty lakh rupees, and who is not a dealer falling under clause (b) or (c) or (d) below; or (b) who is a dealer executing works contracts; or (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a registered dealer liable to tax under the Act and that such amounts are included in the return filed by such sub-contractor; (c) in the case of a dealer executing works contracts, after opting of composition of tax under sub-section (1), effects sale of any goods liable to tax under the Act other than by transfer of the property in such goods (whether as goods or in some other form) in any works contract executed by him, the dealer shall be liable to pay tax on the value of such goods at the rate specified in section 4, without any deduction for input tax on purchase of such goods made by him; (d) in the case of a dealer opting for composition of tax under clause (a) or (c) of sub-section (1), the turnover on which tax is leviable under sub-section (2) of section 3 shall be deducted from the total turnover on which an amount as notified is payable under subsection (1) by way of composition in lieu of the tax payable under the Act. (E) Section 15 of the Act by Karnataka Act No. 6 of 2007 with effect from April 1, 2007. 15.. Composition of tax.-(1) Subject to such conditions and in such circumstances as may be prescribed, any dealer other than a dealer who purchases or obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause (d), he shall be liable to tax as specified under section 4. (3) Any dealer eligible for composition of tax under sub-section (1) may report, to the prescribed authority, the exercise of his option and he shall pay such amount due and furnish a return in such manner as may be prescribed. (4) Any dealer opting for composition of tax under sub-section (1) shall not be permitted to claim any input tax on any purchases made by him. (5) Notwithstanding anything contained in sub-sections (1) and (4),- (a) a dealer executing works contracts and who purchases or obtains goods from outside the State or from outside the territory of India shall be eligible to opt for composition under sub-section (1), and if the property in such goods (whether as goods or in some other form) is transferred in any works contract executed by him, the dealer shall be liable to pay tax on the value of such goods at the rate specified in section 4 and such value shall be deducted from the total consideration of the works contracts executed on which an amount as notified is payable under sub-section (1) by way of composition in lieu of the tax payable under the Act; (b) in the case of a dealer exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w; or (b) who is a dealer executing works contracts; or (c) who is a hotelier, restaurateur, caterer, or dealer running a sweetmeat stall or an ice cream parlour or bakery or any other class of dealers as may be notified by the Government; or (d) who is a mechanised crushing 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 lakh rupees for each crushing machine per annum as may be notified by the Government. (2) Notwithstanding anything contained in sub-section (1), a dealer whose nature of business is of a type falling under more than one clause of sub-section (1), shall be eligible to opt for composition under the said sub-section in respect of tax payable on his turnover relating to any or all of such types of business subject to the condition that, (a) such dealer maintains separate account of each type of his business; (b) the total turnover in a year in respect of all types of business of such dealer falling under clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notified is payable under sub-section (1) by way of composition in lieu of the tax payable under the Act subject to production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that such amounts are included in the return filed by such sub-contractor; (c) in the case of a dealer executing works contracts, after opting of composition of tax under sub-section (1), who effects sale of any goods liable to tax under the Act other than by transfer of the property in such goods (whether as goods or in some other form) in any works contract executed by him, the dealer shall be liable to pay tax on the value of such goods at the rate specified in section 4, without any deduction for input tax on purchase of such goods made by him; (d) in the case of a dealer opting for composition of tax under clause (a) or (c) of sub-section (1), the turnover on which tax is leviable under sub-section (2) of section 3 shall be deducted from the total turnover on which an amount as notified is payable under subsection (1) by way of composition in lieu of the tax payable under the Act; (e) a dealer executing works contracts and opting for composition of tax under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is demonstrated on authority that retrospective operation is to be accepted as an unreasonable provision, if it is without any purpose and is only creating an additional burden and additional hardship to the petitioners and in some cases also exposing them to levy of penalty for no fault on their part. Even on the authority of the decision of the Supreme Court in Builders Association of India's case [1997] 104 STC 134, the composition is an alternative scheme of payment of tax and an optional one. Though many shades of arguments on behalf of the petitioners is that the subsequent variation after the petitioners had acted on the basis of the provision as it stood earlier putting the petitioners to great disadvantage and possible penalties, is virtually a breach of assurance given to such dealers who had been given an impression that once they pay and clear the tax liability in terms of section 15(1) of the Act as it existed their vows were over. It is also because of this additional burden the provision is sought to be projected as a charging section and that it ill-fits in a composition scheme, etc. The further argument is that having regard to the scheme of the Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only reveals half truth. While it is true that the liability as under section 3(2) of the Act was prevalent all along since the inception of the Act, in the scheme of composition under section 15 of the Act, under section 15(1) of the Act, the net amount of tax by way of composition under the Act was indicated at four per cent of the turnover or the total consideration in respect of works contractors or at fixed rate in respect of stone crusher per machine per annum, there is absolutely no way of reading into this situation a dichotomy of taxes payable under sub-sections (1) and (2) of section 3 of the Act. The language is clear that it is in lieu of the net amount of tax payable by the dealer to whom the composition amount is being offered. A look into the provisions of sub-sections (2), (3) and (4) of section 15 of the Act also would never indicate that the composition amount is independent of the liability under section 3(2) of the Act. Though an argument is addressed that the introduction of section 15(5) of the Act by way of Act No. 4 of 2006 with effect from April 1, 2006 and as indicated in clause (d) of sub-section (5) of section 15 of the Act there was a mention of liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perates from an earlier date as the impact of the provision is more if is to be made known subsequently, after the parties had acted on the state of law as it prevailed earlier, it definitely puts such parties to a disadvantage and therefore the deeper the scrutiny. It is on this touchstone the impact of section 15(5)(e) of the Act when it operates from April 1, 2006 has to be examined. I am quite conscious of the celebrated principles that there is no estoppel against statute and when a liability is created or the position is altered by a legislative provision, persons affected by such a provision cannot complain that the provision should not be enforced against them on the principle of promissory estoppel as the principle of promissory estoppel cannot be pleaded against the working of a statute. If the operation of a statutory provision was sought to be avoided only on the principle of promissory estoppel perhaps this principle would automatically apply. But in the instant case, it is not merely the operation of the statutory provision that brings about an adverse result on the petitioners but the manner in which and the purpose for which it is so provided. The legislative sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an option available because of the adverse impact, the dealers are left with even if given an option to get out of the scheme and to get into the normal mode of payment of tax, as even if an option is read into the section from an earlier date when the provision is made operative there being no way of such dealers complying with the requirement for payment of tax under the normal scheme in the absence of their books of account and details of the purchases they have effected from unregistered dealers, such an eventuality is definitely not possible and therefore provision has to be declared as unreasonable if given effect to in terms of clause (d) of sub-section (3) of section 4 of Act No. 6 of 2007. That takes us to the next question as to the validity of this provision if is to be made operative subsequent to the date of the notification. As discussed above, the payment of tax under the scheme of composition is an alternative mode of payment and no doubt the liability for dealers opting for payment of tax by way of composition is indicated in sub-section (1), in so far as dealers who are works contractors are concerned, section 15(5)(e) of the Act acts as a rider to the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Keshava Murthy, learned counsel for the petitioner in the case of a stone crusher that there are considerable distinguishable features between the dealers who are having business in the nature of works contractors and other dealers who are provided with the composition scheme of payment of taxes and particularly the State Government being keen to maintain its revenue level inspite of offering the scheme of composition and such object being achieved by altering the mode of payment under the composition scheme in respect of works contractors the allegation of discrimination does not stand as there is a classification and the classification can be said to have a nexus to the object as the endeavour is to retain even a dealer like a works contractor within the scope of composition scheme but by suitably altering the liability for payment of composition tax having regard to the overall object of retaining the revenue level to the State notwithstanding composition scheme being offered to some of the dealers. The argument of learned counsel for the petitioners that even the authorities under the Act all along were under the impression that there was no liability on the part of the dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent charging section. Section 15 of the Act being a composition provision, there is no question of this provision being understood as a charging section. Section 15 of the Act is only a provision indicating the liability of tax in respect of dealers who have opted for payment of tax by way of composition and not a provision creating liability for payment of tax under the Act. Liability is only created under section 3 of the Act and as effectuated under section 4 of the Act and payment under section 15 of the Act is in place of that liability and not by way of an independent charging section. It is for this reason, section 15(5)(e) of the Act is not to be taken as part of a charging section but only a mechanism under which the quantum of composition tax payable by a dealer opting for composition is indicated. If such is the situation, the question of enabling provision of section 15(5)(e) of the Act bringing about a discrimination between dealers who are works contractors vis-a-vis who are petty dealers, hoteliers or restaurateurs is one not tenable for the very reason and logic as indicated above while rejecting the argument of additional burden only on dealers executing works con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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