B. v. ASWATHAIAH & BROS. VS STATE OF KARNATAKA. — 1998 DIGILAW 654 (KAR)

ORDER ASHOK BHAN, J. - The point of law which falls for determination in this petition is : 2. Whether, on the facts and circumstances of the case, the authorities below were justified in law in subjecting to tax "purchase turnover" of raw bathies effected from the unregistered dealers within the State of Karnataka to the levy of turnover tax (TOT) under section 6B of the Karnataka Sales Tax Act, 1957 (for short, "the Act") when purchase tax leviable under section 6 was exempt in view of the Government Notification No. FD 32 CSL 86(22) dated March 26, 1986. 3. Petitioner is a partnership-firm engaged in the activity of manufacture of agarbathies. Apart from selling the agarbathies manufactured locally and outside the State, the petitioner also exports the same to places outside the country. Petitioner filed his returns for the year 1991-92. The assessing authority passed the order of assessment dated May 19, 1994 under section 12(3) of the Act. The assessing authority levied TOT at 1.75 per cent on the purchase turnover of raw bathies from the unregistered dealers within the State of Karnataka in a sum of Rs. 30,00,000. Aggrieved by the order of assessment, petitioner filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals) which was dismissed. Further appeal filed before the Tribunal met the same fate. 4. Act provides for levy of sales tax. The charging section is 5B. Section 6 provides for levy of purchase tax on a dealer who in the course of his business purchases any taxable goods on which no tax under section 5 is leviable on the sale price of such goods. In addition to the sales tax and purchase tax, section 6B provides for the levy of TOT depending upon the "total turnover" in an year. In case, total turnover exceeds a particular amount which has varied from time to time (at the relevant time it was Rs. 10,00,000), then, the dealer is required to pay TOT as provided in this section whether or not the whole or any portion of such turnover is liable to tax under any provision of the Act. Section 8A empowers the Government to make exemption/or reduction in rate; in respect of tax payable on the purchase or sale of any specified goods or class of goods or on any specified class of persons. Section 8A empowers the Government to make exemption/or reduction in rate; in respect of tax payable on the purchase or sale of any specified goods or class of goods or on any specified class of persons. In the exercise of its powers under section 8A Government issued the notification in the year 1986 referred to above exempting the raw bathies from the levy of purchase tax. 5. Assessing authority framed the assessment as under : (in rupees) (in rupees) Gross turnover 7,19,93,491.62 Less : CST turnover 6,22,06,247.58 KST collected 4,69,884.84 Sales returns 5,529.00 Discount allowed 4,43,803.96 Purchase of raw bathies 30,00,000.00 ------------- 6,61,25,465.38 -------------- Taxable turnover ... 58,68,026.24 -------------- Classification : 1. Sales T.O. of agarbathi as I dealer 58,68.026.24 8% 4,69,442.00 ------------ 4,69,442.00 TOT at 1.75% on Rs. 88,68,026.24 ... 1,55,190.45 ------------ 6,24,632.45 or Total taxes payable ... 6,24,632.00 ------------ 6. Gross turnover of the assessee was determined at Rs. 7,19,93,491.62. After reducing the gross turnover by the permissible exemptions to the tune of Rs. 6,61,25,465.38. The "taxable turnover" was determined at Rs. 58,68,026.24. The sales tax was levied on the taxable turnover. Since the total turnover of the assessee was more than Rs. 10,00,000, it became exigible to the levy of TOT at 1.75 per cent on the total turnover of purchase and sale. Assessing authority determined the total turnover for the purpose of TOT at Rs. 88,68,026.24 after adding the purchase value of the raw bathies of Rs. 30,00,000 to the taxable turnover of Rs. 58,68,026.24. Assessee's case is that since the levy of purchase tax on raw bathies had been exempted by the notification issued under section 8A, the same could not be included in the total taxable turnover for the purpose of levy of TOT. The authorities below have not accepted the petitioner's contention. According to them, the TOT had to be levied on the total turnover of the petitioner in an year whether or not the whole or any portion of such turnover was liable to tax under any other provision of the Act. 7. In order to appreciate the points raised, it would be useful to refer to the relevant provisions of the statute. 7. In order to appreciate the points raised, it would be useful to refer to the relevant provisions of the statute. In the definition section 2, "taxable turnover", "total turnover" and "turnover" have been defined in the sub-clauses (u-1), (u-2) and (v) and the same reads as under : "(u-1) 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed, but shall not include the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India; (u-2) 'total turnover' means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax, including the turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India; (v) 'turnover' means the aggregate amount for which goods are bought or sold, or supplied or distributed or delivered or otherwise disposed of in any of the ways referred to in clause (t) by a dealer either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration. Proviso, explanation ............" 8. Section 6B dealing with the levy of TOT reads as under : "6B. Levy of turnover tax. Proviso, explanation ............" 8. Section 6B dealing with the levy of TOT reads as under : "6B. Levy of turnover tax. - (1) Every registered dealer and every dealer who is liable to get himself registered under sub-sections (1) and (2) of section 10 whose total turnover in a year is not less than ten lakh rupees whether or not the whole or any portion of such turnover is liable to tax under any other provisions of this Act, shall be liable to pay tax, - (i) at the rate of one and a quarter per cent of his total turnover, if his total turnover is not less than ten lakh rupees but is less than two hundred lakh rupees in a year; or (ii) at the rate of one and three-fourths per cent of his total turnover, if his total turnover is not less than two hundred lakh rupees but is less than five hundred lakh rupees in a year; or (iii) at the rate of two and one half per cent of his total turnover, if his total turnover is not less than five hundred lakh rupees in a year : Provided that no tax under this sub-section shall be payable on that part of such turnover which relates to, - (i) sale or purchase of goods specified in the Fifth Schedule; (ii) sale or purchase of goods specified in the Fourth Schedule; (iii) sale or purchase of goods in the course of inter-State trade or commerce; (iv) sale or purchase of goods in the course of export out of the territory of India or sale or purchase in the course of import into the territory of India; (v) all amounts collected by way of tax under the provisions of this Act or the Central Sales Tax Act, 1956 (Central Act 74 of 1956); (vi) all amounts falling under the head 'freight' when specified and charged for by the dealer separately without including such amounts in the price of goods sold; and (vii) all amounts falling under the head 'charges for packing materials and cost of labour', when specified and charged for by the dealer separately without including such amounts in the price of the goods sold; (viii) turnover relating to sales of agricultural produce by a commission agent or broker on behalf of principals who are agriculturists; (ix) all amounts allowed as discount, provided that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of a contract or agreement entered into in a particular case and provided also that the accounts show that the purchaser has paid only the sum originally charged less discount; (x)(a) all amounts allowed to purchase in respect of goods returned by them to the dealer when the goods are taxable on sales provided that the goods were returned within a period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made; (b) all amounts received from the sellers in respect of goods returned to them by the dealer, when the goods are taxable on the purchase value provided that the goods were returned within a period of six months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was received; (xi) such amounts towards labour charges and other like charges not involving any transfer of property in goods, actually incurred in connection with the execution of works contract, or calculated at the rates prescribed : Provided further that, save as otherwise provided in this sub-section, no other deduction shall be made from the total turnover of a dealer for the purposes of this section : Provided also that no tax under this section shall be payable by a dealer on the sale or purchase turnover of silk fabrics : Provided also that no tax under this section shall be payable by a dealer on his turnover relating to sale of cars with less than 900 cc engine capacity. (2) The provisions of this Act and the rules made thereunder shall, so far as may be, apply in relation to the assessment, collection or refund of the turnover tax, as they apply in relation to the assessment, collection or refund of tax under the other provisions of this Act." Sub-section (6) of section 5 reads : "For the purpose of this section and other provisions of this Act, the total turnover, taxable turnover or turnover shall be determined in accordance with such rules as may be prescribed." 9. Counsel appearing for the petitioner strenuously argued before us that the authorities below have erred in including the purchase value of the raw bathies which had been exempted from payment of purchase tax in the "total turnover" for the purpose of levy of TOT. He submits that the words "total turnover" for the purpose of section 6B of the Act has to be understood in the same sense as is provided under section 5(6) of the Act read with rule 6 of the Karnataka Sales Tax Rules, 1957 and if it is so taken, then the purchases made in the State by the agent cannot form part of his total turnover. 10. The submission made is without substance as the similar contention raised has already been rejected by four Division Bench of this Court in B. P. Automobiles v. State of Karnataka [1984] 55 STC 93, Shantilal & Brothers v. State of Karnataka [1985] 59 STC 178, Jain Industrial Corporation v. Commercial Tax Officer [1996] 101 STC 302 and S. N. Guggari and Company v. Commissioner of Commercial Taxes in Karnataka [1998] 110 STC 426. In Jain Industrial Corporation's case [1996] 101 STC 302 (Kar) it was held : "In my considered opinion, the submission advanced by Mr. Gandhi is obviously fallacious for more than one reason. As held by the two Division Bench decisions of this Court in the cases of B. P. Automobiles [1984] 55 STC 93 and Shantilal & Brothers [1985] 59 STC 178, the expression 'total turnover' as used under section 6B(1) has to be necessarily read in terms of section 2(u-2) and not on computation thereof as provided under rule 6 of the Rules. Even otherwise it is well-settled that if the rules are found to be inconsistent with the provisions of the Act, the same have to yield to the latter, and the provisions contained under the Act will have an overriding effect. The 'total turnover' as defined under section 2(u-2) of the Act, as noticed above, is not dependent on any mode of computation to be provided by the rule-making authority. On a proper construction it can well be held that rule 6 of the Rules had to be engrafted in order to work out 'taxable turnover' as defined under section 2(u-1) of the Act and the total turnover as worked out therein is only a step in-aid for ultimate computation of taxable turnover. The expression 'the total turnover of a dealer, for the purpose of the Act, shall be the aggregate' as used in rule 6 can by no rule of construction be held as intending to override the definition of 'total turnover' as defined under the Act. The rule of harmonious construction clearly suggests that the determination of total turnover under rule 6 is meant only for the purpose of determining taxable turnover and nothing more." 11. From the above, it is clear that expression "total turnover" as used in section 5(6) of the Act will have the same meaning as under section 2(u-2) of the Act but for determining the same for the purpose of section 6B, the deduction provided under rule 6 cannot be pressed into service. In the same case referred to above, it was further observed as under : "It has further to be borne in mind that the grant of exemption from tax under any other provisions of the Act cannot in any way affect the liability under section 6B of the Act since in sub-section (1) thereof the Legislature has excluded the consideration of such exemptions by specifically declaring 'whether or not the whole or any portion of such turnover is liable to tax under any other provisions of this Act'. It has been made more explicit by further declaring under the second proviso to sub-section (1) of section 6B of the Act to the effect that 'no other deduction shall be made from the total turnover of a dealer for the purpose of this section'. It has been made more explicit by further declaring under the second proviso to sub-section (1) of section 6B of the Act to the effect that 'no other deduction shall be made from the total turnover of a dealer for the purpose of this section'. This means that except the deductions provided under the first proviso to section 6B(1) nothing else can be deducted from the total turnover as defined under section 2(u-2) for the purpose of levy of turnover tax under section 6B of the Act." 12. Counsel for the petitioner then argued that the "total turnover" in section 6B has to be taken to be, either of sale or purchase of goods made by the assessee and not by aggregating the "turnover" of sales and purchases to determine the total turnover. For this, he referred us to the definition of turnover in section 2(v) where the word "or" has been used in between the words "bought or sold". According to him, it could either be the sales or purchases which could be clubbed together for the purpose of determining total turnover under section 6B and not the aggregate of the two. The argument to say the least is fallacious and without any substance. Legislature has defined the "total turnover" as well as "turnover" in sections 2(u-2) and 2(v) respectively. In section 6B reference is to the "total turnover" and not the "turnover" and therefore, we have to go to the definition of "total turnover" as given in section 2(u-2) for the purpose of section 6B and not to the turnover as given in section 2(v). "Total turnover" as defined in section 2(u-2) in substance means the aggregate turnover in all goods of purchases and sales made by an assessee in the course of inter-State trade or commerce or in the course of export of goods outside the territory of India or in the course of import of goods into the territory of India "whether or not, the whole or any portion of such turnover is liable to tax". If this be so, then the turnover of purchase or sale irrespective of whether the whole or any portion of such turnover is liable to tax has to be clubbed for the purpose of levy of TOT under section 6-B. The goods which were exempt from payment of purchase tax leviable under section 6 because of the notification issued under section 8A have to be aggregated to the "total turnover" of sales while determining the levy of "turnover tax" under section 6B. 13. For the reasons stated above, we do not find any merit in this revision petition and dismiss the same with no order as to costs. Petition dismissed.