“Total turnover” under KST Act not refer to taxable  turnover for levy of turnover tax – SC

Total turnover u/s 6B(1) of Karnataka Sales Tax Act does not mean taxable turnover for levy of turnover tax – Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2848 (2019) (03) SC

Important Case Laws Cited/relied upon by the parties
Commissioner of Customs Vs. Dilip Kumar and Company and Others 2018(9) SCC
Indra Das Vs. State of Assam 2011(3) SCC 380 and Rakesh
Kumar Paul Vs. State of Assam 2017(15) SCC 67
M/s. Hoechst Pharmaceuticals Ltd. and Others Vs. State of Bihar and Others 1983(4) SCC 45

The appeal in the instant case was preferred against the impugned judgment passed by the High Court of Karnataka on the issue of applicability of the turnover tax under Section 6­B(1) by the Karnataka Sales Tax Act, 1957 (KST Act).

The appellant was a manufacturer and registered dealer.  Against the assessments made by the assessing authorities under Section 12(3) of the KSt Act, the assessee contested the levy of tax under Section 6­B of the KST Act, on the total turnover.

The case of the assessee was that it was a misconstruction of the provision and the tax has to be on the “taxable turnover” which was in conformity with Article 286 of the Constitution of India.

However, such contention was neither accepted by the assessing authority nor at the appellate/ revisional stage and hence the mattered travelled to the Hon’ble Supreme Court at the instance of the assessee.

The main thrust of the submission of the appellant was that Courts below had manifestly erred in appreciating that the ‘total turnover’ as defined under Section 6­B(1) for the purpose of levy turnover tax could in no event include the ‘turnover’ with reference to which the State has no power to levy  tax under the constitutional scheme and that the levy of tax under Section 6­B can be on the ‘taxable turnover’ alone.

It was argued that though the first limb of the Section  adopted  the  word ‘total  turnover’  but  it  is only for the limited purpose of identifying the dealers and further submits that the ‘turnover’ which is not liable to tax under the provisions of the Act, cannot be included in the calculation of ‘total turnover’ for the purpose of assessment of turnover tax and that is according to him the basic error which has been committed in interpreting Section 6­B(1) of the KST Act.

The Hon’ble Supreme Court noted that as pre ­amended KST Act, the expression “total  turnover” + “turnover” which is used u/s 6­B has the same meaning as defined under Section 2(1)(u­2) and 2(v) of the Act.

The Hon’ble Supreme Court further noted that under Section 6­B, reference is made on ‘total turnover’ and not the ‘turnover’ as defined under Section 2(v) of the KST Act and taking note of the exemption provided under first proviso clause(iii), exclusion has been made in reference to use of sale or purchase of goods in the course of inter­state trade or commerce.

The Hon’ble Supreme Court opined that the above said provisions, clearly indicates that the expression ‘total turnover’ under Section 6­B(1) is for the purpose of identification of the dealers and for prescribing different rates/slabs.  The first proviso to Section 6­B(1) provides an exhaustive list of deductions which are to be made in computation of such turnover with a further stipulation as referred to in second proviso that except for the manner provided for in Section 6­B(1), no other deduction shall be made from the total turnover of a dealer.

The Hon’ble Supreme Court observed that in an earlier case, while examining  the  pari  meteria provision of the Bihar Finance Act providing levy of surcharge on gross turnover, the Court had noted that the economic superiority principle for the purpose of levy of turnover tax while holding that the interpretation of statute would not depend upon contingency.  

The Hon’ble Supreme Court opined that it is trite law which the Court would ordinary take recourse to golden rule of strict interpretation while interpreting taxing statutes.  In construing penal statutes and taxation statutes, the Court has to apply  strict  rule  of  interpretation.

The Hon’ble Supreme Court observed that in the instant scheme of the KST Act , the expression ‘total turnover’ has been referred to for the purpose  of  identification / classification of dealers for prescribing various rates/slabs of tax leviable to the dealer and read with first and second proviso to Section 6­B(1), this made the intention of the legislature clear and unambiguous 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(u­2) for the purpose of levy of turnover tax u/s 6­B of the KST Act. 

The Hon’ble Supreme Court held that the submission that the ‘total turnover’ in Section 6­B(1) to be  read   as   ‘taxable turnover’ and the determination of the rate of the turnover tax is to be  ascertained on the ‘taxable turnover’ on the face of it was unsustainable and deserved rejection. 

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