M/S. KANTHI ENTERPRISES & ORS. versus STATE OF KARNATAKA & ORS.

Citation: [2002] SUPP. 2 S.C.R. 209 · Decided: 10-09-2002 · Supreme Court of India · Bench: S.S.M. QUADRI · Disposal: Dismissed

Judgment (excerpt)

MIS. KANTHI ENTERPRISES & ORS. 
v. 
STATE OF KARNATAKA & ORS. 
SEPTEMBER 10, 2002. 
[SYED SHAH MOHAMMED QUADRI AND RUMA PAL, JJ.] 
Karnataka Sales Tax Act, 1957-Section 5(1A)-levy of tax on sale or 
purchase of goods-Explanation to first proviso of sub-section (1 A) to section 
A 
B 
5 inserted later with retrospective operation-Dealers challenging C 
retrospectivity of explanation since they could not pass burden of tax on 
consumers-Dismissal by Single Judge and Division Bench of High Court-
Validity of retrospective operation-On appeal, held explanation to first proviso 
cannot be treated as imposing new burden of tax with retrospective effect 
merely clarification-Further retrospectivity which really affects the dealer is 
only of 6 months, thus even if they could not pass burden of tax on customer D 
during that period, the retrospectivity cannot be unreasonable or arbitrary. 
A Circular issued on June 19, 1988 by the Sales Tax Commissioner 
provided that the tax component forming part of the turnover will not 
qualify for deduction under the first proviso to section 5(1-A) of the 
Karnataka Sales Tax Act, 1957. The validity of the Circular was E 
challenged. High Court quashed the Circular holding that for the purpose 
of the first proviso to section 5(1-A) of the Act, sales tax paid will also 
form part of the turnover. Thereafter explanation to the first proviso to 
sub-section (1-A) of section 5 of the Act was inserted on March 5, 1996. It 
was given retrospective operation from April I, 1988. Appellants filed writ F 
petitions challenging the retrospective operation as they could not pass 
the burden of tax on consumers. Both the Single Judge and Division Bench 
of High Court dismissed the petitions. Hence the present appeals. 
Appellants contended that this retrospective operation might be 
declared as unreasonable and arbitrary as they could not pass the burden G 
of tax on to consumers and that they be relieved of the burden of tax 
imposed on them on account of retrospectivity. 
Respondents contended that merely because the explanation is given 
retrospective effect, it cannot be held illegal much less unconstitutional, 
209 
H 
210 
SUPREME COURT REPORTS [2002] SUPP. 2 S.C.R. 
A and that even when a liability by imposing burden of a tax is created for 
the first time retrospectively, the legislation cannot be faulted and the 
legislature has only clarified the existing liability having regard to the 
pronouncement of High Court. 
B 
Dismissing the appeals, the Court 
HELD: t. First proviso to sub-section (1-A) of section 5 of the 
Karnataka Sales Tax Act, 1957 deals with any point of sale other than 
the first point of sale and the last point of sale, that is intermediary points 
of sale. For purposes of such a sale it lays down the mode for determining 
C taxable turnover which has to be arrived at by deducting the turnover of 
such goods on which tax has been levied under this sub-section at the 
immediately preceding point of sale This means "the turnover" therein 
which qualified for deduction is not the price of goods impregnated with 
tax component but excluding it. Inasmuch as at the point of the first sale, 
it is the price of the goods on which tax will be levied and that will form 
D the turnover of the seller; at the next point (intermediary point) of sale 
such turnover will have two elements, the first being the price of the goods 
to the purchaser and the second is the tax which he would pay. But at the 
immediately preceding point of sale turnover of such goods on which tax 
has been levied under sub section (IA) could only mean the price of the 
goods because it is on that amount the tax has been levied. That is what 
E the Commissioner stated in his Circular. However, High Court did not 
accept the same as correct. It is for this reason the explanation was inserted 
to bring out the true intention of the legislature in calculating "total 
turnover" mentioned in the proviso. It is merely declaratory of the 
meaning of the proviso and cannot be treated as imposing a new burden 
p 
of tax on the appellants with retrospective effect. 1214-B-H] 
2. Sales tax is an indirect tax, the burden of payment of tax is on 
the dealer. The Karnataka Sales Tax Act, 1957 permits a registered dealer 
to pass on the burden of tax to the consumer duly ensuring that in the 
guise of tax no more than the actual amount of tax payable under the Act 
G should be collected from the ultimate consumer, however no 

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