State Can Include Proceeds From Inter-State Sale In Total Turnover To Classify Dealers For Sales Tax Slab : SC [Read Judgment]

A challenge to the constitutionality of Section 6B of the Karnataka Sales Tax Act 1957 on the ground that it permitted State to include proceeds from inter-state sale in 'total turnover' was repelled by the Supreme Court.

The petitioner's argument was that since States cannot impose tax on inter-state sale, inclusion of such sale in 'total turnover' is not permissible as per Article 286 of Constitution.

The bench of Justices A M Khanwilkar and Ajay Rastogi rejected this argument noting that the inclusion of inter-state sale in 'total turnover' was for the purpose of identifying and classifying different dealers for different tax slabs. The bench also noted that the impugned Section 6B specifically excluded inter-state sale from taxation. Therefore, there was no tax imposed on the proceeds from inter-state sale.

The bench noted :

It may be further noticed that under Section 6¬B, 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 inter¬state trade or commerce. It clearly indicates that the expression 'total turnover' which has been incorporated as referred to under Section 6¬B(1) is for the purpose of identification of the dealers and for prescribing different rates/slabs. 

The bench noted that the validity of a similar provision in the Bihar Finance Act, which took into account inter-state sales for reckoning gross turnover for the purpose of imposition of additional surcharge, was upheld by the SC in M/s. Hoechst Pharmaceuticals Ltd. and Others. There the liability of surcharge was not on the gross turnover but on the inside state sales. In that case, the SC had upheld the provision observing :

"The definition of gross turnover in Section 2(j) of the Act is adopted not for the purpose of bringing to surcharge inter-state sales or outside sales or sales in the course of import into, or export of goods out of the territory of India, but is only for the purpose of classifying dealers within the State and to identify the class of dealers liable to pay such surcharge".

Adopting similar reasoning, the bench observed :

"The submission of learned counsel for the appellant that the 'total turnover' in Section 6-B(1) is 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 is unsustainable and deserves outright rejection"

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