Judgment:
(Prayer:These Writ Petitions are filed under articles 226 and 227 of the constitution of India Praying to quash sub-section (4) of section 4 of KVAT Act, 2003 as beyond the competence of the state legislature unde entry No.54 of list II of seventh schedule to constitution of India, Insofar as the petitioners are concerned.
H.G. Ramesh, J. ( Oral):
The petitioners are challenging the constitutional validity of sub-section (4) of Section 4 of the Karnataka Value Added Tax Act, 2003 on the ground that it is beyond the Legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule of the Constitution of India. The first petitioner is an Association of Chemists and Druggists. The other two petitioners are wholesale dealers in medicinal and pharmaceutical preparations.
2. I have heard Shri G. Sarangan, learned Senior Counsel appearing for the petitioners and Shri K.M. Shivayogiswamy, learned Additional Government Advocate appearing for respondent nos. 1 to 4.
3. The impugned provision namely sub-section (4) of Section 4 of the Karnataka Value Added Tax Act, 2003 (‘the Act’ for short) reads as follows:
“4. Liability to tax and rates thereof
(1) ……………………..
(2) …………………………
(3) ………………………….
(4) Notwithstanding anything contained in sub-section (1), subject to such conditions as may be prescribed, a registered dealer, if he so elects, may pay tax on the sale of goods specified in Sl. No.60 of the Third Schedule or any other goods, on the maximum retail price indicated on the label of the container or pack thereof or on such maximum retail price reduced by an amount equal to the tax payable.
(5)……………………………………….
(6) ………………………………………
(Emphasis supplied)
4. Shri G. Sarangan, learned Senior Counsel submitted that under the impugned provision, tax is levied on a notional measure i.e. on the maximum retail price which is not the actual price and hence such a law does not fall within the ambit of Entry 54 of List II of the Seventh Schedule of the Constitution of India. In support of his submission, he referred to a Division Bench judgment of this Court in Larsen and Toubro Limited vs. State of Karnataka [(2003) 129 STC 401].
5. On the contrary, Shri Shivayogiswamy, learned Additional Government Advocate submitted that the provision is only optional and there is no compulsion for any dealer to opt for payment of tax under the impugned provision. The dealer can as well opt for the normal method of taxation provided under Section 4 of the Act. In support of the validity of the impugned provision, he relied on a judgment of the Supreme Court in State of Kerala vs. Builders Association of India [ (1997) 2 SCC 183]. He also submitted that a dealer who does not want to opt for the alternate method of taxation provided under sub-section (4) can opt for the normal method and can also apply for refund or adjustment of the tax under Section 10(5) of the Act read with Rules 127 and 128 of the Karnataka Value Added Tax Rules, 2005. In such an event, any payment made by him in excess of the tax payable under the normal method will be refunded within the time stipulated under Rule 128 of the Karnataka Value Added Tax Rules, 2005.
6. In my opinion, the question raised herein is answered by the Supreme Court in State of Kerala vs. Builders Association of India [(1997) 2 SCC 183]. The following observations made herein are relevant.
“9. ……………………………………….
The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two percent of the total value of the contract by way of tax and he is done with all the above-mentioned botheration. The rate of two percent prescribed by sub-section (7) is far lower than the rates in Schedules 1, 2 and 5 referred to in Section 5(1)(iv)(a). In short, sub-sections (7) and (7-A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt for it or be governed by the normal method. It is only an alternative method of ascertaining the tax payable, which may be availed of by a contractor if he thinks it advantageous to him. It must be remembered that the analogous system of alternate method of taxation evolved by certain State Legislatures in the matter of levy of entertainment tax has been upheld by this Court in Venkateshwara Theatre v. State of A.P. The rough and ready method evolved by the impugned sub-sections for ascertaining the tax payable under Section 5(1)(iv) of the Act cannot be said to be beyond the legislative competence of the State or violative of clause (29-A) of Article 366 either. The Constitution does not preclude the legislature from evolving such alternate, simplified and hassle-free method of assessment of tax payable, making it optional for the assessee. The object of sub-sections (7) and (7-A) is the same as that of Section 5(1)(iv); it is only that they follow a different route to arrive at the same destination. Several taxing enactments contain provisions for composition of tax liability which may sometimes be in the interest of both the Revenue and the assessees. It must also be remembered that in the field of taxation, the legislature must be allowed greater “play in the joints”, as it is called…………………”
(Underlining supplied)
7. As could be seen from sub-section (4), it is for the dealer either to opt for the alternate method of taxation or the normal method provided under the other sub-sections. There is no compulsion for any dealer to opt for the method provided under sub-section (4). Even a subsequent dealer may opt for the normal method and can claim for refund of the amount paid by him in excess of the tax payable under the normal method. If a dealer opts for the normal method, he would be paying tax on the actual price paid by him.
8. It is not disputed by Shri. G. Sarangan, learned Senior Counsel appearing for the petitioners that the dealers who do not opt for the alternate method provided under sub-section (4) are entitled to get refund of the tax paid by them in excess of the liability provided Under the normal method of taxation.
9. As held by the Supreme Court in the Builders Association of India, the Constitution does not preclude the Legislature from evolving alternate, simplified, hassle-free method of assessment of tax, making it optional for the assessee. Hence the impugned provision, which provides for an option to avail of the alternate method of taxation, cannot be said to be unconstitutional. However, if it were to be not optional, the impugned provision would have been ultra vires the Constitution in view of the law laid down by the Supreme Court in State of Rajasthan vs. Rajasthan Chemists Association [(2006) 6 SCC 773]. In my opinion, as the question raised in these writ petitions is answered against the petitioners by the Supreme Court in Builders Association of India referred to above, the writ petitions are liable to be dismissed and are accordingly dismissed.
Petitions dismissed.