Case: BRITISH PHYSICAL LAB INDIA LTD Vs. STATE OF KARNATAKA AND ANOTHER

1. The appellants are manufacturers of television sets and the like in the State of Karnataka.2. On June 20, 1986, a notification was issued by the respondent-State u/s 8A of the Karnataka Sales Tax Act, 1957. Thereby the tax payable by a dealer u/s 5 of the Act on television sets and components manufactured in Karnataka was reduced to 2 per cent. At that point of time the tax payable by dealers in television sets under the Act was 4 per cent. On March 28, 1987, the respondent-State issued another notification whereby the reduced tax payable by dealers in television sets and components manufactured in Karnataka was enhanced from 2 to 3 per cent. On the same date the rate of tax payable by dealers in television sets and components was enhanced from 4 to 6 per cent.3. The notifications by which the rate of tax payable by dealers in television sets and components manufactured in Karnataka had been reduced were challenged by Solidaire India Limited, a company manufacturing television sets outside the State of Karnataka. On October 8, 1990 Reported as Solidaire India Ltd. Vs. State of Karnataka and another, the writ petition was allowed and these notifications were quashed.4. In January, 1991, the appellants received notices from the sales tax authorities in the respondent-State calling upon them to show cause why they should not pay sales tax at the normal rate instead of the reduced rate, pursuant to the quashing of the said two notifications. A provisional assessment order in this regard was then passed and a demand notice was issued. On February 8, 1991, the appellants filed the writ petitions out of which these appeals arise. They challenged the aforesaid demand notices. They also prayed that the judgment of the learned single Judge in the case of Solidaire India Ltd. Vs. State of Karnataka and another, should not be held to be enforceable as against them. These writ petitions were heard by a division Bench along with the appeal filed by the State Government against the single Judges judgment in Solidaire India Ltd. Vs. State of Karnataka and another, as also the appeal filed by Solidaire itself. The appeals of the State Government and Solidaire were dismissed. In so far as the appellants writ petitions were concerned, it was held that the doctrine of prospective invalidation could not be employed in exercise of powers under Article 226. Accordingly these writ petitions were also dismissed.

Reasoning: In the case of Indian Cement and Others Vs. State of Andhra Pradesh and Others, notifications providing for a concessional rate of tax to cement manufacturers within the States of Andhra Pradesh and Karnataka were quashed. Writ petitions were filed in this Court by local manufacturers challenging proceedings commenced in the State of Andhra Pradesh to recover the amounts of the sales tax which would have been paid but for these notifications. Counsel for the local manufacturers pointed out that, having regard to these notifications, the local manufacturers were disentitled by reason of the provisions of the Andhra Pradesh General Sales Tax Act to recover the difference in the amounts from their customers and would have been liable to penalties if they had done so. This Court, treating the writ petitions as review petitions, noted that the attention of the learned Judges who delivered the judgment in Indian Cement and Others Vs. State of Andhra Pradesh and Others, had, apparently, not been drawn to the fact that the local manufacturers would have to pay by way of sales tax amounts which they had not and could not under the provisions of the Andhra Pradesh General Sales Tax Act have collected from their customers. The notifications had been intended to protect the local cement industry. The quashing of the notifications should have the effect of putting the local cement industry and the same industry outside the State on par ; it could not place the former in a disadvantageous position qua the latter. It was, therefore, just and equitable not to permit the State to collect the differential amounts. Accordingly, it was ordered that the State shall not collect the amounts of sales tax that has become payable only by reason of this order quashing its two impugned notifications.8. Learned Counsel for the respondent-State has, fairly, not contested this position but has expressed apprehension in regard to the possible outcome of any order that we might pass on television manufacturers in the same situation as Solidaire, particularly having regard to the statement made by the learned Government Pleader before the division Bench of the High Court. Such television manufacturers are not before us and they appear to have taken no proceedings subsequent to the order on the appeal before the division Bench. We see no reason why, in the circumstances, we should be deterred from passing the appropriate order on their account.