M/S ACHAL INDUSTRIES versus STATE OF KARNATAKA
[2019] 5 S.C.R. 511, Supreme Court of India, 2019
Outcome: Dismissed (Dismissed)
Segment: Arguments
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      M/S  ACHAL INDUSTRIES
 v.
      STATE OF KARNATAKA
(Civil Appeal No.4837 of 2011)
MARCH 28, 2019
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Karnataka Sales Tax Act, 1957 –  ss.2(u-2) and 6-B(1) –
Turnover tax under s.6-B – Basis for levy – Submission for the
appellant that the ‘total turnover’ in s.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  ‘taxable turnover’ – Held: Submission is
unsustainable – Except the deductions provided under the first
proviso to s.6-B(1) nothing else is to be deducted from the total
turnover as defined under s.2(u-2) for the purpose of levy of turnover
tax under s.6-B of the Act.
Dismissing the appeals, the Court
HELD: 1. The expression “total turnover” and “turnover”
which has been used under Section 6-B has the same meaning as
defined under Section 2(1)(u-2) and 2(v) of the Act.  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 first proviso to Section 6-B(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 6-B(1), no
other deduction shall be made from the total turnover of a dealer.
[Para 9] [517-A-C]
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M/s. Hoechst Pharmaceuticals Ltd. and Others v. State
of Bihar and Others (1983) 4 SCC 45 : [1983] 3 SCR
130; Commissioner of Customs(Import), Mumbai v..
Dilip Kumar and Company and Others (2018) 9
SCC 1 : [2018] 7 SCR 1191  –  relied on.
2. In construing penal statutes and taxation statutes, the
Court has to apply strict rule of interpretation.  In the instant
scheme of the 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 6-B(1),  this
makes the intention of the legislature clear and unambiguous
that except the deductions provided under the first proviso to
Section 6-B(1) nothing else can be deducted from the total
turnover as defined under Section 2(u-2) for the purpose of levy
of turnover tax under Section 6-B of the Act. [Paras 11, 12]
[518-G; 519-G-H; 520-A-B]
Rakesh Kumar Paul v. State of Assam (2017) 15 SCC
67 : [2017] 8 SCR 785 ; Subramanian Swamy and
Others v. Raju through Member, Juvenile Justice Board
and Another (2014) 8 SCC 390 : [2014] 9 SCR 283  –
held inapplicable.
Indra Das v. State of Assam  (2011) 3 SCC 380  :
[2011] 4 SCR 289  –  referred to.
                                    Case Law Reference
[2011] 4 SCR 289
         referred to
Para 5
[2017] 8 SCR 785
        held inapplicable
Para 5
[1983] 3 SCR 130
relied on
Para 6
[2018] 7 SCR 1191
        relied on
Para 11
[2014] 9 SCR 283
        held inapplicable
Para 15
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CIVIL APPELLATE JURISDICTION:  Civil Appeal No. 4837
of 2011
From the Judgment and Order dated 17.04.2007 of the High Court
of Karnataka at Bangalore in Sales Tax Revision Petition No. 37 of
2006
    With
Civil  Appeal No.4838 of 2011.
Mohit Chaudhary, Ms. Puja Sharma, Balwinder Singh Suri,
Ms. Sarima Sharma, Advs. for the Appellant.
Devadatt Kamat, AAG, Aristotle Joseph S., Javedur Rahman,
Ms. Priya Aristotle, Rajesh Inamdar, Aditya Bhat, V. N. Raghupathy,
Advs. for the Respondent.
The Judgment of the Court was delivered by
RASTOGI, J.
1. The present appeals have been preferred against the impugned
judgment dated 17th April, 2007 passed by the High Court of Karnataka
disposing of the Sales Tax Revision Petition examining the applicability
of the turnover tax as defined under Section 6-B(1) by the Karnataka
Sales Tax Act, 1957(hereinafter being referred to as “KST Act”).
2. The brief facts of the case which may be relevant for the
present purpose are that the appellant is a manufacturer and registered
dealer of the cashew kernels cashew shell oil, etc.  Assessments were
made for the years 1990-91 to 1999-2000 by the respective assessing
authorities under Section 12(3) of the Act.  Against the assessment orders
of the assessing authorities, appeals/revision petitions were preferred
before the appellate/revisional authority and the contention advanced by
the learned counsel for the appellant was that levy of tax under Section
6-B of the Act, on the total
turnover is a misconstruction of the provision
and it has to be on the “taxable turnover” which may be in conformity
with Article 286 of the Constitution of India but that was neither accepted
by the assessing authority nor at the appellate/revisional stage against
which the present appeals have been preferred impugning the
assessments made for the years 1990-91 to 1999-2000 in the instant
appeals.
 M/S  ACHAL INDUSTRIES v. STATE OF KARNATAKA
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3. The main thrust of the submission of Mr. Mohit Chaudhary,
learned counsel for the appellant is that Courts below have manifestly
erred in appreciating that the ‘total turnover’ as defined under Section
6-B(1) for the purpose of levy turnover tax can in no event include the
‘turnover’ with reference to which the State has no power to levy tax
under the constitutional scheme and the submission proceeds that the
levy of tax under Section 6-B can be on the ‘taxable turnover’ alone.
Though the first limb of the Section has 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 6-B(1)
of the KST Act.
4. Learned counsel submits that the interpretation which has been
advanced by the respondent State if taken at its face value, would amount
to permitting the State to indirectly levy turnover tax on part of a dealer’s
total turnover which is non exigible to intra sales tax and indeed would
be beyond the legislative competence of the State.
5. Learned counsel further submits that although the constitutional
validity of the provision has been upheld but still open to the Court to
read down
the provision in a manner that it do not offend the Constitutional
scheme.  The concept of ‘total turnover’ has been incorporated under
Section 6-B(1) for the purpose of identification of the dealers and for
prescribing rate/slabs and the actual levy is intended only on intra-state
turnover by reason of the proviso, it may be within the competence of
the State Legislature.  In support of submission, learned counsel has
placed reliance on the decision of this Court in Indra Das Vs. State of
Assam 2011(3) SCC 380 and Rakesh Kumar Paul Vs. State of Assam
2017(15) SCC 67.
6. Per contra, Mr. Devadatt Kamat, learned AAG appearing for
the respondent State submits that the issue in the instant appeals stands
conclusively answered by this Court in M/s. Hoechst Pharmaceuticals
Ltd. and Others Vs. State of Bihar and Others 1983 (4) SCC 45 and
further submits that once the constitutional validity of Section 6-B has
been upheld by the jurisdictional High Court in the series of decisions,
wherein the challenge to Section 6-B(1) offending Article 14 and 19(1)(g)
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of the Constitution of India regarding the classification of dealers being
repelled and it was held that the inclusion of inter-state export and import
turnover is only for the purpose of identifying dealers and not for levying
tax, that was within the competence of the State Legislature.  This Court
has explained in M/s. Hoechst Pharmaceuticals Ltd. and Others Vs.
State of Bihar and Others(supra) to reiterate the principle of economic
superiority for the purpose of levying turnover tax.
7. Learned counsel for the respondent State further submits that
in the instant case, the appellant filed returns for the assessment years in
question claiming certain deductions.  When such returns were assessed
by the assessing authorities, it was noticed that as far as the determination
of the rate at which ‘turnover tax’ was to be levied, the dealer has made
incorrect deductions and in turn has furnished returns at a lower rate.
Upon assessment, the assessing authority determined the actual slab
applicable to the assessee for each assessment year and levied the
turnover tax accordingly and it is in conformity with Section 6-B(1) of
the KST Act.
8. Before we proceed to examine the question raised any further,
it will be relevant to note the pre-amendment (1st April, 2000) of the
KST Act, as under:-
“2. Definitions. – (1) In this Act, unless the context
otherwise requires, —
…
“(u)”tax” means a tax leviable under the provisions of this Act;
[(u-1) “taxable turnover”
means the turnover on which a dealer
shall be liable to pay tax as determined after making such deductions
from his total turnover and in such manner as may be prescribed,
but shall not include the turnover of purchase or sale in the course
of inter-State trade or commerce or in the course of export of the
goods out of the territory of India or in the course of import of the
goods into the territory of India;
(u-2) “total turnover” means the aggregate turnover in all goods
of a dealer at all places of business in the State, whether or not
the whole or any portion of such turnover is liable to tax, including
the turnover of purchase or sale in the course of inter-State trade
 M/S  ACHAL INDUSTRIES v. STATE OF KARNATAKA
[RASTOGI, J.]
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or commerce or in the course of export of the goods out of the
territory of India or in the course of import of the goods into the
territory of India;]
(v) “turnover” means the aggregate amount for which goods
are bought or sold, or supplied or distributed [or delivered or
otherwise disposed of in any of the ways referred to in clause (t)]
by a dealer, either directly or through another, on his own account
or on account of others, whether for cash or for deferred payment
or other valuable consideration;
….
[6-B. Levy of Turnover Tax.- [(1) [Every registered dealer
and every dealer who is liable to get himself registered under sub-
sections (1) and (2) of Section 10] whose total turnover in a year
is not less than [ten lakh] rupees whether or not the whole or any
portion of such turnover is liable to tax under any other provisions
of this Act, shall be liable to pay tax,-
(i)   at the rate of one and a quarter per cent of his total turnover,
if his total turnover is not less than ten lakh rupees but is less
than two hundred lakh rupees in a year; or
(ii)  at the rate of one and three-fourths per cent of his total turnover,
if his total turnover is not less than two hundred lakh rupees
[but is less than five hundred lakh rupees in a year; or]
(iii) at the rate of [two and three fourth per cent] of his total
turnover, if his total turnover is not less than five hundred lakh
rupees in a year]:
               Provided
that no tax under this sub-section shall be
payable on that part of such turnover which relates to,-
(i)   sale or purchase of goods specified in the Fifth Schedule;
(ii)  sale or purchase of good specified in the Fourth Schedule;
(iii)  sale or purchase of goods in the course of inter-State trade or
commerce;
      ….
            Provided further that save as otherwise provided in this
sub-section, no other deduction shall be made from the total
turnover of a dealer for the purposes of this Section.”
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9. The expression “total turnover” + “turnover” which has been
used under Section 6-B has the same meaning as defined under Section
2(1)(u-2) and 2(v) of the Act.  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 first proviso to Section 6-B(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 6-B(1), no other
deduction shall be made from the total turnover of a dealer.
10. This Court, in M/s. Hoechst Pharmaceuticals Ltd. and
Others case(supra), while examining the pari meteria provision of sub-
Section (1) of Section 5 of the Bihar Finance Act which provides for
levy of surcharge on gross turnover in relation to the tax payable in
reference to Article 286 of the Constitution of India read with Entry 54
under List II of Seventh Schedule into consideration held as under:-
90. The
decision in Fernandez case [AIR 1957 SC 657] is
therefore clearly an authority for the proposition that the State
Legislature notwithstanding Article 286 of the Constitution while
making a law under Entry 54 of List II of the Seventh Schedule
can, for purposes of the registration of a dealer and submission of
returns of sales tax, include the transactions covered by Article
286 of the Constitution. That being so, the constitutional validity
of sub-section (1) of Section 5 of the Act which provides for the
classification of dealers whose gross turnover during a year
exceeds Rs 5 lakhs for the purpose of levy of surcharge, in addition
to the tax payable by him, is not assailable. So long as sales in the
course of inter-State trade and commerce or sales outside the
State and sales in the course of import into, or export out of the
territory of India are not taxed, there is nothing to prevent the
State Legislature while making a law for the levy of a surcharge
under Entry 54 of List II of the Seventh Schedule to take into
account the total turnover of the dealer within the State and
 M/S  ACHAL INDUSTRIES v. STATE OF KARNATAKA
[RASTOGI, J.]
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provide, as has been done by sub-section (1) of Section 5 of the
Act, that if the gross turnover of such dealer exceeds Rs 5 lakhs
in a year, he shall, in addition to the tax, also pay a surcharge at
such rate not exceeding 10 per centum of the tax as may be
provided. The liability to pay a surcharge is not on the gross
turnover including the transactions covered by Article 286 but is
only on inside sales and the surcharge is sought to be levied on
dealers who have a position of economic superiority. 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. The underlying object is to classify dealers into
those who are economically superior and those who are not. That
is to say, the imposition of surcharge is on those who have the
capacity to bear the burden of additional tax. There is sufficient
territorial nexus between the persons sought to be charged and
the State seeking to tax them. Sufficiency of territorial nexus
involves a consideration of two elements viz.: (a) the connection
must be real and not illusory, and (b) the liability sought to be
imposed must be pertinent to that territorial
connection: State of
Bombay v. R.M.D. Chamarbaugwala [AIR 1957 SC 699], Tata
Iron & Steel Co. Ltd. v. State of Bihar [(1958) SCR 1355] and
International Tourist Corporation v. State of Haryana [(1981)
2 SCC 318].  The gross turnover of a dealer is taken into account
in sub-section (1) of Section 5 of the Act for the purpose of
identifying the class of dealers liable to pay a surcharge not on the
gross turnover but on the tax payable by them.
11. This Court also noticed the economic superiority principle for
the purpose of levy of turnover tax while holding that the interpretation
of statute would not depend upon contingency.  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 and this is
what has been considered by this Court in Commissioner of
Customs(Import), Mumbai Vs. Dilip Kumar and Company and
Others 2018(9) SCC 1 in para 24 and 34 as under:-
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“24. In construing penal statutes and taxation statutes, the Court
has to apply strict rule of interpretation. The penal statute which
tends to deprive a person of right to life and liberty has to be given
strict interpretation or else many innocents might become victims
of discretionary decision-making. Insofar as taxation statutes are
concerned, Article 265 of the Constitution prohibits the State from
extracting tax from the citizens without authority of law. It is
axiomatic that taxation statute has to be interpreted strictly because
the State cannot at their whims and fancies burden the citizens
without authority of law. In other words, when the competent
Legislature mandates taxing certain persons/certain objects in
certain circumstances, it cannot be expanded/interpreted to include
those, which were not intended by the legislature.
34. The passages extracted above, were quoted with approval by
this Court in at least two decisions being CIT v. Kasturi and
Sons Ltd. (1999) 3 SCC 346 and State of W.B. v. Kesoram
Industries Ltd. (2004) 10 SCC 201 (hereinafter referred to as
“Kesoram Industries case”, for brevity). In the later decision, a
Bench of five Judges, after citing the above passage from Justice
G.P. Singh’s treatise, summed up the following principles applicable
to the interpretation of a taxing statute:
“(i) In interpreting a taxing statute, equitable considerations are
entirely out of place. A taxing statute cannot be interpreted on
any
presumption or assumption. A taxing statute has to be
interpreted in the light of what is clearly expressed; it cannot imply
anything which is not expressed; it cannot import provisions in the
statute so as to supply any deficiency; (ii) Before taxing any person,
it must be shown that he falls within the ambit of the charging
section by clear words used in the section; and (iii) If the words
are ambiguous and open to two interpretations, the benefit of
interpretation is given to the subject and there is nothing unjust in
a taxpayer escaping if the letter of the law fails to catch him on
account of the legislature’s failure to express itself clearly.”
12. In the instant scheme of the Act of which reference has been
made in detail, 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
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second proviso to Section 6-B(1),  this makes the intention of the
legislature clear and unambiguous that except the deductions provided
under the first proviso to Section 6-B(1) nothing else can be deducted
from the total turnover as defined under Section 2(u-2) for the purpose
of levy of turnover tax under Section 6-B of the Act.
13. 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.
14. The judgments on which learned counsel has placed reliance
in Indra Das Vs. State of Assam (supra) is in context of the fundamental
rights in reference to the provisions of Terrorists & Disruptive Activities
(Prevention) Act, 1987, and it was observed that the endeavour of the
court should be to try to sustain the validity of the statute by reading it
down as possible.
15. The judgment in Subramanian Swamy and others Vs. Raju
through Member, Juvenile Justice Board and Another 2014(8) SCC
390 was in reference to a challenge to the validity of the Juvenile
Justice(Care and Protection of Children) Act, 2000. Though the validity
was repelled by this Court, the doctrine of ‘reading down’ was discussed.
It was held to be inapplicable in the facts of the said case.
16. In Rakesh Kumar Paul Vs.
State of Assam(supra), this Court
has examined the interpretation of Section 167(2) of the Code of Criminal
Procedure, 1973 which has a reference to the liberty of a citizen.  Either
of the cases referred to may not have any remote relevance to the
question which has come up before us for consideration.
17. Consequently, in our considered view, the appeals are without
substance and the same are dismissed accordingly.  No costs.
18. Pending application(s), if any, stand disposed of.
Devika Gujral
                                            Appeals dismissed.