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 6­B(1), this makes the intention of the legislature clear and unambiguous that except the deductions provided under the first proviso to Section 6­B(1) nothing else can be deducted from the total turnover as defined under Section 2(u­2) for the purpose of levy of turnover tax under Section 6­B of the Act. The submission of learned counsel for the appellant that the ‘total turnover’ in Section 6­B(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.

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s). 4837 OF 2011
M/s. ACHAL INDUSTRIES .…..Appellant(s)
VERSUS
STATE OF KARNATAKA ….Respondent(s)
WITH
CIVIL APPEAL NO(s). 4838 OF 2011
J U D G M E N T
Rastogi, J.
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
1
Section 6­B(1) by the Karnataka Sales Tax Act, 1957(hereinafter
being referred to as “KST Act”).

  1. 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 1990­91 to 1999­2000 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 6­B 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 1990­91 to 1999­2000 in the instant appeals.
    2
  2. 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 6­B(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
    6­B 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 6­B(1) of the KST Act.
  3. 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
    3
    intra sales tax and indeed would be beyond the legislative
    competence of the State.
  4. 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 6­B(1) for the
    purpose of identification of the dealers and for prescribing
    rate/slabs and the actual levy is intended only on intra­state
    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.
  5. 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
    4
    and Others 1983(4) SCC 45 and further submits that once the
    constitutional validity of Section 6­B has been upheld by the
    jurisdictional High Court in the series of decisions, wherein the
    challenge to Section 6­B(1) offending Article 14 and 19(1)(g) of the
    Constitution of India regarding the classification of dealers being
    repelled and it was held that the inclusion of inter­state 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.
  6. 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.
    5
    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 6­B(1) of the KST Act.
  7. Before we proceed to examine the question raised any
    further, it will be relevant to note the pre­amendment (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;
    [(u­1) “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 inter­State 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;
    (u­2) “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 inter­State 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;]
    (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
    6
    others, whether for cash or for deferred payment or
    other valuable consideration;
    ….
    [6­B. Levy of Turnover Tax.­ [(1) [Every registered
    dealer and every dealer who is liable to get himself
    registered under sub­sections (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 three­fourths 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 sub­section 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 inter­State
    trade or commerce;
    ….
    Provided further that save as otherwise provided
    in this sub­section, no other deduction shall be made
    7
    from the total turnover of a dealer for the purposes of
    this Section.”
  8. The expression “total turnover” + “turnover” which has been
    used under Section 6­B has the same meaning as defined under
    Section 2(1)(u­2) and 2(v) of the Act. It may be further noticed
    that under Section 6­B, 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 inter­state trade or commerce.
    It clearly indicates that the expression ‘total turnover’ which has
    been incorporated as referred to under Section 6­B(1) is for the
    purpose of identification of the dealers and for prescribing
    different rates/slabs. The first proviso to Section 6­B(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 6­B(1), no other deduction shall be made from the
    total turnover of a dealer.
    8
  9. This Court, in M/s. Hoechst Pharmaceuticals Ltd. and
    Others case(supra), while examining the pari meteria provision of
    sub­Section (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:­
  10. 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 sub­section (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 inter­State 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 provide, as has been done
    by sub­section (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
    9
    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 inter­state 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 sub­section (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
    10
    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:­
    “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 decisionmaking. 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.
  12. 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;
    11
    (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.”
  13. 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 second proviso to Section 6­B(1), this makes
    the intention of the legislature clear and unambiguous that
    except the deductions provided under the first proviso to Section
    6­B(1) nothing else can be deducted from the total turnover as
    defined under Section 2(u­2) for the purpose of levy of turnover
    tax under Section 6­B of the Act.
  14. The submission of learned counsel for the appellant that the
    ‘total turnover’ in Section 6­B(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.
    12
  15. 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.
  16. 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.
  17. 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.
    13
  18. Consequently, in our considered view, the appeals are
    without substance and the same are dismissed accordingly. No
    costs.
  19. Pending application(s), if any, stand disposed of.
    …………………………J.
    (A.M. KHANWILKAR)
    ………………………….J.
    (AJAY RASTOGI)
    NEW DELHI
    March 28, 2019
    14