Supreme Court: In a dispute regarding the constitutional validity of Entry 25 of Schedule VI of Karnataka Sales Tax Act, 1957 dealing with levy of tax on processing and supply of photographs, photo prints and photo negatives, the 3 Judge Bench of H.L. Dattu, C.J., Dr. A.K. Sikri and Arun Mishra, JJ., held that the Entry 25 is constitutionally valid and set aside the reasoning of the Karnataka High Court which declared Entry 25 of the Schedule VI to be invalid as the State Legislature is not permitted to re enact an already declared unconstitutional provision by application of a different legal principle. The Court further observed that the High Court’s erroneous observation is unsustainable as it did not look into the various aspects of the issue in the correct perspective and ignoring the case laws that declared Rainbow Colour Lab v. State of M.P., (2000) 2 SCC 385 as a bad law on the competence of the State Legislature to impose sales tax on processing and supply photo, photo prints etc.
Delving into the history of the dispute it was observed that Entry 25 which was inserted via an amendment in 01.07. 1989, was declared unconstitutional by the High Court and later by the Supreme Court following its reasoning in the Rainbow Colour Lab case. Subsequently the State Government via an amendment in 2004 re- introduced Entry 25 with a retrospective effect from 01.07.1989 and again the High Court declared the provision unconstitutional in 2005 but without taking into consideration of the fact that Rainbow Colour Lab was overruled by ACC Ltd. v. Commissioner of Customs, (2001) 4 SCC 593. The respondents represented by Salman Khurshid challenged the authority of the State Legislature to give a retrospective effect to Entry 25 as it violates Article 265 of the Constitution along with challenging the enactment of the Entry itself. The appellants were represented by S.R. Hegde.
The Court discussed various case laws dealing with the issue and observed that the High Court’s decision based on the ‘dominant intention’ principle as laid down by Rainbow Colour Lab was erroneous as after 46th Constitutional Amendment State is empowered to levy sales tax on the material used even in those contracts where the dominant intention of the contract is the rendering of a service, which amounts to a Works Contract. The Court further observed that according to clause 29-A of Article 366, the Works Contract was bifurcated into ‘sale of Goods’ and ‘services’, thereby making goods component of the contract exigible to sales tax thus by this logic Entry 25 of Schedule VI of Karnataka Sales Tax Act is constitutionally valid. State of
Thanks for sharing information with us.