1. The petitioner firm is a registered dealer under the Karnataka Sales Tax Act. Among other articles, it deals in rexine cloth. An assessment to sales tax, for the year 1976-1977, i.e, from 24-10-1976 to 11-11-77, was made by the Commercial Tax Officer. The Deputy Commissioner of Commercial Taxes being of the view that the assessment in regard to certain matters was erroneous and prejudicial to the interest of revenue, issued a notice under S. 21(4) of the Karnataka Sales Tax Act to the petitioner to show cause why the assessment should not be revised. The notice was in relation to two items. The Commercial Tax Officer had made an assessment at a concessional rate under S. 5(3A), in respect of certain goods supplied to Bangalore Body Builders. He had done so on the basis of the production of the declaration in form No. 37 issued by the said purchaser. But the Deputy Commissioner of Commercial Taxes was of the view that this is erroneous as according to him the goods worth Rs. 590-40 purchased by Bangalore Body Builders had been used in the works contract. The other item referred to in the notice was a turnover of Rs. 28,46,448.28, in respect of rexine cloth which had been exempted from the tax by the Commercial Tax Officer. The Deputy Commissioner of Commercial Tax was of the view that exemption was contrary to law.
2. The petitioner is challenging the said notice issued by the Deputy Commissioner of Commercial Taxes, dated 31-8-1979 (Ex-A).
3. It is contended by Sri B.P Gandhi, learned counsel for the petitioner, that the notice is without jurisdiction and unjustified. So far as the rexine cloth is concerned, he has relied upon the decision in STRP 3940/73, dated 18-10-1973 and a decision dated 20-10-1979 in W.P No. 5297/1975 (Verma Industries Ltd. v. CTO, Bangalore Dt.) and as such the exemption granted by the Commercial Tax Officer is in accordance with law and the notice issued by the Deputy Commissioner of Commercial Taxes is unwarranted. His contention is sound and is supported by the aforesaid decisions.
4. In regard to the spare parts that have been sold to Bangalore Body Builders, there is no dispute that there was a sale by the petitioner to that party and he had also produced the declaration in form No. 37 issued by the purchaser. Under Sec. 5(3A), a dealer in order to be entitled to the concessional rate has to produce such a declaration and once he produces such a declaration, should be entitled to the concessional rate. Merely, because the purchaser subsequently misapplies or misuses the goods for the purpose other than for which it had been intended, the seller cannot be deprived of the concession he has been granted by virtue of the provisions of S. 5(3A). In such a contingency, the Legislature has made specific provision under S. 5(3B). The purchaser can be penalised in accordance with that provision. There is no provision in the Act to the effect if the purchaser misuses the goods, the seller should be deprived of the concessional rate. Therefore, the notice issued by the Deputy Commissioner of Commercial Taxes, in this behalf also, is not warranted by law.
5. In the result, the rule issued is made absolute and the writ petition is allowed.
6. The notice Exhibit-A is hereby quashed.