It is celebration time once again for the channel community in Karnataka. Last year in the month of August, the Karnataka High Court had come to the rescue of the channel community by giving a favorable judgment in the RST/TOT case. The court in its observation had said that the 1.5 percent
TOT/RST was not applicable on the parts of the computer (for the eight years starting from 1997-98 to 2004-05), as the intent of the state government was to exempt the same and the objections of the Auditor General was thus set aside.

The state government filed a special leave petition in the Supreme Court seeking a review of the judgment in February this year and also sought for a stay of the High Court judgment. The Supreme Court heard the case and summarily dismissed the State Government's appeal. “The verdict now clearly vindicated the stand of AIT (Association for Information Technology) and the entire channel community is relieved,” said R Sridhar, Secretary, AIT. “This is only the first of such legal battles fought by any IT association in India. The long legal battle was only made possible because of the contribution by about 50 percent dealers to the legal fund raised by the association to fight the injustice. This only goes to prove the fact that united you stand and divided you fall,” he added.

The whole issue started when the sales tax department issued a notice to several hundred resellers across the state, asking them to pay resale and turnover tax (1.5 percent and one percent respectively) with retrospective effect from as early as 1997. According to sources, the sales department was keen on plugging the tax deficit caused after the introduction of VAT in April 2005, which ended the 12.5 percent tax on computer hardware. The only way to do this was alternative taxation.

The issue triggered a big protest from the channel community and they took various measures, including meeting the chief minister and deputy chief minister, besides submitting memorandum with various government officials concerned. The resellers however, were in dismay when the government turned down their request.

Finally, they moved the high court seeking justice in the matter. The case had concluded when the court announced that all the cases relating to (this particular) sales tax issue against the resellers would be quashed with immediate effect. It also further said that the resellers need not pay any amount towards outstanding taxes in this issue. The AIT played a big role in bringing the entire channel community together and Karnataka resellers stood together and united as one face and voice, in this issue.

Despite winning an arduous case in the High Court of Karnataka in September last year against the Department of Commercial Taxes on the issue of turnover tax/resale tax and additional tax on computer peripherals, the channel community had to take on the taxmen again, this time in the country's Apex Court. Last year, the Karnataka IT dealer body-Association for Information Technology (AIT) and three individual dealers-Balaji Computers, Link Systems and Ankith Computers-were the appellants in the case, which resulted in a ruling in favor of the dealers in Karnataka.

The department then escalated the case to the Supreme Court. Around 100 dealers had filed caveats anticipating the notice. The AIT as well as the dealers believed that with the case reaching the Supreme Court, it would be an opportunity to highlight the problems faced by dealers.

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