Dismissed

The State of Karnataka by v. M/S Rane (Madras) Ltd.

Karnataka HC25 Sept 2021CRP/440/2017

Case brief

AI extract

What is this about?

The High Court of Karnataka disposed of a civil revision petition filed by the Revenue against a Tribunal order setting aside interest levied on a dealer. The Court answered the legal question in favor of the assessee, holding that interest under Section 7[2] does not attract when the tax liability is finally determined after regular assessment without a preceding provisional assessment.

What did the court decide?

The Civil Revision Petition stood dismissed; the Tribunal's order setting aside the levy of interest was upheld.

The State of Karnataka by Vs M/S Rane (Madras) Ltd. — GST and Indirect Tax | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 25^TH DAY OF SEPTEMBER, 2021

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PRESENT

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THE HON’BLE MRS.JUSTICE S.SUJATHA

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AND

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THE HON’BLE MR. JUSTICE RAVI V. HOSMANI

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C.R.P.No.440/2017

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BETWEEN :

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THE STATE OF KARNATAKA BY SECRETARY, FINANCE DEPARTMENT, VIDHANA SOUDHA, BANGALORE-560001. ...PETITIONER

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(BY SRI K.HEMA KUMAR, AGA.)

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AND :

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M/s RANE (MADRAS) LTD., NO.78/84, HOOTAGALLI INDL. ARA, MYSORE-570018 REP. BY SRI O.N.LINGAIAH. …RESPONDENT

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(BY SRI M.THIRUMALESH, ADV.)

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THIS CRP IS FILED UNDER SECTION 15(A) OF THE KARNATAKA TAX ON ENTRY OF GOODS ACT 1979, AGAINST THE JUDGMENT DATED 29.05.2015 PASSED IN STA.NOS.1692 TO 1695/2013 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT BANGALORE, DISMISSING THE APPEAL IN STA.NOS. 1693 AND 1695/2013 AND ALLOWING THE APPEALS IN STA.NOS.1692 AND 1694/2013 AND UPHOLDING THE ORDER DATED 23.03.2013 PASSED IN KTEG.AP.NO.13/12-13 ON THE FILE OF THE JOINT COMMISSIONER OF COMMERCIAL TAXEX (APPEALS), MYSORE DIVISION, MYSORE., DISMISSING

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THE APPEAL AND FILED AGAINST THE REASSESSMENT ORDER DATED 05.12.2012 PASSED IN TIN.NO.29790375210, PASSED BY THE DEPUTY COMMESSIONER OF COMMERCIAL TAXES (AUDIT)-2, MYSORE.

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THIS PETITION COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J ., MADE THE FOLLOWING:

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O R D E R

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This revision petition is filed by the Revenue under Section 15[A] of the Karnataka Tax on Entry of Goods Act, 1979 [‘KTEG Act’ for short] against the judgment dated 29.05.2015 passed in STA Nos.1692 to 1695/2013 on the file of the Karnataka Appellate Tribunal at Bangalore [‘Tribunal’ for short] relating to the assessment years 2005-06 and 2006-07.

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The Revision Petition was admitted to

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consider the following questions of law:

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“i. Whether on the facts and in the circumstances of the case, the impugned order passed by the Tribunal is sustainable in law?

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ii. Whether the Tribunal was right in passing the impugned order dated

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29.05.2015 and setting aside the levy of interest under Section 7[2] of the KTEG Act, despite the fact that the respondent admittedly failed to pay tax along with its returns within the time prescribed under Section 7 of the Act on the value of cutting tools caused entry by it during the relevant years in question?”

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3. Learned Additional Government Advocate

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appearing for the Revenue has restricted the challenge only to question of law No.2.

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The respondent – assessee was a registered dealer under the provisions of the Act and has admitted turnovers of machinery and lubricants for the purpose of entry tax whereas the same was not admitted on the turnovers of cutting tools such as drill-bits, reamers, cutters, taps etc. the appellant was subjected to reassessment under Section 6 of the Act for the assessment years under consideration. On such reassessment proceedings being concluded, the entry tax

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was levied on such machine tools, which was not exigible to tax as per the assessee. Accordingly, tax was levied on this turnover along with penalty under Section 6[2] and interest under Section 7[2] of the KTEG Act by the Assessing Authority.

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Being aggrieved, the assessee has preferred

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appeal before the First Appellate Authority wherein, the levy of entry tax on machine tools and the levy of interest was confirmed.

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Being aggrieved, the assessee preferred appeals before the Karnataka Appellate Tribunal, (Camp at Mysore) [‘Tribunal’ for short] in STA Nos.16921695/2013. The Tribunal has framed the following points for consideration:

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“1. Whether, the FAA is correct in holding that the cutting tools like drill bits, reamers, taps, inserts etc used by the appellant is exigible to entry tax as accessories of machinery?

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2. Whether, the FAA is correct in upholding the levy of interest by the AA?

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3. Whether, the FAA is correct in disallowing the exemption on the purchase of lubricants on which the appellant has paid entry tax but claims exemption on the basis of other evidences?

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4. What order?”

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On appreciation of material evidence, point Nos.1 and 3 were answered in the Affirmative and point No.2 in the Negative. Accordingly, appeals were disposed of insofar as the imposition of interest under Section 7[2] of the KTEG Act, allowing the appeals of the assessee setting aside the interest levied under Section 7[2] of the Act, liberty was reserved to the Assessing Authority to examine the levy of interest and penalty as per the provisions of Section 8[2] and 7[3] of the KTEG Act respectively, in accordance with law.

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8. Being aggrieved by this portion of the order

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of the Tribunal insofar as levy of interest under Section 7(2), the Revenue has preferred this appeal, raising the questions of law as aforesaid.

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9. Learned counsel for the Revenue would

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submit that as per Section 7[1] of the Act, the dealer is required to pay advance tax on the basis of taxable goods caused entry by him into a local area within twenty days from the end of the relevant month. In terms of Section 7[2] of the Act, if there is any default in the payment of tax for any month beyond 10 days, or if the amount paid is less than the amount of tax payable for any month, the dealer defaulting payment of tax or making short payment of tax shall, in addition to the tax, pay interest at the rate of two percent per month from the date of such default or short payment to the date of payment of such tax. Therefore, if a dealer delays payment of tax as required under Section 7[1] by

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more than 10 days, he would be liable to pay interest at the prescribed rate from the date on which the tax ought to have been paid up to the date on which the tax is eventually paid. The assessee was liable to pay entry tax on the turnover of cutting tools which has caused entry into the local area. As such, there is default committed by the assessee in not making payment of tax within the prescribed period as per Section 7[1] of the KTEG Act. Thus, Section 7[2] of the Act would certainly attract. There is flagrant violation of Section 7[1] of the KTEG Act by the assessee. In such circumstances, the Assessing Authority was justified in imposing interest under the Statutory Scheme of Section 7[2] of the KTEG Act and the same was rightly affirmed by the Commissioner of Income Tax [Appeals]. However, the Tribunal failed to appreciate the provisions of Sections 7[1] and 7[2] of the Act in a right perspective and concluded that the assessee is not liable to pay interest under Section 7[2] of the Act. Thus, the learned

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counsel submits that levy of interest is to compensate the delay in payment of tax and the same being automatic, the Tribunal ought to have been directed the assessee to pay interest affirming the orders of the authorities.

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Learned counsel for the assessee placing reliance on the judgment of the Dharwad Bench of this Court in the case of State of Karnataka V/s. Shree

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Renuka Sugars Limited, Belagavi [2018 (90) KGST

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L.J. 498 (HC) (DB)] [where one of us, Hon’ble SSJ was member] would contend that the Division Bench of this Court considering the provisions of Section 12-B[2] of the Karnataka Sales Tax Act, 1957 [‘KST Act’ for short] which is in pari materia with Section 7[1] and [2] of the KTEG Act, has held that the levy of interest under Section 12-B[2] of the Act is unjustifiable. The monthly returns were filed by the assessee declaring the turnover but according to the assessee, the same is not

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being exigible to levy of tax, no tax was paid. It is pursuant to the assessment order the tax was levied on the machine tools and interest was claimed under Section 7[2] of the Act. There being no provisional assessment made by the Assessing Authority, imposing levy of interest while concluding the final assessment on the turnover of the machine tools is not in conformity with the provisions of the KGET Act. Thus, the learned counsel submitted that finding recorded by the Tribunal having examined the statutory provisions of the Act is in accordance with law and the same does not call for any interference by this Court.

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We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.

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Sections 7[1], to 7[4] of the KTEG Act reads

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thus:

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“ 7. Payment of tax in advance. - (1) Subject to such rules as may be prescribed every registered dealer [and every dealer liable to get himself registered under this Act] shall send every month to the assessing authority a statement containing such particulars as may be prescribed and shall pay in advance the full amount or tax payable by him on the basis of the [goods] brought by him during the preceding month into the local area [within twenty days after the close of the preceding month to which such tax relates] and the amount so payable shall for the purpose of sub-section (4) of section 8 be deemed to be an amount due under this Act from such dealer:

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[Provided that in the case of a dealer whose total turnover in any year under the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957) [or the Karnataka Value Added Tax Act, 2003 (Karnataka Act 32 of 2004)] is not more than seven lakh fifty thousand rupees, shall submit statements for each month in accordance with this sub-section once in a quarter and pay in advance the full amount of tax payable for every quarter within twenty

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days after the close of that quarter to which such tax relates.

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[(2) If default is committed in the payment of tax for any month or quarter as the case may be, beyond ten days, whether or not a statement as required under sub-section (1) is filed; or if the amount of tax paid is less than the amount of tax payable for any month or quarter as the case may be, the dealer defaulting payment of tax or making short payment of tax shall, in addition to the tax, pay interest calculated at the rate of two per cent per month from the date of such default or short payment to the date of payment of such tax.]

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(3) If at the end of the year it is found that the amount of tax paid in advance by any dealer for any month or for the whole year in the aggregate was less than the tax payable for that month or the tax for the whole year as finally assessed, as the case may be, by more than fifteen percent the assessing authority may direct such dealer to pay in addition to the tax, by way of penalty, a sum [calculated at the rate of two per cent per month of the tax paid in

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short from the date of expiry of thirty days after the close of the month or the quarter or the year, as the case may be, to which such tax relates.]

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Provided that no penalty under this subsection shall be imposed unless the dealer affected has had a reasonable opportunity or showing cause against such imposition. [(4)] If no such statement is submitted by a dealer under sub-section (1) before the date prescribed or if the statement submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing authority may assess the dealer provisionally for that month to the best of his judgement, recording the reasons for such assessment, and proceed to demand and collect the tax on the basis of such assessment:

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Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard.”

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A harmonious reading of these provisions

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would make it clear that it was mandatory on the part of

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the registered dealer to get himself registered under the KTEG Act and send every month statement/returns along with tax payable by him i.e., in advance within 20 days after close of the preceding month to which such tax relates. There is default on the part of the registered dealer in not remitting the tax within 20 days after the close of the preceding month to which such tax relates. Sub-section [2] of Section 7 of the KTEG Act would attract for making the registered dealer liable to pay interest on the short payment of tax. These provisions are identical to Section 12-B[2] of the KST Act.

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The Division Bench of this Court in Shree Renuka Sugars Limited, Belagavi supra, has

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considered the scope and effect of these provisions in the light of the judgment of the Hon’ble Apex Court in the case of J.K.Synthetics Ltd., V/s. Commercial taxes Officer [1994 STC 422 (SC)] and another Division Bench ruling of this Court in the case of State

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of Karnataka V/s. Mandovi Motors (Private)

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Limited, Mangalore , reported in [2014 (79) KLJ 581] and has arrived at a conclusion that in the absence of provisional assessment made under Section 12-B[3] of the KST Act [therein] to determine the tax liability rejecting the monthly return incomplete or incorrect levying interest on the short payment of tax, such short payment of tax determined by the Assessing Authority while concluding the regular assessment would not attract the levy of interest. It is held that an harmonious reading of Sub-sections (1), (2), (3), (3A) and (4) of Section 12-B makes it clear that the phrase ‘paid’ and ‘payable’ employed in sub-Section (2) shall be the determination of advance tax made subsequent to final assessment by the Assessing Authority. As such, it can be held without any hesitation that Section 7[2] would certainly not be applicable in the facts of the present case when the tax element has been quantified by the Assessing Authority after concluding the final

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assessment, without there being any provisional

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assessment rejecting the returns declared by the assessee if found incorrect.

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It is obvious that the assessee pays the tax whichever is liable according to him on the information returns filed by him, it is highly unrealistic to expect him to pay the tax on the basis of final assessment to be done by the Assessing Authority at a future date or in other words, the assessee cannot predict the liability accruing on the basis of the final assessment proceedings or the assessee cannot affirm such eventualities which according to him was unexpected/uncalled unless provisional assessment is made. If any tax is made finally on final assessment made by the Assessing Authority, penal provisions under Section 7[3] and 8[2] of the KTEG Act ought to have been invoked, but no power under Section 7[2] of the KTEG Act would have been exercised by the Assessing Authority. These aspects are

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meticulously examined by the Tribunal in giving a finding that the levy of interest under Section 7[2] of the KTEG Act was unjustifiable. Accordingly, reserving liberty to the Revenue to examine the levy of interest and penalty as per the provisions of Section 8[2] and 7[3] of the KTEG Act respectively, has set aside the levy of interest under Section 7[2] of the KTEG Act which cannot be faulted with.

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For the reasons aforesaid, we answer the

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question of law in favour of the assessee and against the Revenue.

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In the result, Civil Revision Petition Stands dismissed.

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Sd/JUDGE

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Sd/JUDGE

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NC.

The State of Karnataka by v. M/S Rane (Madras) Ltd.

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The State of Karnataka by v. M/S Rane (Madras) Ltd.

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