Allowed

M/S Bhavani Steel Corporation v. the State of Karnataka

Karnataka HC22 Dec 2021WP/20348/2021

Case brief

AI extract

What is this about?

Petitioner challenged endorsement rejecting application for penalty waiver under Karasamadhana Scheme, 2021. Court held reassessment completed before cut-off date entitled petitioner to 100% waiver under Scheme Clause 2, quashing endorsement and directing waiver.

What did the court decide?

Quashed endorsement and demand notice; directed respondents to grant 100% waiver of penalty of Rs. 25,17,84,006/-.

M/S Bhavani Steel Corporation Vs the State of… — Writ and Judicial Review | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA, BENGALURU

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DATED THIS THE 22^ND DAY OF DECEMBER, 2021

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BEFORE

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THE HON'BLE MR.JUSTICE S.R.KRISHNA KUMAR

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WRIT PETITION NO.20348 OF 2021 (T-RES)

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BETWEEN:

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M/S. BHAVANI STEEL CORPORATION A PROPRIETARY CONCERN HAVING ITS OFFICE AT SY.NO.104/2, PB ROAD, AVARAGERE DAVANAGERE – 577 003 REP. BY ITS PROPRIETOR MR. SATHEESH D, S/O. SHRI. DHARMACHAR, AGED ABOUT 49 YEARS

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…PETITIONER

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(BY SRI. HARISH V.S., ADVOCATE)

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AND:

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THE STATE OF KARNATAKA DEPARTMENT OF FINANCE, VIKASA SOUDHA, BANGALORE – 560 001 REP. BY ITS CHIEF SECRETARY.

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THE COMMISSIONER OF COMMERCIAL TAXES, KARNATAKA, VANIJYA TERIGE KARYALAYA, GANDHINAGAR, BANGALORE – 560 009.

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THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, (AUDIT – 3), VANIJYA TERIGE BHAVANA, DEVARAJURS LAYOUT 'A' BLOCK, DAVANAGERE – 577 006.

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…RESPONDENTS

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(BY SRI. HEMA KUMAR K, AGA)

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THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ENDORSEMENT DATED 01.10.2021 ISSUED BY THE R3 FOR THE TAX PERIOD 2016-17 I.E. ANNEXURE – D AND ETC.

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THIS W.P. COMING ON FOR FURTHER HEARING , THIS DAY, THE COURT MADE THE FOLLOWING:-

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ORDER

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In this petition, the petitioner seeks quashing of the impugned endorsement at Annexure-D dated 01.10.2021 passed by respondent No.3 and for a direction to the respondents to allow the petitioner's application for waiver of penalty as provided under the Karasamadhana Scheme, 2021 (for short, "the said Scheme") in terms of the State Government Order dated 29.03.2021 and for other reliefs.

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Heard learned counsel for the petitioner and learned AGA for the respondents and perused the material on record.

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In addition to reiterating the various contentions urged in the petition and referring to the documents produced by the petitioner, learned counsel for the petitioner submits that, re-assessment proceedings in

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relation to the petitioner for the assessment year 2016-17 were taken up by the respondents under Section 39 of the Karnataka Value Added Tax Act, 2003 (for short "the KVAT Act"). On 03.03.2021, a proposition notice was issued by the respondents to the petitioner proposing to levy penalty in a sum of Rs.25,17,84,006/- under Section 70(2) R/w Section 39 of the KVAT Act. The petitioner having submitted their objections to the said proposition notice, respondent No.3 proceeded to pass a re-assessment order dated 23.04.2021 under Section 70(2) R/w Section 39 of the KVAT Act and issued a demand notice to the petitioner pursuant to the same.

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Meanwhile, the aforesaid scheme having come into force with effect from 29.03.2021, petitioner submitted an application dated 30.09.2021 in Annexure-IA seeking waiver of the aforesaid penalty by invoking the benefit provided in favour of the petitioner under the said Scheme. It is the grievance of the petitioner that despite the petitioner being entitled to complete waiver of 100% of penalty as contemplated in Clause 2 of the said Scheme, respondent No.3 has erroneously and incorrectly rejected

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the said application/claim of the petitioner for waiver on the erroneous and incorrect premise/ground that the said scheme was not applicable and the penalty levied upon the petitioner was beyond the ambit of the said scheme. Aggrieved by the impugned endorsement dated 01.10.2021, petitioner is before this Court by way of the present petition.

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Per contra, learned AGA, in addition to reiterating the various contentions urged in the Statement of Objections and referring to the documents produced by the respondents would support the impugned endorsement and submit that the respondents had correctly rejected the claim of the petitioner. It is therefore submitted that there is no merit in the petition and that the same is liable to be dismissed.

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I have given my anxious consideration to the rival submissions and perused the material on record.

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For the purpose of resolving the issue involved

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in the present petition, it would be germane to extract the

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relevant provisions of the Karasamadhana Scheme as hereunder:

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"1. It grants waiver of 100% of arrears of penalty and interest payable by a dealer under the Karnataka Sales Tax Act, 1957 (hereinafter referred to as the KST Act) and Central Sales Tax Act, 1956 (hereinafter referred to as the CST Act) relating to the assessments/re-assessments/rectification orders already completed and as the case may be, to be completed on or before 31.07.2021 under the KST regime.

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2. It grants waiver of 100% of arrears of penalty and interest payable by a dealer under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the KVAT Act) and CST Act relating to the assessments/re-assessments/rectification orders already completed and to be completed on or before 31.07.2021 .

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3. It grants waiver of

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a. penalty levied under Section 72(1)(a) or 72(1)(b) for failure to furnish return under the KVAT Act and consequential interest subject to the condition that admitted tax as per the return is paid in full.

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b. penalty levied under Section 74(4) for failure to submit copy of the audited statement of accounts in FORM VAT

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240 under the KVAT Act and consequential interest subject to the condition that admitted tax liability, if any, as per FORM VAT 240 is paid in full.

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c. penalty levied by the Audit Officer under Section 72(3-B) for failure to submit copy of the audited statement of accounts.

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4. It grants waiver of 100% of arrears of penalty and interest payable by a dealer or person or proprietor as the case may be relating to the assessment or reassessment already concluded and to be concluded upto 31.07.2021 under the following Acts also, namely.-

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a. Karnataka Tax on Entry of Goods Act, 1979, (hereinafter referred to as KTEG Act);

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b. Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976, (hereinafter referred to as KTPTC & E Act);

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c. Karnataka Tax on Luxuries Act, 1979 (hereinafter referred to as KTL Act);

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d. Karnataka Agricultural Income Tax Act, 1957 (hereinafter referred to as KAIT Act); and

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e. Karnataka Entertainments Tax Act, 1958, (hereinafter referred to as KET Act).

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5. Conditions: Grant of waiver of penalty and interest is subject to the following conditions:

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5.1 Any dealer or person or proprietor as the case may be, who makes full payment of arrears of tax on or before 31.10.2021 shall be granted waiver of 100% of arrears of penalty and interest payable. However, any penalty levied by the Registering Authority under section 10-A of the CST Act shall not be eligible for benefit of waiver under this Scheme.

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5.2 Where the dealer has no arrears of tax but has arrears of penalty and interest only, relating to the assessments or re-assessments already completed and to be completed, as the case may be, on or before 31.07.2021 , such arrears of penalty and interest shall be eligible for waiver."

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A perusal of Clause 1 to 4 of the said Scheme will indicate that all the four clauses relate to four different, distinct, separate, independent and stand alone categories, which are mutually exclusive and independent of each other; the waiver contemplated in each of the four categories is independent and distinct from one another/each other and there is no overlapping among any of the categories, which contemplate completely different and separate situations and in relation to the enactments

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mentioned in the said clauses; a plain and literal reading of the said provisions is sufficient to show that applicability of any one of the clauses would necessarily exclude applicability of the other three clauses, which would have not application in a situation where one of the clauses is applicable in a given fact situation.

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(8.1) Clause No.1 deals with waiver of 100% of arrears of penalty and interest under the Karnataka Sales Tax Act and Central Sales Tax Act relating to assessments/re-assessments/rectification orders already completed prior to 29.03.2021 (when the scheme came into force) and to be completed on or before 31.07.2021.

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(8.2) Clause No.2 grants waiver of 100% of arrears of penalty and interest payable under the KVAT Act and CST Act relating to assessments/re-assessments/ rectification orders already completed prior to 29.03.2021 (when the scheme came into force) and to be completed on or before 31.07.2021.

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(8.3) Clause No.3 grants waiver of the following

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penalties under the KVAT Act viz.,

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a) Penalty under Section 72(1)(a) or 72(1)(b). b) Penalty under Section 74(4)

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c) Penalty under Section 72(3-B)

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(8.4) Clause No.4 deals with waiver of 100% of arrears of penalty and interest under various enactments provided therein viz., Karnataka Tax on Entry of Goods, 1979 etc., relating to assessments/re-assessments of the orders already completed prior to 29.03.2021 (when the scheme came into force) and to be completed on or before 31.07.2021.

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(8.5) Clause No.5 stipulates that the grant of waiver of penalty and interest would be subject to certain conditions; for the present purpose, Clause No.5.1 and 5.2 would be relevant; while Clause No.5.1 permits grant of waiver of 100% of arrears of penalty and interest only in favour of a person, who makes full payment of arrears of tax on or before 31.10.2021, it is clarified in the said clause that any penalty levied under Section 10-A of the CST Act shall not be eligible for the benefit of waiver under the

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scheme. So also, Clause 5.2 provides that if a person does not have any arrears of tax but only arrears of penalty and interest relating to assessments/re-assessments already completed as on 29.03.2021 (when the scheme came into force) and to be completed on or before 31.07.2021, such arrears of penalty and interest shall be eligible for waiver.

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The following aspects emerge in relation to grant of waiver of penalty and interest from a conjoint and harmonious reading of Clause No.1 to Clause No.5.2 of the scheme:

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(a) All the four clauses i.e., Clauses 1, 2, 3 and 4 of the Scheme are independent, separate, different, distinct and stand alone clauses/provisions, which are mutually separate and exclusive of each other dealing with and being applicable to different and separate categories, situations and statutory provisions; there is no overlapping among each other/one

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another between the applicability of each of the four clauses; in other words, each of the four

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clauses operate in their own exclusive spheres and applicability of any one of the Clauses would necessarily exclude the applicability of the other three Clauses.

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(b) All arrears of penalty and interest under various enactments viz., Karnataka Sale Tax Act, KVAT Act etc., shall be waived in relation to assessments/ reassessments/rectification orders already completed as on 29.03.2021 (when the scheme came into force) or to be completed on or before 31.07.2021, which is the cut off date for applicability of Clauses 1, 2 and 4 of the scheme.

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(c) Clause No.3 stipulates that penalty levied under Sections 72(1)(a), 72(1)(b), 74(4) and 72(3-B) of the KVAT Act would also be waived for default committed by a person on account of noncompliance as provided in the said provisions; this waiver of penalty for breach/default of the aforesaid specific provisions of the KVAT Act is clearly in addition to the waiver granted of

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arrears of penalty and interest payable by a dealer under the KVAT Act as contemplated in Clause No.2 of the said Scheme; to put it differently, in addition to the 100% waiver of arrears of penalty and interest under the KVAT Act as provided under Clause No.2 of the Scheme, Clause No.3 also permits/grants waiver of specific and distinct penalties levied under the provisions of the KVAT Act enumerated in the said clause No.3, which forms a completely distinct, separate, different, stand alone and independent category, which is mutually exclusive from the category of cases enumerated in Clause No.2.

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(d) Clause No.5.1 makes the grant of waiver of penalty and interest subject to the condition that for the purpose of claiming the benefit of waiver, a person/dealer/proprietor should have paid the entire/full arrears of tax on or before 31.10.2021; by way of an exception, it is made clear that penalty levied under Section 10-A of the CST

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Act would not be entitled to the benefit of waiver under the Scheme.

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(e) Clause 5.2 reiterates that the twin/two fold requirement to claim grant of waiver of penalty and interest would be that firstly, the dealer should not have any arrears of tax but only arrears of penalty and interest and that all assessments or reassessments should stand completed on or before 31.07.2021.

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In the instant case, it is an undisputed fact that no penalty is sought to be levied against the petitioner under Section 72 (1)(a), 72(1)(b), 74(4) or 72(3-B) of the KVAT Act and consequently, clause No.3 would have no application to the facts of the instant case in so far as the petitioner is concerned. On the other hand, as rightly contended by the learned Senior counsel for the petitioner, it is Clause No.2 of the Scheme that would be applicable to the facts of the instant case and in the light of the undisputed fact that the reassessment was completed on 23.04.2021 as can be seen from the reassessment order,

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which is clearly much prior to 31.07.2021, the cut off date under the scheme, the petitioner would be entitled to the benefit of 100% waiver of penalty sought to be levied upon him under Section 70(2) R/w Section 39 of the KVAT Act as per the reassessment order dated 23.04.2021. It is also relevant to state that so long as the penalty sought to be levied upon the petitioner is under Section 70(2) R/w Section 39 of the KVAT Act and not under Section 72 (1)(a), 72(1)(b), 74(4) or 72(3-B) of the KVAT Act, Clause No.3 of the Scheme is clearly not applicable to the facts of the instant case qua the petitioner and the reassessment order dated 23.04.2021, which was passed prior to the cut off date dated 31.07.2021 as stipulated in the scheme, which is clearly applicable to the petitioner, who would be entitled to the benefit of the scheme in the facts of the instant case.

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It is also significant to note that the material on record also indicates that the petitioner is not charged with any arrears of tax, which was liable to be paid on or before 31.10.2021 so as to attract Clause No.5.1 of the Scheme;

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on the other hand, in view of the undisputed fact that the petitioner did not have any arrears of tax but only arrears of penalty relating to reassessment, which was already completed on 23.04.2021, much before the cut off date dated 31.07.2021, the petitioner would clearly be entitled to the benefit of waiver of 100% penalty and consequently, the impugned endorsement passed by respondent No.3 is illegal, arbitrary and contrary to the letter and spirit of the scheme and the same deserves to be quashed and necessary directions are to be issued to the respondents to grant waiver of 100% of penalty demanded in the reassessment order dated 23.04.2021 passed by respondent No.3.

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In so far as the contention urged by the respondents that waiver of penalty levied upon the petitioner under Section 70(2) in the reassessment order dated 23.04.2021 does not come within the scope and ambit of the scheme since Section 70(2) does not find a place in Clause No.3 of the scheme is concerned, the said contention is clearly erroneous in as much as the said

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penalty is undisputedly in relation to reassessment proceedings, which were completed on 23.04.2021 much prior to the cut off date dated 21.07.2021 as contemplated in Clause 2 of the Scheme, which is applicable to the facts of the instant case as is clear from the reassessment order dated 23.04.2021, which has been passed under Section 70(2) R/w Section 39 of the KVAT Act and consequently, Clause No.3 of the Scheme is clearly inapplicable to the petitioner and the said contention cannot be accepted.

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In so far as the decision of the Hon'ble Division Bench in the case of State of Karnataka & others Vs. Still Tech Engineer (W.A.No.6503/2017 Disposed of on 02.03.2018) relied upon by the respondents is concerned, the said decision rendered under the Karasamadhana Scheme of 2017, which contained different provisions is inapplicable to the case on hand and even this contention of the respondents cannot be accepted.

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In the result, I pass the following:

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ORDER

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(i) Petition is allowed .

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(ii) The impugned endorsement bearing No.VTSA/LP3/D/T/438/21-22 at Annexure-D dated 01.10.2021 issued by respondent No.3 is hereby quashed.

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(iii) Respondents are directed to allow the petitioner's application at Annexure-C dated 30.09.2021 in Annexure-1A of the Karasamadhana Scheme, 2021 and grant waiver of 100% of the penalty of Rs.25,17,84,006/- imposed upon the petitioner in the reassessment order dated 23.04.2021.

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(iv) Consequently, the impugned demand notice at Annexure-B dated 23.04.2021 issued by respondent No.3 is also hereby quashed.

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SD/JUDGE

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Sv/Bmc

M/S Bhavani Steel Corporation v. the State of Karnataka

Case brief

What is this about?

What did the court decide?

M/S Bhavani Steel Corporation v. the State of Karnataka

Case brief

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