Karnataka High Court
Mangalore Chemicals & Fertilisers Ltd. vs Deputy Commissioner Of Commercial ... on 20 November, 1992
Equivalent citations: 1992(4)KARLJ760, [1993]89STC265(KAR)
JUDGMENT K. Shivashankar Bhat, J.
1. The State Government issued a notification in June, 1969, granting certain concessions to new industries for a period of five years; one of the incentives was refund of all sales tax payable by the new industry on raw materials purchased by it for the first five years from the date the industry goes into production. In the year 1975 another Government order came to be issued permitting the adjustment of this refundable tax, towards the taxes payable by it in other respects under the Karnataka Sales Tax Act, 1957 ("the Act" for short) after obtaining permission for the adjustment. The petitioner obtained the new unit certificate; petitioner also applied for permission to adjust the tax refundable to it with the taxes payable by it. There is no dispute that the 2nd respondent, after examining the petitioner's case recommended for granting the permission for adjustment. There was also another Government order clarifying the earlier Government order. For the period May, 1976 to March, 1977, permission was accorded to the petitioner to adjust the taxes in terms of those there Government orders. For the subsequent period also the petitioner made similar applications for permission to adjust the taxes, which remained unattended to by the authorities. However, for the period 1st April, 1978 to 31st December, 1979, tax was demanded from the petitioner, which was challenged by it by filing W.P. No. 3476 of 1980. Again, there was another demand for payment Rs. 1.07 crores being the tax for the period from 15th April, 1976 to 31st March, 1978 and 1st January, 1980 to 14th March, 1981; demand notice was dated 19th November, 1986, which the petitioner challenged by filing the present writ petition on 13th January, 1987. The petitioner sought stay of the demand and the learned single Judge, after hearing the State Government granted stay only to extent of Rs. 47 lakhs.
Petitioner approached the Appellate Bench by filing. W.A. No. 379 of 1987. The writ appeal was partly allowed; it was ordered that the petitioner shall pay Rs. 45 lakhs towards the impugned demand and recovery of balance was stayed; the Bench granted some time to the petitioner to make the said payment. This order is dated 9th March, 1987.
2. There is no dispute that the petitioner complied with this order by paying the sum of Rs. 45 lakhs to the State Government.
3. On 14th August, 1990, W.P. No. 3436 of 1980 (See Mangalore Chemicals & Fertilizers Limited v. Deputy Commissioner of Commercial Taxes .) was dismissed. It was held that the petitioner was not entitled to adjust the taxes suo motu, without specific prior permission of the concerned authority. The petitioner went up in appeal to the Supreme Court and the said appeal was allowed on 2nd August, 1991. The decision of the Supreme Court is reported in Mangalore Chemicals & Fertilizers Limited v. Deputy Commissioner of Commercial Taxes . At page 239, the Supreme Court noted the controversy involved thus :
"The only controversy is whether the appellant, not having actually secured the 'prior permission' would be entitled to adjustment having regard to the words of the Notification of 11th August, 1975, that 'until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds'. The contention virtually means this : 'No doubt you were eligible and entitled to make the adjustments. There was also no impediment in law to grant you such permission. But see language of clause 5. Since we did not given you the permission you cannot be permitted to adjust.' Is this the effect of the law ?"
Ultimately the contention of the State that its prior permission was required for the petitioner to adjust the taxes payable as against the amounts which the petitioner was entitled to get from the State by way of refund, was negatived; it was held that the "stand of the Revenue suffers from certain basis fallacies, being wholly technical". At page 244, the Supreme Court observed :
"There is no dispute that the appellant had satisfied these conditions. Yet the permission was withheld - not for any valid and substantial reason but owing to certain extraneous things concerning some inter-depart-mental issues. The appellant had nothing to do with those issue. The appellant is now told : We are sorry. We should have given you the permission. But now that the period is over, nothing can be done.' The answer to this is in words of Lord Denning : 'Now I know that a public authority cannot be estopped from doing its public duty, but I do think it can be estopped from relying on a technicality and this is a technicality (See Wells v. Minister of Housing and Local Government [1967] 1 WLR 1000 at 1007)."
At page 245, the Supreme Court concluded :
"There was no other disentitling circumstance which would justify the refusal of the permission. The appellant did not have prior permission because it was withheld by the Revenue without any justification. The High Court took the view that after the period to which the adjustment related had expired no permission could at all be granted. A permission of this nature was a technical requirement and could issued making it operative from the time it was applied for."
Demand notices were question with a direction to accord permission for the adjustments effected by the petitioner.
4. In the light of the above decision, it is undisputed that the present impugned demand also is liable to be set aside and the petitioner would be entitled to the restitution of the sum of Rs. 45 lakhs paid by it under the order of this Court made in the writ appeal referred already.
5. On 20th November, 1991, the petitioner filed an I.A. stating, inter alia, that it paid the sum of Rs. 45 lakhs as follows :
2-3-1987 .... 5 lakhs
23-3-1987 .... 10 lakhs
6-4-1987 .... 10 lakhs
7-9-1987 .... 20 lakhs.
The petitioner prayed for a direction to the respondents to pay interest at 16.5 per cent. per annum on the above Rs. 45 lakhs with effect from the respective dates of payments till the date of repayment.
6. The writ petition was permitted to be amended to include this prayer.
Very recently, the State Government repaid said sum of Rs. 45 lakhs to the petitioner, after this Court issued a direction on 21st September, 1982, in that regard; the court kept open the question regarding the interest to be calculated at the time of final hearing.
7. Therefore, the sole question to be considered is whether the respondents are to pay interest on the sum of Rs. 45 lakhs and if so, at what rate ?
8. It was contended by the learned counsel for the petitioner that, the government orders granting concession were issued under section 8A of the Act, effect of which is the same as granting an exemption to the petitioner; the working of this exemption by way of refund by the State was to be achieved by the machinery of adjustments. In order words, instead of the State refunding the purchasers taxes paid by the petitioner on the raw materials, the petitioner was allowed to adjust the other sales taxes payable by it. Refusal to the statutory authorities to give effect to this machinery resulted in the impugned demand for Rs. 1.07 crores and ultimately the petitioner had to pay Rs. 45 lakhs in order to stay the enforcement of this demand; the payment of Rs. 45 lakhs is in effect, nothing but collection of an illegal levy by the State; at any rate, it was under an interim order of this Court and therefore, this Court ought to make an equitable order to compensate the petitioner for the deprivation of the benefits of Rs. 45 lakhs all these years.
9. Mr. Dattu, the learned Government Advocate, however, contended that this Court did not impose any condition of payment of interest on the sum of Rs. 45 lakhs while making the interim order; it was further contended that at the time of collection the sum of Rs. 45 lakhs, the collection was authorised; the illegality, if any, arose only after the Supreme Court held the issuance of demands as illegal, 2nd August, 1991 (the date of the decision in ). Alternatively it was contended that, the fact that the demand notices were upheld by this Court earlier is a strong indication that the authorities acted bona fide and therefore, the State should not be burdened with interest on the amount collected by the State. The Act nowhere provides for payment of interest in such a case and at the most, interest may have to be paid only for the period after the expiry of 90 days from the date of petitioner sought refund, consequent on the decision of the Supreme Court. The learned Government Advocate pointed out that in the earlier appeal before the Supreme Court, the Supreme Court and specifically permitted the State to issue demand notices and collect the tax, and therefore the demand notice issued cannot be considered as illegal under any circumstances.
10. A few more facts require to be noted, before considering the main question.
The decision of the Supreme Court pertained to the earlier period, though the question involved was the same. However, the State did not come forward to refund the sum of Rs. 45 lakhs even after the decision of the Supreme Court; it had to be directed to refund the amount by an order of this Court, made in this writ petition. However, we do not assume for the purposes of this case the impugned actions of the statutory authorities were in any way lacked in bona fides; we attribute full goods faith in them; we assume that in all probability they sincerely opined that they lacked competence to accord permission to the adjustments made by the petitioner and therefore the petitioner was liable to pay the taxes demanded. We are considering the question raised purely on legal and equitable principles.
In Assistant Commissioner of Commercial Taxes v. Dharmendra Trading Company , the Supreme Court held that those governmental orders incentives by way of concessions are traceable to section 8A of the Act. The Supreme Court held at page 64 :
"The only submission made on behalf of the appellants is that since the benefit given is called a refund, it cannot be said to be an exemption or reduction as permitted by section 8A. In our view, there is no substance in this submission at all. In order to test the validity of the order dated 30th June, 1969, one has to see the substance of the concession granted under the order and not merely certain words used out of context. Although the benefit regarding sales tax granted to the new industries is by way of refunds of sales tax paid to the extent provided in the order, it is clear that, in effect, the benefit granted is in the nature of an exemption from the payment of the sales tax or reduction in the sales tax liability to the extent stated in the order."
Therefore, the concession is equated to an exemption and it is granted under the delegated legislative power.
An exemption from levy of tax granted under the delegated legislative power, has the same effect and legal authority of an exemption granted directly by the Legislature. Ignoring this exemption, if tax is levied and collected, it will be an unlawful levy and unauthorised collection.
Therefore, two relevant facts in substance are that, this was a legislative exemption granted to the petitioner; however, the statutory authorities who are effectuate this legislative policy failed to grant the exemption; ignoring this exemption, they proceeded to make demands from the petitioner, on the basis of their understanding of the legal position, which is now found to be erroneous.
11. As to why interest is normally allowed in favour of a person who had to part with his money and to what extent the court has the power to direct payment of interest are now required to be considered.
12. Vijay Textile v. Union of India (1979) ELT (J) 181 is a decision of the Gujarat High Court. At page 193, the Bench held :
"It must be emphasized that these amounts which we are directing to be refunded, were collected by the excise authorities without the authority of law and were illegal levies. The Central Government had used of these amount during this period of three years and correspondingly the petitioner concerned was kept out of the use of these amounts during the said period. It is therefore just and proper that the respondents should pay interest at twelve per cent. annum (which is the proper rate looking to the conditions in the money market) from the dates of the collection of the said amount directed to be refunded till the date of actual repayment."
13. In Atul Products Ltd. v. Union India (1986) 26 ELT 298, a learned Judge of the Calcutta High Court also expressed a similar view. Duty collected in disregard of the exemption was held to be an unauthorised collection of duty and that "interest is return or compensation for the use or retention of another's money"; since the Revenue had retained and enjoyed the benefit of such money petitioners were held to be entitled to interest; interest at the rate of 12 per cent. per annum was directed to be paid from the date of collection till the date of repayment.
14. In Atul Products Ltd. v. union of India (1985) 22 ELT 714 at page 721, Ms. Sujata V. Manohar, J., of the Bombay High Court, following the decision of the Supreme Court in Elpro International Ltd. case held that the unauthorisedly collected duty had to be refunded with interest thereon at the rate of 12 per cent. per annum.
15. In the aforesaid Elpro International Ltd. case , the question was whether the "operation tables" manufactured by the assessee come within the purview of tariff item 40 of the First Schedule to the Central Excise Act; the assessee contended that the goods in question were not "steel furniture"; this contention was upheld by the Supreme Court; while admitting the appeal of the Union of India, the Supreme Court had considered it to just and fair that a fair amount would be fixed towards interest as payable to the assessee in case ultimately appeal of the Government fails; accordingly, while dismissing the appeal, a consolidated sum of Rs. 50,000 was quantified on account of interest and costs.
16. Mr. Kumar, the learned counsel for the petitioner, also relied on Hirachand Kothari v. State of Rajasthan AIR 1985 SC 998, wherein, the Supreme Court held at page 1003, that the court had ample powers to award interest on equitable grounds, even the Interest Act, 1839. That was a case where the State Government failed to handover possession of land in exchange of the land given by the appellant; the principle governing the deprivation of land by acquisition was applied to the facts of the case. Under the Interest Act, 1839, the court had the power to allow interest "in all cases in which it is now payable by law" and this was held as empowering the application of equitable power to award interest.
17. The learned referred to section 4(2)(a) of the Interest Act, 1978, and contended that the payment of Rs. 45 lakhs by the petitioner, in the instant case, is under the orders of this Court and therefore, necessarily, the payment is in the nature of a deposit to be adjusted depending upon the ultimate outcome of the writ petition; and in lieu of the security for the due performance of the obligation to meet the demand notice issued by the respondents. It was also contended that, equitable jurisdiction, is a jurisdiction recognised by usage having the force of law and therefore section 4(1) also would be attracted. We find considerable force in this contention. There is no reason to understand that while enacting Interest Act, 1978, the Parliament intended to deprive the court exercising an equitable jurisdiction, the power to award interest, which, it had earlier.
18. In commissioner of Income-tax v. Deepchand Kishanlal [1990] 183 ITR 299 this Court while construing provisions of the Income-tax Act, 1961, held at page 309, that interest is compensatory in nature and a person deprived of the use of his money, is normally entitled to be compensated for it, by way of interest.
19. It cannot be denied that writ jurisdiction is an equitable jurisdiction; the width of this jurisdiction should not be limited so as to exclude a power to award interest in appropriate cases. To what extent and under which circumstances, interest should be awarded, depends upon the circumstances of each case, to be judicially considered. To deny the power to the writ could to award interest to a person who is unjustly deprived of the money which he is legally entitled to enjoy as he deems fit, will be unduly restricting the extraordinary jurisdiction of the High Court under article 226 of the Constitution of India.
20. The sum of Rs. 45 lakhs was paid by the petitioner under the interim order made in this writ petition, i.e., the petitioner filed writ appeal against the order rejecting the interim prayer to stay the demand notice and in the said writ appeal, order for payment of Rs. 45 lakhs was made. This order, nowhere provided for the payment of interest, in case, the petitioner's contention on merits is upheld. Therefore, the learned Government Advocate contended that it is not open to us now modify the said order by awarding interest on the said sum of Rs. 45 lakhs. We are not inclined to accept this contention.
21. An interim order is only an arrangement; the order is made in aid of and ancillary to the ultimate order likely to be made in the writ petition. No finality is attached to an interim order. A party to the writ petition is entitled to seek an appropriate relief at the final stage, so that any hardship, loss or injury suffered by the said party by virtue of the interim order could be properly compensated. Any person who is a party to the writ petition and gained an advantage by the interim by the interim order can be ordered to compensate the person who suffered any loss or hardship. The test of balance of convenience, usually applied, while granting an interim order (whether of temporary injunction or stay of recovery of any demand) incudes a consideration that the person in whose favour the uncertainty is ultimately resolved could be adequately compensated; such a consideration is implicit in the very process of making any interim order.
22. In facts, in the instant case, it may not be necessary to consider the basis question regarding the jurisdiction of this Court to award interest, de hors facts of the case. The payment was made under the interim order of this Court; ultimately, the doubt in respect of the Revenue's stand was resolved in favour of the petitioner; in other words, the petitioner was not at all liable to pay the said sum of Rs. 45 lakhs and the demand of the respondents was unauthorised and the only sanction for it to recover Rs. 45 lakhs was the judicial order. The court could necessarily make an order to compensate the petitioner who was deprived of the benefit of the said sum, while, all these years, the respondents had benefit of it.
23. Mr. Dattu, relied on a decision of the Andhra Pradesh High Court in Mothey Gangaraju v. State of Andhra Pradesh [1965] 16 STC 205; the appellant therein had earlier filed a suit for declaration that levy and collection of sales tax from him was illegal and obtained a declaratory decree. The State refunded the illegally collection tax interest at 6 per cent. per annum from the date of decree. Thereafter assessee filed the second suit claiming interest from the date of collection of the tax by the State. The High Court held that no equitable grounds existed in the said case to decree the suit for interest. On facts this case is clearly distinguishable. We have some reservation on the question of maintainability of the second suit, in view of order 2, rule 2 of the Code of Civil Procedure. Further, it was a civil suit and the court was not exercising a purely equitable jurisdiction.
24. In civil appeal arising out of S.C.L.A.P. (C) No. 15036 of 1983 (Rajalakshmi Narayanan v. Margret Kathleen Gandhi) (Since .) question pertained to the validity of Chapter XX-C of the Income-tax Act. The vendor's right to sell and receive the sale price got postponed in view of the writ petition in the High Court. In the circumstances, the Supreme Court modified the interim order of the High Court by ordering that in the event of the success of the appropriate authority the vendor shall be shall be paid interest at the rate of 15 per cent. per annum on the purchase price, in addition to the purchase price; in case the private sale agreement is upheld, the purchaser shall pay interest on his purchase price interest at the rate of 20 per cent. per annum; in either case, the interest shall be calculated from the date of the interim order of the High Court.
25. W.A. No. 1782 of 1985 (Karnataka Electricity Board v. Assistant Collector of Central Excise (date of decision 10th July, 1990), arose out of an order made in the writ petition, where the collection of excise duty from the appellant - Karnataka Electricity Board - was held to be illegal, but, while ordering refund, claim for interest was denied. The sole question in the appeal pertained to the claim of interest. The Bench held at para 5 :
"On the facts and circumstances, we are of the considered opinion that, when an amount due to a party has been wrongfully retained, it is just and fair that the party must be compensated in the form of interest, which is also the view taken in the aforesaid two decisions relied upon with which we agree. In Hirachand Kothari (dated by LRs) v. State of Rajasthan AIR 1985 SC 998, it is held that court has ample power to award interest on equitable grounds."
The Bench directed interest to be paid at the rate of 10 per cent. per annum from date levy till the date of repayment. It was contended that the collection of Rs. 45 lakhs by the State was perfectly authorised at the time it was collected from the petitioner and therefore State should not be burdened with interest thereon, now. The usual plea of public interest and the utilisation of the money by the State for public goods were pressed in this connection. This plea ignores the nature of the interest payable. If it is payable by way of penalty, certainly, the court could accept this plea of the respondents, so that the State may not be penalised. But, interest is payable, not because, the respondents were guilty of any misconduct; it is not to be paid only, because the statutory authorities failed to given due effect to the exemption notification issued under section 8A of the Act, though the action of the authorities in the instant case delayed the carrying out of the legislative policy of granting exemption to the petitioner. Interest is to be paid to compensate the petitioner who was deprived of the user of its money; it was prevented from enjoying the benefit of its funds all these years, which requires to be compensated, in equity. Therefore, the fact that the respondents must have used the money for public welfare is entirely irrelevant; for the purpose of discharging its sovereign functions, the State has to levy appropriate taxes and collect them; even a forced loan to meet the public expenditure is impermissible.
26. We are of the view that, the petitioner was deprived of the beneficial user of its funds to the extent of Rs. 45 lakhs, in view of the interim order made in this writ petition (though actually made in W.A. No. 379 of 1987 at the instance of the State) and the State had enjoyed the benefit of the same. Therefore, justice and equity requires that the petitioner should be compensated by an appropriate order.
27. The rate of interest to be awarded is within the exclusive discretionary jurisdiction of the court. Precedents referred to above show that rates vary from 10 per cent. to 15 per cent. as between private parties it was 20 per cent. as fixed by the Supreme Court in Rajalakshmi Narayanan's case (Since .). In the Karnataka Electricity Board's appeal (W.A. No. 1782 of 1985 decided on July 10, 1990 - Karnataka High Court), this Court allowed the interest at the rate of 10 per cent. per annum. It is not possible to evolve a principle of universal application on this question. Taking into consideration the totality of the circumstances, we direct the respondents to pay interest at the rate of 10 per cent. annum computable from the respective date on which Rs. 45 lakhs was paid by the petitioner, till the date of the refund of the said sum to the petitioner.
28. Ordered accordingly.
The writ petition is allowed. Rule made absolute. No costs.
29. Writ petition allowed.