South Travancore Distilleries And ... vs State Of Kerala on 30 November, 2011

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Kerala High Court

South Travancore Distilleries And ... vs State Of Kerala on 30 November, 2011

These Revision Cases have been filed by the same petitioner who is an assessee under the KGST Act (hereinafter referred to as the Act). According to petitioner, it is a registered dealer under the Act and is engaged in compounding, blending and bottling of foreign liquor. The questions of law which are pressed before us are to be found in "b, c and d" . They read as follows:

            "b.    Whether or not the tribunal and the

      authorities    below       had      gone      wrong       in their

understanding of the scope of the provisions for the levy of turnover tax under the KGST Act and the Kerala Abkari Act and whether the tribunal and the authorities below have erred or not in treating the activity of blending and compounding as covered for the purpose of turnover tax ?

ST.REV.CASES 68, 69, 70 & 71/12 2 c. When the taxes have been paid well before the assessment and immediately on the declaration of law on 06.05.2005 by the Supreme Court in State of Kerala and Others v. Maharashtra Distilleries Limited, partly reversing a Division Bench Judgment of this Court, is at all interest liable to be imposed under Section 23(3) of the Act when the provision itself operates only on the sums due post-assessment ?

d. Alternatively, is at all the interest recovered under Section 23(3A) when taxes have been paid well prior to assessment and even the returns have been furnished during the relevant period in line with the law declared by this Court on 27.11.1999 in 117 STC 553 (Kerala Distilleries and Allied Products Limited v. Assistant Commissioner (Assessment) (I), Commercial Taxes, Special Circle, Palakkad and others) and later confirmed by the Judgment dated 9.8.2002 in 10 KTR 652 (McDowell Co. Ltd. v. State of Kerala) ?"

2. We heard the learned counsel for the petitioner and the learned Government Pleader. As far as the question (b) is concerned, it stands answered against the petitioner.

ST.REV.CASES 68, 69, 70 & 71/12 3

3. The further two questions revolve around the liability of the petitioner to pay interest. According to petitioner, the petitioner is not liable to pay interest. The chronology of events is found as follows:

"27.11.1999 A Division Bench of this Hon'ble Court struck down the demands along with the provisions including the Section 2(xxvii) of the Act with a declaration that the turnover tax was not payable at all even on the basic price received from the Corporation.

From Dec. 1999 The petitioner stopped remitting turnover tax under Section 5(2C) of the Act (which is Section 5 (2A) renumbered) in view of the judgment of this Hon'ble Court dated 27.11.1999 in 117 STC 553 (Kerala Distilleries and Allied Products Limited v. Assistant Commissioner (Assessment) (I), Commercial Taxes, Special Circle, Palakkad and others) including the Writ Petition of the petitioner in O.P.No.2255 of 1999.

25.09.2000 This Hon'ble Court by orders in Civil Appeal No.2249-2257 of 2000 declined to stay the operation of the Division Bench in Kerala Distilleries and Allied Products Limited.

01.04.2001 The State of Kerala vide Kerala Finance Act of 2001 inserted an Explanation in Section 5(2C) of the Act ST.REV.CASES 68, 69, 70 & 71/12 4 intending to get over the Division Bench Judgment dated 27.11.1999 in Kerala Distilleries and Allied Products Limited. Writ Petitions challenging the demand were filed by various manufacturers. Though interim stay was refused by the learned Single Judge, a Division Bench passed a conditional order. On further appeal, by order dated 29.4.2002, this Hon'ble Court granted stay of recovery of the amounts prior to 1.4.2001 and stayed the entire recovery for the period from 25.4.2000 to 01.04.2001, but there was no stay post 01.04.2001. In view of this, the petitioners effected tax payments which are detailed in the course of this writ petition.

09.08.2002 The Division Bench of the High Court in 10 KTR 652 (McDowell and Co.Ltd. v. State of Kerala) struck down as unconstitutional the Explanation to Section 5(2C) of the Act inserted by the Kerala Finance Act of 2001. When the State of Kerala filed further appeal, the Hon'ble Supreme Court refused to stay the judgment by orders dated 07.01.2003 vide C.A.No.95 of 2003. The aspect as to whether the petitioner is a distillery was left open to be considered by the authorities on evidence.

The Kerala State brought about further amendments by substituting Sections 17 and 18 to the Kerala Abkari Act, 1077. This amendment was challenged before the High Court of Kerala and by orders dated 29.01.2004, the learned Single Judge was ST.REV.CASES 68, 69, 70 & 71/12 5 pleased to stay the recovery of turnover tax for the period upto 31.12.2003 while the provisions operative from 1.01.2004 were not stayed.

06.05.2005 The Constitutional Bench of the Hon'ble Supreme Court in State of Kerala and others v. Maharashtra Distilleries Limited (142 STC 357) held that the amounts paid by the Corporation to the treasury merely represented privilege fee and did not constitute excise duty and resultantly, there was no liability on the IMFL units to pay any turnover tax on the said privilege fee paid by the Corporation. However, taking note of the G.O. dated 05.01.1999, the Hon'ble Supreme Court was pleased to state that the amounts paid by the Corporation to IMFL units consequent to the arrangement will be liable to turnover tax." These questions also must be treated as having been answered against the petitioner by virtue of the Full Bench decision of this Court in State of Kerala v. Western India Cosmetic And Health Products Ltd. & Ors. (2010 (18) KTR 414 Ker.) and also the Judgment of this Court in State of Kerala v. Kaycee Distilleries (2011 (19) KTR 158 (Ker)). This Court has taken the view in the latter Division Bench judgment in similar circumstances, the petitioner would be liable to pay interest under Section 23(3)A of ST.REV.CASES 68, 69, 70 & 71/12 6 the Act.

4. Learned counsel for the petitioner would submit that the view taken may require re-consideration in the light of the Judgments of the Apex Court in Food Corporation of India v. State of Haryana And Another (2000 (119) STC 524) and E.I.D. Parry (India) Ltd. v. Asst. Commissioner of Commercial Taxes, Chennai ((2005) 4 SCC 779).

5. We are of the view that there is no merit in the said submissions and we do not see any reason why we should take a different view from the view taken by the Division Bench and also considering the dictum laid down by the Full Bench.

6. In the decision in Food Corporation of India's case (supra), it was a case where the question arose as to whether the assessee is liable to pay interest on the basis of a demand made under the Haryana General Sales Tax Act, 1973, at a time when the High Court had held that sales tax on the levy transactions is unconstitutional. The said view of the High Court was overturned in the year 1997 by the Supreme Court upholding the validity of ST.REV.CASES 68, 69, 70 & 71/12 7 sales tax on levy transactions. Subsequently, interest was sought to be recovered on the strength of the demand made in the year 1982. It was in the said context that relying on Section 59 of the said Act the Apex Court has held as follows:

"10. As we have noticed herein above, so far as the State of Haryana is concerned during the period between may 17, 1975 to January 6, 1997, the law declared by the High Court was that the State of Haryana did not have the constitutional authority to impose sales tax on levy transactions. This declaration of law was not challenged by the State; per contra the state of Haryana accepted the declaration of law made by the High Court, therefore, until the position of law stood changed from January 6, 1997, the State of Haryana could not have made a demand for the payment of sales tax on levy transactions. The demand notice by which the State claimed the tax for the assessment year 1975-76 was of the year 1982 which fell within the period when the law did not permit the State of Haryana to impose sales tax on levy transactions. Therefore on that day when the notice of demand was issued for payment of sales tax for the assessment ST.REV.CASES 68, 69, 70 & 71/12 8 year 1975-76, the demand was without authority of law. Subsequently, the State of Haryana could have made such demand only after the judgment of this Court which was delivered on January 6, 1997. There is no doubt that by the judgment of this Court, the right of the State of Haryana to collect sales tax would date back to 1975 but that is not the same as saying that during the said period when the law was adverse to the State of Haryana it could still have made a legitimate demand, because, as Stated above, during the period between 1975-97, the States' authority to make a demand was eclipsed because of the law declared by the High Court. The declaration of law made by this Court now empowers the State to raise a demand even for the assessment year 1975-76 and the appellant is bound to satisfy the said demand, but the duty of the assessee to satisfy that demand would arise only when a fresh and valid demand after the judgment of this Court is made by the State. If the assessee fails to pay after the fresh demand is made then as contemplated under section 59 of the Haryana Act, the assessee becomes liable to pay the interest also.

13. The further question, therefore, is whether ST.REV.CASES 68, 69, 70 & 71/12 9 on the demands now made by the respondents on the appellant, the State can also claim interest ? We have noticed that the power of the State to collect interest arises under 59 of the Act. The said section authorises the State to collect interest on belated payment of tax demanded but this payment of interest can be levied on such belated payment of tax which is legally payable for which a valid demand is condition precedent. As has been noticed by us, the demand notice of the year 1982 which was issued during the period when the State had no authority to levy sales tax cannot be said to be valid demand, based on which interest could be claimed. A valid demand for the assessment year 1975-76 could have been made by the State of Haryana only after the judgment of this Court, i.e., from January 6, 1997, and on such a demand being made on February 20, 1997, the appellant has satisfied the said demand within the period available to it. If that be so, in our opinion, the State could not have demanded interest on the tax due for the assessment year 1975-76 based on its earlier demand notice."

7. As far as the decision in E.I.D.Parry (India) Ltd. v. Asst. ST.REV.CASES 68, 69, 70 & 71/12 10 Commissioner of Commercial Taxes, Chennai ((2005) 4 SCC

779) is concerned, that was a case which arose under the Tamil Nadu General Sales Tax Act, 1959. The appellant purchased sugarcane from the farmers. The minimum price of sugarcane was fixed. That apart, Clause 5A of the Sugarcane (Control) Order, 1966 provided for additional price. The Government issued orders by which the assessees were paying further amounts at the time of purchase, apparently towards the further price which they would be liable to pay under Clause 5A of the Sugarcane (Control) Order. The assessee chose to file return under Section 13(2) of the Act. Under Section 13(2) which was virtually a provision of self- assessment, the assessee showed as turnover the amount which it had paid towards the minimum price. Though it indicated the amount paid as advance towards the price under Clause 5A of the Order, it was not included in the turnover. On the said basis, the assessee paid tax. Subsequently, when the additional price was fixed under Clause 5A, the assesseee used to file revised return and pay tax on the same. It was in the context of the said set of facts ST.REV.CASES 68, 69, 70 & 71/12 11 and the assessee was faced with a demand for interest under Section 24(3) that the Apex Court had to decide the question as to whether the demand was justified. The Apex Court, inter alia, held as follows:

"Under Section 24(1), if the tax has been assessed or has become payable under the Act, then the payment has to be made within the said time as may be specified in the notice of assessment and tax under Section 13(2) has to be paid without any notice of demand. However, as seen above, the tax under Section 13(2), in the absence of any determination by the assessing authority, is tax as per the returns. If default is made in payment of such tax then interest becomes payable under the Act. In the present case, it is an admitted position that tax as per the monthly return had been paid within time. It is also an admitted position that there was no assessment, even provisional, by the assessing authority prior to the final assessment made after the revised returns had been filed. Interest becomes payable under Section 24 (3) on an amount remaining unpaid after the date specified for its payment under sub-section (1) of Section 24. As seen above, sub-section (1) of Section ST.REV.CASES 68, 69, 70 & 71/12 12 24 deals with an assessed tax or tax which has become payable under the Act. In cases covered by Section 13 (2) tax must be paid without any notice of demand.

But as stated above, under Section 13(2) tax is to be paid "on the basis of such returns". Tax as per the returns has admittedly been paid. If the returns were incomplete or incorrect as now claimed, the assessing authority had to determine the tax payable and issue a notice of demand. In the absence of any assessment, even provisional, and a notice of demand no interest would be payable under Section 24(3)."

We notice that in the Kerala Act, Section 23(3A) reads as follows:

"23. Payment and recovery of tax:- (3A):

Where any dealer has failed to include any turnover of his business in any return filed or where any turnover has escaped assessment, interest under sub-section (3) shall accrue on the tax due on such turnover with effect from such date on which the tax would have fallen due for payment had the dealer included the same in the return relating to the period to which such turnover relates."

The Full Bench and the Division Bench which we have adverted ST.REV.CASES 68, 69, 70 & 71/12 13 to, were actually interpreting Section 23(3A). Under Section 23 (3A) which even after the amendment has not suffered any change according to the Full Bench, as its amendment is only clarificatory. Interest becomes payable on return not being filed, amounts not being returned as required in law and also in the case of turnover escaping assessment. There is no dispute that after 1999 excise duty has to be included as part of the turnover. It may be true that the matter may have been pending before the Supreme Court and it may be true that the Supreme Court ruled only in 2005. We are not interpreting a provision, like Section 59 of the Rajasthan Act which was considered in Food Corporation of India's case also. The Full Bench has, inter alia, held as follows:

"4. On going through the provisions both before and after the amendment, it is clear that interest is compensatory in nature inasmuch as it is payable from such date on which tax would have been fallen due, had the dealer included the actual turnover in the return relating to such period. The liability arises on account of failure of the dealer to include any turnover of his business in any return filed."

ST.REV.CASES 68, 69, 70 & 71/12 14 Therefore, the liability to pay interest is attracted under Section 23 (3A), if the assessee does not return the income which he ought to have returned. Equally, if the assessee does not return the turnover becomes liable. So, equally, in a case of escaped assessment and there is a re-assessment, the assessee is liable to pay tax. In all these cases, the assessment orders are being passed after the Judgment of the Supreme Court was pronounced and taking note of the legal position declared in the said Judgment as per which persons like the assessee are liable to include excise duty as part of their turnover. Having failed to do so, Section 23(3A) is attracted.

In such circumstances, we see no reason to take a different view from the view taken either by the Full Bench or the Division Bench and we are only to dismiss the Revision Cases.

7. Learned counsel for the petitioner brought to our notice an order passed by the Apex Court in an appeal carried in a similar matter and it is pointed out that the Apex Court has granted interim order. He also drew our attention to another order passed by a Division Bench of this Court. As far as the first request is ST.REV.CASES 68, 69, 70 & 71/12 15 concerned, namely to pass an order staying the proceedings for collecting interest till a decision is taken by the Apex Court is concerned, we are not inclined. If the party is aggrieved by our order, certainly the party can take up the matter before the Supreme Court. We are also not inclined to pass an order directing that the petitioner must pay the amounts by giving a direction to the State to give the benefit of the Judgment of the Supreme Court which will be passed in the Appeal, as appear to be the order passed by a Bench.

In the above circumstances, all the St. Revision Cases are dismissed.

Sd/= K. M. JOSEPH, JUDGE Sd/= K. HARILAL, JUDGE kbk.

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