Karnataka High Court
Hindusthan Photo Film Manufacturing ... vs The State Of Karnataka, Through The ... on 3 February, 2003
Equivalent citations: ILR2003KAR1815, 2003 AIR - KANT. H. C. R. 1619, (2003) 3 KCCR 1581 (2003) 1 KANTLJ(TRIB) 99, (2003) 1 KANTLJ(TRIB) 99
Author: S.B. Majage
Bench: S.B. Majage
ORDER Bharuka, J.
1. This revision has been filed under Section 23(1) of the Karnataka Sales Tax Act, 1957 ("the Act" for short) is another example of avoidable litigation.
2. The petitioner-assessee is the manufacturer of photographic materials, x-ray films, graphic art films, etc. During the assessment year 1993-94 it had sold the photograph films. The total turnover on this account was Rs. 45,17,758/-. Though till up to 1.4.1993 the rate of sales tax applicable on such transaction was 10% but from 1.4.1993 it was reduced to 4%. The assessee, in ignorance of this fact, collected sales tax at 10% on sale transactions. Subsequently on being objected to by one of the customers the assessee sought for clarification from the Commissioner of Commercial Taxes who by his letter dated 15.2.1994 clarified that the tax leviable is only 4%. But by the time the assessee had collected Rs. 2,71,065/- which was in excess of his tax liability and deposited the same with its monthly returns.
3. After the said clarification, at the instance of one of the main purchasers M/s Ashok Agencies, Bangalore, the assessee issued two credit notes in favour of the said customer in June 1994 for Rs. 1,96,659/-. This fact has been duly noticed even by the assessing officer while completing the assessment under his order dated 3.8.1996. Surprisingly almost two year thereafter the very same assessing officer passed an order dated 28.5.1998 (Annexure-C) purporting to be one under Section 18AA of the Act forfeiting the entire amount of Rs. 2,71,065/-. It was so done without even issuing show cause notice to the assessee. Being aggrieved by the order the assessee went in appeal to the Joint Commissioner of Commercial Taxes (Appeals) but could not get any relief. Then he filed an appeal before the Karnataka Appellate Tribunal but the same was also dismissed.
4. Section 18AA of the Act reads as under
"18-A A payment and disbursement of amounts wrongly collected by dealer as tax.- (1) Where any amount is collected by way of tax or purporting to be by way of tax from any person by any dealer in contravention of Section 18, whether knowingly or not, such dealers shall pay the entire amount so collected, to the assessing authority within twenty days after the close of the month in which such amount was collected, notwithstanding that the dealer is not liable to pay such amount as tax or that only a part of it is due from him as tax under this Act.
(2) If default is made in payment of the amount in accordance with Sub-section (1), -
(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the dealer,
(ii) the dealer liable to pay the amount shall pay interest at the rate of two and one half per cent of such amount for each month of default, and
(iii) the whole of the amount remaining unpaid along with the interest calculated under Clause (ii) of this sub-section shall be recoverable in the manner specified in Section 13 (3) Notwithstanding anything contained in this Act, or in any other law for the time being in force, any amount paid or payable by any dealer under Sub-section (1) shall, to the extent it is not due as tax be forfeited to the State Government and be recovered from him and such payment or recovery shall discharge him of the liability to refund the amount to the person from whom it was collected.
(4) Where any amount is paid or recovered by or from any dealer under Sub-section (1) of (3), a refund of such amount or any part thereof can be claimed from Government by the person from whom, it was realized by way of tax provided an application in writing in the prescribed form is made to the Commissioner, within two years from the date of the order of forfeiture. On receipt of any such application, the Commissioner shall hold such inquiry as he deems fit and if the Commissioner is satisfied that the claim is valid and admissible and that the amount so claimed as refund is actually paid or recovered, he shall refund the amount or any part thereof, which is found due to the person concerned.
(5) Where any amount is collected by way of tax or purporting to be by way of tax in contravention of Section 18 at any time before the commencement of the Karnataka Sales Tax (Amendment) Act, 1992, the provision of sub-sections (3) and (4) shall apply to such amount collected.
5. A provision similar to Section 18AA of the Act incorporating the Bombay Sales Tax Act was challenged before the Supreme Court on the ground of legislative competence. But the Supreme Court, in the case of R.S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited and Anr., 40 STC 514 by taking note of the fact that the provision is intended to curb the tendency of unjust enrichment by unscrupulous dealers upheld its validity, but while so holding they very carefully examined the purpose underlying the provision and held that "Section 37(1) does say that "any sum collected by the person by way of tax shall be forfeited" Literally read, the whole sum goes to the State. Let us suppose the dealer has returned the whole or part of the collections to the customers. Should the whole amount, regardless of such repayment, be forfeited? We think not Section 37(1) uses the expressions, in relation to forfeiture, "any sum collected by the person, shall be forfeited" What does "collected" mean here? Words cannot be construed effectively without reference to their context. The setting colours the sense of the word. The spirit of the provision lends force to the construction that "collected" means "collected and kept as his" by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return it if eventually it was not taxable, it was not collected " Collected", in an Australian Customs Tariff Act, was held by Griffith, CJ, not " to include money deposited under an agreement that if it was not legally payable it will be returned" (Words & Phrases, P. 274). We therefore semanticise "collected" not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer".
6. In the present case the assessing officer himself noticed that at least to the extent of Rs. 1,96,659/- which was an excess collection made by the assessee from its customer M/s. Ashok Agencies was duly refunded to it. Therefore, there was absolutely no occasion on the part of the Department to forfeit the amount which had already been returned because the very purpose of forfeiture was to ensure that the amount is refunded to the person from whom the same has been wrongly collected. The statutory scheme of Section 18AA of the Act had been examined by one of us (GCBJ) in the case of M/s. Bharat Textiles And Proofing Industries Limited v. State of Karnataka and Ors., 1996(41) KarLJ 615 (HC) at para 9 of the judgment it has been held that "On having reached up to this stages the State Government needs to be reminded that the purpose of forfeiting the amounts under Section 18-AA(3) is not to allow even the State to unjustly enrich itself. Keeping in view the benevolent object behind the impugned provisions, sincere efforts should be shown to have been made into carrying out the ultimate goal envisaged therein, namely that amount shall be refunded to the person concerned provided.
(i) an application in writing in the prescribed form is made to the Commissioner,
(ii) the said application is made within two years from the date of the order of forfeiture, and
(iii) on Commissioner's satisfaction, pursuant to an enquiry, that the claim is valid".
7. Sri N.K. Ramesh, learned Addl. Govt. Advocate representing the Department has submitted that strictly construing the statutory provisions, the customer from whom the amount had been wrongly collected, could have sought refund the said amount only from the Department and not from the assessee. In our view this is a hyper technical approach and if it is allowed to stand it will merely defeat the purpose of incorporating Section 18-AA of the Act. Acceptance of such a construction will merely lead to futile multiple transactions coupled with harassment to the tax payers with no corresponding benefit to revenue. It will only increase the work load with no resultant benefit to the Revenue.
8. The Commissioner of Commercial Taxes should have taken care to discourage such futile litigations. As of fact, as directed in the case of M/S. BHARAT TEXTILES AND PROOFING INDUSTRIES (supra) it was the bounden duty of the Commissioner of Commercial Taxes to intimate all the dealers from whom the excess amounts have been wrongly collected so that they could have approached him for refund thereof. In the present case the Commissioner seems to have utterly failed to discharge his legal duties. Accordingly we direct the Commissioner to take immediate steps in terms of the direction set out in para 9 of the judgment in the case of M/s. BHARAT TEXTILES AND PROOFING INDUSTRIES (supra).
9. With the above said directions the order of the Tribunal is set aside to the extent it relates to the amount refunded to M/s. Ashok Agencies. The Revision Petition is accordingly allowed in part, with costs assessed as Rs. 5,000/- payable by the Commissioner to the assessee.