Kerala High Court
Indian Oil Corporation Limited vs The Asst.Commissioner on 19 August, 2010
Bench: C.N.Ramachandran Nair, P.S.Gopinathan
IN THE HIGH COURT OF KERALA AT ERNAKULAM
OP.No. 7483 of 1999(N)
1. INDIAN OIL CORPORATION LIMITED
... Petitioner
Vs
1. THE ASST.COMMISSIONER
... Respondent
For Petitioner :SRI.JOSE JOSEPH
For Respondent :SPL.GOVT.PLEADER (TAXES)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice P.S.GOPINATHAN
Dated :19/08/2010
O R D E R
C.R.
C .N. RAMACHANDRAN NAIR, &
P.S. GOPINATHAN, JJ.
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O.P. Nos. 7483, 6233 & 6164/1999,
S.T.Rev. No. 296/2007 & W.P.C.
Nos. 2664, 2665, 874 & 1462/2006
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Dated this the 19th day of August, 2010
JUDGMENT
Ramachandran Nair, J.
Petitioners in these connected WPs, OPs. and ST Rev. case are public sector companies under the control of the Central Government engaged in marketing of petroleum products in Kerala. During the relevant years, these companies, namely, Indian Oil Corporation Ltd., Bharath Petroleum Corporation Ltd., and Hindustan Petroleum Corporation Ltd., purchased petroleum products from Cochin Refineries Ltd., another Central Government company, for marketing in Kerala and other Southern States. For the purchases of petroleum products transported for storage in the Bonded Warehouses of the petitioners, excise duty was payable by them later when the goods were cleared or sold from such bonded warehouses. Sales tax was payable and it was in fact paid by the petitioners under Section 5A of the K.G. S. T. Act on the purchases of products in Kerala stock transferred outside Kerala for storage in O.P. 7483/99 and connected cases 2 petitioners' bonded warehouses. However for the assessment years, that is from 1987-88 to 1995-96, the petitioners did not include excise duty along with purchase price as part of taxable turnover for payment of tax at last purchase point under Section 5A of the KGST Act, even though tax under the said provision was paid along with monthly returns on the purchase value without inclusion of excise duty. Even though liability for payment of sales tax on deferred payment of excise duty was covered by the decision of the Supreme Court in McDowell's case, (1985) 59 STC 277, petitioners took the stand that excise duty later paid was not part of taxable turnover. Therefore they started filing monthly sales tax returns paying tax under Section 5A only on the purchase value without including excise duty thereon. Later, in petitioners' own case, a Full Bench of this Court vide judgment dated 16.12.1992, reported in HINDUSTAN PETROLEUM CORPORATION LTD. V. STATE OF KERALA, (1993) 89 STC 106 settled the law by stating that petitioners are liable to pay sales tax on the purchase turnover including excise duty. However, even thereafter without accepting the Full Bench judgment of this Court, petitioners continued to file returns without including excise duty as taxable turnover and refused to pay tax on the excise duty component of the turnover. In the appeals filed, the Supreme O.P. 7483/99 and connected cases 3 Court did not grant any stay against operation of the Full Bench judgment of this Court. The Supreme Court ultimately dismissed their appeals vide judgment dated 9.10.1996 which is reported in HINDUSTAN PETROLEUM CORPN. LTD. V. STATE OF KERALA, 118 STC 311. In fact, even thereafter review petitions were filed and the same were also rejected by the Supreme Court on 7.1.1997. All the petitioner-companies remitted sales tax on excise duty during 1996-97 that is after the ultimate judgment of the Supreme Court dismissing the appeals filed against Full Bench decision of this Court. Consequent upon non-payment and delay in payment of sales tax on excise duty, the department demanded interest under Section 23(3) of the KGST Act for the entire period of default and for a few years, details of which are given separately hereunder, penalty was also levied under Section 45A of the Act. Orders levying interest and penalty were subject matter of revision at two levels before the Deputy Commissioner and Commissioner of Commercial Taxes. Both the statutory authorities found that interest for belated payment of tax on excise duty is statutory liability and they confirmed the same by dismissing the revision petitions filed at two levels on the question of levy of interest. So far as levy of penalty for attempted evasion of tax under Section 45A is concerned, even though first revisional O.P. 7483/99 and connected cases 4 authority dismissed the revision petitions, the Commissioner reduced the penalty to 25% of the tax amount on excise duty as against equal amount levied in most of the cases and in one of the cases at double the amount of tax on excise duty by the assessing officer. ST Revision Case 296/2007 is filed by Hindustan Petroleum Corporation Ltd. Challenging the order of the Tribunal confirming levy of interest for the assessment year 1996-97. We have heard senior counsel Sri. Arshad Hidayatullah and other counsel appearing for the petitioners, and Government Pleader Sri. Mohammed Rafeeq appearing for the respondents.
2. The first question we propose to consider is petitioners' challenge against interest levied under Section 23(3) of the Act. This issue is raised in one O.P. filed by Indian Oil Corporation Ltd., and one O.P. filed by Bharath Petroleum Corporation Ltd., and one O.P. and STRev. Case filed by Hindustan Petroleum Corporation Ltd. The challenge against levy of interest by the three companies is for the assessment years 1987-88 to 1995-96 and in the above ST Rev. case Hindustan Petroleum Corporation Ltd. is challenging levy of interest confirmed by the Tribunal for the assessment year 1996-97. Since the facts and circumstances of the case that led to levy of interest are the same, it is enough if we state the facts which are O.P. 7483/99 and connected cases 5 common for all the companies. The issue has to be decided with reference to the specific factual position stated below.
1. The judgment of the Supreme Court declaring sales tax liability on deferred payment of excise duty was pronounced in McDowell's case in 1985 and the decision is 59 STC 277.
2. A Full Bench judgment of this Court in petitioners' own case declaring liability for sales tax on excise duty payable by petroleum companies was pronounced on 16.12.1992 and the same was reported in (1993) 89 STC 106.
3. Inspite of declaration of law by the Supreme Court and a Full Bench of this Court, petitioner-companies refused to pay tax on excise duty, but continued to file returns without including excise duty in taxable turnover until the Supreme Court dismissed the SLP filed against Full Bench judgment of this Court on 9.10.1996, which is reported in 118 STC
311.
4. Admittedly arrears of tax on excise duty were paid without interest by all the petitioners on various dates from December, 1996 to March, 1997.
Interest is levied and demanded under Section 23(3) of the Act which during the relevant period stood as under:
23. Payment and recovery of tax:- (1)....
(3) If the tax or any other amount assessed or due under this Act is not paid by any dealer or other person within the time prescribed therefor, in this Act or in any rule made thereunder and in other cases within the time specified therefor in the notice of demand or within the time allowed for its payment by the appellate or revisional authority, as the case may be, or if payment is permitted in instaments by any of the authorities empowered in this behalf, any such instalment is not paid within the time specified therefor, the dealer or other person shall pay, by way of penal interest, in the manner prescribed, in addition to the amount due; a sum equal to,-
O.P. 7483/99 and connected cases 6
(a) one per cent of such amount for each month or part thereof for the first three months after the date specified for its payment;
(b) two per cent of such amount for each month or part thereof subsequent to the first three months aforesaid. Explanation:- Where the period of default is less than one month, interest shall be calculated for the actual number of days of default.
......
Before considering petitioner's challenge against levy of interest we have to necessarily refer to the amendment introduced to the Section to get over certain earlier decisions of this Court and the Supreme Court. In fact, the provision as it originally stood, treated default only by those dealers who failed to comply with notice of demand for payment of tax. Therefore in some earlier decisions of this Court and the Supreme Court it was held that in order to attract liability for payment of interest for default, notice of demand should be served and default happens only if there was failure to pay the tax or other amount after service of notice. In order to get over these judgments, Section 23(3) was amended in 1988 dispensing with the requirement of service of demand notice for levy of interest for non-payment of tax on due dates in accordance with statutory provisions. Section 23(3) after the amendment vide Act 6/1988 provides for interest in the case O.P. 7483/99 and connected cases 7 of following defaults:
1. If the tax assessed is not paid within the time prescribed.
2. If any other amount assessed is not paid within the time prescribed.
3. If the tax due under the Act is not paid within the time prescribed.
4. If any other amount due under the Act is not paid within the time prescribed.
Under the scheme of the K.G.S.T. Rules tax is payable along with monthly returns as provided under Rule 21(7) and along with final returns as provided under Rule 18(3) of the KGST Rules. Assessees are required to declare in the returns filed in the prescribed form, the tax payable thereon and along with the returns produce proof of tax paid prior to filing of the returns. This is the statutory scheme of payment of self-assessed tax. Default committed in payment of self- assessed tax on due date is covered by situation (3) above stated, which attracts interest. However, over and above the tax paid under the self-assessment scheme, the statute provides for regular and provisional assessment of tax and based on the same, the assessing officer is free to demand further tax from the dealers. Default in payment of tax pursuant to assessment and notice of demand is O.P. 7483/99 and connected cases 8 covered by situation (1) above stated which attracts interest. Besides tax liability, registration fee, penalty, interest, licence fee, compounding, etc. are also payable under various provisions of the Act. Default in voluntary payment of these amounts, that is any other amount other than tax on due date wherever provided is covered by situation (4) above that attracts interest. Wherever computation or determination of such liability is required, default arises after such determination and service of demand and default in such cases is covered by situation (2) above referred that attracts interest. In these cases, the specific case of the petitioners is that "tax assessed or due under the Act" means tax due along with monthly or final returns filed or the tax assessed and demanded by the department. According to the petitioners, petitioners did not disclose taxable turnover by including excise duty in the monthly returns or final returns and so much so, tax was not due under self-assessment. Since the department has also not assessed and demanded tax on the excise duty component, prior to final assessments completed after Supreme Court judgment, there was no demand of tax at all, and so much so, there was no default warranting levy of interest, is their case. Petitioners have cited several decisions, particularly the decision of the Supreme Court in MARUTHI WIRE INDUSTRIES (P) O.P. 7483/99 and connected cases 9 LTD. V. SALES TAX OFFICER, (2001) 2 KLT 100, J.K. SYNTHETICS V. COMMERCIAL TAX OFFICER, (1994) 94 STC 422, ASSOCIATED CEMENT CO. V. COMMERCIAL TAX OFFICER, (1981) 48 STC 466, and in P.K. DAMODARAN V. STATE OF KERALA, (2004) 138 STC 442 in support of their contention that no interest is payable without default and default happens only when there is non-payment of tax admitted in the returns or when there is non-payment of tax assessed and demanded by the officer. Government Pleader on the other hand contended that tax due under the Act means tax payable in accordance with law and when the Supreme Court in McDOWELL's case declared the law on the subject in 1985 vide judgment referred above, it was the duty of the petitioners to return excise duty as taxable turnover along with monthly and final returns and remit the tax and any delay in payment is default in payment of "tax due under the Act" and so much so interest is rightly levied on the petitioners. He further contended that at least after the Full Bench judgment dated 16.12.1992 of this Court in the petitioners' own cases, petitioners were bound to pay tax on excise duty along with monthly and final returns and such default attracts interest, irrespective of whether excise duty was returned as taxable turnover in the returns or not. Government Pleader has O.P. 7483/99 and connected cases 10 relied on two recent judgments of this Court, both rendered by different Division Benches, which according to him, fully support the contention of the State. In the last judgment in S.T. Rev. No. 339 of 2003 ( M/s Chandramani Traders v. State of Kerala), the Divisiosn Bench has exhaustively considered the amended provisions of the statute with reference to almost all decisions relied on by the petitioners before us. In this judgment, this Court following the earlier Division Bench decision in M/s. MIRACLE ELASTOMER (INDIA) LTD. V. COMMISSIONER OF SALES, (2006) 2 K.L.J. 105 held that if tax due and payable under the Act is not paid, the same attracts interest. The contention raised by the Government Pleader is that interest is payable for the whole period and continued default after Full Bench judgment should be termed as deliberate evasion warranting not only levy of interest but penalty as well. After hearing both sides and after going through the two judgments of this Court referred above, we feel all the judgments relied on by the petitioners were considered by this Court in the above judgments. This Court held that if the tax due under the Act is not paid, interest under Section 23(3) is attracted. Therefore the question to be considered is what is the tax due under the Act. The contention of the petitioners is that until assessment tax due under the Act is what O.P. 7483/99 and connected cases 11 is declared as due by them in the monthly and annual returns filed by them. We are unable to accept this contention, because the tax due under the Act means tax due under the provisions of the Act including the law declared by the higher courts, namely, High Court and Supreme Court. Supreme Court has in fact declared the law in McDOWELL's case which binds all the parties by virtue of Article 141 of the Constitution. In so far as liability for tax on excise duty on petroleum products is concerned, the matter is specifically covered by the Full Bench decision of this Court in the petitioners' own case reported in (1993) 89 STC 106. Of course petitioners have referred to the earlier decision of this Court in BURMAH SHELL'S CASE, 48 STC 37 wherein the view taken by this Court was in their favour. Even though Burmah Shell's decision is no longer good law after the Supreme Court judgment in McDowell's case, we still feel until the Full Bench decision of this Court in petitioners' own cases, petitioners were not strictly bound to pay tax voluntarily on excise duty because Burmah Shell's case specifically got overruled only by the Full Bench judgment. Strangely department also did not make any provisional or regular assessment demanding tax based on McDowell's case which they could have done. However, we find no justification for the petitioners not to have returned the excise duty as taxable turnover O.P. 7483/99 and connected cases 12 after the declaration of law by the Full Bench of this Court in the petitioners' own cases. We are therefore of the view that tax on excise duty became due from the petitioners "as tax due under the Act" after the pronouncement of law by Full Bench of this Court on 16.12.1992. We therefore hold that petitioners are defaulters in payment of sales tax on excise duty from the monthly returns for January, 1993 onwards. There was delay in payment in some cases upto December, 1996 and in some other cases till March, 1997 and the petitioners are liable to pay interest for the belated payment of tax on excise duty from the monthly returns filed in January, 1993 onwards. Since tax was payable along with monthly returns, interest for default is to be reckoned from the due date on which tax was payable under the monthly returns filed in January, 1993 onwards. OPs. and STRV stand allowed in part by deleting levy of interest for periods upto monthly return filed till December, 1992, that is upto monthly return filed for November, 1992 and by sustaining the interest levied for the remaining period of default.
3. The challenge in the remaining petitions is against the levy of penalty under Section 45A of the K.G.S.T. Act. Penalty is now reduced by the Commissioner in all the cases to 25% of the tax amount attributable to excise duty. Petitioners have contended that O.P. 7483/99 and connected cases 13 all of them are public sector companies under the control of the Central Government and the contest made by them was bona fide and contumacious, dishonest or fraudulent conduct cannot be attributed to them for the bona fide contest against liability on excise duty. They have relied on the decision of the Supreme Court in HINDUSTAN STEEL'S case, 25 STC 211 and the decision of this Court in P.D. Sudhi's case, 85 STC 337. It is to be noted that Supreme Court and this Court have taken the view that penalty is not for technical breach or for bona fide default, but can be levied only on establishment of contumacious, dishonest or fraudulent conduct. Every assessee including public sector companies are bound to strictly comply with law of the country which includes law declared by the Supreme Court and High Court. There is no presumption that public sector companies are well managed or that all their actions are bona fide. Though individual employees however high in managerial position they may be, are not making any gain out of litigation, they should act reasonably which alone can prove their bona fides.. It is to be noted that when the petitioners went to Supreme Court against Full Bench decision of this Court, they could not get stay from the Supreme Court and there was an earlier decision of the Supreme Court almost directly on the point and the chance of getting O.P. 7483/99 and connected cases 14 favourable orders from the Supreme Court was remote, if not Nil. Therefore, in our view, if the managements of these companies were prudent they should have started paying tax based on Full Bench decision of this Court, even though they could simultaneously contest the liability in the Supreme Court and claim refund if they succeed in the appeal. Therefore we are not convinced that there is any bona fides on the part of the petitioners in non-payment of tax after Full Bench decision of this Court and so much so default is deliberate and the consequence is penalty. However, since all the petitioners are public sector companies, and considering the high rate of interest payable under Section 23(3) which we have upheld for the periods commencing from the period after Full Bench judgment, we feel if petitioners clear the entire arrears of interest within one month from the date of receipt of a copy of this judgment, they should be exonerated from payment of penalty under Section 45A of the Act for the assessment years 1988-89 to 1992-93 for the Indian Oil Corporation Ltd. , 1987-88 to 1990-91 for the Hindustan Petroleum Corporation and for the year 1987-88 for the Bharath Petroleum Corporation Ltd. However, if interest liability is not settled as above, penalty levied will stand sustained and if paid penalty levied will stand cancelled. Petitioners are free to adjust penalty if any paid against O.P. 7483/99 and connected cases 15 balance interest liability while settling interest liability as above.
WPs. O.Ps. and STRev.are disposed of as above.
(C.N.RAMACHANDRAN NAIR) Judge.
(P.S. GOPINATHAN) Judge.
kk O.P. 7483/99 and connected cases 16